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TMI Blog1980 (12) TMI 19X X X X Extracts X X X X X X X X Extracts X X X X ..... d. It was in this connection that the learned judges referred to two decisions of the Gujarat High Court in Sheth Gunvantlal Mangaldas v. CIT [1968] 68 ITR 740 and CIT v. Kiranchandra Madhusudan Patel [1975] 98 ITR 141, wherein the scope of the provisions of s. 297(2)(f) and (g) had been specifically considered. In order that the matter may be reconsidered in the light of the said decisions, the case was referred to a Full Bench. The relevant facts leading to the reference are as follows: The assessee is one R. Kuppuswamy Chetty. He is now no more and the reference is pursued by his son, Janakiah Chetty, as the legal representative. Kuppuswamy Chetty was running a business in gunny bags under the name and style of " R. Kuppuswamy Chetty Sons ". In view of his advancing age, he settled all his properties and the business on his son, Janakiah Chetty. The settlement was to take effect from 1st April, 1961. Kuppuswamy Chetty was assessed on the business profits earned up to 31st March, 1961, and Janakiah Chetty was assessed on the business profits earned thereafter. Daring the assessment for the assessment year 1962-63, on Janakiah Chetty, it was found that there were credits osten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessments in each of the relevant years. The offer of settlement as put forward by the assessee was accepted and the assessee filed revised returns of income on 25th July, 1969, in response to the notice issued under s. 148 of the Act. In the revised return, the assessee admitted the additional amounts of income as shown in the disclosure petition to the Commissioner. The ITO completed the assessment on 17th September, 1969, accepting the revised return of income. As the minimum penalty leviable was more than Rs. 1,000, the matter of levy of penalty was referred by the ITO to the IAC in accordance with the provision of s. 271 of the 1961 Act. Accordingly, he levied the following amounts as penalty: -------------------------------------------------------------------------------------------------------------------------------- Assessment years Amounts of penalty levied --------------------------------------------------------------------------------------------------------------------------------- Rs. 1954-55 2,966 1955-56 8,071 1956-57 8,508 1957-58 12,586 1958-59 11,593 1959-60 11,928 1960-61 14,222 1961-62 6,691 ------------------------------ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndicated in s. 297. The provision to the extent relevant may be reproduced below: " 297. Repeals and savings.(1) The Indian Income-tax Act, 1922 (11 of 1922), is hereby repealed. (2) Notwithstanding the repeal of the Indian Income-tax Act, 1922 (11 of 1922) (hereinafter referred to as the repealed Act),-... (f) any proceeding 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." In Kalawati Devi Harlalka v. CIT [1967] 66 ITR 680, the Supreme Court held that s. 297 was meant to provide as far as possible for all contingencies which may arise out of the repeal of the 1922 Act and that s. 6 of the General Clauses Act, 1897, would not apply because s. 297(2) evidences an intention to the contrary. We have, therefore, no need to consider the applicability of s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that so long as the proceedings under s. 34 related to the assessment for the same period as the original assessment, the ITO would be competent to levy a penalty on any ground open to him under the relevant provision, viz., s. 28(1), even though it related to the prior proceedings. This decision was considered by the Supreme Court in N. A. Malbary and Bros. v. CIT [1964] 51 ITR 295. In that case, the assessee did not include the profits of a business in Bangkok for the assessment year 1951-52, nor did it comply with the notice of the ITO for the production of the accounts relating to the Bangkok branch. The ITO estimated the profits of the Bangkok branch at Rs. 37,500 and completed the assessment on 31st January, 1952. At the same time, he initiated penalty proceedings and levied Rs. 20,000 as penalty on 22nd January, 1954. In the course of the assessment for 1952-53, the books of the Bangkok branch were produced on 17th August, 1953, and they showed that the assessee had made a profit of Rs. 1,25,520 for the assessment year 1951-52. The ITO issued a notice under s. 34 of the Indian I.T. Act, 1922, for the assessment year 1951-52. The assessee submitted a return showing the correc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was completed on or after 1st of April, 1962, the levy of penalty would have to be considered only in the light of the 1961 Act. It has already been seen in the present case that the relevant assessments, which had given rise to the present penalty proceedings, were completed on 17th September, 1969, that is, after 1st April, 1962, and that, therefore, the power to levy penalty is to be found in the 1961 Act and not in the 1922 Act. This power to levy penalty under the new law for an offence committed at a time when the old Act was in force is statutory consequence following the specific language of s. 297(2)(g) and this principle is applicable