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Petitioner: GOPICHAND SARJUPRASAD VS Respondent: UNION OF INDIAHonorable Justice DIXITB. L. Gupta,M. Adhikari and P. S. Khirwadkar
1972 P T D 83
1972 P T D 83
[Madhya Pradesh (India)]
Before P. V. Dixit, C. J. and G. P. Singh, J
GOPICHAND SARJUPRASAD
Versus
UNION OF INDIA
Miscellaneous Petition No. 147 of 1968, decided on 24th January 1969.
Income‑tax‑Penalty‑Return filed before commencement of 1961‑Act‑Assessment made after commencement of 1961‑Act but under 1922‑Act‑Concealment of income‑Provision in 1961 Act enabling imposition of penalty under 1961‑ Act ‑ Whether discriminatory‑Jurisdiction to levy penalty under 1961‑Act Order imposing penalty, whether should be made before completion of assessment proceedings ‑ Indian Income‑tax Act, 1922, S. 28(1)(c) ‑‑Income‑tax Act, 1961, Ss. 271(1)(c), 274 & 297(2)(a), (f), (g)‑[Shakti Offset Works v. Inspecting Assessment Commis sioner of Income‑tax (1967) 64 I T R 637 dissented from].
Section 297(2)(g) of the Income‑tax Act, 1961, which enables the imposition of penalty under the new Act of 1961, in relation to assessment year 1961‑62 or any earlier assessment year if assessment for that year is made after the commencement of that Act is not violative of Article 14 of the Constitution of India.
The classification of persons male in section 297(2)(g) is based on an objective test, namely, whether or not the assess ment in question was completed before April 1, 1962, or after that date, and is a permissible classification. Though under sec tion 297(2)(a) of the 1961‑Act, pending assessments of all those persons who had filed returns of income before the com mencement of the Act of 1961 on April 1 , 1962 would be under the 1922‑Act, the further classification of such assessees in section 297(2)(g) for the purpose of penalty is reasonable and not arbitrary. Penalty proceedings are penal proceedings and are different in nature from assessment proceedings : they .tire not on the same footing. The dividing line of completion of assess ment before or after April 1, 1962 for the purposes of penalty between assessees filing returns of income before April 1, 1962 has been adopted, because the penalty proceedings cannot, in the very nature of things, be completed before the assessment, as the measure of penalty, both under section 28(1) of the 1922 Act arid under section 21(2) of the 1961‑Act, is on the basis of the tax determined. The classification is not to discriminate against those assessees whose assessments for the year ending on March 31, 1962, or any earlier year had not been completed before April 1, 1962, but to bring them in line with other assessees whose assessments are completed on or after April 1, 1962, in the matter of imposition of penalty. What is material for the imposition of penalty is not the assessment year or the date of the filing of the return, but it is the discovery and the satisfaction of the competent authority that the assessee had committed a default attracting penalty.
It is for the Legislature to decide from what date a law should be given operation and the law cannot be challenged as discriminatory if it does not affect the prior or closed transactions and affects only pending proceedings and post‑enact ment transactions.
Shakti Offset Works v. Inspecting Assistant Commissioner of Income‑tax (1967) 64 I T R 637 dissented from.
Assessment proceedings under the 1922‑Act, by virtue of the provisions of section 297(2)(a) of the 1961‑Act, are proceedings under the 1961‑Act itself, and consequently the satisfaction reached tithe Income‑tax Officer that the assessee has committed any of tire acts enumerated in clause (a), (b) or (c) of sec tion 271(1) of the 1961‑Act attracting penalty is in the course of proceedings under the 1961‑Act.
The order imposing a penalty need not precede or be contemporaneous or simultaneous with the order by which the assessment proceedings are completed.
[Case‑Law referred].
