TMI Blog2007 (2) TMI 147X X X X Extracts X X X X X X X X Extracts X X X X ..... . No. . . . . of 2004 being aggrieved against a part of the order of the Tribunal. High Court allowed the ITA No. 340 of 2004 filed by the Revenue and held that the Tribunal was not right in deleting the penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961 (for short "the Act") merely on the ground that the total income of the assessee was assessed at a minus figure/loss. Tribunal had allowed the assessee's appeal remitting the penalty imposed by the assessing officer under Section 271(1)(c) relating to the assessment year 1996-97, relying upon the decision of the Punjab High Court in CIT v. Prithipal Singh Co., [1990]183 ITR 69, which was affirmed by this Court in CIT v. Prithipal Singh Co., Civil Appeal No. 7961 of 1996 dated July 27, 2000, reported in [2001] 249 ITR 670. 3. In the appeal filed by the Revenue in the High Court of Delhi, the following two questions of law were framed (page 461 of 289 ITR) "1. Whether the ITAT was right in deleting the penalty imposed under section 271(1)(c) of the Income Tax Act, 1961 on the ground that the total income of the assessee has been assessed at a minus figure/loss? 2. Whether the Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome, Rs. 1,32,44,507.00 = Rs. 63,43,750.00 = Rs. 68,00,757.00) (iii) The appellant was able to prove some sources of the share application money and the amount of Rs. 19,16,000.00 added back was reduced to Rs. 1,15,000.00 (iv) Adding the above amount, the Appellant's income became Rs. 69,15,757.00 (Rs. 68,00,757.00 + Rs. 1,15,000.00 = Rs. 69, 15, 757.00) (v) Depreciation on leased vehicles claimed at 40% was reduced to 20% (as in the original assessment) and an amount of Rs. 10,28,462.00 was disallowed. (vi) Accordingly, against the total amount of depreciation claimed at Rs. 1,47,97,994.00, an amount of Rs. 67,79,982.00 ( Rs. 57,51,520.00 + Rs. 10,28,462.00 = Rs. 67, 79, 982.00) was disallowed. (vii) Therefore, the depreciation allowable was Rs. 80,18,011.00 (Rs. 1,47,97,995.00 = Rs. 67,79,982.00 = Rs. 80,18,011.00) (viii) Making a deduction on account of depreciation as in sub-Paragraph (vii) above, the Appellant was assessed at a loss of Rs. 11,02,255.00 (Rs. 69,15,757.00) = Rs. 80,18,012.00 = Rs. 11,02,255.00) 7. In this manner, the carry-forward loss of Rs. 15,53,487.72 originally claimed by the appellant was reduced to Rs. 11,02,225.00. 8. By order dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 69 decided by the Punjab and Haryana High Court pertaining to the assessment year 1970-71 was prior to the amendment of Finance Act, 1975 and therefore, was not applicable. For the same reason, the decision of this Court in affirming the decision of the Punjab and Haryana High Court in Prithipal Singh's case [2001] 243 ITR 670 (SC) was also not applicable. Revenue had also placed reliance on the decision of the Karnataka High Court in P.R. Basavappa's case [2000] 243 ITR 776. In this case Karnataka High Court distinguished the view taken in Prithipal Singh's case [1990] 183 ITR 69 (P H) on facts stating that the said decision related to the period prior to April 1, 1976 and therefore, has no application as Explanation 4 inserted w.e.f. April 1, 1976 in the statute book was not considered by the Punjab and Haryana High Court. 11. The High Court answering the second question first, concurred with the view taken by the Karnataka High Court and dissented from the view taken by the Punjab and Haryana High Court in Prithipal Singh's case [1990]183 ITR 69, distinguishing the same on facts stating that the said decision related to the period prior to Apri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt as stated above, did not express any opinion on this aspect of the matter and held that for imposition of penalty after April 1, 1976 it was not necessary that there must be a positive income and the levy of tax, for the penalty to be imposed under Section 271(1)(c) of the Act. 14. Learned counsels appearing in different appeals filed by the assessee assailed the impugned judgment by contending that provisions of Section 271 (1)(c)(iii) prior to April 1, 1976 and after its amendment by the Finance Act, 1975 with effect from April 1, 1976, later provisions being applicable to the assessment year in question, being substantially the same, the High Court in the impugned order erred in distinguishing Prithipal Singh's case [2001] 249 ITR 670 (SC), and taking a view contrary to the view taken in the said case. They referred to a number of judgments of various High Courts in support of their contention. According to them even after April 1, 1976, if there is no positive income, no taxes was leviable, and therefore penalty cannot be levied for concealment of income. The view that with the insertion of Explanation 4 w.e.f. April 1, 1976, penalty is leviable even in case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. Chemiequpi Ltd. [2004] 265 ITR 265 that the amendment in Finance Act, 2002 is retrospective according to them is bad in law. That the amendment is not clarificatory in nature. That the penalty being penal, provisions could not be brought on the statute book with retrospective effect. 18. As against this, the Counsel for the Revenue supported the judgment for the reasons recorded in the impugned order. 19. We have heard the counsels for the parties at length. 20. Section 271 (1)(c) and the subsequent amendments carried out in the said section with effect from April1, 1976 (as amended by the Taxation Laws (Amendment) Act, 1975) and the amendment by Finance Act, 2002 (with effect from April 1, 2003) on the interpretation of which the entire controversy in the present appeal rests are : "271. Failure to furnish returns, comply with notices, concealment of income, etc.