Full Judgment Text
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.4278 OF 2010
[Arising out of SLP(C) No.5241 of 2007]
Joint Commissioner of Income Tax,
Surat ....Appellant
Versus
Saheli Leasing & Industries Ltd. ....Respondent
WITH
CIVIL APPEAL NO.4279 OF 2010
[Arising out of SLP(C)No.5242 of 2007]
J U D G M E N T
Deepak Verma, J.
1. Leave granted.
2. The facts of both the appeals being identical, the
facts of civil appeal arising out of S.L.P.(C)
No.5241 of 2007 are being referred to in this
judgment.
3. On a first flush, after bare perusal of the impugned
order passed in Revenue Tax Appeal No. 1904 of 2005,
decided on 8.8.2006 by Division Bench of the High
Court of Gujarat at Ahmedabad, we thought of
remanding the matter for a fresh decision on merits,
C.As. @ SLP (C) No. 5241 of 2007 etc…. (contd.)
2
in accordance with law but, on a deeper and studied
scrutiny, we thought it apt instead of directing to
remit, it would be just and proper to consider the
matter on merits ourselves and to set at rest the
legal controversy involved in the appeal. It is
further so that Division Bench in the impugned order
has decided the question of law as projected before
it in the appeal preferred under Section 260 (A) of
the Income Tax Act, 1961, (hereinafter referred to
as 'the Act') in a most casual manner. The order
is not only cryptic but does not even remotely deal
with the arguments which were sought to be projected
by the Revenue before it.
4. This Court, time and again, reminded the courts
performing judicial functions, the manner in which
judgments/orders are to be written but, it is,
indeed, unfortunate that those guidelines issued
from time to time are not being adhered to.
5. No doubt, it is true that brevity is an art but
brevity without clarity likely to enter into the
realm of absurdity, which is impermissible. This is
what has been reflected in the impugned order which
we would reproduce hereinafter.
6. We, therefore, before proceeding to decide the
C.As. @ SLP (C) No. 5241 of 2007 etc…. (contd.)
3
matter on merits, once again would like to reiterate
few guidelines for the Courts, while writing orders
and judgments to follow the same.
7. These guidelines are only illustrative in nature,
not exhaustive and can further be elaborated looking
to the need and requirement of a given case:-
a) It should always be kept in mind that nothing
should be written in the judgment/order, which may
not be germane to the facts of the case; It should
have a co-relation with the applicable law and
facts. The ratio decidendi should be clearly
spelt out from the judgment / order.
b) After preparing the draft, it is necessary
to go through the same to find out, if anything,
essential to be mentioned, has escaped discussion.
c) The ultimate finished judgment/order should
have sustained chronology, regard being had to the
concept that it has readable, continued interest
and one does not feel like parting or leaving it
in the midway. To elaborate, it should have flow
and perfect sequence of events, which would
continue to generate interest in the reader.
d) Appropriate care should be taken not to load
it with all legal knowledge on the subject as
citation of too many judgments creates more
confusion rather than clarity. The foremost
requirement is that leading judgments should be
mentioned and the evolution that has taken place
ever since the same were pronounced and
thereafter, latest judgment, in which all previous
judgments have been considered, should be
mentioned. While writing judgment, psychology of
the reader has also to be borne in mind, for the
perception on that score is imperative.
e) Language should not be rhetoric and should
C.As. @ SLP (C) No. 5241 of 2007 etc…. (contd.)
4
not reflect a contrived effort on the part of the
author.
f) After arguments are concluded, an endeavour
should be made to pronounce the judgment at the
earliest and in any case not beyond a period of
three months. Keeping it pending for long time,
sends a wrong signal to the litigants and the
society.
g) It should be avoided to give instances,which
are likely to cause public agitation or to a
particular society. Nothing should be reflected
in the same which may hurt the feelings or
emotions of any individual or society.
8. Aforesaid are some of the guidelines which are
required to be kept in mind while writing judgments.
In fact, we are only reiterating what has already
been said in several judgments of this Court.
9. Aforesaid background has been given after going
through the impugned judgment of Division Bench of
the High Court. Following substantial question of
law, as contemplated under Section 260 A of the
Act, was formulated to be answered by it :
“Whether, on the facts and in the
circumstances of the case, and in law, the Income
Tax Appellate Tribunal is right in coming to the
conclusion that where assessed income is loss,
penalty cannot be levied under section 271 (1) (c)
of the Income Tax Act in spite of the fact that
Explanation 4 (a) was added in the Income Tax Act
with effect from 1.4.1976 and subsequently,
further clause (a) was replaced by another clause
(a) which is in clarificatory nature, with effect
from 1.4.2003?”
