Full Judgment Text
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CASE NO.:
Appeal (civil) 2454 of 1998
PETITIONER:
COMMISSIONER OF INCOME TAX, BHOPAL
RESPONDENT:
HINDUSTAN ELECTOR GRAPHITES LTD. INDORE
DATE OF JUDGMENT: 27/03/2000
BENCH:
D.P. WADHWA & MRS. RUMA PAL
JUDGMENT:
JUDGMENT
2000 (2) SCR 506
The Judgment of the Court was delivered by
D.P. WADHWA, J. The question of law which falls for consideration is :
whether on the facts and in the circumstances of the case, Tribunal was
justified in deleting the addition made by the Assessing Officer under
Section 143(l)(a) in view of the clear cut provisions of Section 143(l)(a),
143(1A) and 234?
Respondent, the assessee, filed its return of income for the assessment
year 1989-90. The return was filed on December 29, 1989. It was filed under
Section 139 of the Income Tax Act, 1961 (for short, the ’Act’).
Under Section 28 of the Act, income mentioned therein is chargeable to
income tax under the head "profits and gains of business or profession".
Clause (iii)(b) in Section 28 was inserted by the Finance Act of 1990.
Finance Bill which ultimately became the Finance Act received assent of the
President of India on May 31, 1990. Clause (iii)(b) was given retrospective
operation w.e.f. April 1, 1967. Clause (iii)(b) is as under :
"(iii)(b) - Cash assistance (by whatever named called) received or
receivable by any person against exports under any scheme of the Government
of India."
Before the insertion of clause (iii) (b), cash assistance received by any
person against exports under any scheme of the Government could not be
chargeable to income tax under the head "profits and gains of business or
profession". The assessee had received in the previous year relevant to the
assessment year 1988-89 a sum of Rs. 1,31,41,030 by way of cash assistance.
Since clause (iii)(b) was inserted in Section 28, though having
retrospective operation by the Finance Act, 1990, the assessee did not
include this income in its return which, as noted above, was filed on
December 29, 1989. The assessee is a public limited company and for the
assessment year 1989-90 last date of filing of return of income was
December 31, 1989.
Deputy Commissioner Income Tax (Assessment) Special Range, Bhopal was the
Assessing Officer. He by his order dated May 5, 1990 passed under Section
143(l)(a)’ of the Act added the aforesaid amount of Rs. 1,31,41,030
representing the cash compensatory support and received by the assessee.
The assessee had not offered this amount to tax. The Assessing Officer
treated this as additional income under Section 143(1 A)2 of the Act and
levied the amount of tax at higher rate on this additional income and also
charged interest under Section 2343 of the Act.
The assessee filed an appeal against the order of the Assessing Officer
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1 143(i)(a) where a return has been made under section 139, or in
response to a notice under sub-section (1) of section 142 -
(i) If any tax or interest is found due on the basis of such return, after
adjustment of any tax deducted at source, any advance tax paid and any
amount paid otherwise by way of tax or interest then, without prejudice to
the provisions of sub-section (2), an intimation shall be sent to the
assessee specifying the sum so payable, and such intimation shall be deemed
to be a notice of demand issued under section 156 and all the provisions of
this Act shall apply accordingly; and
(ii) if any refunds due on the basis of such return, it shall be
granted to the assessee;
Provided that in computing the tax or interest payable by, or refundable
to, the assessee, the following adjustments shall be made in the income or
loss declared in the return, namely:
(i) any arithmetical errors in the return, accounts or documents
accompanying it shall be rectified;
(ii) any loss carried forward, deduction, allowance or relief, which, on
the basis of the information available in such return, accounts or
documents, is prima facie admissible but which is not claimed in the return
shall be made;
(iii) any loss carried forward, deduction, allowance or relief claimed in
the return, accounts or documents, is prima facie inadmissible, shall be
disallowed:
Provided further that where adjustments are made under the first proviso,
an intimation shall be sent to the assessee, notwithstanding that no tax or
interest is ’found due from him after making the said adjustments;
Provided also that an intimation for any tax or interest due under this
clause shall not be sent after the expiry of two years from the end of the
assessment year in which the income was first assessable.
2 143(lA)(a) - Where, in the case of any person, the total income as a
result of the adjustments made under the first proviso to clause (a) of
sub-section (1), exceeds the total income declared before the Commissioner
of Income-Tax (Appeal), Bhopal who partly allowed the appeal on that part
with which we are not concerned. The assessee then took the matter in
appeal to the Income Tax Appellate Tribunal (Indore Bench), Indore (for
short, the "Tribunal’). The Tribunal by its order dated August 11, 1992
allowed the appeal holding that no additional tax could be levied in
respect of the amount of cash compensatory support and no interest under
section 234 could be charged on the said amount. Now, it was the Revenue
which was aggrieved. At the instance of the Revenue, the Tribunal referred
the question to the High Court of Madhya Pradesh under Section 256(1) of
the Act for its opinion. High Court by its impugned judgment dated
September 11, 1997 answered the question in affirmative, i.e., in favour of
the assessee and against the Revenue. Against the judgment of the High
Court, Revenue sought leave to appeal to this Court which was granted and
that is how the matter is now before us.
