Smt. Kamla Vati vs Commissioner of Income Tax (Central)

Chinnappa Reddy, Actg. C.J.—On March 17, 1970, the assessee made a voluntary disclosure of income of Rs. 1,30,000 which was allowed to be spread over equally over the four assessment years 1961-62, 1962-63, 1963-64 and 1964-65. For the assessment year 1961-62, the assessee had not filed a return of income on the ground that she had no taxable income. She had not filed any estimate of advance tax to be paid by her u/s 18A(3). After the settlement pursuant to the voluntary disclosure, she filed a return on March 25, 1970, for the assessment year 1961-62, showing an income of Rs. 450 from house property and an income of Rs. 32,500 disclosed by her under the settlement. The Income Tax Officer levied a penalty of Rs. 3,608 u/s 271(1)(a). For the assessment year 1964-65, the assessee had filed an estimate of advance tax showing an income of Rs. 36,800 and the tax payable by her as Rs. 10,700. Thereafter, she filed a return showing her income as Rs. 35,615. After the settlement, pursuant to the voluntary disclosure, the Income Tax Officer completed the assessment for the assessment year 1964-65 on a total income of Rs. 1,70,298. Penalty of Rs. 7,660 was levied on her u/s 273(1)(a) for the assessment year 1964-65. The Income Tax Appellate Tribunal has referred for our decision the following questions :

"1. Whether, on the facts and in the circumstances of the case, penalty of Rs. 3,608 has been validly levied on the assessee u/s 271(1)(a) of the Income Tax Act, 1961, for the assessment year 1961-62 ?

Whether, on the facts and in the circumstances on the case, penalty of Rs. 7,660 has been validly levied for the assessment year 1964-65?"

On the first question, Shri Bhagirath Dass, learned counsel for the assessee, submitted that the revenue had failed to establish any mens rea on the part of the assessee and, therefore, no penalty could be levied on her. There is no substance in the submission. On her own showing the assessee had failed to furnish a return of her income for the assessment year 1961-62 without reasonable excuse. That was sufficient to attract Section 271(1)(a). The doctrine of mens rea has no application to such situations under taxing statutes. The decision of the Andhra Pradesh High Court in Additional Commissioner of Income Tax Vs. Narayanadas Ramkishan, has since been overruled by a Full Bench. (See ADDL. COMMISSIONER OF Income Tax, A.P., AND ANOTHER Vs. DARGAPANDARINATH TULJAYYA and CO., ).

On the second question, Shri Bhagirath Dass argued that Section 273(1)(a) had no application since it was not in the course of any proceeding in connection with regular assessment for the assessment year 1964-65 that the Income Tax Officer was satisfied that the assessee had furnished an estimate of the advance tax payable by her which she knew or had reason to believe to be untrue but in the course of proceedings for reassessment u/s 147. Shri Bhagirath Dass argued that proceedings u/s 147 could never be considered proceedings under Sections 143 and 144 of the Income Tax Act and, therefore, could not be described as proceedings in connection with the regular assessment.

