Full Judgment Text
Reportable
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.5769 OF 2009
(Arising out of SLP(C) No. 31192/2008)
C.I.T., Delhi …Appellant
Versus
Atul Mohan Bindal …Respondent
JUDGEMENT
R.M. Lodha, J.
Delay condoned.
2. Leave granted.
3. The revenue has come up in appeal by special leave
aggrieved by the judgement of the High Court of Delhi whereby the
High Court dismissed their appeal under Section 260A of the
Income Tax act, 1961 (for short, “the Act” ) on January 25, 2008 and
upheld the order dated December 22, 2006 passed by the Income
Tax Appellate Tribunal, Delhi Bench ‘H’, New Delhi.
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4. Atul Mohan Bindal - assessee filed return of his income
for Assessment Year 2002-03 on August 8, 2002 declaring his
total income Rs.1,98,50,021/-. In the assessment proceedings u/s
143, a notice alongwith questionnaire was issued to him by the
Assessing Officer on November 29, 2002. Pursuant thereto,
assessee attended the assessment proceedings and furnished the
requisite details. During the assessment proceedings, it transpired
that assessee worked with M/s DHL International(S) PTE Ltd.,
Singapore during the previous year and was paid salary in Singapore
amounting to US$ 36,680.79 equivalent to Rs.17,81,952/-. The
assessee explained that an amount of US $ 8199.87 (Rs.3,98,350/-)
was deducted as tax from the aforesaid salary income and having
paid tax on salary income earned in Singapore, he was of the view
that the said income was not liable to be included in the total income
in India. He however, offered salary income of Rs. 17,81,952/- to be
included in his total income. The assessee was also found to have
received an amount of Rs. 5,00,000/- from his erstwhile employer
M/s Honeywell International (India) Pvt. Ltd. in the previous year. His
explanation was that the said amount was exempted under Section
10(10 B) of the Act being retrenchment compensation. According to
the Assessing Officer, that amount could not be exempted u/s 10
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(10B) as the assessee was not a workman. The assessee also
earned interest income of Rs. 22,812/- from Bank of India which was
not included by him in the total income but he offered for tax the said
amount. The Assessing Officer, accordingly, added Rs.17,81,952/-,
Rs.5,00,000/- and Rs.22,812/- to the income declared by the
assessee in the return and assessed the total income of assessee
at Rs.2,21,54,785/-. Penalty proceedings under Section 271(1)(c)
were initiated separately and penalty of Rs.7,75,211/- was imposed
under Section 271(1)(c) by the Assessing Officer vide Order dated
March 16, 2003.
5. The assessee accepted the order of assessment but
challenged the order of penalty in appeal before the CIT (Appeals)
XXV, New Delhi.
6. After hearing the assessee and the departmental
representative, the CIT (Appeals) XXV, New Delhi allowed the
appeal and set aside the order of penalty vide his order dated August
22, 2005. The CIT (appeals) held that the assessee has neither
concealed the particulars of his income nor he furnished any
inaccurate particulars thereof. This is what the CIT (Appeals) held:
“… I believe that this is a case of unintentional and
inadvertent omission and therefore, it is not a fit case
for levy of penalty u/s. 271(1)(c) of the Act as the
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assessee has not concealed the particulars of his
income; nor has he furnished any inaccurate
particulars thereof. As can be seen from a perusal of
the impugned order, the penalty has been levied with
reference to firstly, the addition disallowing the claim
of Retrenchment compensation of Rs.5,00,000/-
made u/s 10(10B) of the Act, secondly, the salary
received in Singapore for services rendered outside
India from December to March 2002 amounting to Rs.
17,81,952/- offered by the appellant in the course of
assessment proceedings and thirdly the interest
income of Rs. 22,812/- also offered for tax in the
revised return filed during the course of assessment
proceedings. As regards the former, the AO
appears to be completely satisfied as regard the
genuineness of the reasons that necessitated the
revision. As regard the second, the issue involved
difference of opinion even between two different
benches of the Apex Court, and thirdly, the A.O.
again seems to be satisfied about the appellant’s
reply in this connection. In any case, the additions
were made on the basis of the particulars furnished
by the appellant and not discovered independently by
the A.O.
5.1 That the appellant had a bona fide belief of the
non-taxability of the salary income earned in
Singapore where tax- withholding had taken place
and India had DTAA with Singapore, so he did not
include this receipt in his salary income cannot be
rejected out of hand. During assessment proceedings
however, assessee offered this salary receipt for
taxation as per IT Act, 1961. Therefore, an amount
of Rs. 17,81,952/- was included in the total income of
the assessee. In such setting of facts, I am afraid,
the impugned addition may not lead to concealment
of income or furnishing of inaccurate particulars
thereof.”
