S. Balaram vs Commissioner of Income Tax, Gujarat I

Divan, C.J.—This reference has been made by the Tribunal at the instance of the assessee and the following question has been referred to us

for our decision :

Whether, on the facts and circumstances of the case, penalty could be legally leviable in reassessment proceedings for the original default of not

filing the return ?

The assessee is an individual and the relevant assessment years are 1955-56, 1957-58 and 1960-61. The assessee was carrying on business as

an individual in the relevant years and was the recipient of income from some foreign concerns. He did not file returns u/s 22(1) for the respective

assessment years. His explanation for not returning the income from the foreign concerns for the respective relevant assessment years was

ultimately rejected by the revenue authorities. The Income Tax Officer having come to know that the assessee had not disclosed the commission

from the foreign firms, initiated proceedings for reopening the assessments u/s 147 of the Income Tax Act, 1961. After the issue of the notice u/s

148, the assessee compelled with the terms of that notice, filed the returns and disclosed the commission received by him from the foreign firms.

The Income Tax Officer while making the reassessments u/s 147 also issued notices u/s 271(1)(a) read with section 274 of the Income Tax Act,

1961, for the default committed in not filing the returns u/s 22(1) of the Indian Income Tax Act, 1922. The assessee''s explanation in not filing the

returns u/s 22(1) was rejected and the Income Tax Officer levied penalties in different amounts for the three assessment years. The assessee filed

appeals before the appellate Assistant Commissioner and it was contended that no penalty could be levied for the default u/s 22(1) of the 1922

Act in proceedings u/s 148 of the 1961 Act. The contention was that there was no default in proceedings taken under sections 147 and 148 and,

in accordance with the language of section 271(1)(a) of the 1961 Act, the original default in not filing the return u/s 22(1) could not be the subject-

matter of penal proceedings. It was urged on behalf of the assessee that the language used in section 28(1)(a) of the 1922 Act and section 271(1)

(a) of the 1961 Act, wherein the words ""as the case may be"" occur at the end are different and that under the new Act it was only if a default was

committed in respect of notice u/s 148 that the penalty u/s 271(1)(a) could be levied and not if the default had been committed in filing the return in

the original proceedings. This argument on behalf of the assessee was accepted by the Appellate Assistant Commissioner and the orders of penalty

were set aside. The revenue carried the matter in appeal before the Income Tax Appellate Tribunal and the Tribunal held that the original default

u/s 22(1) could be the subject-matter u/s 148 of the 1961 Act. The Tribunal held that the addition of the words ""as the case may be"" in section

271(12)(a) did not materially alter the position as it existed under the 1922 Act. Thus, the Tribunal held that in reassessment proceedings the

original default committed by the assessee in not filing the return could be penalised. It is after this decision of the Tribunal that the question

hereinabove set out has been referred to us at the instance of the assessee.

In its order the Tribunal has set out side by side the provisions of section 22(1)(a) of the 1922 Act and section 271(1)(a) of the 1961 Act. It

may be pointed out that the only additional words on which emphasis is laid so far as section 271(1)(a) is concerned are the words ""as the case

may be"" occurring at the end of clause (a) of section 271(1). It was pointed out that u/s 271(1)(a) four types of defaults can be penalised, namely,

(1) failure to furnish the return of total income which he was required to furnish u/s 139(1)(2) failure to furnish the return of total income which he

was required to furnish by notice given under sub-section (2) of section 139, or failure to furnish the return showing the total income which he was

required to furnish u/s 148(3) failure to furnish the return within the time allowed and in the manner required by section 139(1); or (4) failure to

furnish the return of total income within the time allowed and in the manner required by such notice u/s 139(2) or section 148; and the words ""as

the case may be"" occur at the end. It was contended on behalf of the assessee before us that the words ""as the case may be"" go with the words ""in

the course of any proceedings under this Act"" and in any event they go with any one of the four clauses mentioned in section 271(1)(a). In our

opinion, as a matter of interpretation of this clause according to grammatical meaning and context, the words ""as the case may be"" go with the last

two alternatives mentioned in section 271(1)(a), namely, ""has without reasonable cause failed to furnish it (the return) within the time allowed and in

the manner required by sub-section (1) of section 139"" or ""has without reasonable cause failed to furnish the return within the time allowed and in

the manner required by such notice"", that is, notice u/s 139(2) or u/s 148 and the words ""as the case may be"" refer only to either of these two

alternatives and they cannot be interpreted as referring to default No. 1 or default No. 2 mentioned by us in this judgment as occurring in the earlier

part of clause (a) of section 271(1). Therefore, the addition of the words ""as the case may be"" do not make any substantial difference between the

proviso to section 28(1)(a) of the old Act and section 271(1)(a) of the new Act.

We may point out that the Rajasthan High Court has taken the same view in Commissioner of Income Tax v. Indra and Co. The Rajasthan High

Court has there held that an assessee is liable to penalty for not submitting his return as required in a notice u/s 139(1) of the Income Tax Act,

1961, even though he subsequently files a return in pursuance of a notice u/s 139(2) and an assessment is made on the basis of that return. The

assessee in that particular case had not filed the return u/s 139(1) of the Act before June 30, 1962, as required by law, applications for extension

of time for filing the returns had been granted but the returns u/s 139(1) were not filed even within the extended time. Ultimately, the Income Tax

Officer issued notices u/s 139(2) of the Act, calling upon the assesses to file returns within thirty days and the returns were filed. During the course

of assessment proceedings, the Income Tax Officer issued notices against the assessees to show cause why penalty should not be imposed for

failure to submit the returns u/s 139(1) of the Act, and the explanation of the assessee was rejected and penalties were imposed on the assessee

u/s 271(1)(a) of the Act. Before the Rajasthan High Court reliance was placed on the words ""as the case may be"" and, at page 704, the Rajasthan

High Court observed :

The addition of the words ''as the case may be'' at the end of section 271(1)(a) of the Act present us with no problem in interpretation...

and it was further observed :

The words ''as the case may be'' have been put because all these four cases have been condensed in one paragraph and these words only mean

that, whichever the case may be, the person shall be deemed to have committed default for which penalty was to be imposed u/s 271(1)(i) of the

new Act. These words ''as the case may be'' have their full meaning when we construe section 271(1)(a) in this light"".