We have to consider if the stand of the Revenue is valid or will it not
lead to unjust results for the assessee. Revenue says under section 143(1
A), the Assessing Officer has no choice and he has to levy additional tax
once he finds that the assessee has not shown the amount of the cash
compensatory support in his return, whatever the reason be. Assessee
contends it is something which is most improper and against the settled
principles.
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In Modern Fibotex India Ltd. and Another v. Deputy Commissioner of Income-
tax and Others, (1995) 212 ITR 496 (Cal.) one of the two issues before the
Court related to the validity of an intimation under Section 143(1)(a) of
the Act. For the Assessment Year 1989-90 the assessee company received cash
compensatory support from the Central Government amounting to about Rs.
8.00 lakhs. In its return of income the company claimed the amount received
by it on account of cash compensatory support as not
in the return by any amount, the Assessing Officer shall, -
(i) Further increase the amount of tax payable under sub-section (1) by an
additional income-tax calculated at the rate of twenty per cent of the tax
payable on such excess amount and specify the additional to be sent under
sub-clause (i) of clause (a) of sub-section (1);
(ii) where any refund is due under sub-section (1) reduce the amount of
such refund by an amount equivalent to the additional income-tax calculated
under sub-clause (i).
3 234. Tax paid by deduction or advance payment :-
Tax paid or deemed to have been paid under the provisions of Chapter XVI1-B
or Chapter XVII-C in respect of any income provisionally assessed under
section 141A shall be deemed to have been paid towards the previousness
assessment taxable. The Assessing Officer assessed the company applying the
amended provision of section 28 of the Act thus levying additional tax
under Section 143(1A) of the Act. The company filed a writ petition in the
High Court challenging the very constitutionality of Section 143(l)(a) read
with Section 143(1A) and Section 4 and also the intimation sent by the
Assessing Officer levying additional tax. High Court speaking through one
of us (Ruma Pal, J.) noticed that Section 28 of the Act was amended with
retrospective effect from April 1, 1967. It said :
"An assessee cannot be imputed with clairvoyance. When the return was
filed, the assessee could not possibly have known that the decision on the
basis of which cash compensatory support had been claimed as not amounting
to the assessee’s income ceased to be operative by reason of retrospective
legislation."
High Court was further of the view that there was limitation on the power
under Section 143(1)(a) and that the Assessing Officer must determine the
questions of assessment thereunder by applying the law prevailing when the
return was filed. One has to see the nature of the obligation to which an
assessee is subjected in filing his return and the object sought to be
achieved by the introduction of Section 143(1A) and Section 143(l)(a) which
direct levy of additional tax. The obligation is to file a correct return
within the time specified, that is to say, a return, which is correct
according to law in force, when it is required to be filed. It was not
disputed that the return when filed by the assessee could not be termed out
of hand as an incorrect return on the date of filing of the return. This is
how the High Court dealt the matter :-
"Without going into the question as to whether the provisions are penal in
nature, but keeping in mind the consequences of an adjust-ment made and the
insistence upon the assessee filing a correct return, it would follow that
the date for judging the question of adjustment must be the actual date of
the return in the light of the law then prevailing. To hold otherwise,
manifestly shocks one’s sense of justice that an act, correct at the time
of doing it, should become incorrect by some new enactment (see Midland
Railway Company v. Pyre (1861) 142 ER 419, 424. The injustice in my view is
more shocking in this case having regard to the fact that the assessee had
itself, in its return, drawn the attention of the income tax authorities to
the basis upon which the cash compensatory support had been included as
income and had clearly offered to include the same in any assessment if the
basis is shown to exist.
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Additionally, the change in the law by amendment of section 28 took place
several months after the return was filed by the assessee. This court is
not determining the validity of the amendment of section 28, but is merely
determining the scope of the power under section 143(l)(a). The assessee’s
return could have been taken up by the Assessing Officer under section 143
prior to the amendment. In that event, no adjustment would have been made
and no intimation would have been sent. An assessee’s liability cannot be
made to depend upon such a fortuitous circumstance."
High Court allowed the writ petition to the extent that the impugned
intimation and adjustment under Section 143(1)(a) were set aside and
quashed.
In Cement Marketing Co. of India Ltd. v. Assistant Commissioner of Sales
Tax, Indore, (1980) 124 ITR 15 SC the assessee did not include in its
return of turnover the amount of freight included in the price of sugar in
the bona fide belief that it was not liable to be included in the taxable
turnover. The assessee was imposed with a penalty in view of Section 43 of
the Madhya Pradesh General Sales Tax Act, 1958 and Section 9 of the Central
Sales Tax, 1956 on the ground that it had furnished false return by not
including the amount of freight in the taxable turnover disclosed in the
returns. This Court said that it was difficult to see how the assessee
could be said to have filed "false" return, when what the assessee did,
namely, not including the amount of freight in the taxable turnover, was
under bona fide belief that the amount of freight did not form part of the
sale price and was not includible in the taxable turnover. A return cannot
be said to be "false" unless there is an element of deliberateness in it.