-- (1) If the income tax Officer or the Appellate Assistant Commissioner in the course of any proceedings under this Act, is satisfied that any person—. . . (c) has concealed the particulars of his income or furnished inaccurate particulars of such income, he may direct that such person shall p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sought to be evaded",-- (a) in any case where the amount of income in respect of which particulars have been concealed or inaccurate particulars have been furnished has the effect of reducing the laws declared in the return or converting that loss into income, means the tax that would have been chargeable on the income in respect of which particulars have been concealed or inaccurate particulars have been furnished had such income been the total income ; (emphasis supplied) 23. Section 271 of the Act is a penal provision and there are well established principles for the interpretation of such a penal provision. Such a provision has to be construed strictly and narrowly and not widely or with the object of advancing the object and intention of the legislature. 24. This Court as well as the various High Courts of the country have consistently held that the statute creating the penalty is the first and the last consideration and must be construed within the term and language of the particular statute. In Bijaya Kumar Agarwala v. State of Orissa, [1996] 5 SCC 1, it has been held by this Court in para 17 and 18 as under (page 6) : "17. Strict construction is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 994] 205 ITR 176 (Mad.), CIT v. A.K. Das [1970] 77 ITR 31 (Cal.) at page 52, CIT v. T.V. Sundaram Iyengar Sons (P) Ltd. [1975]101 ITR 764 (SC) at page 773, Engineers Impex Pvt. Ltd. v. D.D. Sharma [2000] 244 ITR 247 (Delhi). 26. Every statutory provision for imposition of penalty has two distinct components: - (i) That which lays down the conditions for imposition of penalty. (ii) That which provides for computation of the quantum of penalty. 27. Section 271(1)(c) and clause (iiii) relate to the conditions for imposition of penalty, whereas, on the other hand , Explanation 4 to Section 271(1)(c) relates to the computation of the quantum of penalty. 28. The provisions of Section 271(1)(c)(iii) prior to April 1, 1976, and after its amendment by the Finance Act, 1975 with effect from April 1, 1976, later provisions being applicable to the assessment year in question, being substantially the same except that in place of the word "income" in sub clause (iii) to sub clause (c) of Section 271 prior to its amendment by Finance Act, 1975, the expression "amount of tax sought to be evaded" have been substituted. Explanation 4 inserted for the purpos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r April 1, 1976, Explanation 4(a) permits the charge on an assessee whose loss has been reduced in assessment proceedings distinguishing Prithipal Singh's case and also refers to the amendment in Section 271(1)(c) by Finance Act, 2002. In this judgment, there is no discussion or reasoning either on the scope of Section 271(1)(c) and Explanation 4(a) or the nature of 1976 or 2002-2003 amendments. 31. It has been laid down in CIT v. Podar Cement (supra) , [1997] 226 ITR 625 (SC) CIT v. P.J. Chemicals, Ltd. [1994] 210 ITR 830 (SC) and again in CIT v. Kerala State Industrial Development Corporation Ltd., [1998] 233 ITR 197 (SC) that where the predominant majority of the High Courts have taken certain view of the interpretation of a certain provision, the Supreme Court would lean in favour of the predominant view. 32. The contention advanced by the Ld. Counsel appearing for assesses that when there is no tax, there cannot be any penalty, is made with reference to the provisions contained in Section 143 (1A) of the Act before its amendment which came on the statute in 1993 with retrospective effect from April 1, 1989. The Finance Act, 1993 amended Section 143 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut that if no tax was chargeable on the losses to the tune of rupees sixty-two crores odd, as shown in the return submitted by the petitioner, there would be no question of charging any additional income-tax under section 143 (1A)(a) of the Act, on the amount of reduced losses, i.e., rupees fifty-eight crores odd. To put it plainly, if there is no income, there would be no income-tax of any kind, whether additional or by way of surcharge. Learned counsel for the petitioner has rightly placed reliance upon a case, Modi Cement Ltd. v. Union of India, [1992] 193 ITR 91 (Delhi). In the said case, the order passed under section 143 (1A)(a) of the Act was quashed under similar circumstances where, after adjustment, the assessee was still found to be in losses. (emphasis supplied) 35. In J.K. Synthetics Ltd. v. ACIT, [1993] 200 ITR 584 (Del.), it was held as under (page 586) "The income-tax is payable only on income which in a business venture would imply profit after deducting therefrom deductible expenses and not loss. If after determining the liability of the assessee after the process of adjustment, the net result is still loss, there cannot be any question of any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d additional income-tax could be levied in respect thereof:" 42. It was held by this Court that (page 150) : "The word "additional" in the expression "additional income-tax" must refer to a state of affairs in which there has been a tax before." and that (page 150) : "The words "charge on the total income" are not appropriate to describe a case in which there is no income or there is a loss." 43. These two findings conclude the two issues in paragraph (i) and (ii) above in favour of the assessees' contention in the present batch of cases. It was noted by this Court that there was indeed a lacuna in the statute but that Court could not depart from the rule of literal construction (page 150) : "There is no doubt that if the words of a taxing statute fail, then so must the tax. The courts cannot, except rarely and in clear cases, help the draftsmen by a favourable construction. Here, the difficulty is not one of inaccurate language only. It is really this that a very large number of taxpayers are within the words but some of them are not. Whether the enactment might fail in the former case on some other ground (as has happened in another case decided today) is not a mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome the rate is made applicable. Unless some other amount, not strictly income, is by law deemed to be income [see, for example, McGregor Balfour Ltd. v. CIT, [1959] 36 ITR 65] we cannot improve the existing law by deeming it to be so by our interpretation. (emphasis supplied) 45. The impugned judgment has erred in observing that in Elphinstone case [1960] 40 ITR 142 (SC) (see [2006] 283 ITR 458, 482) : "The situation is different and the context is different." 46. The observations by this Court were not made in any special context or in the face of a fiction created by the Finance Act, 1951. On the contrary, the Act set out in the First Schedule as under (see [1960] 40 ITR 142, 147) : "For the purposes of this section and of the rates of tax imposed thereby, the expression 'total income' means total income as determined for the purposes of income-tax or super-tax, as the case may be, in accordance with the provisions of the Income Tax Act." 47. In fact, it is the impugned Judgment which has isolated a phrase in Elphinstone case [1960] 40 ITR 142 (SC) and taken it out of context. 48. The ratio of Elphinstone case cannot be that a loss can be describ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... firm and not by the registered firm itself. The Revenue pointed out that if this contention of the assessee is accepted, then the highly anomalous and totally unacceptable consequence that would follow would be that no penalty could even be imposed on a registered firm, even though this section itself expressly provided that the penalty can be imposed on any 'person' and 'person' unquestionably included a registered firm. It was in this special and extraordinary statutory context that this Court laid down that a penalty could be imposed on a registered firm even though the firm was not liable to pay tax, or otherwise a portion of section 28 would be rendered completely meaningless and infructuous. Further, in the said case, this Court proceeded specifically on the footing that under section 23(5) of the 1922 Act, a registered firm was liable to pay tax but the tax due from the firm was collected from the partners. This judgment has to be read in the special and extraordinary statutory context of section 28 of the 1922 Act, the wording and phraseology of which is very different from that of section 271 (1)(c)(iii) of the Income-tax Act. The judgment in Angidi Chettiar's case [1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mini Chandrasekharan [1995] 213 ITR 340 (SC) ; [1995] 2 SCC 630 at 646 ; 4. CIT v. Patel Brothers Co. Ltd. [1995] 215 ITR 165 (SC) ; and 5. Sedco Forex International Drill Inc. v. CIT 279 ITR 310 at page 317 (SC). 55. In the present case, it is only in the Notes on Clauses relating to the 2002 (see [2002] 254 ITR (St.) 118) amendment that it has been stated that the said amendment is clarificatory. There is no such mention of the said amendment being clarificatory, anywhere in the statute itself. Such a statement in the Notes on Clauses cannot possibly bind the Court when even a statement in the statute itself is not regarded as binding or conclusive. In the present case, the statute expressly states that the amendment would take effect only from April 1, 2003. Consequently, this amendment cannot possibly be applied to or in respect of any period prior to April 1, 2003. 56. Otherwise also, it has been consistently held that a provision must be read subject to the rule that in the absence of an express provision or clear implication, the Legislature does not intend to attribute to the amending provision, a greater retrospectivity than is expressly mentioned. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penalized only if he has a positive assessed income on which tax is payable. The only difference between clause (a) and clause (c) is that clause (a) applied to an assessee who had filed a loss return, and clause (c) to an assessee who has filed a positive return. However, the end result in both the cases was the same, i.e., a positive assessed income on which the assessee was required to pay tax. It is this basic condition precedent for the imposition of the penalty, i.e., existence of liability to pay tax which existed prior to 2002, which has been done away with for the first time by the Finance Act, 2002. 59. There is nothing in the language of Section 271(1)(c) as amended by the Finance Act, 2002 w.e.f. April 1, 2003 to suggest that the amendment is retrospective. The amendment in clause (iii) and simultaneously in Explanation 4(a) carried out enlarges the scope of penalty under Section 271(1)(c) to include even cases where assessment has been completed at loss. The same being in the nature of a substantive amendment would be prospective, in the absence of any indication to the contrary. The Finance Bill/Finance Act, 2002 brought about many amendments in the statute, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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