- (1.) These appeals by special leave under Article 136 of the constitution are against the judgment of the Gauhati High court dated 22/06/1976 in Income Tax Reference No. 17 of 1974 deciding a common question of law relating to assessment years 1963-64 and 1964- 65. The common question of law referred to the High court for its decision under Section 256 (1 of the Income Tax Act, 1961 was as under: "Whether on the facts and in the circumstances of the case the tribunal was justified in law in upholding the order of the Appellate assistant Commissioner cancelling the penalty orders of the Income tax Officer under Section 271 (1 (a) of the Income Tax Act, 1961 relating to the assessment years 1963-64 and 1964-65 on the ground that the penalty orders were illegal and not according to law -
(2.) The material facts are only a few. The assessee was a registered firm which committed default in submission of its return for the aforesaid assessment years, the delay being of 15 months in submission of the return for the assessment year 1963-64 and of 23 months in submission of the return for the assessment year 1964-65. The Income Tax Officer computed the penalty at the sum of Rs. 6,944. 00 and Rs. 70,118. 00 respectively for these two years. According to the department the penalty leviable on the assessee treating it as unregistered firm in accordance with Section 271 (2 of the Act in such a situation was Rs. 65,700. 00 and Rs. 93,564. 00 respectively for these two years. Curiously, the assessee went up in appeal challenging imposition of even this penalty. The Appellate Assistant commissioner, in appeal, came to the following conclusion: "In the present case for the assessment year 1963-64 the appellant was assessed on a total income of Rs. 2,89,620. 00. The tax thereon in the status of URF comes to Rs. 2,19,035. 00. Two per cent of this comes to rs 4,380 per month. The delay in submission of the return is for a period of 15 months. The penalty impossible in this case therefore, should be Rs. 65,700. 00 whereas the Income Tax Officer has imposed a penalty of Rs. 6,944. 00. For the assessment year 1964-65 the appellant was assessed on a total income of Rs. 2,81,110. 00. Tax thereon in the status of URF comes to Rs. 2,03,405. 00. The penalty 2% of this comes to Rs. 4,068. 00 per month. But the delay in submission of the return is for a period of 23 months. The penalty in this case, therefore, would be at 208 rs 93,564 whereas the Income Tax Officer has imposed a penalty of rs 70,118 only. This is, therefore, clearly contrary to the provision of section 271 (1 (a). "
(3.) The Appellate Assistant Commissioner having reached the conclusion that the Income Tax Officer had committed this illegality, instead of taking the necessary proceedings in accordance with law for avoiding this loss of revenue made the order cancelling the entire penalty imposed by the Income Tax Officer. The department then went up in appeal to the Income Tax Appellate tribunal. The tribunal affirmed the finding of the Appellate Assistant Commissioner about the illegality committed by the Income Tax Officer in computing the penalty which was required to be imposed on the assessee and then it proceeded to say that it had no other alternative except to uphold the order of the Appellate assistant Commissioner cancelling the penalty imposed by the Income tax Officer which suffered from the illegality indicated. At the instance of the department the tribunal referred the above-quoted question of law under Section 256 (1 of the Act for the decision of the High court. The high court, by the impugned order has reaffirmed as correct the computation of penalty made by the Appellate Assistant Commissioner and the tribunal indicating that the computation made by the Income Tax officer was illegal and at much lower amount. The High court after quoting extensively from the tribunal's order while affirming its finding on the quantum of penalty required to be imposed on the assessee proceeded to take the view that the question of law referred to it for its decision did not cover the question of law which arose out of the tribunal's order. The High court stated thus: "The assessee was, therefore, liable to pay penalty under Section 271 (1 of the Act. The penalty must be imposed within the minimum and maximum limits prescribed by Section 271 (1 (a) read with sub- section (2 of Section 271. Ss. (2 cannot be detached from sub-section (1 of Section 271 while determining the quantum of penalty between the minimum and maximum limits prescribed. The statutory minimum and maximum limits of penalty imposable under section 271 have to be observed by any authority imposing the penalty. In the instant case, the penalty was imposed contrary to the provisions of Ss. (2 of Section 271. That being so the order of the Income Tax Officer cannot be said to be in accordance with law and, therefore, it is not sustainable in law. The penalty imposable in both the assessment years was much higher than the penalty imposed by the Income Tax Officer. It is not disputed before us that the tribunal has no right to enhance the penalty. The question of law referred to us is also not to the effect whether the tribunal was justified in not remanding the case to the Appellate Assistant Commissioner after setting aside the orders 209 of the Income Tax Officer by upholding the order of the Appellate assistant Commissioner cancelling the orders of penalty passed by the income Tax Officer. The common question of law referred to us is whether the tribunal was justified in law in upholding the order of the appellate Assistant Commissioner cancelling the penalty orders of the income Tax Officer on the ground that the penalty orders were illegal and not according to law. There is no doubt, as discussed herein above, that the penalty orders passed by the Income Tax Officer were not in accordance with law and on that ground the penalty orders were not sustainable and the Appellate Assistant Commissioner apart from other grounds set aside the penalty orders on that ground also. That being so and in view of the facts and circumstances of the case, the tribunal cannot be said to be unjustified in upholding the order of the appellate Assistant Commissioner in setting aside the orders of the income Tax Officer on the ground that the penalty orders passed by the Income Tax Officer were illegal and not according to law. ";