C.As. @ SLP (C) No. 5241 of 2007 etc…. (contd.)
5
10. However, the Division Bench in its wisdom thought it
fit to dispose of the appeal as under:-
“Admitted facts are that the appellant has filed
return showing loss and the income is also
assessed as “NIL income”. When the return was
shown as loss as well as assessment of income is
also NIL, no penalty under Section 271 (1) (c) of
the Income Tax Act is attracted. No case is made
out for admission of the appeal. The appeal
stands dismissed at admission stage.
Sd/- Judge
Sd/- Judge”
11. Considering the important question of law and its wide
repercussions, it was least expected from the Division Bench
of the High Court to have dealt with the issue more
seriously, keeping in mind the question of law that was
being answered by it.
12. Feeling aggrieved, this appeal has been preferred by
Revenue before us.
Factual matrix is as under:-
13. On return being filed by the Respondent/Assessee, an
order under Section 143 (3) of the Act was passed on
27.2.1998, showing total income of Rs. NIL for assessment
year 1995-1996.
14. During the course of assessment proceedings, it was
noticed that Assessee had claimed depreciation, which was
viewed to be incorrect. Thus, an amount of Rs. 24,22,531/-
C.As. @ SLP (C) No. 5241 of 2007 etc…. (contd.)
6
was disallowed out of depreciation. Penalty proceedings
under Section 271 (1) (c) of the Act were initiated. In
response to the show cause notice issued by the Revenue,
Assessee filed its reply denying the allegations and
contending that no penalty can be imposed on it, when
returned income was NIL.
15. Penalty was sought to be imposed in respect of an item
having an effect in reducing the loss. No appeal was filed
against the item, added to the income on account of which
the loss was reduced. Admittedly, Assessee, a leasing
company had claimed depreciation on plant and machinery @
100% on various items. The statement of depreciation filed
along with the computation of income showed the claim at
Rs.1,05,08,824/-. On enquiries being made it was revealed
that 100% depreciation was claimed along with Lease
Agreements entered into with different parties. Even
though, terms and conditions of the Lease Agreements entered
into with different parties were the same, except the names
of the parties had been changed. Even after dis-allowance
of the said depreciation, the taxable income of the Assessee
was NIL and hence, there was no tax liability. According to
Assessee, in such a case no penalty under Section 271 (1)
(c) could have been levied.
16. Deputy Commissioner of Income tax, Special Range-2,
C.As. @ SLP (C) No. 5241 of 2007 etc…. (contd.)
7
Surat, on the basis of the discussion in the order held that
Assessee was liable to pay penalty, with reference to such
additions to income to be treated as its total income, with
reference to explanation 4 (a) to Section 271 (1) (c) of the
Act. Accordingly, the penalty was levied on concealed
income of Rs. 24,22,531/- at minimum rate of 100% of tax
sought to be evaded. Thus, a penalty of Rs. 11,14,364/- was
imposed on the Assessee.
17. Feeling aggrieved thereof, Assessee preferred an appeal
before the Commissioner of Income Tax (Appeals-II).
Considering various judgments of the Tribunal and the High
Courts, the appeal of the Assessee came to be dismissed and
penalty levied on it stood confirmed.
18. Assessee preferred further appeal before the Income-Tax
Appellate Tribunal, Ahmedabad. Tribunal, on the strength of
an earlier order passed by Special Bench of Ahmedabad
Tribunal in the case of Apsara Processors (P) Ltd. and Ors.
in ITA No. 284/Ahd./2004 dated 17.12.2004 came to the
conclusion that no penalty can be levied, if the returned
income and the assessed income is loss. Accordingly, the
orders passed by the Assessing Officer as well as
Commissioner (Appeals) were set aside and quashed and the
penalty imposed on the Assessee was deleted. It was this
order of the Tribunal which was carried further by filing
C.As. @ SLP (C) No. 5241 of 2007 etc…. (contd.)
8
Appeal under Section 260A of the Act in the High Court,
which met the fate of dismissal by the Division Bench.
