1976 (12) TMI 57 - HC - Income Tax

Amendment's Impact on Limitation Periods: Penalty Orders Upheld in Favor of Revenue

The Full Bench resolved a conflict between pre-amendment and post-amendment law on limitation periods, holding that the amended law applied, making ... Jurisdiction Of Tribunal, Powers Of Tribunal, Quoted Equity Shares, Wealth Tax Issues Involved:1. Conflict between pre-amendment and post-amendment law regarding the period of limitation.2. Validity of penalty orders passed after the expiry of two years from the initiation of penalty proceedings.3. Applicability of procedural versus substantive law in the context of limitation periods.Summary:Issue 1: Conflict between pre-amendment and post-amendment law regarding the period of limitationThe case was referred to the Full Bench due to a conflict between a Division Bench decision in R.C. No. 36 of 1974 (Addl. Commissioner of Income Tax v. Rajkamal Hotel and Bar) and a Full Bench decision in Allied Exports & Imports v. State of Andhra Pradesh regarding the applicable period of limitation when an amendment extends the period of limitation. The Full Bench needed to resolve whether the pre-amendment or post-amendment law should apply when the amendment comes into force during an ongoing period.Issue 2: Validity of penalty orders passed after the expiry of two years from the initiation of penalty proceedingsThe assessment years under consideration were 1965-66 to 1968-69. The Income-tax Officer issued a show-cause notice for levying penalty u/s 271(1)(a) on February 25, 1972, for late filing of returns. The penalties were imposed on March 25, 1972. The Tribunal held that the orders were invalid as they were passed after the expiry of two years from the initiation of penalty proceedings, based on the unamended section 275. The question referred to the court was whether the penalty orders were within the time allowed by law.Issue 3: Applicability of procedural versus substantive law in the context of limitation periodsThe court examined whether the amendment to section 275, which extended the period of limitation, was procedural or substantive. The court cited the principle from Colonial Sugar Refining Company Ltd. v. Irving that procedural changes apply retrospectively unless they affect substantive rights. The court also referred to S.C. Prashar v. Vasantsen Dwarkadas, where it was held that limitation periods are procedural and can be extended by subsequent legislation.The Full Bench concluded that the amendment to section 275 was procedural, and therefore, the extended period of limitation applied. The penalty orders passed on March 25, 1972, were within the time allowed by the amended law, which extended the limitation period to March 31, 1972.Conclusion:The Full Bench overruled the Division Bench decision in R.C. No. 36 of 1974 and held that the amended section 275 applied, making the penalty orders valid. The question was answered in the affirmative, in favor of the revenue and against the assessee. The Tribunal was directed to deal with the merits of the penalty order, as the court did not express any opinion on the merits. No order as to costs.