COMMISSIONER OF INCOME-TAX VS ONKAR SARAN AND SONS
1992 P T D 1412
[Supreme Court of India]
[195 I T R 1]
Present: S. Ranganathan, V. Ramaswami and Dr. A.S. Anand, JJ
COMMISSIONER OF INCOME-TAX
versus
ONKAR SARAN AND SONS
Civil Appeals Nos. 678 and 679 of 1977, decided on /01/.
th
March, 1992. (Appeals by special leave from the judgment and order dated March 21, 1975, of the Allahabad High Court in Income-tax Reference No. 492 of 1973).
Income-tax----
--- Penalty---Concealment---Quantum of penalty---Change of law --- Law prior penalty---Concealment of penalty---Change of law---Law prior to 1968 basing quantum on tax avoided---Law after 1968 amendment basing quantum on income conceal return filed prior to 1968 not disclosing certain income ---Notice for reassessment---Return again disclosing one income as in original return filed after 1968---penalty to be based on law as on date when original return was filed.
For the assessment years 1961-62 and 1962-63, the respondent Hindu undivided family filed its returns disclosing incomes of Rs. 18,935 and Rs.24,943 respectively and assessments were completed in 1962 and 1963 determining its total incomes at Rs.28,513 and Rs.28,463 respectively. Subsequently, the Income-tax Officer came to know that the respondent had failed to disclose its profits from the sale of certain lands. He issued reassessment notices under section 148 of the Income-tax Act, 1961, for both the years on March 9, 1965. The respondent, however, chose to file its returns in response to the notices only on February 27, 1969, disclosing the same incomes as in the original returns, viz. Rs: 18,935 and Rs.24,943. The Income tax officer determined the total income by adding the profits from the sale of the lands as business income, but the Appellate Tribunal held that the profits were capital gains. The additions to the total incomes as finally made were Rs.22,988 and Rs.9,604 respectively. In penalty proceedings initiated under section 271(1)(c), the Inspecting Assistant Commissioner imposed penalties of Rs.24,000 arid Rs.10,000 respectively, on the basis that the section as amended with effect from April 1,1968, applied. The Appellate Tribunal held that there was a case for levy of penalty but directed that the penalty should be only 20 per cent. of the tax payable on the capital gains added as only the law as it stood in the relevant assessment years applied. On a reference, the High Court upheld the order of the Tribunal but on a different ground, namely, that the law applicable was the law as it stood on the date when the respondent filed the original returns (viz. in 1962 and 1963). On appeal to the Supreme Court:
Held, affirming the decision of the High Court, that, even in a casewhere a return filed in response to a notice under section 148 involved an element of concealment, the law applicable would be the law as it stood at the time when the original return was filed for the assessment year in question and not the law as it stood on the date on which the return was filed in response to the notice under section 148, Indian Income Tax Act, 1961.
Malbary (NA.) and Bros. v. CIT (1964) 51 ITR 295 (SC) rel.
CIT v. S.S.K.G. Arthanariswamy Chettiar (1982) 136 ITR 145 (Mad.', and CTT (Addl.) v. Joginder Singh (1985) 151 ITR 93 (Delhi) approved.
CIT v. Gopal Krishna Singhania (1973) 89 ITR 27 (All.); CIT v. Ram Achal Ram Sewak (1977) 106 ITR 144 (All.); Addl. CIT v. Krishna Subh Karan (1977) 108 ITR 271 (All.); CIT (Addl.) v. Jiwan Lal Shah (1977) 109 ITR 474 (All.); CIT (Addl.). v. Mewa Lal Sankatha Prasad (1979) 116 ITR 356 (All.); CIT v. Rahman (1979) 119 ITR 475 (Pat.); CWT v. Rajamma (M.V.) (1979) 120 ITR 132 (Mad.); CIT (Addl.) v. Atma Singh Steel Rolling Mills (1979) 120 ITR 590 (All.); CIT v. Ram Singh Harmohan Singh (1980) 121 ITR 381 (P&H); CIT v. S. Sucha Singh Anand (1984) 149 ITR 143 (Delhi); CIT v. Antony (C.P.) (1985) 155 ITR 467 (Ker.); CIT (Addl.) v. Gurbhachan Singh (1985) 156 ITR 74 (Delhi); CIT v. Kanhaiyalal Ghatiwala (1989) 180 ITR 338 (Raj.) and Chowgule & Co. (Hind) P. Ltd. v. CIT (1990) 182 ITR 189 (Bom.) implied affroved.
