Commissioner of Income Tax vs Manohar Lal Khanna

Sharma, J.—For the assessment year 1964-65, the assessee filed a return declaring his income at Rs. 216 from house property. The assessment was, however, framed on a total income of Rs. 22,930. This income included income from commission to the extent of Rs. 22,712. The asses-see was a commission agent in the business of sale of gold and he had himself agreed to be assessed at this figure. The order of assessment was passed on July 26, 1973, and a notice was issued to the assessee to show cause why penalty be not imposed on him for concealing his income. Vide his order dated March 25, 1976, the ITO imposed a penalty of Rs. 22,712 on the assessee which was equivalent to the income concealed by him. The assessee went in appeal before the AAC, who confirmed the penalty imposed by the ITO. The assessee went in further appeal before the Income Tax Appellate Tribunal, Amritsar. The Tribunal followed a Division Bench judgment of this court Commissioner of Income Tax Vs. Bhan Singh Boota Singh, , and allowed the appeal. At the instance of the Commissioner, the following two questions of law have been referred to us for our opinion:

" 1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in holding that the jurisdiction to impose penalty u/s 271(1)(c) vested with the Inspecting Assistant Commissioner and the Income Tax Officer should have referred the case to him instead of proceeding with it himself ?

Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the penalty order passed by the Income Tax Officer u/s 271(1)(c) was barred by limitation? "

We have heard the learned counsel for the parties. For the first question, the learned counsel for the Revenue has placed reliance on a Division Bench judgment of this court Commissioner of Income Tax Vs. Mela Ram Jagdish Raj and Co., . Therein, it was observed as under (p. 900):

" The moment penalty proceedings stand initiated by the ITO, the question would immediately arise as to who has the jurisdiction to pass an order for levying the penalty. It is at that point of time that the question of jurisdiction has to be determined keeping in view the prevailing provisions of law. It, of course, goes without saying that the Legislature has the power to make a particular statute applicable with retrospective effect but till that has not been done, the law which concerns the jurisdiction, has to be taken to be prospective. In the present case, as is clear from the order of the ITO dated 29th February, 1971, the ITO applied his mind and initiated the proceedings for levy of penalty against the assessee as observed by him in the order. It is at that point of time that the question of jurisdiction in accordance with the law then prevailing, has to be determined. It is immaterial that the ITO made the reference to the IAC on 29th December, 1972, after the provisions of Section 274(2) of the Act had been amended with effect from 1st April, 1971. Therefore, the contention of Shri Gupta, the learned counsel for the assessee, that the decision of this court in Commissioner of Income Tax Vs. Raman Industries, , is distinguishable, is without any merit. It is no doubt true that, in that case, the initiation of the penalty proceedings and the reference made by the ITO was before 1st April, 1971, but that will not make any difference on principle as has been held in the earlier part of the judgment. "

The aforementioned observations imply that the law in force on the date when the ITO makes up his mind to impose a penalty by issuing relevant notice to the assessee, applies to the penalty proceedings qua the jurisdiction of the authority under the Act, because the power of the original authority or the Tribunal under the Act to impose a penalty is procedural in nature.

The learned counsel for the assessee has drawn our attention to the following observations made by the same Division Bench (p. 899):

"It is well settled that a statute dealing with procedure is retrospective and its provisions also apply to the proceedings pending at the time of its enactment, but where the provisions of the statute affect vested rights, the said provisions are prospective in operation unless there is an indication in the statute to the contrary. The jurisdiction of a Tribunal to try a case is a vested right and has to be determined according to law in force at the time of its institution. "

He has argued that the Division Bench has observed that the jurisdiction of a Tribunal to try a case is a vested right and if that be so, then on the date when the return was filed, the ITO could not have imposed the impugned penalty. We are, however, of the view that when taken as a whole, these observations are of the nature of obiter dicta and the ratio of the case appears in the earlier part of the judgment quoted above. We are bound to follow the view taken by the Division Bench. We, accordingly, answer the first question in favour of the Revenue and against the assessee.

Regarding the second ''question, the learned counsel for the Revenue has relied upon Commissioner of Income Tax Vs. Sadhu Ram, , wherein it has been laid down that the law of limitation is also procedural in nature. For reasons given in that judgment, we answer the second question also in favour of the Revenue and against the assessee.

There shall be no order as to costs.