B. L. Gupta with R. K. Tonkha for Petitioner.
M. Adhikari and P. S. Khirwadkar for Respondents Nos. 2 to 4.
K. A. Chitaley, A.‑G. for Respondent No. 1.
JUDGMENT
DIXIT, C. J.‑By this application under Articles 226 and 22 of the Constitution the petitioner, Messrs Gopichand Sarjuprasad, a registered partnership firm, seeks a writ of certiorari for quashing an order dated 5th January 1966, of the Inspecting Assistant Commissioner of Income‑tax, Jabalpur, imposing on the petitioner a penalty of Rs. 25,000 under section 271(1)(c) of the Income‑tax Act, 1961 (hereinafter referred to as the Act), for concealing income and deliberately furnishing inaccurate particulars of the same for the assessment year 1959‑60. The order of the Inspecting Assistant Commissioner was upheld in appeal by the Appellate Tribunal, Allahabad, and a writ of certiorari has been sought for quashing the Tribunal's order also.
The material facts are that for the assessment year 1959‑60 the petitioner filed a return of its income under section 22(2) of the Income‑tax Act, 1921, on 21st October 1959, showing an income of Rs. 7,896. The assessee took forest contracts. It ran a saw‑mill and also manufactured and sold furniture. It also did stone quarrying business. In the assessment proceed ings the Income‑tax Officer noticed some discrepancies in the accounts and registers maintained by the assessee of its business and called upon the assessee to explain the discrepancies and furnish certain particulars. Thereupon, the assessee filed a revised return of its income on 17th January 1964, disclosing its total income as Rs. 50,605. The Income‑tax Officer finalized the assessment on 19th March 1964, on a total income of Rs. 84,475
after taking into consideration the revised return and issued a notice to the petitioner under section 271(1)(c) of the 1961‑Act for concealment of income. As the minimum penalty imposable on the petitioner exceed Rs. 1,000, the Income tax Officer referred the matter to the Inspecting Assistant Commissioner of Income‑tax under section 274 of the Act.
The Inspecting Assistant Commissioner, finding that the assessee had concealed the particulars of its income, made the impugned order imposing a penalty of Rs. 25,000 on the petitioner. The petitioner then preferred an appeal before the Tribunal which was dismissed. The Tribunal has, at the instance of the assessee, made a reference (Miscellaneous Civil Case No. 19 of 1968) to this Court under section 256(1) of the Act propound ing the following question for decision:
"Whether, on the facts and circumstances of the case, penalty under section 271(1) (c) read with section 274 of the Income‑tax Act, 1961, could be imposed on the assessee for the assessment year 1959‑60 ?"
As the vires of section 297(2) (g) of the Act cannot be challenged by the petitioner in the reference made by the Tribunal at the instance of the petitioner, this petition has been filed challenging the legality of the order of the Inspecting Assistant Commissioner, upheld by the Tribunal, on the ground that sec tion 297(2) (g) offends Article 14 of the Constitution and is, therefore, invalid.
The petitioner has raised two contentions : first that sec tion 297(2)(g) being violative of Article 14 of the Constitution is invalid and, therefore, no penalty could be imposed on the petitioner under section 271 of the Act ; and, secondly, that ;finder section 271(1) a penalty can be imposed by the Income‑tax Officer or the Appellate Assistant Commissioner only if he, in the course of any proceedings under the Act of 1961, is satisfied that any person has committed any of the acts enumerated in clause (a), (b) or (c) of section 271(1) ; that, as the assessment against the petitioner was made under the Act of 1922, and not under the Act of 1961, the Income‑tax Officer or the Appellate Assistant Commissioner had no jurisdiction to impose any penalty under section 271(1).
In order to understand the petitioner's objections, it is first necessary to refer to the material provisions of the 1961 and 1922‑Acts. Subsection (1) of section 297 of the 1961‑Act repeals the 1922‑Act ; then subsection (2) enumerates the "savings". That subsection, so far as it is material here, is as follows:
"(2) Notwithstanding the repeal of the Income‑tax Act, 1922 (XI of 1922) (hereinafter referred to as the repealed Act,)
(a) where a return of income has been filed before the commencement of this Act by any person for any assessment year, proceedings for the assessment of that person for that year may be taken and continued as if this Act had not been passed ; . . . . . .
(f) any proceeding for the imposition of a penalty in respect of any assessment completed before the 1st day of April 1962, may be initiated and any such penalty may be imposed as if this Act had not been passed ;
(g) any proceeding for the imposition of a penalty in respect of any assessment for the year ending on the 31st day of March 1962, or any earlier year, which is completed on or after the 1st day of April 1962, may be initiated and any such penalty may be imposed under this Act ; . . . .