CIT (Addl.) v. Balwantsingh Sulakhanmal (1981) 127 ITR 597 (MP); CIT (Addl.) v. Ratanchand Sewakram (1985) 151 ITR 112 (MP); CIT (Addl.) v. Gopaldas Amarnomal (1985) 151 ITR 114 (MP); CIT (Addl.) v. Brijmohan Jaiswal (1983) 139 ITR 568 (MP) and CIT v. Bihar Cotton Mills Ltd. (1988) 170 ITR 290 (Pat.) impliedly disapproved.
'The view which we are now taking and which appears to favour assessees at present would turn out to their disadvantage and to the advantage of the Department in the context of the subsequent amendment with effect from April 1, 1976.
CIT (Addl.) v. Onkar Saran (1979) 116 ITR 317 affirmed.
Brij Mohan v. CIT (1979) 120 ITR 1 (SC); Govindarajulu Iyer (C.V.) v. CIT (1948) 16 ITR 391 (Mad.) and Jaganmohan Rao (V.) v. CIT/CEPT (1970) 75 ITR 373 (SC) ref.
B.B. Ahuja, Senior Advocate (S. Rajappa, P. Parameswaran and Ms. A. Subhashini, Advocates with him) for Appellant.
Santosh Kr. Aggarwal, Vinay Vaish, B.V. Desai and Ms. Vinita Ghorpade, Advocates for Respondent.
JUDGMENT
S. RANGANATHAN, J.---Section 271(1)(c) of the Income-tax Act, 1961, provides for the levy of penalty in the case of persons who conceal or furnish inaccurate particulars of the income chargeable under the Act for any assessment year. The Act, as it stood on April 1, 1962, provided that the amount of penalty so imposable was to be measured with reference to the tax sought to be evaded by such an act of the assessee, broadly described hereinafter as "concealment". The amount of penalty could not be less than 20 per cent. or more than 150 per cent of the tax which would have been avoided as a result of the concealment. The Finance Act, 1968, amended section 271(1)(c) with effect from April 1, 1968. In addition to other changes (which are not relevant for our purposes), it changed the measure of the penalty. The penalty was now made dependent upon the amount of income concealed and not on the amount of tax sought to be avoided. The minimum penalty was now to be 100 per cent of the income concealed and the maximum penalty could go up to 200 per cent of the income concealed. This amendment has substantially stepped up the amount of penalty that could be levied in cases of concealment., It is the applicability of this amendment which is in issue in these appeals.
The respondent, Onkar Saran and Sons, is a Hindu undivided family. For the assessment years 1961-62 and 1962-63, it filed returns of income showing total incomes of Rs.18,935 and Rs.24,943 respectively. The exact dates of these returns are not available on record. Assessments were made on the assessee determining its total income at Rs.28,513 for the assessment year 1961-62 and at Rs.28,463 for the assessment year 1962-63. The assessment orders are dated March 30, 1962, and November 28, 1963, respectively.
Subsequently, it came to the knowledge of the Income-tax Officer that the assessee had failed to disclose in its returns certain profits arising from sale of certain lands. He, therefore, issued notices under section 148 of the Income tax Act, 1961, for both the years on March 9, 1965. If the assessee had been prompt in filing returns in response to these notices, the problem that it now faces may not have arisen at all. However, the assessee chose to file its returns only on February 27, 1969, disclosing the same income as in the original returns (viz., Rs.18,935 and Rs.24,943 respectively), and the reassessments were completed on March 6, 1969. The total income now determined was Rs.52,185 for the assessment year 1961-62 and Rs. 44,017 for the assessment year 1962-63. It may be mentioned that, on further appeals, the total income was reduced to Rs.41,923 for the assessment year 1961-62 and Rs.34,547 for the assessment year 1962-63 and these assessments have become final. It will be noted that the difference between the income returned in the original returns and income finally assessed was Rs.22,988 for the assessment year 1961-62 and Rs.9,604 for the assessment year 1962-63.
