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TMI Blog1978 (8) TMI 25X X X X Extracts X X X X X X X X Extracts X X X X ..... irmed the levy of interest. The said appeals were dismissed by a common order. The assessee went up in further appeal to the Income-tax Appellate Tribunal. It was contended before the Tribunal that the assessments having been made by virtue of s. 297(2)(d)(ii) of the I.T. Act, 1961, only the procedure laid down by the Act of 1961 would govern the assessments. Levy of penal interest under prov. (iii) to s. 139(1) of the I.T. Act, 1961, could not be made. It was contended by the revenue that there was no difference between the proceedings under s. 148 and those under s. 139 of the Act of 1961. Section 148 provided that a notice issued thereunder would be treated as a notice under s. 139(2). On the authority of the Supreme Court in Jain Brothers v. Union of India [1970] 77 ITR 107, it was contended that a default committed by an assessee under the earlier Act of 1922 would also be a default under the new Act and penalty was imposable therefor under the provisions of the new Act. The Tribunal held that in Jain Brothers [1970] 77 ITR 107, the Supreme Court was concerned only with the interpretation of the provisions of s. 297(2)(g) of the new Act and not s. 297(2)(d)(ii) thereof. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : Section 22. " (1) The Income-tax Officer shall, on or before the 1st day of May in each year, give notice, by publication in the press and by publication in the prescribed manner, requiring every person whose total income during the previous year exceeded the maximum amount which is not chargeable to income-tax to furnish, within such period not being less than sixty days as may be specified in the notice, a return, in the prescribed form and verified in the prescribed manner, setting forth (along with such other particulars as may be required by the notice) his total income and total world income during that year : Provided that the Income-tax Officer may in his discretion extend the date for the delivery of the return in the case of any person or class of persons. (2) In the case of any person whose total income is, in the Income-tax Officer's opinion, of such an amount as to render such person liable to income-tax, the Income-tax Officer may serve a notice upon him requiring him to furnish, within such period, not being less than thirty days, as may be specified in the notice, a return in the prescribed form and verified in the prescribed manner setting forth (along w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment year, or before the 30th day of June of the assessment year, whichever is later ; (b) in the case of every other person, before the 30th day of June of the assessment year : Provided that, on an application made in the prescribed manner, the Income-tax Officer may, in his discretion, extend the date for furnishing the return-- (i) in the case of any person whose total income includes any income from business or profession the previous year in respect of which expired on or before the 31st day of December of the year immediately preceding the assessment year, and in the case of any person referred to in clause (b), up to a period not extending beyond the 30th day of September of the assessment year without charging any interest ; (ii) in the case of any person whose total income includes any income from business or profession the previous year in respect of which expired after the 31st day of December of the year immediately preceding the assessment year, up to the 31st day of December of the assessment year without charging any interest ; and (iii) up to any period falling beyond the dates mentioned in clauses (i) and (ii), in which case, interest at six per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of sections 148 to 153, assess or reassess such income...... for the assessment year concerned (hereafter in sections 148 to 153 referred to as the relevant assessment year) ........ " Section 148 : " Issue of notice where income has escaped assessment.--(1) Before making the assessment,...... under section 147, the Income-tax Officer shall serve on the assessee a notice containing all or any of the requirements which may be included in a notice under sub-section (2) of section 139 ; and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub-section. (2) The Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. " Section 297 : " (1) The Indian Income-tax Act, 1922 (11 of1922), is hereby repealed. (2) Notwithstanding the repeal of the Indian Income-tax Act, 1922 (11 of 1922) (hereinafter referred to as the repealed Act),--...... (b) where a return of income is filed after the commencement of this Act otherwise than in pursuance of a notice under section 34 of the repealed Act by any person for the assessment year ending on the 31st day of March, 1962 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other aspect of the controversy, namely, whether under s. 139 of the Act of 1961 as it stood at the relevant time interest could at all be charged. Mr. Pal, as amicus curiae, has invited us to consider the unamended s. 139 of the I.T. Act, 1961, and submitted that on the language of the section as it stood at the relevant time it was possible to contend that interest would be charged only in cases where an application was made by the assessee in the prescribed manner to the ITO asking for extension of time for furnishing a return beyond the prescribed dates, or, under s. 139(4), when the assessee filed his return at any time before the end of the four assessment years to which the return relates but after the time prescribed in s. 139(1) or s. 139(2). In the instant case, the admitted fact was that the assessee did neither apply to the ITO for