Commissioner of Income Tax Vs Smt. G.A. Samanthakamani

V.S. Sirpurkar, J.@mdashThis judgment shall dispose of both the tax case references as a common question is involved. The following question was referred to us at the instance of the Revenue and under the directions of this court ;

"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal''s view that the provision of Section 249(4) as amended would not apply to the assessee''s case is sustainable in law ?"

2. A few facts first : The relevant assessment years for these two tax case references are 1973-74 and 1974-75. The Income Tax Officer levied a penalty of Rs. 1,799 and Rs. 1,902 for these two years, respectively, u/s 271(1)(a) of the Income Tax Act, 1961 (in short "the Act"), as the assessee had failed to file the returns in time. The assessee preferred appeals against these penalties. The Appellate Assistant Commissioner, however, found that the admitted taxes for the assessment years had not been paid up to June 2, 1978, when the appeals were presented by the assessee before him. The Appellate Assistant Commissioner also found that there were no extenuating circumstances for non-payment of taxes on the admitted income and, therefore, he rejected the appeals without admitting the same in terms of Section 249(4). The matters were taken to the Appellate Tribunal which found that since the provisions of Section 249(4) came into effect from October 1, 1975, the same could not apply to the appeals relating to the assessment years 1973-74 and 1974-75 as that section could not apply retrospectively. The Tribunal, therefore, set aside the order of the Appellate Assistant Commissioner and restored the appeals for disposal on the merits. The Department has now come before us on the basis of the referred question.

3. In view of the importance of the question and in view of the fact that nobody was representing the assessee before us, we appointed learned counsel Mr. P. P. S. Janarthana Raja, as amicus curiae.

4. Learned standing counsel for the Department, Mr. T. C. A. Ramanujam, firstly pointed out that the law was amended with effect from October 1, 1975, whereby no appeals under Chapter XX could be admitted unless the admitted tax was paid. Our attention was invited to the express language of Section 249(4) of the Act. For the sake of convenience, we may quote the section here : "249. Form of appeal and limitation. --(1) Every appeal under this Chapter shall be in the prescribed form and shall be verified in the prescribed manner.

(4) No appeal under this Chapter shall be admitted unless at the time of filing of the appeal,--

(a) where a return has been filed by the assessee, the assessee has paid the tax due on the income returned by him ; or . . . ;

Provided that, in a case falling under Clause (b) and on an application made by the appellant in this behalf, the Deputy Commissioner (Appeals) or, as the case may be, the Commissioner (Appeals) may, for any good and sufficient reason to be recorded in writing, exempt him from the operation of the provisions of that clause."

5. Learned counsel points out further that in both the cases the returns came to be filed only on March 12, 1976, and, therefore, there was a clear failure on the part of the assessee as contemplated in Section 271(1)(a) of the Act for which she was liable to be penalised. According to learned counsel, an appeal against a penalty lies u/s 246(1)(ii) which is under Chapter XX. He further points out that there is a finding recorded by the appellate authority that the assessee had not paid the tax which was due on the basis of the returns filed by him and that for that purpose, the penalty proceedings were taken against him and eventually the penalty was inflicted against him. The further contention is that an appeal against these penalties being u/s 246 can be conveniently called an appeal under Chapter XX of the Act and would be covered u/s 249(4) and could not be admitted unless the assessee had paid the tax due as per her returns. Learned counsel points out that though this section has come by way of an amendment with effect from October 1, 1975, and though the relevant assessment years are prior to that date and further though this amounts to a penal section, it would still apply in the present case particularly because the returns in these cases were filed after the amendment had come into force. According to learned counsel, the lis, therefore, started only on March 12, 1976, or, as the case may be, when the assessment was made and both those dates being after the amendment came into force, the amendment would be applicable. In short, the contention is that the year of assessment even if it is prior to the amendment is irrelevant particularly because the lis came into effect after the amendment was made applicable by the Legislature.

6. As against this, learned counsel Mr. P. P. S. Janarthana Raja, appearing as amicus curiae, raised a novel argument. In the first place, he pointed out that this was a provision in the nature of a penal provision and, therefore, could not be held to be retrospective in operation. Mr. Raja further points out that the appeals were only against the penalty and the appeals against the penalty could not be refused to be admitted for non-payment of taxes as they were distinct and separate from the assessment. Learned counsel contends that for the purposes of the admissibility of appeals, appeals against assessments have to be treated distinctly and separately vis-a-vis appeals against penalty and merely because the tax due under the return has not been paid, the appeals against the penalty, which are based on entirely different cause of action, cannot be refused to be admitted. Learned counsel submitted that he was not going on the retrospectivity of the provisions because the amendment was in the nature of a procedural law and could, therefore, legitimately apply to pending cases also. However, according to him, as per the true interpretation of the section if the admitted tax liability was not paid by the assessee, the appeals on the different subjects and which did not pertain to the assessment could not be refused to be admitted. In short, the contention is that the opening words of Sub-section (4) of Section 249 have to be read down to mean and include appeals against assessments and no other appeals.

