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Commissioner Of Income Tax Delhi (Central) New Delhi v. Singh Engineering Works (P) Ltd., Kanpur .
Factual and Procedural Background
The respondent-company (assessee) received notices under Section 18-A(1) of the Indian Income-tax Act, 1922 (“old Act”) directing it to pay advance tax of Rs 3,17,077 for Assessment Year (A.Y.) 1960-61 and Rs 3,54,911 for A.Y. 1961-62. In response, the assessee filed its own estimates under Section 18-A(2) and paid partial instalments. Revised estimates filed in March 1960 and March 1961 pegged the tax at Rs 1,80,000 for each year, calculated on a projected income of Rs 4 lakhs; the remaining advance tax was duly remitted.
Subsequent returns declared actual incomes of Rs 4,53,942 (1960-61) and Rs 7,02,383 (1961-62). On 21 January 1963—after the Income-tax Act, 1961 (“new Act”) had commenced—the Income-tax Officer (ITO) completed assessments at Rs 5,35,000 and Rs 8,99,029 respectively. Concluding that the assessee had knowingly furnished untrue estimates, the ITO levied penalties of Rs 13,700 and Rs 12,342 under Section 273 of the new Act.
Appeals to the Appellate Assistant Commissioner failed. The Appellate Tribunal, however, set aside the penalties, holding that Section 273 of the new Act could not be invoked because the defaults arose under Section 18-A of the old Act and were not preserved by Section 297(2)(g) of the new Act. Owing to conflicting High Court rulings, a question of law was referred directly to the Supreme Court under Section 257 of the new Act.
Legal Issues Presented
- Whether Section 297(2)(g) of the Income-tax Act, 1961 authorises the initiation and imposition of penalty under Section 273 of the new Act for defaults committed under Section 18-A of the 1922 Act when the relevant assessments were completed after 1 April 1962.
Arguments of the Parties
The opinion does not contain a detailed account of the parties' legal arguments.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Jain Bros. v. Union of India (1969) 3 SCC 311 | Sections 271 and 297(2)(g) of the new Act must be read harmoniously; penalties for pre-1962 assessment years completed after 1 April 1962 are imposable under the new Act. | Relied upon to hold that, mutatis mutandis, Section 273 of the new Act can govern penalty proceedings saved by Section 297(2)(g). |
| Third Income-tax Officer, Mangalore v. Damodar Bhat, 71 ITR 806 | Under Section 297(2)(j), procedural provisions of the new Act apply mutatis mutandis to recovery proceedings arising under the old Act. | Cited analogically to support the application of new-Act procedures (Section 273) to penalty matters preserved by Section 297(2)(g). |
Court's Reasoning and Analysis
The Court examined Section 297(2)(g), which expressly permits the initiation and imposition of penalties under the new Act for any assessment year ending on or before 31 March 1962 if the assessment is completed on or after 1 April 1962. Because the respondent’s assessments were finalised on 21 January 1963, they fall squarely within this transitional provision.
Relying on the interpretation laid down in Jain Bros., the Court held that the operative penalty provision in the new Act (Section 273) applies mutatis mutandis to such cases. The absence of a specific “deeming” clause equating Section 18-A defaults with Section 212 defaults is immaterial; Section 297(2)(g) itself furnishes the statutory bridge.
The Court dismissed the Tribunal’s contrary view, reiterating that Sections 273 and 297(2)(g) must be read together. When so read, the power to impose penalties for untrue advance-tax estimates survives, and the procedural mechanism of the 1961 Act governs their enforcement.
Holding and Implications
The reference is answered in the affirmative and in favour of the Commissioner of Income-tax. Consequently, the penalties imposed by the Income-tax Officer under Section 273 of the 1961 Act were legally sustainable, and the Commissioner is entitled to costs before the Supreme Court.
Implications: The decision clarifies that Section 297(2)(g) preserves the power to levy penalties under the new Act for defaults arising under the repealed 1922 Act when assessments are concluded after 1 April 1962. This resolves inter-High-Court conflicts on the transitional reach of penalty provisions but sets no entirely new precedent beyond affirming the principle articulated in Jain Bros.
