COMMISSIONER OF INCOME TAX, BHOPAL v.

HINDUSTAN ELECTOR GRAPHITES LTD., INDORE

MARCH 27, 2000

[D.P. WADHWA AND MRS. RUMA PAL, JJ.]

Income Tax Act, 1961 :

S.28(iii)(b) (as inserted by Finance Act, 1990) and ss.143(1A) and 234-Additional tax-Cash compensatory suppo.rt received against exports- Included under the head "profits aiul gains of business or profession" after the assessee had filed the return-Amendment made with retrospective effect- Assessee could not offer to tax the. amount of cash compensatory support received by it in the previous year-Revenue treating the amount as additional income and levied income tax thereon at higher rate and also charged interest-Held, levy of additional tax not warranted-Jn the circumstances, provisions.of s.143(1A) could not be invoked.

Respondent-assessee, a public limited company, filed its return of income for assessment year 1989-90 on 29.12.1989. The last date for filing of return was 31.12.1989. Cash assistance received by any person against exports under any scheme of the Government was not chargeable under the heads "profits and gains of business or profession" under s.28 of the Income Tax Act, 1961 on the date when the assessee filed the return.

Therefore, the amount or Rs. 1,31,41,030 received by the assessee in the previous year as cash compensatory support was not offered to tax. The Finance Bill, which received assent of the President of India on 31.5.1990, introduced with retrospective effect from 1.4.1967, clause (iii)(b) in s.28 bringing under the head "profits and gains of business or profession" cash assistance received or receivable by any person against exports under any scheme of the Government of India. The assessing officer added the amount of Rs. 1,31,41,030 representing the cash compensatory support, received by the assessee. He treated this as additional income under s.143(1A) and levied on it amount of tax at higher rate and also charged interest under s.234 of the Act. The appeal filed by the assessee before the Commissioner of Income Tax failed on.this aspect. However, the Income Tax Appellate Tribunal allowed the appeal f the assessee holding that no additional tax H could be levied in respect of the amount of cash compensatory support nor

C.I.T. v. HINDUSTAN ELECTOR GRAPHITES LTD. 507

could any interest under s.234 could be charged. At the instance of Revenue A the Tribunal made a reference to the High Court, which held in favour of the assessee. Aggrieved, Revenue filed the present appeal.

Dismissing the appeal, the Court

HELD : 1.1. In the circumstances of the present case levy of addi- B tional tax taking into account the income by way of cash compensatory support is not warranted. (514-F]

1.2. 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. The law on the date of filing of the return is to be seem.

It was not disputed that the return when filed by the assessee could not be termed as an incorrect return on the date of filing of the return. [511-F]

1.3. Levy of additional tax bears all the characteristics of penalty. To attract penal provisions there has to be some element of lack of bona fules unless the law specifically provides otherwise. The present case does not represent even a bona fule mistake. It is not a case where under some mistaken belief the assessee did not disclose the cash compensatory support received by it which it could offer to tax. Additional tax was levied as the assessee did not in his return show the income by way of cash compensatory support. It was after the assessee had filed his return 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 over be the legislative intent. It shocks the very conscience if in the circumstances Section 143(1A) could be invoked to levy the additional tax. [513-G-H, 514-A-C]

Modem Fibotex India Ltd. and Another v. Deputy Commissioner of Income-tax and Others, (1995) 212 ITR 496 (Cal.), upheld.

Cement Marketing Co. of India Ltd. v. Assistant Commissioner of Sales Tax, Indore, (1980) 124 ITR 15 SC and Commissioner of Income-tax v. Onkar Saran and Sons, (1992) 195 ITR 1 SC, relied on.

Pannalal Binjraj and Another v. The Union of bulia and Others, (1957) 31 ITR 565 SC, followed.

A CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2454 of 1998.

From the Judgment and Order dated 11.9.97 of the Madhya Pradesh High Court in I.T.R. No. 52 of 1994.

I Soli J. Sorabjee, Attorney General, V. Gauri Shankar, M.L

~ Verma, B A.D.N. Rao, Ms. Neera Gupta, Arvind K. Sharma, Ms. Kanupriya Mittal, B.K.

Prasad and Ms. Sushma Suri for the Appellant.

Joseph Vellapally, Tarun Gulati, Manoj Sharma and Rakesh K. Sharma for the Respondent.

C 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 D was justified in deleting the addition made by the Assessing Officer under Section 143(1)(a) in view of the clear cut provisions of Section 143(1)(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 E 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 A 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)1 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( 1A)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

l 43(i)(a) where a return has been made under section 139, or in response to a notice under D sub-section (I) 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 E (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 fai:ie 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 G intimation shall be sent to the assessee, notwithstanding that no tax or interest is 'f\>und 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(1A)(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 (I), exceeds the total income declared H

SUPREME COURT REPORTS

[2000] 2 S~C.R.

A 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 B 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 c 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 D lead to unjust results for the assessee. Revenue says under section 143(1A), 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.

I E In Modem 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 compensato.ry support from the Central Government amounting F 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

(i) G

(ii)

in the return by any amount, the Assessing Officer shall, --

Further increase the aount of tax payable under sub-section ( 1) by an additional incometax 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 (I);

where any refund is due under sub-section ( 1) reduce the amount of such refund by an amount equivalent to the additional income-tax caloulated under sub-clause (i).

234. Tax paid by deduction or advance payment :-

Tax paid or deemed to have been paid under the provisions of Chapter XVII-B or Chapter XVII-C in respect of any income provisionally assessed under section 141A s!iall 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. Tfie company filed a writ petition in the High Court challenging the very constitutionality of Section 143(1)(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 C 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(l)(a) and that the Assessing Officer must determine the questions of assessment thereunder by applying the law prevailing when the D 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

E . 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 adjustment 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 H

included as income and had clearly offered to include the satne in any assessment if the basis is shown to exist.

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(1)(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 fortuitouscircumstance."

High Court allowed the writ petition to the extent that the impugned intimation and adjustment under Section 143(l)(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 tlie 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" unles. there is an element of deliberateness in it. It is possible that even where the incorrectness of the return is claimed to be due to want of care on the part of assessee and there \s 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 siµd that Section 43 of the Madhya Pradesh General Sales Tax Act, 1958 providing for imposition of penalty was a penal in character and unless H 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 , . A 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 C assessments were completed in the total income of Rs. 28,513 and Rs. 28,4;63 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 I, 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 cocealme,'t, 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 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 F 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 unde 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 chiifacteristics ofpenalty. 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 Finanace 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 C. 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(1A) 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) '.H D 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 apprehensions 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 E provisions of the Act with "an evjl 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 F answered in affirmative i.e., in favour of the assessee and against the Revenue. The appeal is accordingly dismissed with costs.

R.P.

Appeal dismissed. -