7. Before we take up the rival contentions for consideration, it will be better to see the order of the Tribunal out of which the present references emanate. In its order, the Tribunal seems to have relied on the law laid down by the Supreme Court in Hoosein Kasam Dada (India) Ltd. Vs. The State of Madhya Pradesh and Others, holding that all the rights of the parties get crystallised when a lis commences and no clog on a likely appeal could be put unless the law is made retrospectively expressly or by clear implication. It will be better to see that case first.

8. It is indeed held in this case by the apex court while interpreting Section 22(1) of the Central Provinces and Berar Sales Tax Act, 1947, as it stood prior to its amendment, that the condition made applicable by the subsequent amendment of prior payment of tax would not apply where the assessment proceedings of the assessee-company were initiated prior to the amendment of the section though the order of assessment was made after the amendment. It was clarified by the apex court that the imposition of the restriction by the amendment of the section could not affect the assessee''s right of appeal from a decision in proceedings which commenced prior to such amendment and which right of appeal was free from such restriction under the section as it stood at the time of commencement of the proceedings. A close look at the decision suggests that therein it was an admitted position that the lis had already commenced even prior to the amendment came on the scene. The Supreme Court observed in this behalf as follows AIR 1953 225 :

"It will appear from the dates given above that in this case the lis in the sense explained above arose before the date of amendment of the section. Further, even if the lis is to be taken as arising only on the date of assessment, there was a possibility of such a lis arising as soon as proceedings started with the filing of the return or, at any rate, when the authority called for evidence and started the hearing and the right of appeal must be taken to have been in existence even at those dates. For the purposes of the accrual of the right of appeal the critical and relevant date is the date of initiation of the proceedings and not the decision itself."

9. The lis, in our case, even if it is taken to have commenced on the date of filing of the returns, would be from March 12, 1976, when the returns were actually filed and that would be clearly after the amendment came into force, i.e., October 1, 1975. The Tribunal has clearly missed this aspect as it has nowhere realised that the lis had not started since the returns themselves came to be filed after October 1, 1975, even if that date is taken to be the starting date for the commencement of the lis. Therefore, it is obvious that this case would be of no consequence in so far as the present controversy is concerned and the Tribunal has clearly erred in relying upon this case. However, before parting with the subject, we must take stock of the contention made by Mr. Raja that this was a procedural amendment and, therefore, could be held as retrospective one.

10. We do not agree with this proposition because even in this Supreme Court judgment, the learned judges have clearly laid down the law that where an existing right of appeal is fettered or interfered with or clouded by adding the condition of prior payment of the tax dues, such cannot be held to be an amendment with retrospective effect. In this behalf, the following observations are worth noting (page 224 of AIR 1953) :

"The true implication of the above observation as of the decisions in the other cases referred to above is that the pre-existing right of appeal is not destroyed by the amendment if the amendment is not made retrospective by express words or necessary intendment. The fact that the pre-existing right of appeal continues to exist must, in its turn, necessarily imply that the old law which created that right of appeal must also exist to support the continuation of that right. As the old law continues to exist for the purposes of supporting the pre-existing right of appeal that old law must govern the exercise and enforcement of that right of appeal and there can be no question of the amended provision preventing the exercise of that right. The argument that the authority has no option or jurisdiction to admit the appeal unless it be accompanied by the deposit of the assessed tax as required by the amended proviso to Section 22(1) of the Act overlooks the fact of existence of the old law for the purpose of supporting the pre-existing right and really amounts to begging the question."

11. In the same tune, the Supreme Court further observes AIR 1953 225 :

"There can be no doubt that the new requirement ''touches'' the substantive right of appeal vested in the appellant. Nor can it be overlooked that such a requirement is calculated to interfere with or fetter, if not to impair or imperil, the substantive right. The right that the amended section gives is certainly less than the right which was available before. A provision which is calculated to deprive the appellant of the unfettered right of appeal cannot be regarded as a mere alteration in procedure. Indeed the new requirement cannot be said merely to regulate the exercise of the appellant''s pre-existing right but in truth whittles down the right itself and cannot be regarded as a mere rule of procedure."