Having made the above additions in the reassessment, the Income-tax Officer initiated proceedings under section 271(1)(c) for the failure on the part of the assessee to return the income from the sale of lands. It may be mentioned here that, originally, the Income-tax Officer was of the opinion that the income from the lands constituted "business income" but subsequently, it has been held that the above income was chargeable only under the head "Capital gains". The penalty proceedings were continued (as contemplated by the Act) by the Inspecting Assistant Commissioner who, by his orders dated March 4, 1971, imposed penalties of Rs.24,000 and Rs.10,000 respectively for the two assessment years in question.
The assessee preferred appeals to the Income-tax Appellate Tribunal. The Tribunal agreed with the Inspecting Assistant Commissioner of Income tax that there was a case for levy of penalty. It was, however, of the opinion that since the penalty proceedings related to the assessment years 1961-62 and 1962-63, the provisions of the Income-tax Act as they stood respectively on April 1, 1961, and April, 1, 1962, would be applicable to determine the amount of penalty and not the amended provisions which came into force with effect from April 1, 1968. It, therefore, directed that the amounts of penalty should be reduced to 20 per cent. of the tax payable on the amounts of "capital gains" included in the assessments and not disclosed in the returns. This conclusion of the Tribunal was upheld by the High Court on a reference but on a slightly different line of reasoning. The High Court took the view that the law applicable in regard to the imposition of peanlty would be not the law as on the 1st April of the relevant assessment year (as held by the Tribunal) but the law prevailing on the dates when the original returns were filed. In this case., as mentioned earlier, the returns originally had been filed some time in 1962 and 1963. The High Court, therefore, held that the Tribunal's conclusion to scale down the penalty on the basis of the tax sought to be avoided was correct. In doing this, the High Court followed its earlier decision in the case of CIT v. Ram Achal Ram Sewak (1977) .106 ITR 144 (All.). The High Court having refused to grant a certificate of fitness to appeal to this Court, the Commissioner of Income-tax preferred special leave petitions, which were granted by this Court on March 9, 1977. This is how these appeals have come before us.
The argument addressed by Sri B.B. Ahuja, learned counsel appearing for the Revenue, is very simple and runs thus: The original returns filed in this case had culminated in the original assessments and are irrelevant for the present purposes. The present penalty proceedings were initiated in the course of reassessment proceedings initiated under section 148 of the Ace The returns filed by the assessee were in response to notices under section 148 which are to be treated, in all respects, as the original returns of income filed under section 139(2). Admittedly, in these returns filed after April 1, 1968, the assessee had failed to disclose the income from the sale of lands which was clearly taxable, if not as income from business, certainly, as income by way of capital gains. It is now well-settled that the law applicable regarding penalty for concealment is the law in force as on the date of the "offence", i.e., the filing of return. The relevant returns in these cases, having been filed after April 1, 1968, clearly attract the provisions of section 271(1)(c) as amended in 1968.