It is possible that even where the incorrect-ness of the return is claimed
to be due to want of care on the part of assessee and there is no
reasonable explanation forthcoming from the assessee for such want of care,
the court may, in a given case, infer deliberateness and the return may be
liable to be branded as a false return. But where the assessee does not
include a particular item in the taxable turnover under a bona fide belief
that he is not liable so to include it, it would not be right to condemn
the return as a "false" return inviting imposition of penalty. This Court
said that Section 43 of the Madhya Pradesh General Sales Tax Act, 1958
providing for imposition of penalty was a penal in character and unless the
filing of an inaccurate return is accompanied by a guilty mind, the section
cannot be invoked for imosing penalty. This Court further said that if the
view canvassed on behalf of the Revenue were were accepted, the result
would be that even if the assessee raises a bona fide contention that a
particular item is not liable to be included in the taxable turnover, he
would have to show it as forming part of the taxable turnover in his return
and pay tax upon it on pain of being held liable for penalty in case his
contention is ultimately found by the court to be not acceptable. That
surely could never have been intended by the Legislature, this Court so
observed.
In Commissioner of Income-tax v. Onkar Saran and Sons, (1992) 195 ITR 1 SC
the assessee filed returns for the Assessment Years 1961-62 and 1962-63
disclosing incomes of Rs. 18,935 and Rs. 24,943 respectively. The
assessments were completed in the total income of Rs. 28,513 and Rs. 28,463
respectively. Income-tax Officer having come to know subsequently that the
assessee had failed to disclose its profits from sale of certain lands,
issued notices under Section 148 for both the years. The assessee, however,
disclosed the same income as in the original returns. Income-tax Officer
made additions and after completing the reassessments on March 6, 1969
initiated proceedings under Section 271(l)(c) and the Inspecting Assistant
Commissioner imposed penalty on the assessee on the basis of the amended
Section 271(l)(c) w.e.f. April 1, 1968. This Court said that even in a case
where a return is filed in response to a notice under Section 148 involving
an element of cocealment. the law applicable would be the law as it stood
at the time when the original return was filed for the Assessment Year in
question and not the law as it stood on the date on which the return was
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filed in response to notice under Section 148.
Decision of the Calcutta High Court in Modern Fibotex India Ltd. and
Another, (212 ITR 496) squarely covers the issue involved in the present
appeal. Then we have to see the law on the date of filing of the return. To
attract penal provisions there has been same element of lack of bona fides
unless the law specifically provides otherwise.
The case before us does not represent even a bona fide mistake. In fact it
is not a case where under some mistaken belief the assessee did not
disclose the cash compensatory support received by it which he could offer
to tax. It is true that income by way of cash compensatory support became
taxable retrospectively with effect from April 1, 1967 but that was by
amendment of Section 28 by the Finance Act of 1990 which amendment could
not have been known before the Finance Act came into force. Levy of
additional tax bears all the characteristics of penalty. Additional tax was
levied as the assessee did not in his return show the income by way of cash
compensatory support. Assessing Officer on that account levied additional
income tax. No additional tax would have been leviable on the cash
compensatory support if the Finance Act, 1990 had not so provided even
though retrospectively. Assessee could not have suffered additional tax but
for the Finance Act, 1990. After he had filed his return of income, which
was correct as per law on the date of filing of the return, it was
thereafter that the cash compensatory support also came within the sway of
Section 28. When additional tax has imprint of penalty Revenue cannot be
heard saying that levy of additional tax is automatic under Section 143(1A)
of the Act. If additional tax could be levied in such circumstances it will
-be punishing the assessee for no fault of his. That cannot ever be the
legislative intent. It shocks the very conscious if in the circumstances
Section 143(1 A) could be invoked to levy the additional tax. Following
observations by the Constitution Bench of this Court in Pannalal Binjraj
and Another v. The Union of India and Others, (1957) 31 ITR 565 SC are apt:
"A humane and considerate administration of the relevant provisions of the
Income-tax Act would go a long way in allaying the apprehen-sions of the
assessees and if that is done in the true spirit, no assessee will be in a
position to charge the Revenue with administering the provisions of the Act
with "an evil eye and unequal hand"."
We uphold the view expressed by the Calcutta High Court. Keeping in view
the principles laid by this Court it has to be held that in the
circumstances of the present case levy of additional tax taking into
account the income by way of cash compensatory support is not warranted.
The question is answered in affirmative i.e., in favour of the assessee and
against the
Revenue. The appeal is accordingly dismissed with costs.