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TMI Blog2012 (3) TMI 320X X X X Extracts X X X X X X X X Extracts X X X X ..... accordance with the proviso to section 272A (wherein it is stipulated that the penalty levied should not exceed the tax deductible) by giving retrospective effect to this proviso?" 3. While admitting Tax Appeal No.61 of 2000 on 18.9.2000, the following question came to be formulated : "Whether, the Appellate Tribunal is right in law and on facts in directing that the penalty should be calculated in accordance with the proviso to section 272A (wherein it is stipulated that the penalty levied should not exceed the tax deductible) giving retrospective effect to this proviso?" 4. The assessment years are 1991-92, 1992-93 and 1994-95. The assessee, who is deriving income from its business of cold storage, was required to deduct tax at source from interest payable/paid to certain creditors and in case the creditors were not liable to pay any income tax, the assessee was required to obtain declarations in Form No.15H which were to be filed with the Commissioner of Income Tax (CIT) under section 197A of the Act. The said declarations were required to be submitted within the time limit mentioned in section 197A(2) of the Act. The assessee, however, failed to furnish the declarations in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 272A(2)(f) of the Act as there was no such obligation to file the prescribed form under section 197A(1) read with section 197A(2) of the Act up till 1.6.1992. It was further submitted that in any case, the assessee was ignorant of the provisions and that for ignorance of law, no penalty is leviable. It was also contended that in any case, there was no loss to the revenue for the assessee's failure to file Form No.15H with the CIT and as such, no penalty should have been levied. In relation to assessment year 1994-95, apart from relying upon the aforesaid arguments, it was submitted that in view of the amendment in the Income Tax Act, the assessee was under an obligation to file the prescribed form under section 197A after 1.6.1992. In case the same was not filed and penalty were to be levied, then the same should not exceed the amount of tax deductible because of the proviso to section 272A(2) of the Act which had been held to be retrospective in operation as per the decision of the Tribunal in Motisagar Estate (P) Ltd. v. Dy. Commissioner of Income Tax, Pune, 47 ITD 72 (Surat) and in Superintending Engineer v. Income Tax Officer, 54 TTJ 608. 8. The Tribunal in the impugned order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act by the Finance Act, 1998, it was made effective from 1.4.1999. Hence, it is apparent that the legislature never intended to make it retrospectively applicable. It was submitted that Parliament has taken care to categorically mention that the proviso was to come into effect insofar as section 197A is concerned, with effect from 1st April 1999. Therefore, there is no question of giving retrospective effect, as the date is specified by the Legislature consciously. Whenever Parliament intended to give retrospective effect, it has done so. It was further submitted that the normal rule of construction is that the substantive provision in a statute would have prospective effect and not retrospective effect. It was contended that section 272A of the Act is a substantive provision and when the legislature has given a particular benefit from a particular date the same has to be taken as it is unless provided expressly or by necessary implication. In the circumstances, the law as it existed on the date of default would be applicable. The Tribunal was, therefore, not justified in granting the benefit of the proviso to section 272A of the Act in the present case wherein the defaults ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , but which may extend to two hundred rupees, for every day during which such failure continues. The learned counsel submitted that at the relevant time under the proviso to sub-section (2) of section 272A of the Act, it was provided that for failures in relation to returns under section 206 and 206C shall not exceed the amount of tax deductible or collectible, as the case may be. However, subsequently by the Finance (No.2) Act, 1998, with effect from 1.4.1999, the words "a declaration mentioned in section 197A, a certificate as required by section 203 and" came to be inserted in the proviso to sub-section (2) of section 272A, thereby making the same applicable to declarations under section 197A of the Act also. It was submitted that the proviso to section 272A is a remedial one as for a default of a few thousand rupees penalty under section 272A runs into lakhs of rupees which could never be the intention of the legislature. It was submitted that when the measure of penalty is found by the legislature to be excessive at a future date there is no reason why the same should not be applicable right from the inception. It was submitted that the insertion of section 197A in the proviso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to an absurd result, i.e., a result not intended to be subserved by the object of the legislation ascertained from the scheme of the legislation, then, if another construction is possible apart from the strict literal construction, then, that construction should be preferred to the strict literal construction. Reliance was also placed upon the decision of this High Court in Commissioner of Income-tax v. Harsiddh Construction Pvt. Ltd., 244 ITR 417. 12. From the questions formulated by the court at the time of admission of the appeal, the two questions that arise for consideration are: (i) whether penalty would be leviable under section 272A(2)(f) prior to 01.06.1992 in the absence of any statutory obligation to file the prescribed form under section 197A; and (ii) whether the insertion of section 197A in the proviso to section 272A of the Act with effect from 1.4.1999 is retrospective in effect so as to cover the assessment years under consideration. 13. Insofar as the first question is concerned, it is an undisputed position that the obligation to file copy of the statement in Form No.15-H before the Commissioner of Income-tax was introduced by the Finance Act, 1992 with effect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cide as to whether Explanation 4 to section 271(1)(c) of the Act is retrospective in effect. The court referred to the position regarding retrospective operation of statutes as stated in Justice G.P. Singh's Principles of Statutory Interpretation which inter alia are as follows: "In determining, therefore, the nature of the Act, regard must be had to the substance rather than to the form. If a new Act is 'to explain' an earlier Act, it would be without object unless construed retrospective. An explanatory Act is generally passed to supply an obvious omission or to clear up doubts as to the meaning of the previous Act. It is well settled that if a statute is curative or merely declaratory of the previous law retrospective operation is generally intended. The language 'shall be deemed always to have meant' or 'shall be deemed never to have included' is declaratory, and is in plain terms retrospective. In the absence of clear words indicating that the amending Act is declaratory, it would not be so construed when the amended provision was clear and unambiguous. An amending Act may be purely clarificatory to clear a meaning of a provision of the principal Act which was