COMMISSIONER OF INCOME-TAX VS R. SRINIVASAN
1999 P T D 2632
[228 I T R 214]
[Madras High Court (India)]
Before K. A. Thanikkachalam and S. M. Sidickk, JJ
COMMISSIONER OF INCOME-TAX
Versus
R. SRINIVASAN
Tax Cases Nos.626 to 628 of 1983 (References Nos.327 to 329 of 1983), decided on 21/01/1997.
(a) Income-tax---
----Penalty---Representative assessee---Minor---Failure of guardian to file return on time---Notice issued to guardian and guardian given opportunity to be heard---Penalty could be imposed on guardian---Indian Income Tax Act, 1961, Ss. 162 & 271.
(b) Income-tax---
----Reference---Penalty---Question whether Tribunal was justified in cancelling penalty---Question covered aspect whether interpretation of order of I.T.O. by Tribunal was correct---Indian Income Tax Act, 1961, S.256.
The guardian of a minor who pays the tax on behalf of the minor is entitled to recover the same from the estate of the minor. Section 162 of the Income Tax Act, 1961, says that any sum paid by the guardian on behalf of the minor is recoverable by the guardian from the minor's estate. Even assuming that the guardian is not entitled to recover the penalty paid under section 271(1)(a) of the Act from the minor's estate, that would not mean that no penalty is imposable on the guardian for the delay in filing the returns for the minor.
The Income-tax Officer found that for the assessment years 1972-73 to 1974-75, there was a delay in filing the returns of the minor, S. He, therefore, issued notice on the guardian of S and after hearing him, held that there was no satisfactory explanation for the delay and imposed penalty under section 271(1)(a); The Tribunal found that there was no reasonable cause for not filing the returns and that the delay was due to the negligence on the part of the father of the minor and for the delay penalty under section 271(1)(a) was imposable. But, according to the Tribunal, the penalties imposed were unsustainable for two reasons, namely, (1) in the order levying penalties, the minor was shown as the assessee and, therefore, the penalty was imposed on the minor, which was illegal and the separate identity of the minor son and the father who was the guardian were not given distinctly and (2) even if penalty was imposable on the father, who was the guardian of the minor, no reasonable opportunity was given to him. On a reference:
Held, that a plain reading of the order imposing penalty would show that the penalties were levied on the father of the minor and not on the minor. The Tribunal was not correct in stating that the penalties were levied on the minor. The show-cause notice was issued to the father of the minor, who also filed his reply. The finding of the Tribunal that no reasonable opportunity was given to the father of the minor was not acceptable. The question was framed on a broad basis, namely, whether the Tribunal was not correct in cancelling the penalties levied under section 271(1)(a) of the Act, which would cover all the facets on the basis of which penalty was levied. Therefore, the absence of a question whether the order of penalty was based upon valid materials by itself would not prevent the Department from contending that the interpretation of the order, passed by the Income-tax Officer as stated in the order of the Tribunal was not correct. The Tribunal was not right in law in cancelling the penalties levied under section 271(1)(a) for the assessment years 1972-73 to 1974-75.
C. V. Rajan for the Commissioner.
V. Ramakrishnan for S. Jayaraman and N. V. Balasubramanian for the Assessee.
JUDGMENT
K. A. THANIKKACHALAM, J.---As per the direction of this Court, the Income-tax Appellate Tribunal referred the following common question for the opinion of this Court under section 256(2) of the Income Tax Act, 1961:
"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in cancelling the penalties levied under section 271(1)(a) for the assessment years 1972-73 to 1974-75?
The Income-tax Officer found that for the assessment years 1972-73 to 1974-75, the returns showing the income of minor, R. Srinivasan, respondent herein were filed only on February 17, 1975, even though they were due on June 30 of each of the assessment years. He, therefore, initiated penalty proceedings for the delay in filing the returns under section 271(1)(a) and imposed penalty in the following terms:
"In response to a show-cause notice to the assessee, Shri S. Rangarajan, father and guardian of the assessee, filed a reply on March 21, 1977, stating that as the auditors, Gowrikanth & Co., who were looking after the assessee's income-tax matters took considerable time to return the file and hence the delay in complying with the statutory provisions. The assessee as the guardian of the minor should have taken steps to file the. return in time. The reason advanced is not satisfactory."
The Income-tax Officer imposed penalty for the year 1972-73 Rs.29,542, for the year 1973-74 Rs.6,672 and for the year 1974-75 Rs.5,028.