12. Relying on these observations, we have no doubts that even in the present case the amendment has the effect of interfering with or bringing clouds on or fettering the right of appeal which was pre-existing. Therefore, there would be no question of holding that the amendment, being of procedural nature, is retrospective in operation. Further, as we have pointed out already, the apex court has also laid down in no uncertain terms that the law which would be applicable would be the law available on the date when the lis between the parties commenced in order to appreciate as to whether the right of appeal has been affected or not. In this case also, the lis was held to have commenced from the date of filing of the returns or as the case may be when the returns were taken up for assessment. If that be so then it will have to be held that this case would be of no consequence to the assessee as, admittedly, the lis, in our case, has started after the amendments have come into force, i. e., earliest on March 12, 1976, when the assessee filed the returns. At any rate, the Tribunal has missed this very important aspect. This is besides the further error committed by the Tribunal of making a general statement that for the purposes of the appeal, the assessment years would be the only relevant factor. The only reason that the Tribunal has found is that the appeals were relating to the assessment years 1973-74 and 1974-75 when the amendment was not in force. In our opinion, in view of this very Supreme Court judgment, the assessment years, at least in the present matter, would be wholly irrelevant and everything would depend upon the commencement of the lis.

13. Mr. T. C. A. Ramanujam, learned standing counsel then brought to our notice two decisions of the Supreme Court, they being Jain Bros. and Others Vs. The Union of India (UOI) and Others, and Maya Rani Punj Vs. Commissioner of Income Tax, Delhi, . In the first-mentioned case, the subject of the penalty u/s 271(1) of the Income Tax Act, 1961, came up for consideration. This was a case where the assessee had failed to file the returns pertaining to the assessment years which were covered by the 1922 Act. However, the assessee was sought to be penalised u/s 271(1) of the 1961 Act, as it stood then. It was tried to be suggested that since the assessment years pertained to the 1922 Act and since there were no penalty provision under that Act, the assessee could not be penalised with the aid of Section 271(1) of the new Act. While repelling this argument, the Supreme Court held that for the imposition of penalty, it was not the assessment year or the date of filing of the returns which were important but it was the satisfaction of the Income Tax authority that a default has been committed by the assessee which would attract the provisions relating to penalty. Examining the scheme of Section 274(1) and Section 275 of the 1961 Act, the Supreme Court held that the order imposing penalty must be made after the completion of the assessment. It, therefore, proceeded to hold that the crucial date for the purposes of penalty was the date of such completion. In the same tune is the decision in Maya Rani Punj Vs. Commissioner of Income Tax, Delhi, , which was heavily relied upon by Mr. Ramanujam. This was also a case u/s 271(1)(a) of the Act. Herein also for the assessment year 1961-62, the returns had to be filed by September 28,1961, but it was not ''so filed ; nor was any extension asked for. It was filed with a delay of seven months, on May 3, 1962, i.e., after the 1961 Act came into force. Proceedings u/s 271(1)(a) of the 1961 Act were initiated and penalty was imposed as per 1961 Act. Examining the correctness and extent of the penalty, the Supreme Court reiterated the law laid down in Jain Bros. and Others Vs. The Union of India (UOI) and Others, , and held that another contrary decision of the Supreme Court in Commissioner of Wealth Tax, Amritsar Vs. Suresh Seth, was not correctly decided. The Supreme Court again reiterated that in Jain Bros. and Others Vs. The Union of India (UOI) and Others, , it is pointed out that the question of imposition of penalty would arise only after the assessment of tax was made. It would really not be necessary for us to discuss these two cases here because, admittedly, in the present case, the returns themselves have been filed after the amendments have come into force ; the assessment have also obviously taken place after the amendments and, therefore, the right of appeal would be governed by the amended law as the same has arisen only after the commencement of the lis. It is interesting to note that while in Hoo-sein Kasam Dada''s case [1953] 4 STC 114, the Supreme Court held the date of filing of the return to be the commencement of the lis, there is a considerable further travel made from this proposition to hold the date of completion of assessment proceedings itself as the relevant date for the purposes of filing the appeal. Be that as it may, it is obvious that on this ground itself the order of the Tribunal has to be faulted. Two other cases were relied upon by Mr. Ramanujam, they being Commissioner of Income Tax Vs. Bengal Card Board Industries and Printers (P.) Ltd., and Commissioner of Income Tax Vs. Kerala Transport Co., wherein again the question of lis has been considered.

14. In Commissioner of Income Tax Vs. Bengal Card Board Industries and Printers (P.) Ltd., , the appeal was preferred on October 9, 1975, i.e., after the amendment came into force. However, the court pointed out that the assessment was made on July 31, 1975. The court, therefore, came to the conclusion that since the right of appeal accrued to the assessee on account of the notice sent to the assessee u/s 143(2) or as the case may be when the assessment was made and that being before the amendment came into effect on October 1, 1975, the old law would govern and Section 249(4) of the Act could not come in the way of the assessee who had filed the appeal without paying the agreed tax liability.

