Commissioner of Income Tax vs M.A. Unneerikutty

Arijit Pasayat, C.J.—Pursuant to directions given in O.P. No. 6144 of 1991, following question has been referred for opinion of this Court by the Tribunal, Cochin Bench, u/s 256(2) of the income tax Act, 1961 (''the Act''):

Whether, on the facts and in the circumstances of the case, the order of imposition of penalty by the Inspecting Assistant Commissioner was invalid and without jurisdiction?

Factual position, so far as undisputed, is as follows: Assessee is an individual deriving income mainly from business in purchase and sale of ''copra''. Assessment for 1972-73 was completed on 23-8-1975 determining total income of the assessee at Rs. 6,97,330. Addition on account of income from undisclosed sources was made, which, according to the Assessing Officer, represented unaccounted purchases of copra. The Assessing Officer initiated proceeding u/s 271(1)(c) of the Act. As the minimum penalty leviable exceeded Rs. 25,000, Assessing Officer referred the case to IAC for disposal. The IAC, by order dated 26-7-1979, imposed penalty of Rs. 3,25,845. The assessee took the stand in appeal before the Tribunal that order of penalty passed by IAC on 26-7-1979 was bad in law. In essence, stand was that order having been passed after the amendment made in the Act relating to jurisdiction with effect from 1-4-1976, IAC did not have jurisdiction to pass the order. The Tribunal noticed that penalty was leviable in respect of following amounts:

Rs.

"1.

Income from property in the name of wife

6,351

2.

Unexplained credits in the name of 5 persons

1,66,456

3.

Unexplained advance to M/s. Kalpaka Tourist Home (P.) Ltd

9,780

4.

Investment in unaccounted purchase of copra

1,43,258

3,25,845"

It was concluded by the Tribunal that property did not belong to the assessee but it belonged to his wife and, therefore, there could be no concealment in respect of Item No. 1. So far as the credit in the names of five persons is concerned, it noticed that only a sum of Rs. 1 lakh out of Rs. 1,66,456 was ultimately added and, therefore, there was concealment in respect of only Rs. 1 lakh. Considering third item, it was held that as the amount was in the nature of an advance, it did not represent any cash credit and, hence, penalty was not imposable. Referring to fourth item, the Tribunal rejected the explanation of the assessee and held that penalty was imposable. After upholding the penalty in respect of some of the additions and deleting the penalty in respect of some others, the Tribunal held that IAC did not have jurisdiction to impose penalty. For this purpose, reliance was placed on a Full Bench decision of this Court in Commissioner of Income Tax Vs. P.I. Issac and Others, . The revenue sought for a reference and, as stated above, question has been referred for the opinion of this Court.

When the matter was taken up for hearing by the Division Bench, it was submitted by the revenue that in view of the decisions of the Apex Court in Commissioner of Income Tax, Orissa Vs. Dhadi Sahu, and Varkey Chacko Vs. Commissioner of Income Tax, decision in P.I. Issac''s case (supra) was not correct. Reference was made by the assessee to a decision of this Court in COMMISSIONER OF Income Tax Vs. LATE S. M. SYED MOHAMED (LRS. SMT. N. FATIMA BEEVI AND OTHERS)., to contend that the revenue should establish that reference was in fact made on the date claimed to have been made and whether there was a valid reference. Division Bench felt that though decision in P.I. Issac''s case (supra) was not good law, yet in view of S.M. Syed Mohammed''s case (supra) an important question of law arises for decision, which has to be dealt with by a Larger Bench.

It is true that no litigant has any vested right in the matter of procedural law but where the question is of change of forum, it ceases to be a question of procedure only. Forum of appeal or proceedings is a vested right as opposed to pure procedure to be followed before a particular forum. Right becomes vested when proceedings are initiated in the Tribunal or the Court of first instance, and unless the Legislature has, by express words or by necessary implication, clearly so indicated, that vested right will continue in spite of change of jurisdiction of different Tribunals or forums. This view was expressed in Ramesh Singh and another Vs. Cinta Devi and others, . Referring to earlier decisions in Hoosein Kasam Dada (India) Ltd. Vs. The State of Madhya Pradesh and Others, , State of Bombay Vs. Supreme General Films Exchange Ltd., and Vitthalbhai Naranbhai Patel Vs. Commissioner of Sales Tax, M.P., Nagpur, , it was observed that unless the new Act expressly or by necessary implication makes the provision applicable retrospectively, right to appeal will crystallise in the appellant on the institution of the application in the Tribunal of first instance and that vested right of appeal would not be dislodged by enactment of the new Act.

In P.I. Issac''s case (supra), it was observed that after the amendment to section 274 by the Taxation Laws (Amendment) Act, 1975 by deletion of sub-section (2) thereof, the IAC is divested of jurisdiction of ITO u/s 271(1). Prior to deletion, jurisdiction of IAC was only that of ITO. After amendment that came into force on 1-4-1976, authorities competent to impose penalty are those mentioned in section 271(1). It was held that change of forum is a matter of procedure and the Amendment Act is retrospective in regard also to matters pending before the IAC. Relying on this decision, the Tribunal cancelled the penalty.