The material portion of section 271(1) runs thus:
"271.‑(1) If the Income‑tax Officer or the Appellate Assis tant Commissioner, in the course of any proceedings under this Act, is satisfied that any person‑ . . . .
(c) has concealed the particulars of his income or deliberately furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty,‑ . . . . . .
(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 twenty per cent but which shall not exceed one and a half times the amount of the tax, if any, which would have been avoided if the income as returned by such person had been accepted as the correct income."
The material part of section 28(1) of the 1922‑Act was in the following terms:
"28.‑(1) If the Income‑tax Officer, the Appellate Assistant Commissioner, or the Appellate Tribunal, in the course of any proceedings under this Act, is satisfied that any person‑ . . . . .
(c) has concealed the particulars of his income or deliberately furnished inaccurate particulars of such income, he or it may direct that such person shall pay by way of penalty, in the case referred to in clause (a), in addition to the amount of the income‑tax and super tax, if any, payable by him a sum not exceeding one and a half times that amount, and in the cases referred to in clauses (b) and (c), in addition to any tax payable by him, a sum not exceeding one and a half times the amount of the income‑tax and super tax, if any, which would have been avoided if the income as returned by such person had been accepted as the correct income. . ."
It will be seen that the effect of clauses (a), (f) and (g) of section 297(2) is that where the assessee files a return of income before the commencement of the Act of 1961, that is before 1st April 1962, for any assessment year, then the assessment of that person for that year is under the 1922‑Act ; any proceeding for the imposition of a penalty in respect of any assessment completed before 1st April 1962, can be initiated and penalty can be imposed under the 1922‑Act ; any proceedings for the imposition of a penalty in respect of any assessment for the year ending on 31st March 1962, or any earlier year which is completed on or after 1st April 1962, can be initiated and penalty can be imposed under the 1961‑Act. In the present case, the petitioner filed a return of income before 1st April 1962, but the assessment was completed on 19th March 1964, that is after 1st April 1962. Therefore, clause (g) of section 297(2.) was plainly attracted for the initiation of proceedings for imposition of penalty under the Act of 1961 as held by this Court in Kishanlal v. Commissioner of Income‑tax ((1967) 64 I T R 285) and Commissioner of Income‑tax v. Champalal Sukhram ((1969) 72 I T R 417).
The decisions in Kishanlal v. Commissioner of Income‑tax and Commissioner of Income‑tax v. Champalal do not stand in the way of the petitioner in challenging the constitutional validity of section 297(2) (g) as in those cases, which were references under the Income‑tax Act, the question of the vires of section 297(2) (g) was not, and indeed could not be, considered. Shri Brijlal Gupta, learned counsel appearing for the petitioner, founded his arguments on the decision of the Bombay High Court in Shakti Offset Works v. Inspecting Assistant Commis sioner of income‑tax ((1967) 64 I T R 637) and submitted that, in the matter of initiation of proceedings for imposition of penalty clauses (f) and (g) of section 297(2) discriminated between assessees who had filed returns of their income before 1st April 1962, in that those assessees whose assessments were completed before 1st April 1962, were dealt with under the 1922‑Act and those assessees whose assessments were completed after 1st April 1962, were liable to be dealt with under the 1961‑Act; that, so far as assessment was concerned, clause (a) of section 297(2) grouped in one class all assessees who had filed their returns before 1st April 1962, for any assessment year by providing that proceedings for assessment for that year would be under the 1922 Act. It was said that the further classification in regard to penalty between assessees who had filed their returns before 1st April 1962, and whose assessments were completed before that date and those assessees who had filed their returns of income before 1st April 1962, but whose assessments were complet ed after 1st April 1962, was not justified that this classification was based on a differentia which could not be reasonably related to the object of clauses (f) and (g). Learned counsel urged that section 297(2)(g) exposed the assessees whose assessments were completed after 1st April 1962, to more onerous proceedings in the matter of penalty than those whose assessments were completed before 1st April 1962. On this basis it was argued that section 297(2)(g) offended against the equal protection of laws guaranteed by Article 14 of the Constitution.
