1981 (9) TMI 87 - HC - Income Tax

High Court: Tribunal decision on penalty cancellation pre-amendment. Issue limited to sections 271(1)(a) & 271(2).

The High Court of Gujarat held that the Tribunal's decision to cancel the penalty under section 271(1)(a) was based on the legal position before the ... Penalty Issues Involved:1. Whether the Tribunal was right in law in cancelling the order levying penalty on the ground that the assessee was not liable to pay any tax on account of the advance tax and tax paid under section 140A of the Act, in view of section 271(1)(a) read with section 271(2) of the Act.Detailed Analysis:1. Background and Facts:The assessee, a registered partnership firm, was required to file its return of income for the assessment year 1967-68 by June 30, 1967. The return was filed late on July 4, 1968, after a notice under section 139(2) was served. The Income Tax Officer (ITO) issued a notice under section 274 and levied a penalty of Rs. 8,385 under section 271(1)(a) for the delay. The Appellate Assistant Commissioner (AAC) confirmed the penalty, but the Tribunal reversed it, relying on the Supreme Court decision in CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 (SC). The Tribunal held that since the assessee was entitled to a refund on regular assessment due to advance tax and tax paid under section 140A, no penalty was applicable.2. Tribunal's Decision and Legal Position:The Tribunal's decision was based on the interpretation of section 271(1)(a)(i) as it stood before the amendment by the Direct Taxes (Amendment) Act, 1974. The Supreme Court in CIT v. Vegetable Products Ltd. held that the tax payable for penalty purposes should be the tax assessed minus any tax already paid. The Tribunal, therefore, concluded that no penalty was leviable since the assessee was entitled to a refund.3. Retrospective Amendment:The Direct Taxes (Amendment) Act, 1974, which came into force on August 18, 1974, amended section 271(1)(a)(i) with retrospective effect from April 1, 1962. The amendment substituted 'the assessed tax' for 'the tax' and included an explanation that 'assessed tax' means tax reduced by sums deducted at source or paid in advance. This change aimed to counteract the decision in CIT v. Vegetable Products Ltd.4. Revenue's Application and Submissions:The revenue applied for a reference under section 256(1), which was rejected by the Tribunal. The High Court, however, directed the Tribunal to state the case. During the hearing, the revenue argued that the Tribunal's decision was incorrect in light of the retrospective amendment and that the Tribunal failed to consider section 271(1)(a)(i) in conjunction with section 271(2).5. Court's Analysis on the Frame of the Question:The court analyzed whether the question referred was broad enough to consider the retrospective amendment. It concluded that the question was specifically framed to challenge the Tribunal's decision for not reading section 271(1)(a)(i) with section 271(2). The court noted that if the revenue intended to question the decision based on the retrospective amendment, the question would have been framed differently or an additional question would have been included.6. Tribunal's Consideration of Section 271(2):The court observed that the Tribunal did not consider section 271(2), which requires treating a registered firm as an unregistered firm for penalty purposes. Since the Tribunal's decision was based solely on section 271(1)(a)(i), and the controversy was confined to that provision, the court held that the question of penalty under section 271(2) did not arise from the Tribunal's order.7. Applicability of Retrospective Amendment:The court held that the revenue could not rely on the retrospective amendment to challenge the Tribunal's decision because the question referred did not encompass this aspect. The court emphasized that the reference was limited to whether the Tribunal erred in not considering section 271(2) along with section 271(1)(a)(i).8. Conclusion:The court declined to answer the question posed, stating that it did not arise out of the Tribunal's order. The court noted that the revenue did not invoke section 271(2) at any stage, and no factual foundation was laid for considering the combined operation of sections 271(1)(a)(i) and 271(2). The court concluded that the issue of penalty under section 271(2) was not an aspect of the question before the Tribunal and was an independent question not arising from the Tribunal's order.9. Gratitude to Amicus Curiae:The court expressed gratitude to Mr. J. P. Shah for his assistance as amicus curiae.Summary:The High Court of Gujarat, in its judgment, held that the Tribunal's decision to cancel the penalty under section 271(1)(a) was based on the legal position before the retrospective amendment by the Direct Taxes (Amendment) Act, 1974. The court concluded that the question referred did not encompass the retrospective amendment and was limited to whether the Tribunal erred in not considering section 271(2) along with section 271(1)(a)(i). Consequently, the court declined to answer the question posed, as it did not arise out of the Tribunal's order.