A.N Grover, J.— The respondent company which is an assessee was required by the Income Tax Officer by notices issued under Section 18-A(1) of the Indian Income Tax Act, 1922, hereinafter called the “Old Act” to make an advance payment of tax amounting to Rs 3,17,077 for Assessment Year 1960-61 and Rs 3,54,911 for Assessment Year 1961-62. The assessee chose to file its own estimate of tax under Section 18-A(2) and in accordance therewith it paid two instalments of advance tax of Rs 38,333 each for Assessment Year 1960-61 and three instalments of Rs 12,875 each for Assessment Year 1961-62. Thereafter the assessee filed revised estimates of tax in the month of March 1960 and March 1961 respectively estimating the tax at Rs 1,80,000 for each of the assessment years on a total income of Rs 4 lakhs. The balance of advance tax as per its revised estimate was paid in time after deducting the instalments which had already been paid. The assessee subsequently filed its returns of income for the aforesaid two years declaring the total income of Rs 4,53,942 and Rs 7,02,383 respectively. The Income Tax Officer completed the assessment of total income of Rs 5,35,000 and Rs 8,99,029 for Assessment Years 1960-61 and 1961-62 on January 21, 1963 after the Income Tax Act, 1961, hereinafter called the “New Act” had come into force. The Income Tax Officer took the view that the assessee had furnished inaccurate and untrue estimates of tax and had not given any satisfactory explanation in respect of them. He imposed penalties under Section 273 of the new Act amounting to Rs 13,700 and Rs 12,342 for Assessment Years 1960-61 and 1961-62 respectively. Appeals to the Appellate Assistant Commissioner in the matter of imposition of penalty were rejected. The Appellate Tribunal held that the penalties could not have been imposed under the provisions of Section 273 of the new Act in respect of the two assessment years in question. It was said, inter alia, that in the absence of any deeming provision in the new Act the default under Section 18-A of the old Act could not be treated as a default under Section 212 of the new Act and that Section 297(2)(g) of the new Act did not save the proceedings under Section 18-A of the old Act. A question of law was referred directly to this court under the provisions of Section 257 of the new Act owing to the conflict between the decision of the various High Courts.
2. Section 18-A of the old Act makes provision for advance payment of tax. Sub-section (9) provides, inter alia, for the imposition of penalty if the Income Tax Officer is satisfied that the assessee has furnished estimates of the tax payable by him which he knew or had reason to believe to be untrue. In the new Act Section 212 makes provision for the estimate by the assessee and payment of tax in accordance with that estimate. Section 273 of the new Act empowers the Income Tax Officer to levy penalty on an assessee where he finds at the time of regular assessment that the assessee had furnished, under Section 212, an estimate of the advance tax payable by him which he knew or had reason to believe to be untrue..
3. As stated before the Tribunal was of the opinion that Section 297(2)(g) of the new Act did not save proceedings under Section 18-A of the old Act. According to that provision any proceeding for the imposition of a penalty in respect of any assessment for the year ending on 31st day of March, 1962 or any earlier year which is completed on or after the first day of April, 1962 may be initiated and any such penalty may be imposed under the new Act.
4. In Jain Bros. v. Union of India (1969) 3 SCC 311 this court examined the provision of Section 271 which also appears in Chapter XXI under which Section 273 is to be found and the provision of Section 297(2)(g) of the new Act. This is what was stated in that case:
“We are further unable to agree that the language of Section 271 does not warrant the taking of proceedings under that section when a default has been committed by failure to comply with a notice issued under Section 22(2) of the Act of 1922. It is true that clause (a) of sub-section (1) of Section 271 mentions the corresponding provisions of the Act of 1961 but that will not make the part relating to payment of penalty inapplicable once it is held that Section 297(2)(g) governs the case. Both Sections 271(1) and 297(2)(g) have to be read together and in harmony and so read the only conclusion possible is that for the imposition of a penalty in respect of any assessment for the year ending on March 31, 1962 or any earlier year which is completed after first day of April, 1962 the proceedings have to be initiated and the penalty imposed in accordance with the provisions of Section 271 of the Act of 1961. Thus the assessee would be liable to a penalty as provided by Section 271(1) for the default mentioned in Section 28(1) of the Act of 1922 if his case falls within the terms of Section 297(2)(g). We may usefully refer to this court's decision in Third Income Tax Officer, Mangalore v. Damodar Bhat (71 ITR 806) with reference to Section 297(2)(j) of the Act of 1961. According to it in a case falling within that section in a proceeding for recovery of tax and penalty imposed under the Act of 1922 it is not required that all the sections of the new Act relating to recovery or collection should be literally applied but only such of the sections will apply as are appropriate in the particular case and subject, if necessary, to suitable modifications. In other words, the procedure of the new Act will apply to cases contemplated by Section 297(2)(j) of the new Act mutatis mutandis. Similarly the provision of Section 271 of the Act of 1961 will apply mutatis mutandis to proceedings relating to penalty initiated in accordance with Section 297(2)(g) of that Act.”
5. In our judgment Section 297(2)(g) is clearly applicable to the present case inasmuch as the assessment was completed on or after the first day of April, 1962. The provisions of the new Act contained in Section 273 will apply mutatis mutandis to proceedings relating to penalty initiated in accordance with Section 297(2)(g) of the new Act. The question which has been referred to is answered in the affirmative and in favour of the Commissioner of Income Tax who will be entitled to his costs in this court.
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