On appeal, the Appellate Assistant Commissioner found that the total income of the three years were made up of the following items:
| Items | Assessment years |
| | 1972-73 (Rs.) | 1973-74 (Rs.) | 1974-75 (Rs.) |
| Capital gains on sale of land | 90,000 | --- | --- |
| Dividends from Kasturi & Sons | 41,472 | 73,100 | 1,10,132 |
| Other items (Annuity) | 950 | 950 | 950 |
He also found that dividend income was based on only two dividend warrants for the assessment years 1972-73 and 1973-74 and three dividend warrants for 1974-75 and that, therefore, the computation of total income and preparation and furnishing of the returns would not have required even one day. He was of the further view that the previous income-tax records, if any held by the previous authorised representative, Gowrikanth & Co., were irrelevant and, therefore, there was intentional delay in furnishing the returns. He, therefore, imposed penalties as stated above. The assessee preferred appeals before the Tribunal contending that the delay was due to reasonable cause and, therefore, penalty should not be imposed. In the alternative, it was also contended that under the provisions of the Act, there can be no imposition of penalty on a minor since he was not capable of committing any default. It was contended on behalf of the Revenue that the delay was not properly explained and that since the minor was represented by a guardian the penal provision was applicable equally to the minor and in the alternative the imposition of penalty should be sustained on the guardian.
The Appellate Tribunal found that the excuse offered for the delay had no real nexus with the default and that in fact the guardian of the minor neglected to file the returns of the minor in time. The Tribunal found that the delay in filing the returns was without reasonable cause and wilful. The Tribunal then considered the question on whom the penalties should be imposed and concluded that in the case of a minor the Income-tax Act (hereinafter referred to as "the Act"), did not envisage that the returns should be filed by the minor himself but only by the guardian. It was also found. that the guardian of the minor was liable to assessment only in his representative capacity. Since it was the representative assessee who was bound to file the return under section 139(1) of the Act, it was held that the penalty under section 271(1)(a) of. the Act can be imposed only upon him for breach of that obligation and that there being no obligation on the minor, there could be no penalty under section 271(l)(a). It was further held that since the minor cannot be penalised and since section 162 refers to only reimbursement of the taxes paid by the representative guardian, the guardian may not be liable to pay penalty as a representative for the minor. It was further found that the penalty was imposed without affording a reasonable opportunity in respect of the independent liability. In that view, the penalties were cancelled.
Learned Central Government standing counsel appearing for the Department submitted that it is not in dispute that the penalty under section 271(1)(a) cannot be levied on a minor, since the obligation to file the returns for the minor's income is on the guardian, that the penalty can be levied against the guardian when he failed to discharge his obligation and that it is not correct to state that since in the cause title, the name of the minor was shown as the assessee, the penalties were imposed on the minor. It is further submitted that a plain reading of the order of the Income-tax Officer would go to show that the penalty was levied on the father of the minor for not filing the return in time, that it cannot be said that there was no identity of the person on whom the penalty was levied, since the show-cause notice was issued to the father or the guardian, who filed his reply stating that the relevant papers for filing the return of the minor were with the prior representative, Gowrikant & Co. Ltd., and that, therefore, the father of the minor understood that penalty proceedings were initiated against him. Learned standing counsel further submitted that the Tribunal was correct in stating that the minor cannot be penalised because he was under no obligation to file the return, that under sections 161 and 162 of the Act the tax paid by the guardian is recoverable from the minor's estate and that the words "any sum" mentioned in the said provisions would not in any way go to show that only tax paid is recoverable from the estate and not the penalty paid. It is further submitted that even if the father was unable to recover the penalty paid by him for his default from the minor's estate, that would not mean that no penalty is leviable under section 271(1)(a) of the Act for the failure committed by the father and that it is not correct on the part of the Tribunal to state that no opportunity was given to the father before imposition of penalty and that the Tribunal was not correct in cancelling the penalty levied.
On the other hand, learned counsel appearing for the assessee submitted that the penalty cannot be levied against the minor, that in the show-cause notice as well as in the order imposing penalty in the cause title, the name of the minor is shown as the assessee and, therefore, the penalty was levied on the minor, which is not correct. It is further submitted that the Tribunal had not clearly stated to the effect that the penalty was leviable on the father, who is the guardian of the minor or penalty cannot be recovered from the estate of the minor even though the tax paid on behalf of the minor is recoverable from the estate of the minor, that the words "any sum" occurring in section 162 of the Act would not go to show that penalty, which is not tax, can also be recovered from the minor's estate and that no reasonable opportunity was given to the father of the minor distinctly stating that he is liable to penalty under section 271(1)(a) of the Act personally in his, individual capacity.
We have considered the arguments of learned counsel appearing for the Department as well as learned counsel for the assessee. The fact remains that for the assessment years 1972-73, 1973-74 and 1974-75, the returns were filed by one S. Rangarajan, who is the father of the guardian of the minor son, R. Srinivasan, on February 17, 1975, even though the same ought to have been filed on or before 30th June of each assessment year. Since there was delay in filing the returns, penalty proceedings were initiated by the Income-tax Officer and penalties levied by him under section 271(1)(a) of the Act which were confirmed by the Appellate Assistant Commissioner. However, the Tribunal cancelled the penalties. The Tribunal agreed that the father of the minor is liable to file the returns of the minor and that there was delay in filing the same. The Tribunal found that there was no reasonable cause for not filing the returns and that the delay was due to the negligence on the part of the father of the minor and for the delay penalty under section 271(1)(a) is imposable. But, according to the Tribunal, .the penalties imposed are unsustainable for two reasons, namely, (1) in the order levying penalties, the minor was shown as the assessee and, therefore, the penalty was imposed on the minor, which is illegal and the separate identity of the minor son and the father who is guardian were not given distinctly, and (2) even if penalty is imposable on the father, who is the guardian of the minor, no reasonable opportunity was given to him by stating that penalty is leviable on him in his individual capacity.
