Decided on May 20,1983



S.RANGANATHAN, J - (1.)It is well settled that for the purposes of assessment to income tax the law to be applied is the law that is in force in the assessment year; in other words, the Income-tax Act as it stands amended on the first day of April of a financial year will apply to the assessment for that year. This principle enunciated by the Privy Council in Maharajah of Pithapuram v. Commissioner of Income Tax (1945-13 ITR 221)(1) has since been reiterated by the supreme Court in Karimtharuvi Tea Estate Ltd. V. State of Kerala (1966-60 ITR 262) (2) and CIT v. Scindia Steam Navigation Co. Ltd. (1961-42 ITR 589) (3) and.other decisions. The two references presently under consideration raise a similar question regarding the law applicable inregard to the levy of a penalty for concealment under Section 271(1)(c) of the Income-tax Act, 1961.
(2.)So far as the penalty provisions are concerned, there have been material changes in the statute in several respects and these have brought to the forefront a good deal of controversy in regard to the particular provision of law that would be applicable in a particular case. These issues have arisen in the context of three major changes regarding the imposition of levy of penalty under the Income-tax Act. .The first set of changes was haralded by the substitution of the Income-tax Act, 1961 in the place of Indian Income-tax Act, 1922. So far as this change was concerned, however, the statute itself made certain provisions in Sections 297(2) (f) and (g) to these provisions. Notwithstanding this, there were some conflicts and controversies that were set at rest by the Supreme Court in the case of Jain Brothers and Others v.UOI 1970-77 ITR 107(4). The second set of changes was effected by the Finance Acts of 1964, 1968 and 1975. The Finance Act of 1964 deleted the word "deliberately" in Section 271(l)(c). and also introduced an explanation casting the onus of proof on the assessee in cases where the difference between the returned income and the assessed income exceeded a particular margin. The Finance Act of 1968 amended the quantum of, penalty that was impossible in cases of concealment. Under the pre-1968 provisions the quantum of penally was measured with reference to the tax which was sought to be avoided by means of the concealment that was being penalised, i.e., by the amount of difference between the tax on assessed income and that on the returned income The penalty varied from 20 percent to 150 percent of the tax sought to be avoided. The new provision as substituted with effect from 1-4-1968 by the Finance Act of 1968 provided for the computation of the penalty at figures varying between 1,00 percent and 200 percent of the amount of income in respect of which there has been concealment. Several cases have arisen in regard to the applicability of these provisions to paritcular cases and it is this aspect of the controversy that arises in these two references as well. The same type of questions will also arise in respect of the amendments made with effect from 1-4-1976 by the Taxation Laws (Amendment) Act, 1975 which restored the original measure and restricted the penalty to between 100 percent to 200 percent of the amount of tax sought to be avoided as defined in the new Explanaion 4. The third major change made in the Act was represented by the amendments to Sections 274 and 275 of the Income-tax Act. Section 274 originally provided that in cases of concealment where the minimum penalty imposable exceeded Rs. 1,000, the penalty was to be imposed by-the Inspecting Assistant Commissioner and Section 275 provided that an order of penalty was to be passed before the expiration of two years from (to put it briefly) the date of completion of the assessment. These provisions were, however, amended by the Taxation Laws (Amendment) Act, 1970 with effect from 1st April, 1971. Section 274(2) was amended to provide that the Inspecting Assistant Commissioner will be the authority to levy the penalty in cases where the amount of income in respect of which consealment was alleged exceeded the sum of Rs. 25,000 and Section 275(2) was amended by extending the period of limitation to two years from the end of the financial year in which the proceedings in the course of which action for the imposition of penally had been initiated were completed or six months from the end of the month in which the appeal against the assessment before the Appellate Assistant Commissioner or the Tribunal is disposed of The details of the amendments are not relevant for our present purposes. It may also be mentioned that with effect from 1-4-1976, Section 274(2) has been omitted and the power to impose penalty in all cases has been restored to the Income tax Officer. This series of amendments has also given rise to a large number of Judicial decisions taking different views. We are mentioning these three sets of controversies here because, in cur view, the principles applicable to the three sets of controversies are different and in order to make it clear that the judicial decisions relating to the first or the third sets ot controversies which have also been cited before us) are not ot much help in deciding the issue in the present reference which relate only to the second aspect which has been referred to earlier. We shall, therefore, in our discussion, confine ourselves to this group of cases in coming to a conclusion on the issues raised before us.