19. Shri V. Shekhar, learned senior counsel appearing for
the appellant at the outset contended that the point
projected in this appeal stands answered in favour of the
Revenue by a judgment of Bench of three learned Judges of
this Court reported in (2008) 304 ITR 308 (SC) titled CIT
Vs. Gold Coin Health (P) Ltd .
20. In Gold Coin (supra) an earlier judgment of this
Court, reported in (2007) 289 ITR 83 SC titled Virtual Soft
Systems Ltd. Vs. CIT , pronounced by two learned Judges has
been over-ruled.
21. It is pertinent to point out here that in Gold Coin
(supra), what was being challenged by the Revenue, was the
order passed by same Bench of the High Court of Gujarat at
Ahmedabad, which finds place at page 309, wherein before
proceeding to decide the matter, the three learned judges of
this Court thought it fit to reproduce the same. The
question of law as projected in Gold Coin (supra) before the
High Court and the question of law as projected in this
appeal is identical but what is being deciphered by us is
the manner in which the impugned judgment has been written
and pronounced. After all, at the High Court level, when a
matter is considered on merits by a Division Bench, not only
C.As. @ SLP (C) No. 5241 of 2007 etc…. (contd.)
9
factual but even legal aspect of the matters is required to
be considered at some length.
22. The matter of Gold Coin (supra) was placed before three
learned judges of this Court, as correctness and propriety
of the order passed by two learned judges of this Court in
Virtual Soft Systems (supra) was doubted. Thus, to clear
the doubts, on the correct exposition of law, a three Judge
Bench was constituted which decided the matter in Gold Coin
(supra).
23. It is to be seen that purpose behind Section 271 (1)(c)
of the Act is to penalise the Assessee for -
a)concealing particulars of income and / or
b)furnishing inadequate particulars of such income.
24. Whether income returned was a profit or loss, was really
of no consequence. Therefore, even if no tax was payable,
the penalty was still leviable. It is in that context, to be
noted that even prior to the amendment it could not be read
to mean that if no tax was payable by the Assessee, due to
filing of return, disclosing loss, the Assessee was not
liable to pay penalty even if the Assessee had concealed
and/or furnished inadequate particulars.
25. Some of the High Courts had taken a contrary view,
thus, Parliament in its wisdom thought it fit to clarify the
position by changing the expression “ any” by “ if any” .
C.As. @ SLP (C) No. 5241 of 2007 etc…. (contd.)
10
Thus, this was not a substantive amendment which created
imposition of penalty for the first time. The amendment by
the Finance Act of the relevant year as specifically noted
in the notes on clauses shows that proposed amendment was
clarificatory in nature and would apply to all assessments
even prior to the assessment year 2003-2004.
26. Thus, in Gold Coin (supra), after combined reading of
the recommendations of Wanchoo Committee, and Circular
No. 204 dated 24.7.1976, it was clarified that points had
been made clear with regard to Explanation 4 (a) to Section
271 (1) (c) (iii) to intend to levy penalty not only in a
case where after addition of concealed income, a loss
returned, after assessment becomes positive income, but also
in a case where addition of concealed income reduces the
returned loss and finally the assessed income is also a loss
or minus figure. Therefore, even during the period between
1.4.1976 and 1.4.2003, the position was that penalty was
still leviable in a case where addition of concealed income
reduces the returned loss.
27. In the aforesaid case, the expression “income” in the
statute appearing in Section 2 (24) of the Act has been
clarified to mean that it is an inclusive definition and
includes losses, that is, negative profit. This has been
held so on the strength of earlier judgments of this Court
C.As. @ SLP (C) No. 5241 of 2007 etc…. (contd.)
11
in CIT Vs. Harprasad and Co. P. Ltd (1975) 99 ITR 118 and
followed in Reliance Jute and Industries Ltd. Vs. CIT (1979)
120 ITR 921. After elaborate and detailed discussion, this
Court held with reference to the charging provisions of
statute that the expression “income” should be understood to
include losses. The expression “profits and gains” refers
to positive income whereas “losses” represent negative
profit or in other words minus income.
28. Considering this aspect of the matter in greater
details, Gold Coin (supra) over-ruled the view expressed by
two learned judges in Virtual Soft Systems (supra).