In Commissioner of Income Tax, Bangalore Vs. Smt. R. Sharadamma, , the Apex Court held that once the IAC was seized of the matter, he did not lose seizing thereof on account of deletion of sub-section (2) of section 274 by the Taxation Laws (Amendment) Act, 1975 with effect from 1-4-1976, and the IAC did not lose the jurisdiction to continue with proceedings pending before him on 31-3-1976. He was entitled to continue with those proceedings and pass appropriate order according to law. The Full Bench of this Court in P.I. Issac''s case (supra) mainly followed the reasoning of the Division Bench of the Orissa High Court in Commissioner of Income Tax Vs. Dhadi Sahu, in support of their conclusion in preference to the view of the Division Bench of this Court in the case of Commissioner of Income Tax Vs. Varkey Chacko, . On appeal, the decision of the Orissa High Court was reversed by the Apex Court in the case of Dhadi Shau''s case (supra) and in view of that, decision in Varkey Chacko''s case (supra) was confirmed. Inevitable conclusion, therefore, is that the Tribunal was not justified in cancelling penalty.

Residual question is whether S.M. Syed Mohammed''s case (supra) had application to the facts of the case. In that case, primary question was whether Full Bench decision in P.I. Issac''s case (supra) was impliedly overruled by the Apex Court decision in Dhadi Sahu''s case (supra). By majority, Full Bench declined to answer the question on the ground that validity of reference was not an issue in the earlier Full Bench decision. But majority took the stand that if reference was valid, then initiation was also valid. One of the learned Judges of the Division Bench, which made the reference, was of the view that the Tribunal has proceeded on the basis that though reference was made in the year 1975, still the IAC has no jurisdiction. Therefore, there is no question of holding that the IAC has no jurisdiction to pass the penalty order; but agreed to the reference to the Larger Bench.

The learned counsel for the revenue submitted that there was no dispute, whatsoever, at any stage about the position that the references were made by the IAC before 31-3-1976. On the contrary, all the forums proceeded on the basis that the same was the accepted position. The learned counsel for the assessee, on the other hand, submitted that the assessee did not have the benefit of knowing the view of Full Bench before judgment was actually pronounced. But nevertheless there was indirect reference to that factual question. In the factual background, we do not think it necessary to consider correctness of the view in S.M. Syed Mohammed''s case (supra). A bare perusal of the orders passed by various authorities, including the Tribunal, makes it clear that parties proceeded on the accepted position that reference was made to the IAC prior to 31-3-1976. In fact, the Tribunal''s conclusion, in para 6, reads as follows:

The Hon''ble High Court of Kerala in the case of CIT v. P.I. Issac, delivered a Full Bench judgment on 26-8-1987 on the identical issue which is faced in the present appeal before us. In that case also the matter was referred to the IAC in 1975 and it was IAC who had jurisdiction to levy the penalty. The order of imposition of penalty was passed after 1-4-1976. The question that their Lordships of the Hon''ble High Court considered was whether in these circumstances could it be said that the IAC who had initiated the penalty proceedings prior to the amendment of law which was effective from 1-4-1976 could be said to have jurisdiction for levy of penalty even after 1-4-1976. Their Lordships were of the view that by virtue of the amendment made to section 271(1)(c) with effect from 1-4-1976, the jurisdiction to levy penalty by an IAC had been divested of and once it is divested, we could not have passed the order at all and in case he passes such an order, that order would be an illegal order and invalid in the eye of law. Accordingly, they quashed the order of imposition of penalty as null and void. Respectfully following their Lordships view as above, we quash the penalty proceedings on the legal ground.

This shows the accepted position before the Tribunal being that IAC had initiated proceedings prior to the amendment of law, which was prior to 1-4-1976. Significant portion in the quoted portion of judgment is ''in that case also the matter was referred to IAC in 1975 and it was IAC who had jurisdiction to levy the penalty''. We have italicised the sentence for the purpose of emphasis. Furthermore, the assessee''s contention has been taken note of by the Tribunal in para 3, which reads thus:

3.... The assessee submitted that even on legal grounds, the order of penalty passed by the Inspecting Assistant Commissioner on 26-7-1979 was bad in law and has to be quashed as the order came to be passed much after the amendment made on 1-4-1976. It was pleaded that even if initiation was earlier to 1-4-1976, the IAC had no jurisdiction to pass the penalty order after 1-4-1976.

Italicised portion clearly shows that assessee had taken the stand that even after initiation prior to 1-4-1976, the IAC had no jurisdiction to pass the penalty order. That being the factual position, the assessee cannot now turn round and say that the penalty proceedings were not initiated by IAC before 31-3-1976. On facts, therefore, such a plea is not available to be taken. It may be pointed out that the question raised does not arise out of the order of the Tribunal, and, in fact, no reference has been made to this Court in relation to that question. It is impermissible to deal with a question u/s 256, if it does not arise out of the order of the Tribunal. Out of the catena of decisions, only one, which is considered to be the leading one in Commissioner of Income Tax, Bombay Vs. Scindia Steam Navigation Co. Ltd., , needs reference on this aspect. The determinative tests as to when a question is said to arise out of the order of the Tribunal are (1) when a question is raised before the Tribunal and is dealt with by it, it is clearly one arising out of its order; (2) when a question of law is raised before the Tribunal, but it fails to deal with it, it must be deemed to have been dealt with by it, and is, therefore, one arising out of its order; (3) when a question is not raised before the Tribunal but it deals with it, that will also be a question arising out of its order; (4) when a question is neither raised before the Tribunal, nor considered by it, it will not be a question arising out of its order, notwithstanding that it may arise on the finding given by it. Case at hand falls into the fourth category of enumeration as done above.

Question referred to is answered in the negative, in favour of the revenue and against the assessee.