(3.)Before proceeding further it may be useful to give a brief narration of the relevant facts. Both the references relate to the assessment year 1967-68, the previous year being the financial year 1966-67. In ITR 131174 the assessee. Shri Joginder Singh, filed a return showing an income of Rs. 8,451. (This figure mentioned in the reassessment order may be a mistake for Rs. 4,481 which figure was also repeated by the assessee in the return under Section 148 referred to below). The exact date of this return is not available but it was admittedly filed prior to 1-4-1968. The assessment was also completed on 10-1-1969 on an income of Rs. 8,481 (From the figures given in the reassessment order, it appears that an addition ot Rs. 4,000 may have been made while determining the income from a truck). Subsequently, the Income-tax Officer had reason to believe that the income of the assessee had escaped assessment. He issued a notice under Section 148 in response to which the assessee filed his return of income on 7-7-1970 showing an income of Rs. 4,481 as before. The assessment was completed on a total income of Rs. 14,481 which included the further addition of a sum of Rs. 6,000 (representing a proportionate part of the cost of construction of a house property the sources for which had not been properly explained to the satisfaction of the Income-tax Officer) which was treated as the assessee's unexplained income for the assessment year in ques tion. The re-assessment was completed or. 5-10-1970. Simultaneously, with the re-assessment the Income-tax Officer initiated penalty proceedings under Section 271(l)(c) which were referred to the Inspecting Assistant Commissioner, who by an order dated 19-9-1972, imposed a penalty of Rs. 6,000 by reference to the addition made to the returned income as representing the unexplained investment. The assessee preferred an appeal to the Tribunal. Though the assessee contended that the facts of the case did not bring out any concealment on his part in respect of which a penalty could be imposed, this contention was repelled by the Tribunal. Indeed, it appears that before the Tribunal it was conccded on behalf of the assessee that in view of the decision of the Delhi High Court in the case of Durga Timber Works v. Commissioner of Income Tax (1971-79 ITR 63)(5) the jeviability of a penalty in the circumstances of the case could not be challenged. The only question that was raised for the consideration of the Tribunal was whether the amount of penalty [which the Inspecting Assistant Commissioner had put at 100 percent of the concealed income on the basis of the provisions of section 271(1)(c) as amended with effect from 1-4-1968] was properly levied or whether the amount of penalty leviable should be computed with reference to the provisions of Section 271(l)(c) as they stood prior to 1-4-1968. This question was answered by the Tribunal by stating that since the penalty related to the assessment year 1967-68, the amendment made to Section 271(l)(c) which was effective from 1-4-1968 could not be applied. In reaching this conclusion the Tribunal relied on the decision of the Kerala High Court in Hajee K. Assainar v. Commissioner of Income Tax (1971 81 ITR 423)(6) and an earlier decision reached by one of the Delhi Benches of the Tribunal. In this view of the matter the Tribunal white upholding the penalty directed that its quantum should be reduced to the minimum under the provisions as they stood prior to the amendment of 1968. In other words, the Tribunal directed that the penalty amount should be reduced to 20 percent of the tax attributable to the amount of income concealed. It is against this conclusion of the Tribunal that the Commissioner of Income tax has come up in reference to this court. The question of law referred to this court is in the following terms :
"Whether the Tribunal was right in law in holsding that the provisions (of) to section 271(l)(c) betore their amendment as and from 1-4-1968 were only applicable in the instant case?"
Turning now to ITR 65/75 the facts are somewhat similar. The first return of income of this assessee, Shri Hari Ram, was filed on 1-9-1967 showing an income of Rs. 1,026. On 4-9-1968 a revised return was filed declaring a total income of Rs. 3,016. Yet another revised return of income was filed on 20-1-1-1968 wherein the income was shown at Rs. 7,726. The assessment was, however, completed on a total income of Rs. 17.700. In the assessment order dated 25-9-1969 the Income-tax Officer referred to the return showing an income of Rs. 5,016. He mentioned that the assessee had purchased a truck for Rs. 42,638. In explaining the sources for this investment the asssssee had pointed out that he had advanced a sum of Rs. 8,000 to some party which had been returned to him with interest of Rs. 5,200 on 13-7-1966, i.e., during the previous year. The Income-tax Officer completed the assessment by taking a sum of Rs. 3,750 as income from plying of the truck, Rs. 5,200 as interest income and a sum of Rs. 8.750 as share income from a firm. At the time of the completion of the assessment the Income-tax Officer also issued a notice under Section 271(l)(c) and referred the matter to the Inspecting Assistant Commissioner under Section 274(2). The Inspecting Assistant Commissioner after considering the facts of the case came to the conclusion that the sum of Rs. 5,200 by way of interest had been concealed by the assessee from the two returns filed on 1-9-1967 and 4-9-1968 and had been disclosed only in the return filed on 20-11-1968. He pointed out that the return of income filed on 1-9-1967 got merged into the revised return filed on 4-9-1968. In the return dated 4-9-1968 the assessee had omitted to include the sum of Rs. 5,200. This being so the Inspecting Assistant Commissioner was of opinion that the assessee had concealed the sum of Rs. 5,200 from the return dated 4-9-1968. In his opinion a penalty of Rs. 5,200 was imposeable in respect of this concealment. This amount was computed on the basis of the provisions of Section 271(1)(c) as amended on 1-4-1.968. The assessee preferred an appeal to the Tribunal. The Judicial Member of the Tribunal was of the opinion that so far as the applicability of the penal provisions was concerned it was clear that the assessee had concealed the particulars of his income but that "since the offence pertains to the assessment year 1967-68, the accounting period being 1-4-1966 to 31-3-1967, we do not think the amended penal previsions would be held to be applicable in respect of the case of the assessee." In his view the penalty leviable should be the minimum penalty under the law as it stood prior to 1-4-1968. The Accountant Member concurred with this conclusion, namely, that the penalty should be calculated on the basis of the provisions as they stood prior to 1-4-1968 but his reason for coming to this conclusion was on the ground that the first retarn of income had been submitted on 1-9-1967. Thus. both the members, though for different reasons, agreed that the amount of penalty imposed should be reduced and it is against this conclusion that the Commissioner of Income-tax has come up in reference before us. The question of law referred to us in this reference reads as follows :
"Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that minimum penalty under section 271(l)(c) of the Incometax Act. 1961 would be leviable under the law prior to 1 -4-1968?"


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