29. Relevant paras 11 and 12 of Gold Coin (supra) dealing
with income and losses are reproduced herein below:-
“11. When the word “income” is read to include
losses as held in Harprasad's case it becomes
crystal clear that even in a case where on
account of addition of concealed income the
returned loss stands reduced and even if th
final assessed income is a loss, still penalty
was leviable thereon even during the period
April 1, 1976 to April1, 2003. Even in the
Circular dated July 24, 1976, referred to
above, the position was clarified by the
Central Board of direct Taxes (in short “the
CBDT”). It is stated that in a case where on
setting off the concealed income against any
loss incurred by the Assessee under any other
head of income or brought forward from earlier
years, the total income is reduced to a figure
lower than the concealed income or even to a
minus figure the penalty would be imposable
because in such a case 'the tax sought to be
evaded” will be tax chargeable on concealed
income as if it is “total income”.
C.As. @ SLP (C) No. 5241 of 2007 etc…. (contd.)
12
12. Law is well-settled that the applicable
provision would be the law as it existed on the
date of the filing of the return. It is of
relevance to note that when any loss is
returned in any return it need not necessarily
be the loss of the concerned previous year. It
may also include carried forward loss which is
required to be set up against future income
under Section 72 of the Act. Therefore, the
applicable law on the date of filing of the
return cannot be confined only to the losses of
the previous accounting years.”
30. The necessary consequence thereof would be that even if
Assessee has disclosed NIL income and on verification of the
record, it is found that certain income has been concealed
or has wrongly been shown, in that case, penalty can still
be levied. The aforesaid position is no more res integra
and according to us, it stands answered in favour of the
Revenue and against the Assessee.
31. The learned senior counsel appearing for the respondent
Assessee, Mr. D.N Sawhney, contended that the observations
made in Gold Coin (supra) can at best be treated as obiter
but not as binding precedent. According to him, the
earlier judgment of the Coordinate Bench in CIT Vs.
Elphinstone Spinning and Weaving Mills Co. Ltd. XL ITR 142,
w ould still hold the field and applies fully to the facts of
the said case.
32. Much emphasis has been laid on the following
observations in Elphinstone (supra) reproduced hereinbelow :
C.As. @ SLP (C) No. 5241 of 2007 etc…. (contd.)
13
“There is no doubt that if the words of a
taxing statute fail, then so much the tax.
The courts cannot, except rarely and in clear
cases, help the draftsmen by a favourable
construction. Here, the difficulty is not one
of inaccurate language only. It is really
this that a very large number of taxpayers are
within the words but some of them are not.
Whether the enactment might fail in the former
case on some other ground (as has happened in
another case decided today) is not a matter we
are dealing with at the moment. It is
sufficient to say there that the words do not
take in the modifications which the learned
counsel for the appellant suggests. The word
“additional” in the expression “additional
income-tax” must refer to a state of affairs
in which there has been a tax before. The
words “charge on the total income” are not
appropriate to describe a case in which there
is no income or there is loss. The same is
the case with the expression “profits liable
to tax” The last expression “dividends
payable out of such profits” can only apply
when there are profits and not when there are
no profits.
It is clear that the Legislature had in
mind the case of persons paying dividends
beyond a reasonable portion of their income.
A rebate was intended to be given to those who
kept within the limit and an enhanced rate was
to be imposed on those who exceeded it. The
law was calculated to reach those persons who
did the latter even if they resorted to the
device of keeping profits back in one year to
earn rebate to pay out the same profits in
the next. For this purpose, the profits of
the earlier years were deemed to be profits of
the succeeding years. So far so good. But
the Legislature failed to fit in the law in
the scheme of the Indian Income-tax Act under
which and to effectuate which the Finance Act
is passed. The Legislature used language
appropriate to income, and applied the rate to
the “total income”. Obviously, therefore, the
law must fail in those cases where there is no
C.As. @ SLP (C) No. 5241 of 2007 etc…. (contd.)
14
total income at all, and the courts cannot be
invited to supply the omission made by the
Legislature.”
33. In a first glance, after considering arguments of both
sides, we thought that matter required to be referred to a
larger Bench for considering the issue involved in this
appeal but on deeper scanning of the judgments in Gold Coin
(supra) and Elphinstone (supra), we came to the conclusion
that the ratio decidendi of Gold Coin (supra) fully covers
the issue and the case of Elphinstone (supra) has no
application to the facts of the said case.