7. The Revenue challenged the order of CIT (Appeals)
before the Income Tax Appellate Tribunal, Delhi (for short, “the
Tribunal”).
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8. The Tribunal heard the departmental representative and
the authorized representative of the assessee and by its order dated
December 22, 2006 upheld the order of CIT (Appeals). The Tribunal
considered the matter thus:
“ 12. On a careful consideration of the rival
submissions, we are of the view that the CIT
(Appeals) was justified in canceling the penalty in
respect of all the three items. So far as the salary
received in Singapore from DHL is concerned, it is
true that since the assessee was a resident of India,
the salary received in Singapore should be taxed in
his hands. The claim of the assessee was that he
was under a bona fide though mistaken impression
that because of the existence of the DTAA between
India and Singapore, if taxes are deducted from
salary income in Singapore than the said income
cannot be taxed by the Indian Income tax authorities.
Though, considering the position occupied by the
assessee ( as vice-president/general manager of a
multinational company drawing a huge salary) it is
expected that he would have been advised by a
professional with regard to his taxation matters and
therefore, it somewhat difficult to accept the
explanation, more particularly when the assessee
knew of the existence of a double taxation avoidance
agreement between India and Singapore, still one
can perhaps extend the benefits of doubt to him
because the moment he was informed by the
Assessing Officer that is not the correct legal
position, the assessee included the salary in the total
income. Further, there is no dispute that the
assessee was eligible to get credit for the taxes paid
in Singapore. In fact, the Assessing Officer has
acknowledge the same in the assessment order itself.
As regards the claim for exemption of the
retrenchment compensation received by the
assessee, the CIT Appeals) is right in saying that the
claim was on account of the opinion bona fide and
honestly entertained by the assessee that he is a
workman and, therefore, the exemption is available.
The assessee’s claim that he is a workman was
disputed by the Assessing Officer and he referred to
the definition of the workman as per the Industrial
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Dispute act, 1947 to reject the assessee’s claim.
Here also, it is a case of a difference of opinion as
regards the interpretation of the work ‘workman’ for
which no penalty is imposable. At best, it can only be
said that the assessee did not take pains to study the
Industrial Disputes act and to find out how the work
‘workman’ is defined therein. Lastly, with regard to
the claim of interest banks, since the bank certificates
were initially not available to the assessee, it was
not included in the return. The omission thus seems
to be due to reasons beyond the assessee’s control.
Moverover, in respect of all the three items, the CIT
(Appeals) has recorded a finding in paragraph 6 of his
order that all the facts were disclosed by the
assessee in the annexure to the return and the
information leading to the additions was taken by the
Assessing Officer only from the return filed by the
assessee and that such information was not found to
be false. Thus, there has been no failure on the part
of the assessee to declare all the facts before the
Assessing Officer. We are, therefore, in agreement
with the view taken by the CIT (Appeals) that this is
not a case where the assessee can be said to have
concealed his income or furnished inaccurate
particulars even within the meaning of Explanation 1
to Section 271(1)(c).”
9. The revenue filed appeal u/s 260A before the High
Court of Delhi. The High Court considered the question whether the
Assessing Officer had recorded a valid satisfaction for initiating
penalty proceedings under Section 271(1)(c) of the Act. Inter alia,
relying upon a decision of that Court in Commissioner of Income
Tax vs. Ram Commercial Enterprises Ltd. and noticing that Ram
Commercial Enterprises has been approved by this Court in Dilip
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N. Shroff vs. Joint Commissioner of Income Tax , and T. Ashok Pai
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(2007) 291 ITR 519 (SC)
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vs. Commissioner of Income Tax , held that from the reading of the
assessment order, it was not discernible as to why the Assessing
Officer chose to initiate proceedings against the assessee and under
which part of Section 271(1)(c). The High Court, therefore,
accepted the view of the Tribunal and CIT (Appeals) and dismissed
the appeal of the Revenue with cost of Rs. 5,000/-.
10. Section 271(1)(c) as was operative during the relevant
year reads thus:
“ 271. (1) If the Assessing Officer or the
(*) (Commissioner (Appeals) in the course of any
proceedings under this Act , is satisfied that any
person.
(a) …………..
(b) …………..
(c) has concealed the particulars of his income or (*) furnished
inaccurate particulars of such income,
he may direct that such person shall pay by way of
penalty,
(i) ………….
(ii) …………
(iii) in the cases referred to in clause (c), in
addition to any tax payable by him, a sum
which shall not be less than, but which shall
not exceed (three times), the amount of tax
sought to be evaded by reason of the
concealment of particulars of his income or the
furnishing of inaccurate particulars of such
income.