already implici ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ernible from the whole scheme of the Act which in this case is, to counteract the effect of the transfer of assets so far as computation of income of the assessee is concerned then bearing that purpose in mind, we should find out the intention from the language used by the Legislature and if strict literal construction leads to an absurd result i.e. result not intended to be subserved by the object of the legislation found in the manner indicated before, and if another construction is possible apart from strict literal construction then that construction should be preferred to the strict literal construction. Though equity and taxation are often strangers, attempts should be made that these do not remain always so and if a construction results in equity rather than in injustice, then such construction should be preferred to the literal construction. Furthermore, in the instant case we are dealing with an artificial liability created for counteracting the effect only of attempts by the assessee to reduce tax liability by transfer. It has also been noted how for various purposes the business from which profit is included or loss is set off is treated in various situations as assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ospectively. An explanatory Act is generally passed to supply an obvious omission or to clear up doubts as to the meaning of the previous Act. It is well settled that if a statute is curative or merely declaratory of the previous law retrospective operation is generally intended ... An amending Act may be purely declaratory to clear a meaning of a provision of the principal Act which was already implicit. A clarificatory amendment of this nature will have retrospective effect. 15. Though retrospectivity is not to be presumed and rather there is presumption against retrospectivity, according to Craies (Statute Law, 7th Edn.), it is open for the legislature to enact laws having retrospective operation. This can be achieved by express enactment or by necessary implication from the language employed. If it is a necessary implication from the language employed that the legislature intended a particular section to have a retrospective operation, the courts will give it such an operation. In the absence of a retrospective operation having been expressly given, the courts may be called upon to construe the provisions and answer the question whether the legislature had sufficiently express ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this declaration, the person responsible for making the payment is required to deliver or cause to be delivered to the Commissioner of Income-tax who exercises jurisdiction over him, one copy of the declaration on or before the 7th day of the month in which the declaration is furnished. Rule 29C and Form No. 15F, 15G and 15H came to be inserted in the Rules by the Income-tax (Fifth Amendment) Rules, 1982, prescribing the forms for the purpose of section 197A of the Act and laying down the procedure for furnishing the declaration form. Section 272A of the Act makes provision for "Penalty for failure to answer questions, sign statements, furnish information, returns or statements, allow inspections, etc"., and as it stood at the relevant time insofar as the same is relevant for the present purpose, reads thus: "272A. (1) If any person, - (a) being legally bound to state the truth of any matter touching the subject of his assessment, refuses to answer any question put to him by an income tax authority in the exercise of its powers under this Act; or (b) refuses to sign any statement made by him in the course of any proceedings under this Act, which an income-tax author ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een elaborated in the Departmental Circular No.621 dated 19.12.1991 as under: "Modification of provisions for levy of penalties for certain defaults.- 67. Section 272A of the Income Tax Act, 1961, contains provisions for levy of penalty for various defaults of miscellaneous nature, including the failure to furnish returns or statement, etc. Under the existing provisions of this section, penalty is provided for failure to furnish in due time returns regarding tax deducted at source mentioned in section 206 and for failure to furnish certificate of tax deducted at source as required by section 203. 67.1 Section 206C of the Income Tax Act contains provisions for the collection of tax at source relating to profits and gains from the business of trading in alcoholic liquor, forest produce, etc. sub-section (5) thereof provides that the persons collecting such tax to furnish to the buyer of goods, i.e., the person on whose behalf the collection of tax is made, a certificate specifying particulars of tax collected within ten days of such collections. Further, sub-section (5A) of section 206C provides for furnishing of the half-yearly returns of the tax collected for the period ending 30 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No.772 dated 23.12.1998 as under: "64. Prescribing maximum penalty for defaults committed with reference to sections 197A and 203 of the Income Tax Act.- 64.1 Under the existing provisions, penalty under sub-section (2) of section 272A of the Income Tax Act is imposable for failure to deliver in due time a copy of the declaration under section 197A or for failure by the person deducting tax to furnish a certificate of deduction, to the person to whom such payment is made or credit is given within the prescribed period. These defaults are continuous in nature and attract penalty at the rate of Rs.100-200 per day without any maximum limit. 64.2 The Finance (No.2) Act, 1998, has amended section 272A of the Income Tax Act to provide that the maximum limit of penalty imposable in such cases shall not exceed the amount of tax deductible or collectible, as the case may be. 64.3 This amendment will take effect from 1st April, 1999, and will, accordingly, apply in relation to the assessment year 1999-2000 and subsequent years." 28. Chapter XVII of the Act deals with "Collection and Recovery of Tax". Part A thereof makes general provisions. Part B thereof makes provision for deduction a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egories mentioned therein without deduction of tax at source. Such persons are required to furnish declarations on Form No.15H to the effect that the estimated income of the declarant under the relevant previous year will be nil. Thus, it is evident that there is no loss of revenue in case of failure to file declarations under section 197A of the Act as the provision relates to cases where no tax is deductible. In the circumstances, as rightly contended on behalf of the assessee, the intention of the legislature was to levy some penalty but not beyond a point. It could never have been the intention of the Legislature in a case where no loss of revenue is caused, to penalize the assessee to an extent exceeding the amount in respect of which there is a default. Thus, a strict literal construction leads to an absurd result not intended to be subserved by the object of the legislation, viz. in a case where no loss is caused to the revenue and the amount involved may be a small one, the penalty imposed may run into lakhs of rupees depending upon the length of delay in forwarding the declarations. The fact that the legislature has subsequently thought it fit to limit the penalty to the a ..... 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