In the order passed under section 271(l)(a) of the Act, dated March 28, 1977, by the Income-tax Officer, subject is stated as follows:
"Penalty proceedings under section 271(1)(a) of the Income-tax Act, assessment year in the case of minor, R. Srinivasan, by guardian, Shri S. Rangarajan, No.9, Parthasarathy Gardens, Madras 18, Order issue of---Regarding."
In response to the said show-cause notice, S. Rangarajan, father and guardian of the minor-assessee, filed a reply on March 21, 1977, stating that as the papers relating to the previous assessment years were with Gowrikanth & Co., who were previously looking after the affairs of the minor, there was delay in complying with the statutory provisions. According to the Income?tax Officer, the guardian of the minor-assessee should have taken steps to file the returns in time. According to the Tribunal in the subject portion of the order of the Income-tax Officer, the minor was shown as the assessee, even though in the body of the order it was stated that the obligation is on the father and guardian of the minor to file the returns in time and in default of doing so, he is liable to pay the penalty. The point for consideration before us is whether the order of the Tribunal cancelling the penalties, is correct or not. Admittedly, the tax was payable for the income of the minor. The minor cannot file his return and, therefore, his father and guardian has to file the returns on behalf of the minor for the minor's income. From what is stated in the subject it is clear that the returns for the income of the minor who is represented by the guardian had not been filed in time. Further, it has to be noticed that in response to the show-cause notice issued, S. Rangarajan, father and guardian of the minor-assessee, filed a reply. It is also to be noticed that the father of the minor as guardian of the minor should have taken steps to file the returns in time. The order of the Income-tax Officer should be read as a whole and one sentence in the order cannot be taken advantage of and read in order to attribute a separate meaning for that. A plain reading of the order imposing penalty would go to show that the penalties were levied on the father of the minor and not on the minor. Therefore, the Tribunal was not correct in stating that the penalties were levied on the minor and there was confusion in the order as to on whom the penalties should be levied.
Further, according to the Tribunal, penalty cannot be levied against a minor and, therefore, the negligence on the part of the guardian of the minor would be a reasonable cause for the delay if it is taken to have been that of the minor. This view of the Tribunal also cannot be accepted as correct. It is no doubt true that the guardian of the minor who paid the tax on behalf of the minor is entitled to recover the same from the estate of the minor. Section 162 of the Act says that any sum paid by the guardian on behalf of the minor is recoverable by the guardian from the minor's estate, but that would not include the peanlty paid by the guardian for the default committed by him. Even assuming that the guardian is not entitled to recover the penalty paid under section 271(1)(a) of the Act from the minor's estate, that would not mean that no penalty is imposable on the guardian for the delay in filing the returns for the minor.
Lastly, according to the Tribunal, no reasonable opportunity was given to the father of the minor stating that he alone will be liable individually for the penalty. In fact, the show-cause notice was issued to the father of the minor, who also filed his reply stating that the delay had occurred since the papers were with Gowrikanth & Co., who were looking after the affairs of the minor previously. In such circumstances to state that reasonable opportunity was not given to the father is ununderstandable. It is clearly stated that it is for the negligence of the father, who is responsible for the delay, that the penalties were levied. Therefore, the finding of, the Tribunal that no reasonable opportunity was given to the father of the minor is not acceptable.
Learned counsel for the assessee contended that no question was raised by the Department questioning the finding given by the Tribunal on facts and, therefore, the finding of the Tribunal on the facts cannot be interfered with. In the present case, the question was framed on a broad basis, namely, whether the Tribunal was not .correct in cancelling the penalties levied under section 271(1)(a) of the Act, which would cover all .the facets on the basis of which penalty was levied. Therefore, the absence of a question whether the order of penalty was based upon valid materials by itself would not prevent the Department to contend that the interpretation of the order passed by the Income-tax Officer, as stated in the order of the Tribunal is not sustainable. Inasmuch as the question framed by the Department covers all the facets, this line of submission made by the assessee's counsel would not survive. On a plain reading of the order passed by the Income-tax Officer in its entirety, we consider that the Tribunal's order is not sustainable. In that view of the matter, we answer the question referred to us in the negative and in favour of the Department. There will be no order as to costs.
M.B.A./3035/FC ??????????????????????????????????????????????????????????????????????????????? Reference answered.