(*)
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(2007) 292 ITR 11 (SC)
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(Explanation 1. Where in respect of any facts
material to the computation of the total income
of any person under this Act.
(A) such person fails to offer an explanation or offers an
explanation which is found by the Assessing Officer or the
() (Commissioner (Appeals) to be false, or
(B) such person offers an explanation which he is not able to
substantiate ( and fails to prove that such explanation is
bona fide and that all the facts relating to the same and
material to the computation of his total income have been
disclosed by him),
then, the amount added or disallowed in
computing the total income of such
person as a result thereof shall, for the
purposes of clause (c) of this sub-
section, be deemed to represent the
income in respect of which particulars
have been concealed.
……………………………………..”
11. A close look at Section 271(1) (c) and Explanation (1)
appended thereto would show that in the course of any
proceedings under the Act, inter alia, if the Assessing Officer is
satisfied that a person has concealed the particulars of his income
or furnished inaccurate particulars of such income, such person may
be directed to pay penalty. The quantum of penalty is prescribed in
Clause (iii). Explanation 1, appended to section 271(1) provides that
if that person fails to offer an explanation or the explanation offered
by such person is found to be false or the explanation offered by him
is not substantiated and he fails to prove that such explanation is
bona fide and that all the facts relating the same and material to the
computation of his total income has been disclosed by him, for the
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purposes of Section 271(1)(c), the amount added or disallowed in
computing the total income is deemed to represent the concealed
income. The penalty spoken of in Section 271(1)(c) is neither
criminal nor quasi criminal but a civil liability; albeit a strict liability.
Such liability being civil in nature, mens rea is not essential.
12. In the case of Union of India and Ors. vs. Dharamendra
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Textile Processors and Ors , a three judge Bench of this Court held
that Dilip N. Shroff did not lay down correct law as the difference
between Section 271(1)(c) and Section 276(c) of the Act was lost
sight of. The Court held that the explanation appended to Section
271(1)(c) indicates element of strict liability on the assessee for
concealment or for giving inaccurate particulars while filing the
return. The Court held thus:
“The Explanations appended to Section 271(1)(c) of
the Income Tax Act, 1961, indicate the elements of
strict liability on the assessee for concealment or for
giving inaccurate particulars while filing the return.
The judgment in Dilip N. Shroff case (supra) has not
considered the effect and relevance of Section 276
(c) of the I.T. Act. The object behind the enactment of
Section 271(1)(c) read with Explanations indicates
that the Section has been enacted to provide for a
remedy for loss of revenue. The penalty under that
provision is a civil liability. Willful concealment is not
an essential ingredient for attracting civil liability as is
the case in the matter of prosecution under Section
276 (c).”
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(2008) 306 ITR 277
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13. The decision of this Court in Dharamendra Textile
Processors has been explained recently by this Court in the case of
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Union of India vs. M/s Rajasthan Spinning & Weaving Mills thus:
“20. At this stage, we need to examine the recent
decision of this court in Dharmendra Textile(supra).
In almost every case relating to penalty, the decision
is referred to on behalf of the Revenue as if it laid
down that in every case of non-payment or short
payment of duty the penalty clause would
automatically get attracted and the authority had no
discretion in the matter. One of us (Aftab Alam, J.)
was a party to the decision in Dharamendra Textiles
and we see no reason to understand or read that
decision in that manner. In Dharmendra Textile the
Court framed the five issues before it, in paragraph 2
of the decision as follows:
“2. A Division Bench of this Court has referred
the controversy involved in these appeals to a larger
Bench doubting the correctness of the view
expressed in Dilip N. Shroff vs. Joint Commissioner of
Income Tax, Mumbai and Another [(2007) 8 SCALE
304]. The question which arises for determination in
all these appeals is whether Section 11AC of the
Central Excise Act, 1944 (in short the ‘Act’) inserted
by Finance Act 1996 with the intention of imposing
mandatory penalty on persons who evaded payment
of tax should be read to contain mens rea as an
essential ingredient and whether there is a scope for
levying penalty below the prescribed minimum.