only to situations arising out of the transaction from the 1922 Act to the 1961 Act. Mr. K. Ramgopal, the learned counsel for the assessee, contended that in order to attract s. 297(2)(g) both the original as well as the reassessments should have been completed on or after 1st April, 1962. We are unable to accept this contention. The word " assessment " has been defined in s. 2(8) of the 1961 Act as including " reassessment ". The definition provision would of course, apply only if there is nothing repugnant in the subject or the context ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the notice under s. 22(2) of the 1922 Act. Apart from filing an appeal under the I.T. Act itself, the assessee filed a writ petition challenging, inter alia, the validity and the constitutionality of s. 297(2)(g) and s. 271(2) of the Act of 1961. The High Court declined to issue writ and the assessee carried the matter in appeal to the Supreme Court. If the 1922 Act would apply, there was no minimum penalty leviable. However, under the 1961 Act, the penalty leviable was statutorily fixed, viz. as a sum equal to 2% of the tax for every month during which the default continued, but not exceeding in the aggregate 50% of the tax (see s. 271(1)(a)). In the course of the judgments, their Lordships observed at p. 117 as follows: "We are further unable to agree that the language of section 271 does not warrant the taking of proceedings under that section when default has been committed by failure to comply with a notice issued under section 22(2) of the Act of 1922. It is true that clause (a) of sub-section (1) of section 271 mentions the corresponding provisions of the Act of 1961 but that will not make the part relating to the payment of penalty inapplicable once it is held that sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e penalty proceedings could be initiated and penalty imposed under the Act of 1922, while in respect of assessments completed after April 1, 1962, the penalty proceedings had to be initiated and penalty imposed only under the provisions of the 1961 Act. In view of the statutory provisions, it was pointed out that one had to proceed on the basis of the date of completion of the assessment and not on the basis when the offences of concealment were committed. The imposition of penalty under the 1961 Act was considered to be valid and justified. We are unable to see any substance in the submission that the distinction between s. 297(2)(f) and (g) were not noticed or appreciated in that case. At p. 826, the argument before the Tribunal has been extracted as follows: " Before the Tribunal the assessee contended that the offence of concealment is with reference to the original returns and as the original assessments were completed before April 1, 1962, the date of commencement of the 1961 Act, the penalty proceedings must have been initiated and penalty levied under the provisions of the 1922 Act, in view of s. 297(2)(f). " After referring to the Tribunal's rejection of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or showing cause why penalty for the non-payment of tax on the due date should not be levied. The assessee did not pay the amount as required by the ITO's letter, nor did he show cause against the levy of penalty for non-payment of the tax on the due date. The ITO thereupon imposed Rs. 3,575 as penalty under s. 46(1) of the I.T. Act of 1922. The penalty order was confirmed on appeal by the AAC and also by the Tribunal. The question referred was whether the penalty imposed upon the assessee for the non-payment of tax was valid and legal. Reliance was placed by the revenue in support of the levy of penalty on s. 297(2)(f) and (g). The learned judges of the Gujarat High Court considered that the notice of demand under s. 18A of the 1922 Act could be said to be an assessment and that if the issuing of such notice could be said to be the completion of such an assessment, then the proceedings for the imposition of penalty for the non-payment of advance tax under s. 18A could be initiated and the penalty might be imposed as If the Act of 1961 had not been passed, i. e., as if the Act of 1922 still remained in force. The learned judges referred to s. 18A imposing a liability to pay advance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under s. 18A of the Act. There is another decision of the same court consisting of the same learned judges in CIT v. Kiranchandra Madhusudan Patel [1975] 98 ITR 141. In that case, an HUF had not been assessed prior to the assessment year 1956-57. For the assessment year 1956-57 a notice under s. 22(2) of the Act of 1922 was served on the assessee on May 21, 1956, and it was pending.. For the assessment year 1957-58, the last day for filing an estimate of advance tax was March 15, 1957. The assessee did not file any such estimate, though the income for the relevant previous year was likely to exceed the maximum amount not chargeable to tax. The ITO, while making the assessment on the assessee (HUF) for the assessment year 1957-58 on March 15, 1958, issued a notice to the assessee to show cause why penalty should not be imposed on it under s. 28(1)(a) read with s. 18A(9) of the Act of 1922 for having failed to comply with the provisions of s. 18A(3). The penalty was