1981 (12) TMI 12 - HC - Income Tax

Assessed Tax, Delay In Filing Return, Effect Of Amendment Of S. 271(1)(a), Legal Fiction, Penalty

Summary

Issues Involved:

1. Whether there was a mistake apparent on the record in the Tribunal's order dated October 26, 1973, due to the retrospective amendment to section 271(1)(a) with effect from April 1, 1961.
2. Whether the Tribunal is prevented from rectifying the said mistake under section 254(2) of the Income-tax Act, 1961, by reason of its being an appellate authority.
3. Whether the levy of penalty for belated filing of the return of income without reasonable cause by the assessee for the assessment year 1967-68 is valid, given that the entire tax assessed had been paid before such levy of penalty.

Issue-wise Detailed Analysis:

1. Mistake Apparent on the Record Due to Retrospective Amendment:

The Tribunal initially held that no penalty was leviable as no tax was outstanding on the date of the imposition of penalty, based on the Supreme Court's decision in CIT v. Vegetable Products Ltd. [1973] 88 ITR 192. However, section 271(1)(a) was retrospectively amended by the Direct Taxes (Amendment) Act, 1974, with effect from April 1, 1962. The Tribunal, following Supreme Court decisions in M. K. Venkatachalam, ITO v. Bombay Dyeing and Manufacturing Co. Ltd. [1958] 34 ITR 143 and S. A. L. Narayan Row v. Ishwarlal Bhagwandas [1965] 57 ITR 149, revised its earlier order, holding that the retrospective amendment constituted a mistake apparent from the record. The High Court agreed, stating that the retrospective operation of the amendment meant the amended provision must be deemed to have been included in the Act from April 1, 1962. Thus, the Tribunal's original order was inconsistent with the amended statute, constituting an apparent mistake.

2. Tribunal's Jurisdiction to Rectify Mistake Under Section 254(2):

The assessee argued that the Tribunal had no jurisdiction to rectify the order dated October 26, 1973, under section 254(2) of the Act, as the Tribunal is not an authority under section 116 of the Act. The High Court rejected this contention, explaining that section 254(2) confers inherent jurisdiction on the Tribunal to rectify mistakes apparent from the record. The Tribunal is empowered to amend any order within four years from the date of the order to rectify such mistakes, regardless of its status under section 116. The Court emphasized that the plain meaning of the statute's words must be given effect, and the Tribunal's jurisdiction under section 254(2) was upheld.

3. Validity of Penalty Levy Given Full Payment of Tax Before Penalty Imposition:

The assessee contended that no penalty could be levied as the entire tax had been paid before the penalty imposition date, relying on the Supreme Court's interpretation in CIT v. Vegetable Products Ltd. [1973] 88 ITR 192. The High Court, however, noted that the amendment to section 271(1)(a)(i) changed the legal position. The amended section specifies that the penalty is a sum equal to two percent of the assessed tax for each month of default, in addition to any tax payable. The Court clarified that "assessed tax" refers to the tax determined by the ITO under section 143, not the tax payable after deductions. Therefore, the penalty's imposition is based on the assessed tax, irrespective of subsequent tax payments. The Court concluded that the amendment fundamentally altered the provision, and the penalty was valid despite the full tax payment before the penalty imposition.

Conclusion:

The High Court answered the first question affirmatively, recognizing a mistake apparent from the record due to the retrospective amendment. The second and third questions were answered negatively, affirming the Tribunal's jurisdiction to rectify the mistake and upholding the penalty's validity despite the full tax payment before the penalty imposition. The Revenue was entitled to costs, with counsel's fee set at Rs. 500.