The question at issue has been raised before several High Courts. The view that the penalty in such cases will be with reference to the original return for the year has been accepted in the following cases: CIT v. Gopal Krishna Singhania (1973) 89 ITR 27 (All.); CTT v. Ram Achal Ram Sewak (1977) 106 ITR 144 (All.); Addl. CIT v. Krishna Subh Karan (1977) 108 ITR 271 (All.); CIT (Addl. ) v. Jiwan Lai Shah (1977) 109 ITR 474 (All.); CIT v. Onkar Saran (now under appeal) (1979) 116 ITR 317 (All.); CIT (Addl.) v. Mewa Lal Sankatha Prasad (1979) 116 ITR 356 (All.); CIT v. Rahman (1979) f19 ITR 475 (Pat.); CWT v. Rajamma (M.V.) (1979) 120 ITR 132 (Mad.); CIT (Addl.) v. Atma Singh Steel Rolling Mills (1979) 120 ITR 590 (All.); CIT v. Ram Singh Harmohan Singh (1980) 121 ITR 381 (P&H) (FB); CIT v. Arthanariswamy Chettiar (S.S.K.G.) (1982) 136 ITR 145 (Mad.); CIT v. S. Sucha Singe. Anand (1984) 149 ITR 143 (Delhi); CIT (Addl.) v. Joginder Singh (1985) 151 ITR 93 (Delhi); CIT v. Antony (C.P.) (1985) 155 ITR 467 (Ker.) (FB); CIT (Addl.) v. Gurbhachan Singh (1985) 156 ITR 74 (Delhi); CIT v. Kanhaiyalal Ghatiwala (1989) 180 ITR 338 (Raj.); Chowgule & Co. (Hind) P. Ltd. v. CIT (1990) 182 ITR 189 (Bom). The contrary view has, however, been taken in the following cases; CIT (Addl.) v. Balwantsingh Sulakhanmal (1981) 127 ITR 597 (MP); CIT (Addl.) v. Ratanchand Sewakaram (1985) 151 ITR 112 (MP); CIT (Addl.) v. Gopaldas Amarnomal (1985) 151 ITR 114 (MP); CIT (Addl.) v. Brijmohan Jaiswal (1983) 139 ITR 568 (MP) and CIT v. Bihar Cotton Mills Ltd. (1988) 170 ITR 290 (Pat.). It would, therefore, appear that the decisions of a majority of the High Courts support the contention raised on behalf of the assessee that, even in a case where a return filed under section 148 involves an element of concealment, the law applicable for imposition of penalty will be the law as in force at the time of the filing of the original return for the assessment year in question and not the law as it stands on the dates on which returns in response to the notice under section 148 are filed.
We have heard both counsel and also have been taken through the various decisions cited before us. We are of the opinion that the view taken by the majority of the High Courts is the more acceptable and more practical view. We do not wish to reiterate the reasoning given in these decisions. Suffice it to say that, among other decisions, the issue has been discussed at length in the decision of the Madras High Court in CIT v. S.S.K.G. Arthanariswamy Chettiar (1982) 136 ITR .145 (to which one of us ---Ramaswamy, J.---was a party) and the decision of the Delhi High Court in CIT (Addl.) v. Joginder Singh (1985) 151 ITR 93 (to which another of us ----Ranganathan, J.---was a party). For the reasons explained in these decisions and briefly summarised below, we think we should uphold the view taken by the High Court in the present case.
We may start with the position that, after the decision of this Court in Brij Mohan v. CIT (1979) 120 ITR 1, there can be no doubt that the law applicable to penalty proceedings under section 271(1)(a) or (c) is the law as in force on the date on which the "offending" return has been filed. The question is, which is the "offending" return relevant for the purpose in question? It is true, as Sri Ahuja says, That, in this case, the assessee has filed two returns in both of which he had concealed the income from the sale of lands. It no doubt appears plausible to argue that the present penalty proceedings have been initiated only because of the understatement or concealment in the return filed in 1969 and that, in doing so, the fact that the assessee had also filed earlier a return of income in respect of which he was guilty of the same concealment, is totally irrelevant.