extension of the date of furnishing the returns as contemplated by prov. (iii) to s. 139(1) nor file any return under s. 139(4). Mr. Pal drew our attention to the decisions of the various High Courts on the point. The said decisions are considered hereafter in their chronological order. (a) Kishanlal Haricharan v. ITO [1971] 82 ITR 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecisions to the contrary which are as follows : (a) Indian Telephone Industries Co-operative Society Ltd. v. ITO [1972] 86 ITR 566 (Mys). Here, the assessee was assessed to income-tax for the assessment years 1963-64 to 1968-69, under s. 143(3) read with s. 147 of the I.T. Act, 1961, and for the subsequent assessment year 1969-70, only under s. 143(3). For the said assessment year 1969-70, a notice under s. 139(2) had been served on the assessee and the assessee had filed his return within the date mentioned in the said notice. For the other assessment years the assessee submitted returns within the dates mentioned in the notices under s. 148. In all the assessments, the ITO charged interest under ss. 139 and 217 of the Act. On an application under art. 226 of the Constitution challenging the levy of such interest, the Mysore High Court dissented from the view expressed by the Andhra Pradesh High Court in Kishanlal Haricharan [1971] 82 ITR 660, and held that prov. (iii) to s. 139(1) also applied where the date fixed originally under s. 139(2) fell beyond the date specified in the proviso to the said sub-section. The levy of interest was upheld. (b) Ganesh Das Sreeram v. ITO [19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vy of interest would apply in the impugned assessments. The levy of interest was upheld. Progressive Engineering Co. v. ITO [1976] 105 ITR 226 (AP). The facts in this case were that for the assessment years 1968-69 and 1969-70, the assessee did not file any return nor asked for any extension of time for filing the same ; subsequently, in response to a notice under s. 148 of the I.T. Act, 1961, the assessee filed returns for the said assessment years in January, 1971. In the assessments, the ITO levied interest under prov. (iii) to s. 139(1). The assessee challenged the levy of such interest in an application under art. 226 of the Constitution and contended that where a return was filed pursuant to a notice under s. 147, and not voluntarily, interest could not be charged under the said proviso. The Andhra Pradesh High Court rejected the contentions of the assessee and held that the fact that no application had been made for extension of time to file a return under prov. (iii) to s. 139(1) or that a return had been filed pursuant to a notice under s. 148 made no difference so far as the chargeability of interest was concerned. Interest was chargeable under s. 139(4). Proviso (iii) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny interest. An assessee could obtain a benefit indirectly which he could not get directly. This would result in an absurd construction. Mr. Sengupta contended that in Narain Das Paramanand Das [1979] 117 ITR 174 (Cal), it was settled in this court that an ITO was empowered to charge interest where no application for extension of time had been filed by the assessee in the prescribed manner under s. 139. The earlier decision in National Hotel and Dilkusha Cabin [1977] 107 ITR 559 (Cal) was, therefore, no longer good law. Mr. Pal has, however, pointed out to us that in Narain Das Paramanand Das [1979] 117 ITR 174 (Cal) the challenge was only to the levy of penalty and not against the charging of interest. The observations of the court on the construction of s. 139 and chargeability of interest were, therefore, in the nature of obiter and not binding on us. In our view, the present reference can and should be disposed of on the more fundamental issue as to the applicability of the provisions of the 1961 Act in assessments for periods prior to 1st April, 1961. We, therefore, refrain from expressing our opinion on the construction of s. 139 of the I.T. Act, 1961, as it stood prior ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notice thereunder might include all or any of the requirements of a notice under under s. 22(2) whereupon the ITO could proceed to assess or reassess the income and all the provisions of the Act would apply accordingly. Section 34(1A) did not expressly provide that a notice thereunder would be deemed to be a notice under s. 22(2). The High Court held that proceedings under s. 34(1A) would be governed by the other provisions of the Act of 1922 in the same manner as a proceeding under s. 34(1)(a) and the provisions of ss. 23, 31, 33, 37 and 66 would all apply in proceedings under s. 34(1A). (b) Third ITO v. M. Damodar Bhat [1969] 71 ITR 806. In this case, the Supreme Court held that the ITO had authority to issue notices under ss. 156 and 226(3) of the I.T. Act., 1961, in respect of liabilities arising under the earlier Act of 1922. The Supreme Court observed as follows (P. 813) " In a case falling within section 297(2)(j) of the new Act, for example, in a proceeding for recovery of tax and penalty imposed under the old Act, it is not required that all the sections of the new Act relating to recovery and collection should be literally applied but only such of the sections will ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Abdul Muthalif Rowther v. ITO [1976] 102 ITR 694 (Ker). This case has been considered earlier. Here the assessment proceedings under the Act of 1961 were initiated in respect of a number of years including the assessment year 1961-62 and penal interest was levied under s. 217 of the Act. The Kerala High Court construed s. 148 and held that it imported s. 139 in toto and upheld the levy of interest. No contention, however, was raised whether interest could be charged under the Act of 1961 for delay or default committed under the earlier Act of 1922. Mr. Pal as amicus curiae invited us to consider the following further decisions which he submitted were relevant to the point at issue : (a) CIT v. Isthmian Steamship Lines [1951] 20 ITR 572 (SC) This judgment was cited for the following observations of the court : " ........ in income-tax matters the law to be applied is the law in force in the assessment year unless otherwise stated or implied. (b) Karimtharuvi Tea Estate Ltd. v. State of Kerala [1966] 60 ITR 262 (SC). This was cited for the following observations of the Supreme Court : " It is well settled that the Income-tax Act, as it stands amended on the 1st day of Apri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the petitioner is right in the contention that neither section 28(ii)(c) nor section 41(1) of the Act of 1961 can be invoked in the present case. " (d) Tiwari Kanhaiyalal v. CIT [1975] 100 ITR 5 (SC). The facts in this case were that the assessee, a partner of a firm, filed his income-tax returns for several assessment years up to 1960-61 under s. 22(2) of the Act of 1922 before the new Act of 1961 came into force. During the assessment, when the Act of 1961 had come into force, the assessee's premises were searched and various books and documents were seized. Thereafter, the assessee filed revised returns in respect of the said assessment years disclosing incomes greater than that originally disclosed. Tax was assessed on the basis of the revised returns in accordance with the 1961 Act. The Commissioner also filed complaints against the assessee alleging commission of offences under s. 277 of the 1961 Act. Similar complaints were also filed by way of abundant caution on the same facts alleging offences under the earlier Act. At the trial, the assessee contended that the prosecution was void and bad in law. On these facts the Supreme Court held, inter alia, that the punishment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e application was rejected by the High Court. On a further appeal before the Supreme Court, it was contended before the Supreme Court that s. 25A of the Act of 1922 imposed no personal liability on the members of an HUF in the case of a partial partition. This liability was created for the first time by s. 171(6) of the Act of 1961 and could not have retrospective effect so as to apply to assessments in respect of any period prior to the 1st April, 1962, before the coming into force of the new Act. The Supreme Court construed s. 25A of the Act of 1922 and, comparing the same with s. 171 of the Act of 1961, held that the legislature in enacting s. 171 in the Act of 1961 had decided to introduce a radical departure from the old Act. Sub-section (6) of s. 171 imposed for the first time joint and several liability on the members of an HUF. This was a personal liability distinct from the liability limited to the joint family property received on partition. The revenue contended that inasmuch as the assessments of the HUF for the said assessment years had been reopened by notices under s. 148 and that the reassessments were completed under s. 147 of the Act of 1961, by virtue of s. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... indu undivided family were pending at the time of the commencement of the new Act and it was for this reason that notices under section 148 were issued by the Income-tax Officer for reopening the assessments of the Hindu undivided family for the assessment years 1950-51 to 1956-57. Now, clause (ii) of section 297(2)(d) provides that when a notice under section 148 is issued for reopening an assessment ' all the provisions of this Act shall apply accordingly '. The argument of the revenue authorities, therefore, was that when notices under section 148 were issued for reopening the assessments of the Hindu undivided family, all the provisions of the new Act became applicable and they included sub-section (6) of section 171 and, therefore, that sub-section was applicable for recovery of the tax reassessed on the Hindu undivided family pursuant to the notices under section 148. This argument is without force. It is based on a misconstruction of the words ' all the provisions of this Act shall apply accordingly ' in clause (ii) of section 297(2)(d). These words merely refer to the machinery provided in the new Act for the assessment of the escaped income. They do not import any substant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions in computation of the interest to be charged will necessarily arise and the periods and dates prescribed in s. 139 will have to be imported in the earlier Act of 1922. Anticipating such difficulties Mr. Sengupta had suggested that interest should be chargeable from the date when the new Act came into force. This is at best a " rule of thumb " method and cannot be supported by any statutory provision. In respect of assessment years prior to the 1st April, 1962, it would make no difference whether an assessee is assessed under s. 139(4) of the Act of 1961 or under s. 148 thereof. Under s. 139(4) only the procedure of the new Act can be applied. There cannot be an imposition of a new liability as clearly laid down by the Supreme Court in the case of Govinddas [1976] 103 ITR 123. If the assessment is made pursuant to a notice under s. 148, the provisions of the new Act which relate to the machinery of assessment would only be applicable. The substantive law for determining the liability of the assessee must necessarily be the earlier Act. For the reasons as aforesaid, we answer the questions referred as follows : Question No. 1 is answered in the negative and in favour of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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