imposed on November 20, 1965. In the meantime there was a partition of the HUF, and during the assessment for 1963-64 there was a claim for passing an order under s. 171(3) of the I.T. Act of 1961, on the ground that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment year in question and if the assessment is completed before I St April, 1962, section 297(2)(f) would be attracted. The proceedings for imposition of penalty for failure to comply with the provisions of section 18A(3) which was initiated on 15th March, 1958, was, therefore, liable to be continued and the penalty liable to be imposed according to the provisions of the old Act as if the new Act had not been passed. The income-tax authorities were required to ignore the new Act as if it were not on the statute book and to continue the proceeding for imposition of penalty having regard to the provisions of the old Act. It is, therefore, by reference to the provisions of the old Act that we must judge whether penalty could be validly and lawfully imposed on the assessee at the date when the order for penalty was made." It was held that penalty could lawfully be imposed. It may be pointed out that the relevant assessment for the assessment year 1957-58 was completed in that case on 15th March, 1958. Thus, taking the date of the assessment order as the basis, the case clearly fell within the ambit of s. 297(2)(f). The discussion in that case has to be correlated to the above f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... attention being paid to the return and to the assessment. If there was a concealment in the return, then the penalty was leviable. The amount of penalty was to be calculated on the basis of the difference between the tax payable on the assessment and on the basis of the return. The language of s. 28 does not require any other stage being taken note of. Section 271 of the 1961 Act contains more or less similar words and, therefore, we have only to see whether there was any assessment and whether in relation to the said assessment the income as shown in the return can be taken as involving any concealment. If there was a concealment, then the levy of penalty would have to follow. It has already been seen that in the light of the decision of the Supreme Court in N. A. Malbary and Bros. v. CIT [1964] 51 ITR 295, the ITO has power to levy penalty with reference to the concealment in the original return, even though there was no concealment in the return submitted in pursuance of a notice of reassessment. What is relevant in the present case is the reassessment, and so long as it took place on or after 1st April, 1962, the provisions of the 1961 Act would have to be applied. Consequentl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der the provisions of the Act and that it could have no application where the assessment of an HUF was completed under the provisions of the 1922 Act. As section 25A of the 1922 Act did not impose any personal liability on the members in cases of partial partition, applying s. 171(6) would be to give a retrospective operation to that provision ; such operation could be given either by the express language or by necessary implication. It was further held that s. 297(2)(d)(ii) of the Act of 1961, which was sought to be applied in that case and which contains the words "all the provisions of this Act shall apply accordingly ", merely referred to the machinery provided under the new Act and did not import any substantive provision of the new Act. It was also held that only the machinery of assessment was attracted and not the other provisions. It may be seen that the controversy in that case was whether the words contained in s. 297(2)(d)(ii) would attract the operation of s. 171. Section 297(2)(d) provides: " (2) Notwithstanding the repeal of the Indian Income-tax Act, 1922 (11 of 1922) (hereinafter referred to as the repealed Act),-....... (d) where in respect of any assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the affirmative and in favour of the revenue. Before parting with the case, we think it necessary to refer to one aspect which has escaped the attention of all the authorities so far. The assessee filed on February 22, 1969, a petition under s. 271 (4A) (annex C-2 to the case stated), in which he agreed to pay a penalty of 50/, of the tax to be levied on the basis of the disclosure. Section 271(4A) was added by the I.T. (Amend) Act, 1965, with effect from March 12, 1965, and was deleted by the T.L. (Amend) Act, 1970, with effect from April 1, 1971. This provision gave power to the Commissioner to reduce or waive the amount of minimum penalty, if he was satisfied that such person had, voluntarily and in good faith, made a full and true disclosure of the particulars of his income. It is not clear from the records why the Commissioner did not think it proper to act on this provision himself, and, instead, only recommended levy of 5% on the tax as penalty. The ITO was obviously of the view that s. 271 was applicable and, as the minimum penalty leviable exceeded Rs. 1,000, the levy of penalty had to be dealt with by the IAC. The IAC levied 20% of the tax as penalty presumably on the v ..... X X X X Extracts X X X X X X X X Extracts X X X X
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