To this extent there is slight difference between the interpretation placed by us on the words ""as the case may be"" and the interpretation placed by

the Rajasthan High Court. But it is pointed out as follows :

Those words were not necessary in section 28(1)(a) of the old Act, for the reason that the words at the end of section 28(1)(a) ''by such notice''

covered all the defaults mentioned therein, as all the defaults could be committed only when appropriate notices as required in section 22(1) or

section 22(2) or section 34 of the old Act had been given. The words ''by such notice'' meant a notice as may have been given either u/s 22(1) or

section 22(2) or section 34. Because the word ''such'' covered the entire ground, it was not necessary to put the words ''as the case may be'' in

section 28(1)(a) at its end, but it became necessary to add these words in clause (a) of sub-section (1) of section 271 of the Act, because there

were two kinds of defaults contemplated under it, one committed even when no notice is given and the other committed after notice. It may be

mentioned that under the Act, no notice is to be issued for filing the return u/s 139(1) and every person, if his total income exceeded the maximum

amount which is not chargeable to Income Tax, has to furnish the return of his income by or before a particular date as mentioned therein.

The Rajasthan High Court pointed out that if the other view which had appealed to the Tribunal in the case before it were to be adopted, the

result would be that if a person had not filed any return u/s 139(1) he could not be penalised if he had filed a return after a notice had been given

under sub-section (2) of section 139. It was pointed out that before taking any assessment proceedings, it was of section 139. Such a view would

mean that any person liable to pay Income Tax may sit comfortably without any fear of the imposition of penalty and not furnish his return was

required u/s 139(1) and wait till a notice is given to him u/s 139(2) and then file a return within the time mentioned in that notice. In our view this

reasoning, at page 706 of the report of the Rajasthan High Court decision, should be accepted because otherwise there was no sense in providing

penalty for non-compliance with the provisions of section 139(2). The whole idea in the scheme of of the new Act was to make it obligatory on the

assessee to file his own return within the time mentioned in section 139(1) without waiting for a notice being served upon him u/s 139(2) and that

being the case, the contention that it was only if notice is served u/s 148 that penalty can be imposed u/s 271(1)(a) of the new Act must be

rejected.

In view of the decision of the Supreme Court in Jain Brothers v. Union of India, sections 271(1) and 297(2)(g) of the 1961 Act have to be read

together and in harmony and so read the only conclusion possible is that for the imposition of a penalty in respect of any assessment for the year

ending on March 31, 1962, or any earlier year which is completed after the first day of April, 1962, the proceedings have to e initiated and the

penalty imposed in accordance with the provisions of section 271 of the Act of 1961. Thus, the assessee would be liable to penalty as provided by

section 271(1) for the default mentioned in section 28(1) of the Act of 1922, if his case falls within the terms of section 297(2)(g). The provisions

of section 271 of the Act of 1961 will apply mutatis mutandis to proceedings relating to penalty initiated in accordance with section 297(2)(g). It

was pointed out that the crucial date for the purpose of penalty is the date of the completion of assessment or reassessment proceedings, as the

case may be, and in view of this position, it obvious that even though the proceedings may be reopened u/s 148, so long as it is found in the course

of those reassessment proceedings that there was original default committed u/s 22(1) of the old Act, for which penalty could have been levied u/s

28(1) of the old Act, it is open to the Income Tax Officer in reassessment proceedings to impose penalty u/s 271(1)(a) of the new Act.

In Commissioner of Income Tax v.Ochhavlal Pannalal Kothari, this High Court has taken the view that the penalty under the clauses as

mentioned in section 271(1)(a) could be levied by the Income Tax Officer for non-compliance with the notice u/s 22(1) and that the quantum of

the penalty could be fixed in accordance with the provisions of section 271(1). The same view has also been taken by the Allahabad High Court in

Commissioner of Income Tax v. M. L. Gupta and Sons and it was held by the Allahabad High Court that there is nothing in section 271(1) of the

1961 Act, which lays down that the rate of penalty should be computed only from April 1, 1962, and it was held that the rate of penalty has to be

applied in respect of the entire period of the default.

It is thus clear, in view of the decisions which we have referred to above, that it was open to the Income Tax Officer in reassessment

proceedings under sections 147 and 148 of the new Act to take cognizance of the default committed in respect of notice issued u/s 22(1) of the

old Act, and to impose penalty in the course of the reassessment proceedings for the default committed in the past in respect of assessment years

1955-56, 1957-58 and 1960-61. We may also point out that as far back as 1948, the Madras High Court had taken the view in C. V.

Govindarajulu Iyer v. Commissioner of Income Tax, that so long as the proceedings u/s 34 relate to the assessment for the same period as the

original assessment, the Income Tax Officer would be competent to levy a penalty on any ground open to him u/s 28(1), even though it relates to

the prior proceedings. The view taken by the Tribunal, therefore, on the interpretation of section 271(1)(a) was correct and it must be held that in

reassessment proceedings the original default committed by an assessee in not filing there turn can be penalised.

In view of these conclusions were answer the question referred to us in the affirmative and against the assessee. The assessee will pay the costs

of this reference to the Commissioner of Income Tax.

Question answered in the affirmative.