34. Both cases are distinguishable on the following broad
grounds, namely:
(i) Gold Coin Health (supra) arose under
the Income Tax Act, 1961, whereas Elphinstone(supra)
arose under the repealed Income Tax Act of 1922.
(Though this is only a distinguishing feature noticed
in 2 decisions which is not of much significance).
(ii) The question that fell for consideration in Gold
Coin (supra) was what would be the true
interpretation of Section 271 (1) (c) in the context
of amendments made therein whereas, the question in
Elphinstone (supra) was in relation to chargeability
C.As. @ SLP (C) No. 5241 of 2007 etc…. (contd.)
15
of “additional tax” on “dividend income” earned by
Assessee under paragraph – B of First Schedule to the
Income Tax Act, 1922.
(iii) Elphinstone (supra) interpreted five
words occurring in para-B of First Schedule namely;
“additional”, “additional Income Tax”, “charge on
the total income”, “profits liable to tax” and
lastly, “dividends payable out of such profits”,
whereas, in Gold Coin's case, the question arose
whether word “income” includes loss for the purpose
of imposition of penalty u/s 271 (1) (c) and if
Assessee incurs loss in any particular year then
whether penalty u/s 271 (1) (c) can still be imposed
on him. This has been categorically answered in Gold
Coin (supra) in favour of Revenue and against the
Assessee.
(iv) The object of imposing penalty is different than
that of determining Assessee's liability to pay tax
or additional tax under any charging section. The
interpretation applied to penalty provision thus,
cannot be applied while interpreting any charging
section for payment of income tax or additional tax.
In other words, both provisions i.e. penalty and
C.As. @ SLP (C) No. 5241 of 2007 etc…. (contd.)
16
charging have different objects and consequences.
They operate in different fields qua Assessee.
(v) The liability to pay additional tax under First
Schedule on the income earned out of dividend implies
that Assessee is first required to pay “tax” and then
additional tax on the specified income. It was
basically this issue which was examined in
Elphinstone (supra) wherein Their Lordships
considered the object for enacting first para of
schedule. This object has nothing to do with penalty
provisions.
(vi) A particular word occurring in one Section
of the Act, having a particular object cannot carry
the same meaning when used in different Section of
the same Act, which is enacted for different object.
In other words, one word occurring in different
Sections of the Act can have different meaning, if
the object of the two Sections are different and when
both operate in different fields.
(vii) Question of law involved in this appeal is
directly covered by the decision of Gold Coin (supra)
and is to be answered accordingly.
(viii) Elphinstone (supra), therefore, has no bearing
over the view taken in Gold Coin (supra) case and
C.As. @ SLP (C) No. 5241 of 2007 etc…. (contd.)
17
even if it had been taken note of, the decision taken
therein would have been the same due to
aforementioned distinguishing feature.
(ix) The issue involved in Gold Coin (supra) being
entirely different than the one involved in
Elphinstone (supra), the view taken by this Court in
both the decisions are correct operating in the
respective fields, requiring no reconsideration of
the matter.
(x) In order to enable the Court to refer any case
to a larger Bench for reconsideration, it is
necessary to point out that particular provision of
law having a bearing over the issue involved was not
taken note of or there is an error apparent on its
face or that a particular earlier decision was not
noticed, which has a direct bearing or has taken a
contrary view. Such does not appear to be a case
herein. Thus, it does not need to be referred to a
larger Bench as in our considered opinion; it is
squarely covered by the judgment of this Court in
Gold Coin (supra).
35. In the light of the aforesaid discussion, we have no
doubt in our mind that the ratio of Elphinstone (supra) has
C.As. @ SLP (C) No. 5241 of 2007 etc…. (contd.)
18
no application to the facts of the case and the question of
law projected stands squarely answered in favour of the
Revenue and against the Assessee in Gold Coin (supra) as a
result thereof, appeal by Revenue stands hereby allowed.
Impugned order passed by Income Tax Appellate Tribunal and
confirmed by Division Bench are hereby set aside and
quashed. The Revenue, therefore, would be at liberty to
proceed further against the Assessee on merits in accordance
with law.
36. Appeals stand allowed as mentioned hereinabove but with
no order as to costs.
.......................CJI
[K.G. Balakrishnan]
....................
...J.
[Deepak Verma]
.......................J.
[B.S. Chauhan]
New Delhi.
May 07, 2010