Section 273(1)(a) enables an Income Tax Officer if, in the course of any proceedings in connection with the regular assessment for the assessment year commencing on April 1, 1970, or any subsequent assessment year, he is satisfied that any assessee has furnished u/s 212 an estimate of advance tax payable by him which he knew or had reason to believe to be untrue, to direct such person to pay by way of penalty a sum prescribed by that provision. Regular assessment is defined in Section 2(40) to mean the assessment made u/s 143 or Section 144. Sections 143 and 144 deal with assessment made in the ordinary course either on the filing of return by the assessee u/s 139 or on the failure of the assessee to file a return after the issuance of notice u/s 139(2). Prima facie, an assessment or reassessment made u/s 147 of income which has escaped assessment cannot be considered to be an assessment u/s 143 or Section 144. Prima facie, therefore, an assessment or reassessment made u/s 147 cannot be considered to be regular assessment within the meaning of Section 2(40). If so, Section 273(1)(a) is not attracted. Shri D.N. Awasthy, learned counsel for the revenue, however, urged that u/s 148, before making the assessment or reassessment u/s 147, the Income Tax Officer was bound to serve on the assessee a notice containing all or any of the requirements which may be included in a notice u/s 139(2) and thereafter the provisions of the Act were to apply as if the notice were a notice issued under that sub-section and, therefore, an assessment or reassessment made u/s 147 had to be considered to be an assessment under Sections 143 and 144. He invited our attention to the fact that the expression "regular assessment", though not defined in the 1922 Act, occurred in some of the provisions of that Act, viz., Sections 18A(4), 18A(6), 18A(9)and the heading of Section 23(b). He argued that under the 1922 Act, the expression "regular assessment" was construed to include assessments both under Sections 23 and 34 of that Act as distinguished from provisional assessment u/s 23B, self-assessment, etc., and that the definition of "regular assessment" u/s 2(40) of the 1961 Act was not meant to depart from the meaning which the expression had already been given by judicial interpretations.

We find it difficult to accept the submission of Shri Awasthy in the face of the definition of the expression "regular assessment" in Section 2(40) of the 1961 Act. It is true that in Deviprasad Kejriwal Vs. Commissioner of Income Tax (Central), Bombay, , the Bombay High Court considered the expression "regular assessment" occurring in Sections 18A(5), 18A(6) and 18A(9) of the 1922 Act, to include assessment u/s 34 of that Act but we notice from a perusal of the decision that there were two earlier decisions under the 1922 Act, one of the Bombay High Court in Sarangpur Cotton Manufacturing Co. Ltd. Vs. Commissioner of Income Tax, Bombay North, and the other of the Madras High Court in M. Rm. M.M.N. Natarajan Chettiar Vs. Income Tax Officer, III Additional Circle, Karaikudi, and Another, , which appear to have interpreted the expression "regular assessment" in a different way. In M. Rm. M.M.N. Natarajan Chettiar Vs. Income Tax Officer, III Additional Circle, Karaikudi, and Another, Rajamannar C.J., after referring to the decision of Chagla C.J. in Sarangpur Cotton Manufacturing Co. Ltd. Vs. Commissioner of Income Tax, Bombay North, , proceeded to hold that an assessment made u/s 34 was not a regular assessment. He observed (page 31) :

"If a regular assessment means and signifies an assessment made in the regular course contemplated by the provisions of the Indian Income Tax Act, then surely an assessment tinder Section 34 is not a regular assessment."

The view expressed by Rajamannar C.J. was reiterated by the Madras High Court in a later case in K. Gopalaswami Mudaliar Vs. Fifth Additional Income Tax Officer, Coimbatore, and Others., . Thus, the expression "regular assessment" had been understood by some learned judges, including so eminent a judge as Chief Justice Rajamannar, to mean an assessment made in the regular course u/s 23 and not an assessment u/s 34. It appears to us that it is that meaning that has been accepted by the legislature when it defined the expression "regular assessment" in Section 2(40) to mean "assessment made u/s 143 or Section 144". The Kerala High Court has taken the same view in Gates Foam and Rubber Co. Vs. Commissioner of Income Tax, . The learned judges referred to the two decisions of the Madras High Court in M. Rm. M.M.N. Natarajan Chettiar Vs. Income Tax Officer, III Additional Circle, Karaikudi, and Another, and K. Gopalaswami Mudaliar Vs. Fifth Additional Income Tax Officer, Coimbatore, and Others., and to the specific reference made in the 1961 Act to "assessment u/s 147" and held that an assessment u/s 147, that is, assessment, reassessment or recomputation made after resort to Section 147 would not be regular assessment. With respect, we agree with the view expressed by the learned judges of the Kerala High Court.

We, therefore, answer the first question referred to us against the assessee and the second question in favour of the assessee. No costs.