But, attractive as this argument sounds, it cannot be accepted. The various situations in which multiple returns are filed have been analysed in the two judgments earlier referred to and detailed reasons have been given to come to the conclusion that, even in such a case, the law applicable to the penalty proceedings should be taken to be the law in force on the date of the original return, if any. We may just emphasise four considerations, which justify the above conclusion
(1) In the case of NA. Malbary and Bros. (1964) 51 ITR 295 (SC), the assessee had filed a return originally and the assessment proceedings had been completed after adding the estimated profits from a business in Bangkok which had not been shown in the return. Penalty proceedings had also been initiated and a penalty had been imposed. Subsequently, reassessment proceedings were initiated. The assessee filed a return which showed a larger income from the Bangkok business than had been estimated before and this was accepted. The Income-tax Officer initiated penalty proceedings again and levied a penalty with reference to the difference between the income originally returned and the income finally reassessed. If the arguments of Sri Ahuja were correct, there could have been no penalty at all imposed on such reassessment as there was no concealment in the reassessment proceedings. This Court, however, upheld the imposition of the penalty with reference to the original return but it was observed that, if a penalty had been levied earlier in the source of the original assessment proceedings, that penalty order should be recalled and substituted by the new penalty order. The decision of the Madras High Court in Govindarajulu Iyer (C.V.) v. CIT (1948) 16 ITR 391, which was approved by the Supreme Court in Malbary (NA.) and Bros.' case (1964) 51 ITR 295 also establishes the proposition that, even in the course of reassessment proceedings, a penalty could be imposed with reference to the concealment in the original assessment proceedings.
(2) Recent decisions of this Court in V. Jaganmohan Rao's case (1970) 75 ITR 373 (SC) and other cases indicate a view that, once an original assessment is reopened, the whole assessment proceedings for the year are thrown open for a fresh assessment. For all practical purposes, it is as if the original assessment order does not exist. Whether this principle can be taken as applicable for all purposes or not, the real position is that, though, technically speaking, the original assessment proceedings have been finalised and reassessment proceedings have been initiated to assess escaped income, it is only the determination of the correct total income for the assessment year in question that is being redone. For this assessment year, the assessee filed a return of income originally and in doing so, effected a concealment. Finally, he is being reassessed for the year and, as pointed out by Malbary (NA.) and Bros.' case (194) 51 ITR 295 (SC), it is open to the Income-tax Officer to impose a penalty on hi n, for concealment on the basis for income originally returned. If the original return could form the basis of determining the quantum of penalty imposable on the reassessment, there is no reason why the original return should also not form the basis for determining the date on which the concealment was effected by the assessee.
(3) It will be appreciated that, if the contention of Sri Ahuja is accepted, an anomalous result will follow in certain glaring cases of concealment. Let us take the following illustration. An assessee conceals income in his original return. He gets away with it and the original assessment is completed without detecting the concealment. Subsequently, a notice given for assessing the escaped income. In these proceedings, the assessee files a return of income including the escaped income. In this situation, the argument of Sri Ahuja, if accepted, will result in the conclusion that the department will be helpless in imposing a penalty in such a case. That certainly cannot be the effect of the legal provisions. Again, an assessee would completely escape penalty, if he does not at all file a return in response to the notice under section 148. The argument could be that, since a penalty can be imposed only with regard to the return filed in the reassessment proceedings and, since he had filed no such return, he cannot be penalised at all.
(4) We should also like to utter a note of warning at this stage that the matter should not be decided on the basis of the consideration that the measure of penalty with effect from April 1, 1968, has been changed over to the quantum of income concealed and that, by accepting the assessee's interpretation, we will be allowing an assessee to get away with a smaller penalty merley because the original returns had been filed before April 1, 1968. While this may no doubt be the position between 1968 and 1975, the situation will be different with effect from April 1, 1976. With effect from what date, the measure of penalty will be the one that prevailed prior to April 1, 1968, namely, on the basis of the amount of tax sought to be evaded. In other words, from April 1, 1976, one will find the Revenue and the assessee taking stands exactly contrary to the ones, which they are taking at present. The view which we are now taking and which appears to favour the assessee at present would turn out to their disadvantage and to the advantage of the department in the context of the subsequent amendment with effect from April 1, 1976.
For the reasons mentioned above, we are of the opinion that the view ` taken by the High Court is correct. The appeals, therefore, fail and are dismissed. We, however, make no order regarding costs.
M.B.A./1627/T Appeals dismissed.