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TMI Blog1969 (1) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... me-tax Act, 1922, on 21st October,1959, showing an income of Rs. 7,896. The assessee took forest contracts. It ran a saw-mill and also manufactured and sold furniture. It also did stone quarrying business. In the assessment proceedings the Income-tax Officer noticed some discrepancies in the accounts and registers maintained by the assessee of its business and called upon the assessee to explain the discrepancies and furnish certain particulars. Thereupon, the assessee filed a revised return of its income on 17th January, 1964, disclosing its total income as Rs. 50,605. The Income-tax Officer finalized the assessment on 19th March,1964, on a total income of Rs. 84,475 after taking into consideration the revised return and issued a notice to the petitioner under section 271(1) (c) of the 1961 Act for concealment of income. As the minimum penalty imposable on the petitioner exceeded Rs. 1,000, the Income-tax Officer referred the matter to the Inspecting Assistant Commissioner of Income-tax under section 274 of the Act. The Inspecting Assistant Commissioner, finding that the assessee had concealed the particulars of its income, made the impugned order imposing a penalty of Rs. 25,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oceeding for the imposition of a penalty in respect of any assessment completed before the 1st day of April, 1962, may be initiated and any such penalty may be imposed as if this Act had not been passed ; (g) any proceeding for the imposition of a penalty in respect of any assessment for the year ending on the 31st day of March, 1962, or any earlier year, which is completed on or after the 1st day of April, 1962, may be initiated and any such penalty may be imposed under this Act; . . . . " The material portion of section 271(1) runs thus : " 271. (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 deliberately furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty,- .. ..... (iii) in the cases referred to in clause (c), in addition to any tax payable by him, a sum which shall not be less than twenty per cent. but which shall not exceed one and a half times the amount of the tax, if any, which would have been avoided if the income as returned by such person had been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, the question of the vires of section 297(2)(g) was not, and indeed could not be, considered. Shri Brijlal Gupta, learned counsel appearing for the petitioner, founded his arguments on the decision of the Bombay High Court in Shakti Offset Works v. Inspecting Assistant Commissioner of Income-tax and submitted that, in the matter of initiation of proceedings for imposition of penalty and imposition of penalty, clauses (f) and (g) of section 297(2) discriminated between assessees who had filed returns of their income before 1st April, 1962, in that those assessees whose assessments were completed before 1st April, 1962, were dealt with under the 1922 Act and those assessees whose assessments were completed after 1st April, 1962, were liable to be dealt with under the 1961 Act ; that, so far as assessment was concerned, clause (a) of section 297(2) grouped in one class all assessees who had filed their returns before 1st April, 1962, for any assessment year by providing that proceedings for assessment for that year would be under the 1922 Act. It was said that the further classification in regard to penalty between assessees who had filed their returns before 1st April, 1962, and w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion for the damage caused by attempted evasion, the legislature thought it necessary to treat alike in the matter of penalty all those assessees whose assessments were completed after 1st April, 1962 ; there was, therefore, no question of article 14 being attracted to invalidate section 297(2)(g). The argument of Shri Adhikari, learned counsel appearing for the department, was on the same lines. In our judgment, the contention put forward on behalf of the petitioner lacks substance. It is now firmly established by numerous decisions of the Supreme Court that article 14 forbids class legislation but does not forbid reasonable classification for the purpose of legislation. The classification permissible under article 14 must satisfy two conditions, namely, first, it must be founded on an intelligible differentia which distinguishes persons or things that are grouped together from others left out of the group ; and, secondly, the differentia must have a rational relation to the object sought to be achieved by the statute in question. These principles are laid down by the Supreme Court in Ram Krishna Dalmia v. Justice S. R. Tendulkar and several other decisions. If clause (g) of sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in clause (a) of section 297(2) for the purposes of assessment could not further be classified loses all force. The dividing line of completion of assessment before or after 1st April, 1962, for the purposes of penalty between assessees filing returns of income before 1st April, 1962, has been adopted because the penalty proceedings cannot, in the very nature of things, be completed before the assessment as the measure of penalty both under section 28(1) of the 1922 Act and under section 271(1) of the 1961 Act is on the basis of the tax determined. Learned counsel for the petitioner, however, urged that reading sections 271, 274(1) and 275 together and having regard to the opening words of section 271(1) and to the expression " expiration of two years from the date of the completion of the proceedings in the course of which the proceedings for the imposition of penalty have been commenced " occurring in section 275, it would appear that the penalty proceedings should be completed before the assessment order. We are unable to accept this contention. The proper construction of sections 271, 274 and 275 is that the Income-tax Officer or the Appellate Assistant Commissioner should fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs in the course of which proceedings for the imposition of penalty have been commenced shows that the order imposing a penalty need not precede or be contemporaneous or simultaneous with the order by which the proceedings in the course of which penalty proceedings have been commenced, have been completed. As we have said earlier, the quantum of penalty being dependent on the tax determined as payable by the assessee, it cannot obviously be fixed until the assessment is completed. If, then, penalty cannot be imposed until the assessment order is made, it cannot be said that the classification made for the purpose of imposition of penalty between assessees whose assessments were completed before and after 1st April, 1962, is arbitrary and without any basis. The classification made by clauses (f) and (g) of section 297(2) is thus not a mere fanciful classification ; it is reasonable and has a reasonable relation to the object to be achieved. The object of penalty proceedings is to curb effectively evasion, and the object of the classification made by clauses (f) and (g) is not to discriminate against those assessees whose assessments for the year ending on 31st March, 1962, or any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to classify is of ' wide range and flexibility ' so that it can adjust its system of taxation in all proper and reasonable ways. " Again, at page 30, the Supreme Court observed in Khandige Sham Bhat's case : " It is true taxation law cannot claim immunity from the equality clause of the Constitution. The taxation statute shall not also be arbitrary and oppressive, but at the same time the court cannot, for obvious reasons, meticulously scrutinize the impact of its burden on different persons or interests. Where there is more than one method of assessing tax and the legislature selects one out of them, the court will not be justified to strike down the law on the ground that the legislature should have adopted another method which, in the opinion of the court, is more reasonable, unless it is convinced that the method adopted is capricious, fanciful, arbitrary or clearly unjust. " Applying these principles here, it is clear that if for the purpose of checking evasion the legislature thought it fit to apply the penalty provisions contained in the 1961 Act to cases of assessments completed after 1st April, 1962, covered by clause (g) instead of the penalty provisions under sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of completion of proceedings in the matter of imposition of penalty. With all due respect to the learned judges of the Bombay High Court, we do not find ourselves in agreement with the view taken by them and the reasoning given by them in support of their conclusion does not appeal to us. It must be noted that in Income-tax Officer v. Firm Madan Mohan Damma Mal the Allahabad High Court has, disagreeing with the view taken by the Bombay High Court in Shakti Offset Works v. Inspecting Assistant Commissioner of Income-tax , held that clauses (f) and (g) of subsection (2) of section 297 of the 1961 Act do not contravene article 14 of the Constitution. Bishambhar Dayal J., one of the judges of the Division Bench deciding the case of Income-tax Officer v. Firm Madan Mohan Damma Mal , held that: " Since penalty has to be calculated and then imposed according to the tax assessed, the penalty being proportionate to the tax, the imposing of penalty must necessarily follow the assessment. The question of imposition of penalty thus arises after the assessment has been completed and, therefore, the provision that in cases where assessment has been completed after the new Act had come into f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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