1987 (7) TMI 135 - AT - Income Tax

Summary

Issues:
1. Applicability of section 44B of the IT Act for assessment years 1980-81 and 1981-82.
2. Interpretation of Circular No. 7(C) No. 27(17)-IT dated 10-2-1942 in light of section 44B.
3. Binding nature of Circulars issued by the Central Board of Direct Taxes.
4. Effect of non-payment of advance tax and imposition of penalty under section 221.

Analysis:
1. The first issue in this case pertains to the applicability of section 44B of the IT Act for the assessment years 1980-81 and 1981-82. The Tribunal considered the contention of the assessee, a non-resident shipping company, that the Circular of 1942 should still be followed for assessment despite the introduction of section 44B. The Tribunal held that the provisions of section 44B, which deem a flat rate of 7 1/2% of receipts as profits, supersede the Circular of 1942. The Tribunal emphasized that a Circular can be withdrawn by implication when new statutory provisions are introduced, as in this case. The Tribunal rejected the assessee's argument that the Circular should still apply and upheld the applicability of section 44B for the assessment of the assessee.

2. The second issue involves the interpretation of Circular No. 7(C) No. 27(17)-IT dated 10-2-1942 in light of section 44B. The Tribunal held that the Circular of 1942, which allowed British and foreign shipping companies to elect assessment based on a ratio certificate, was no longer applicable after the insertion of section 44B in the Income Tax Act. The Tribunal reasoned that the provisions of section 44B, which apply to non-resident shipping companies, override the directions in the Circular of 1942. The Tribunal also noted that subsequent circulars issued by the Central Board of Direct Taxes provided detailed instructions for assessment under section 44B, further indicating the withdrawal of the Circular of 1942.

3. The third issue addresses the binding nature of Circulars issued by the Central Board of Direct Taxes. The Tribunal considered the arguments presented by the assessee regarding the binding effect of Circulars based on legal precedents. The Tribunal referred to Supreme Court and High Court decisions emphasizing the binding nature of Circulars issued by the Board. However, the Tribunal ultimately held that the Circular of 1942 was deemed withdrawn by the introduction of section 44B, and the subsequent circulars provided updated guidelines for assessment, thereby rejecting the assessee's reliance on the old Circular.

4. The fourth issue involves the effect of non-payment of advance tax and imposition of penalty under section 221. The Tribunal discussed a case where penalty was imposed for non-payment of advance tax, which was later paid before the penalty was levied. The Tribunal referred to a declaratory Explanation added to the Taxation Law Amendment Act, 1975, clarifying the liability for penalties despite subsequent tax payments. The Tribunal considered various legal precedents, including Supreme Court decisions, to determine the applicability of Circulars and statutory provisions in penalty cases. Ultimately, the Tribunal upheld the penalty imposition based on the retrospective effect of the declaratory Explanation and relevant legal precedents.

Overall, the Tribunal's judgment emphasized the primacy of statutory provisions over Circulars, the withdrawal of outdated Circulars by new statutory provisions, and the binding nature of legal precedents in interpreting tax laws and penalties.