Before the Division Bench, stand of the revenue was
that said section should be read as penalty for
statutory offence and the authority imposing penalty
has no discretion in the matter of imposition of penalty
and the adjudicating authority in such cases was duty
bound to impose penalty equal to the duties so
determined. The assess on the other hand referred to
Section 271(1)(c) of the Income Tax Act, 1961 (in
short the ‘IT Act’) taking the stand that Section 11AC
of the Act is identically worded and in a given case it
was open to the assessing officer not to impose any
penalty. The Division Bench made reference to Rule
96ZQ and Rule 96ZO of the Central Excise Rules,
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(2009) 8 SCALE 231
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1944 (in short the ‘Rules’) and a decision of this
court in Chairman, SEBI vs. Shriram Mutual Fund &
Anr. {2006 (5) SCC 361) and was of the view that the
basic scheme for imposition of penalty under section
271(1)(c) of IT Act, Section 11 AC of the Act and
Rule 96ZQ(5) of the Rules is common. According to
the Division Bench the correct position in law was
laid down in Chairman, SEBI’s case (supra) and not
in Dilip Shroff’s case (supra). Therefore, the matter
was referred to a larger Bench”
After referring to a number of decisions on
interpretation and construction of statutory
interpretation and construction of statutory provisions,
in paragraphs 26 and 27 of the decision, the court
observed and held as follows:
“26. In Union Budget of 1996-97, Section
11AC of the Act was introduced. It has made the
position clear that there is no scope for any discretion.
In para 136 of the Union Budget reference has been
made to the provision stating that the levy of penalty
is a mandatory penalty. In the Notes on Clauses also
the similar indication has been given.
“27. Above being the position, the plea that
the Rules 96ZQ and 96ZO have a concept of
discretion inbuilt cannot be sustained. Dilip Shroff’s
case (supra) was not correctly decided but Chairman,
SEBI’s case (supra) has analysed the legal position in
the correct perspectives. The reference is
answered……”
21. From the above, we fail to see how the decision in
Dharamendra Textile can be said to hold that Section 11C
would apply to every case of non-payment or short payment
of duty regardless of the conditions expressly mentioned in
the section for its application.
22. There is another very strong reason for holding that
Dharamendra Textile could not have interpreted Section
11AC in the manner as suggested because in that case that
was not even the stand of the revenue. In paragraph 5 of
the decision the court noted the submission made on behalf
of the revenue as follows:
“5. Mr. Chandrashekharan, Additional
Solicitor General submitted that in Rules 96ZQ
and 96ZO there is no reference to any mens
rea as in Section 11 AC where mens rea is
prescribed statutorily. This is clear from the
extended period of limitation permissible under
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section 11A of the Act. It is in essence
submitted that the penalty is for statutory
offence. It is pointed out that the proviso to
Section 11A deals with the time for initiation of
action. Section 11AC is only a mechanism for
computation and the quantum of penalty. It is
stated that the consequences of fraud etc.
relate to the extended period of limitation and
the onus is on the revenue to establish that
the extended period of limitation is applicable.
Once that hurdle is crossed by the revenue,
the assessee is exposed to penalty and the
quantum of penalty is fixed. It is pointed out
that even if in some statues mens rea is
specifically provided for, so is the limit or
imposition of penalty, that is the maximum
fixed or ;the quantum has to be between two
limits fixed. In the cases at hand, there is no
variable and, therefore, no discretion. It is
pointed out that prior to insertion of Section
11AC, Rule 173Q was in vogue in which no
mens rea was provided for. It only stated
“which he knows or has reason to believe”.
The said clause referred to willful action.
According to learned counsel which was
inferentially provided in some respects in Rule
173Q, now stands explicitly provided in
Section 11AC. Where the outer limit of penalty
is fixed and the statute provides that it should
not exceed a particular limit, that itself
indicates scope for discretion but that is not the
case here.”
23. The decision in Dharamendra Textile must, therefore, be
understood to mean that though the application of section
11AC would depend upon the existence or otherwise of; the
conditions expressly stated in the section, once the section
is applicable in a case the concerned authority would have
no discretion in quantifying the amount and penalty must be
imposed equal to the duty determined under sub-section (2)
of Section 11A. That is what Dharamendra Textile decides.”
14. It goes without saying that for applicability of Section
271(1)(c), conditions stated therein must exist.
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15. Insofar as the present case is concerned, as noticed
above, the High Court relied upon its earlier decision in Ram
Commercial Enterprises which is said to have been approved by this
Court in Dililp N. Shroff. However, Dillip N. Shroff has been held
to be not laying down good law in Dharamendra Textiles.
Dharamendra Textiles is explained by this Court in Rajasthan Spining
and Weaving Mills. Having thoughtfully considered the matter, in
our judgment, the matter needs to be reconsidered by the High Court
in the light of the decisions of this Court in Dharamendra Textiles and
Rajasthan Spinning and Weaving Mills.
16. In the result, appeal is allowed and the judgment of the
High Court of Delhi passed on January 25, 2008 is set aside. The
matter is remitted back to the High Court for fresh consideration and
decision as indicated above. Since the assessee has not chosen to
appear, no order as to costs.
……………………J
(Tarun Chatterjee)
…….……………..J
(R. M. Lodha)
New Delhi
August 24, 2009.
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