In reply, Shri Chitaley, learned Advocate‑General, appearing for the Union Government, argued that on the principles laid down by the Supreme Court in many cases with regard to permissible classification under Article 14, the classification made by clauses (f) and (g) of section 297(2) between the two kinds of assessees was valid. The classification made by those clauses was founded on an intelligible differentia and the differentia had a rational relation to the object sought to be achieved by the provisions in question. It was said that assessment proceedings and penalty proceedings were not on the same plane ; therefore, from the fact that all the assessees filing returns of income before 1st April 1962, and whose assessments were pending on that date were classed in a group for the purpose of assessment and their assessment was under the 1922‑Act, it did not necessarily follow that no classification between such assessees could be made for the purpose of imposition of penalty. The classification between such assessees on the basis of the completion of assessment before or after the Act was a reasonable classification because penalty proceedings could be commenced only after the completion of the assessment proceedings and not before it. Learned Advocate. General proceeded to say that, having made this classification, it was for the Legislature to decide whether in the case of assessees filing returns before 1st April 1962, and whose assessments were completed after that date, the penalty proceedings should be under the 1922 Act or the 1961‑Act ; that, for the purpose of making evasion of tax unprofitable and of securing to the State compensation for the damage caused by attempted evasion, the Legislature thought it necessary to treat alike in the matter of penalty all those assessees whose assessments were completed after 1st April 1962 ; there was, therefore, no question of Article 14 being attracted to invalidate section 297(2) (g). The argument of Shri Adhikari, learned counsel appearing for the Department, was on the same lines.
In our judgment, the contention put forward on behalf of the petitioner lacks substance. 1t is now firmly established by numerous decisions of the Supreme Court that Article 14 forbids class legislation but does not forbid reasonable classification for the purpose of legislation. The classification permissible under Article 14 must satisfy two conditions, namely, first, it must be founded on an intelligible differentia which distinguishes persons or things that are grouped together from others left out of the group : and, secondly, the differentia must have a rational relation to the object sought to be achieved by the statute in question. These principles are laid down by the Supreme Court in Ram Krishna Dalmia v. Justice S. R. Tendolkar ((1959) S C R 279) and several other decisions.
If clause (g) of section 297(2) of the Act is examined in the light of these principles, it will first be seen that it applies to all assessees who come within its ambit ; it does not make any classification between assessees whose assessments for the year ending on 31st March 1962, or any earlier year were completed on or after 1st April 1962. For the purposes of penalty, there is no doubt classification between assessees who had filed returns of income before 1st April 1962, and whose assessments were completed before that date and assessees who had filed returns of income before 1st April 1962, but whose assessments were completed on or after 1st April 1962. This classification is an intelligible classification. It is based on an objective test, namely, whether or not the assessment of persons in question was completed before 1st April 1962, or after that date. It is thus possible to apply the objective test to determine the class. The first condition of permissible classification is thus fulfilled.
The classification is reasonable and not arbitrary. The argument that the Legislature having provided by section 297(2) (a) that pending assessments of all those persons who had filed returns of income before the commencement of the Act would be under the 1922‑Act, there could not be further classification of such assessees for the purpose of penalty, proceeds on a misapprehension about the nature of penalty proceedings. In Commissioner of Income‑tax v. Punjabhai Shah ((1968) 67 I T R 337) it has been pointed out that penalty proceedings are penal proceedings and are different in nature from assessment proceedings. In that case the observation of the Supreme Court in C A. Abraham v. Income‑tax Officer, Kottayam ((1961) 41 I T R 425 (S C)) and Commissioner of Income‑tax v. Bhikaji Dadabhai & Co. ((1961) 42 I T R 123 (S C)) that penalty imposed on an assessee is additional tax was explained and it was said that the said observation of the Supreme Court was made while considering the question whether the word "assessment" covered penalty proceedings if "assessment" were taken to denote the whole procedure fur imposing liability on the tax‑payer, and that the aforesaid observation could not be pressed into service for holding that penalty proceedings were not penal proceedings. If, then, penalty proceedings and assessment proceedings are not on the same footing, and are different, the contention that for the purpose of penalty the assessees grouped in clause (a) of section 297 (2) for the purposes of assessment could not further be classified loses all force.
