2012 (3) TMI 320 - HC - Income Tax

Court rules penalties not applicable pre-01/06/1992, limits penalties to tax amount deductible. Tribunal decision upheld.

The court held that penalties under section 272A(2)(f) could not be levied for defaults before 01/06/1992 due to the absence of a statutory obligation to ... Penalty u/s 272A - The assessee, who is deriving income from its business of cold storage, was required to deduct tax at source from interest payable/paid to certain creditors and in case the creditors were not liable to pay any income tax, the assessee was required to obtain declarations in Form No.15H which were to be filed with the Commissioner of Income Tax (CIT) under section 197A of the Act - Mr. M. R. Bhatt learned senior advocate submitted that the proviso to section 272A of the Act has been inserted by the Finance Act, 1991 with effect from 1.10.1991 - It was submitted that the proviso to section 272A of the Act being substantive in nature and having been made expressly applicable with effect from 01.04.1999 is neither expressly nor by implication retrospective in effect - Failure to file the declaration in Form No.15H prior to 1.6.1992 not being a default under section 272A(2)(f) of the Act - Decided in favor of the assessee. Maximum limit of penalty - retrospective effect - Held that: it is evident that there is no loss of revenue in case of failure to file declarations under section 197A of the Act as the provision relates to cases where no tax is deductible - Once it is held that the proviso is remedial in nature, in the light of the law laid down by the Supreme Court in the decisions cited hereinabove, the proviso is required to be treated as retrospective in operation. The Tribunal was, therefore, right in law and on facts in directing that the penalty should be calculated in accordance with the proviso to section 272A (wherein it is stipulated that the penalty should not exceed the tax deductible) by giving retrospective effect to the proviso. - Decided in favor of the assessee Issues Involved:1. Whether penalty under section 272A(2)(f) can be levied up to 01/06/1992 due to the absence of statutory obligation to file the prescribed form under section 197A.2. Whether the proviso to section 272A, which limits the penalty to the amount of tax deductible, should be given retrospective effect.Issue-wise Analysis:1. Penalty under section 272A(2)(f) up to 01/06/1992:The appeals arise from the common order passed by the Income Tax Appellate Tribunal (the Tribunal) concerning the assessment years 1991-92, 1992-93, and 1994-95. The core issue is whether the penalty under section 272A(2)(f) of the Income Tax Act, 1961 can be levied for defaults occurring before 01/06/1992, considering there was no statutory obligation to file the prescribed form under section 197A before this date. The Tribunal held that no penalty could be levied for delays up to 01/06/1992 since the obligation to file Form No. 15H with the Commissioner of Income Tax (CIT) was introduced only by the Finance Act, 1992, effective from 01/06/1992. Prior to this, failure to file such declarations did not attract any penalty.2. Retrospective Effect of the Proviso to Section 272A:The second issue concerns whether the proviso to section 272A, which limits the penalty to the amount of tax deductible, should be applied retrospectively. The Tribunal directed that the penalty should be calculated in accordance with the proviso, giving it retrospective effect. The Tribunal's rationale was based on the decisions of the Pune and Jaipur Benches, which held that the proviso was retrospective in operation. The Tribunal found that the assessee was a habitual defaulter but recognized that ignorance of law is no excuse. However, it directed that the penalty should not exceed the tax deductible, as stipulated by the proviso.Arguments by the Revenue:The revenue argued that the proviso to section 272A, introduced by the Finance Act, 1991, effective from 01/10/1991, initially applied only to defaults under sections 206 and 206C. The legislature consciously did not extend this benefit to section 197A until the Finance Act, 1998, effective from 01/04/1999. The revenue contended that the substantive provision should be prospective unless expressly or by necessary implication made retrospective. They cited the Supreme Court's decision in Commissioner of Income-tax I, Ahmedabad v. Gold Coin Health Food Private Limited, emphasizing that statutes are prima facie prospective unless explicitly stated otherwise.Arguments by the Respondent Assessee:The respondent argued that the default was merely technical, causing no revenue loss since the declarations indicated no tax liability. They contended that the proviso to section 272A is remedial, designed to prevent excessive penalties disproportionate to the default. They cited Supreme Court decisions, including Allied Motors (P) Ltd. v. Commissioner of Income-tax, which held that remedial provisions should be treated as retrospective to avoid absurd results and unintended consequences.Court's Analysis and Conclusion:The court examined the statutory provisions and the legislative intent behind the amendments to section 272A. It noted that the obligation to file Form No. 15H was introduced only from 01/06/1992, and prior to this, no penalty could be levied for such defaults. Therefore, the Tribunal was justified in holding that no penalty could be levied for delays up to 01/06/1992.Regarding the retrospective application of the proviso to section 272A, the court found that the proviso was remedial, intended to prevent excessive penalties disproportionate to the default. The court cited Supreme Court decisions supporting the retrospective application of remedial provisions. Thus, the Tribunal was correct in directing that the penalty should be calculated in accordance with the proviso, limiting it to the amount of tax deductible, even for defaults occurring before 01/04/1999.Judgment:The court answered both questions in the affirmative, in favor of the assessee and against the revenue. The appeals were dismissed, upholding the Tribunal's decision.