15. In Commissioner of Income Tax Vs. Kerala Transport Co., , Section 249(4) fell for consideration but not in the same way as in the present case. There the question was of the amendment effected from April 1, 1989. The Division Bench came to the conclusion that the lis could be stated to have commenced latest by the date when the notice u/s 143(2) of the Act was issued, that is, a date prior to April 1, 1989, and that being the date prior to April 1, 1989, the law as amended with effect from April 1, 1989, could not apply.

16. The above two judgments were relied on by Mr. Ramanujam to suggest that in both the cases the lis was held to have started only when the notice u/s 143(2) of the Act was issued. Strictly speaking, we need not go to that portion because we are of the clear opinion that in the present case, the lis started much after the amendments have come into effect, i.e., firstly when the returns themselves have been filed on March 12, 1976, or, as the case may be, when the assessments were made on that basis which would be much after the amendments. The lis thus having started after the amendment that would be the relevant and the deciding period for holding as to which law applies. The Tribunal has obviously taken an incorrect view that the application of the amendment would depend upon the year of assessment. In our view, the year of assessment would be irrelevant. What would be relevant would be the starting point of the lis between the department and the assessee.

17. The main thrust of the argument of Mr. Janarthana Raja was, however, that since the appeals pertained to the subject of penalty they could not be annihilated on the ground that the admitted tax liability was not paid. He pointed out that though the opening words of the section cover the appeals even against the penalty, the section should be read down and restricted only to the appeals against the assessment. In our view, such interpretation is not possible. Mr. Janarthana Raja, relying on the two decisions in T. Govindappa Setty Vs. Income Tax Officer and another, and Commissioner of Income Tax Vs. Rama Body Builders, contended that the section should be liberally construed. It is true that in Commissioner of Income Tax Vs. Rama Body Builders, , there is an observation that the section should be liberally construed. However, the liberal construction of the section would not be tantamount to reading down the section so as to restrict it to appeals against assessments only. The opening words are loud and clear. Therefore, it is obvious that the Legislature intended that where the assessee has taken the advantage of appeal under Chapter XX, he should have paid at least the admitted tax liability before the appeal is admitted. The opening words are clear enough to cover all kinds of appeals contemplated under Chapter XX and a restricted meaning cannot be given or for that matter, the section cannot be read down. This decision also does not in any manner suggest and the so called liberal construction suggested by the judges therein pertains only to the discretionary power which lies via the provision. The judgment is of no consequence. In so far as T. Govindappa Setty Vs. Income Tax Officer and another, , is concerned apart from the fact that it is not at all apposite to the controversy herein, all that it says is that where the tax liability itself is denied, the section cannot apply and more particularly, the assessee cannot be punished by not admitting the appeal. In the said decision, the assessee had denied his status as a Hindu undivided family and, therefore, had contended that in the wake of his contention that there was no Hindu undivided family merely because the return was filed by the Hindu undivided family, there could not be insistence on the payments of the admitted tax liability for the purposes of entertaining the appeal. The judgment has absolutely no relevance with the present controversy. We are, therefore, of the clear opinion that in the circumstances, no appeal against the penalty can be admitted unless the admitted tax liability is paid by the asses-see.

18. Mr. Janarthana Raja then pointed out from the order that at least in so far as the assessment year 1973-74 is concerned though belatedly, the assessee has made the payment of the tax liability. Our attention was invited to the appellate order passed by the Appellate Assistant Commissioner and more particularly to paragraph 2 therein. It was, therefore, argued by Mr. Janarthana Raja that the appellate authority should have shown discretion. We do not propose to consider this argument on the merits because we find that the Tribunal has disposed of the appeals only on the preliminary ground that the relevant assessment years were 1973-74 and 1974-75 and, therefore, it was only the old law which was applicable. On that ground the Tribunal stayed the order of the appellate authority solely taking into consideration the nonpayment of the admitted tax liability and that order was set aside, restoring the earlier order. In our opinion, the Tribunal will have to consider the matter on the merits because the appellate order also shows that the appellate authority has considered the matters on the merits. In view of the fact that the Tribunal has not considered anything on the merits, it will be better if the Tribunal is directed to decide the question on the merits. The Tribunal may, if it so chooses, remand the matter for further probe and the assessee also could have the opportunity to bring in fresh evidence in support of her contentions on the merits. We, therefore, would choose to remand back the matter to the Tribunal for its decision on the merits. In view of what we have stated earlier, the question shall be answered against the assessee and in favour of the Revenue. No costs.

19. We thank Mr. Janarthana Raja, who assisted the court as amicus curiae, for his services.