The dividing line of completion of assessment before or after 1st April 1962, for the purposes of penalty between assessees filing returns of income before 1st April 1962, has been adopted because the penalty proceedings cannot, in the very nature of things, be completed before the assessment as the measure of penalty both under section 28(1) of the 1922‑Act and under section 271(1) of the 1961‑Act is on the basis of the tax determined. Learned counsel for the petitioner, however, urged that reading sections 271, 274(1) and 275 together and‑having regard to the opening words of section 271(1) and to the expression "expiration of two years from the date of the comple tion of the proceedings in the course of which the proceedings for the imposition of penalty have been commenced" occurring in section 275, it would appear that the penalty proceedings should be completed before the assessment order. We are unable to accept this contention. The proper construction of sec tions 271, 274 and 275 is that the Income‑tax Officer or the Appellate Assistant Commissioner should first be satisfied on a preliminary examination of the material before him that the assessee has committed any of the defaults referred to in clause (a), (b) or (c) of section 271(1) and that, therefore, a notice to the assessee under section 274(1) should be issued ; then he may at any later time issue a notice mentioned in section 274(1) and, after complying with the requirements of that provision, make an order imposing the penalty ; the penalty proceedings must be completed within two years from the date of the completion of the proceedings in the course of which the Income‑tax Officer or the Appellate Assistant commissioner reaches the provisional satisfaction that the assessee has commit ted a default referred to in clause (a), (b) or (c) of section 271(1). The words "from the date of the completion of the proceedings in the course of which the proceedings for the imposition of penalty have been commenced" occurring is section 275 only indicate that penalty proceedings should be commenced in the course of, that is to say, before the termination of proceedings in which the Income‑tax Officer or the Appellate Assistant Commissioner is provisionally satisfied about the default which attracts the penalty; they do not in any way show that the penalty proceedings should be concluded before the assessment. it is not necessary for us to consider whether that penalty proceedings commence when the notice to the assessee to show cause why penalty should not tic levied is issued or when the Income‑tax Officer or the Appellate Assistant Commissioner records his provisional satisfaction as regards the default attract ing the penalty arid directs the issue of a notice to the assessee ; but it must be noticed that the satisfaction of the Income‑tax Officer or of the Appellate Assistant Commissioner spoken of by section 271 is the final satisfaction reached by the authority after hearing the assessee as required by section 274(1). It is this satisfaction which gives to the Income‑tax Officer or the Appellate Assistant Commissioner the jurisdiction to impose a penalty. There is nothing in section 275 from which it can be said that an order imposing penalty must he made before the assessment order. Indeed, the very fact that for the making of an order imposing penalty section 275 prescribes a period of limitation of two years from the date of the completion of the proceedings in the course of which proceedings for the imposition of penalty have been commenced shows that the order imposing a penalty need not precede or be contemporaneous or simultaneous with the order by which the proceedings in the course of which penalty proceedings have been commenced, have been completed. As we have said earlier, the quantum of penalty being dependent on the tax determined as payable by the assessee, it cannot obviously be fixes until the assessment is completed. If, then, penalty cannot be imposed until the assessment order is made, it cannot be said that the classification made for the purpose of imposition of penalty between assessees whose assessments were completed before and after 1st April 1962, is arbitrary and without any basis.
The classification made by clauses (f) and (g) of sec tion 297(2) is thus not a mere fanciful classification ; it is reasonable and has a reasonable relation to the object to be achieved. The object of penalty proceedings is to curb effectively evasion, and the object of the classification made by clauses (f) and (g) is not to discriminate against those assessees whose assessments for the year ending on 31st March 1962, or any earlier year had not been completed before 1st April 1962, but to bring them in line with other assessees whose assessments are completed on or after 1st April 1962, in the matter of imposition of penalty. The assessees whose assessments were completed before 1st April 1962, are entitled to a sense of security and certainty in the matter of penalty by the fact that the assessment is complete and the Act of 1961 not having cone into force at the date then the assessment was completed. The assessees whose assessments are completed after 1st April 1962, cannot claim the same treatment. It is well settled that it is for the Legislature to decide from what date a law should be given operation and the law cannot be challenged as discrimi natory if it does not affect the prior or closed transactions and affects only pending…
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