Gauhati High Court
Sati Oil Udyog Ltd. And Anr. vs Commissioner Of Income-Tax And Ors. on 12 June, 1998
Equivalent citations: [1998]232ITR502(GAUHATI)
Author: A.K. Patnaik
Bench: A.K. Patnaik
JUDGMENT A.K. Patnaik, J.
1. In these two writ petitions under Article 226 of the Constitution, the petitioners have challenged the constitutional vires of Section 143(1A) of the Income-tax Act, 1961.
2. The facts in Civil Rule No. 2072 of 1993 are that petitioner No. 1 is a limited company registered under the Companies Act, 1956, and is an assessee under the Income-tax Act, 1961 (hereinafter referred to as "the Act"), and petitioner No 2 is the director and shareholder of petitioner No. 1 company. For the previous period July 1, 1987 to March 31, 1989, petitioner No. 1 (hereinafter referred to as "assessee"), filed a return on December 27, 1989, showing a total loss of Rs. 1,94,13,440 which included the loss of current year of Rs. 79,36,126 and unabsorbed loss of the previous year of Rs. 1,14,77,316. The Deputy - Commissioner of Income-tax, Assessment, Special Range-I, Guwahati (hereinafter referred to as the "Assessing Officer"), thereafter sent an intimation dated February 14, 1990, accepting the said return showing a total loss of Rs. 1,94,13,440 and stating therein that a net amount of Rs. 6,035 was refundable to the assessee. Thereafter, the assessee was served with a notice dated October 20, 1992, under Section 154/155 of the Act informing the assessee that the said intimation was required to be amended as there was a mistake apparent from the record in allowing depreciation under Section 32 of the Act. By the said notice, the assessee was given an opportunity to be heard and was also asked to send written reply to the said notice. The assessee then sent a written reply dated November 25, 1992 and also submitted at the hearing that there was a mistake in claiming depreciation on plant and machinery which has not been put to use during the period under assessment and that the depreciation amount of Rs. 49,78,255 claimed in the return be restricted to Rs. 1,08,267, but since even after such correction of the depreciation amount, the assessee still suffered loss during the period under assessment and no income-tax as such was payable by the assessee, additional tax should not be levied in view of the decision of the Delhi High Court in the case of Modi Cement Ltd. v. Union of India [1992] 193 ITR 91 and by other courts in other cases. In this order dated December 14, 1992, the Assessing Officer while reducing the depreciation claimed by the assessee to the extent of Rs. 48,69,988, rejected the contention of the assessee that additional tax should not be levied observing that no condition as such has been laid down in Section 143(1A) of the Act that additional tax is leviable only when income-tax is payable by the assessee on the total income after adjustment. Aggrieved, the petitioners have moved this court for declaring Section 143(1A) of the Act as ultra vires, illegal, unconstitutional and void, and for quashing the said order dated December 14, 1992, passed by the Assessing Officer demanding an additional tax of Rs. 5,62,480 under Section 143(1A) of the Act.
3. In Civil Rule No. 2089 of 1993, the facts briefly are that petitioner No. 1 is a limited company registered under the Companies Act, 1956, and petitioner No. 2 is the director and shareholder of petitioner No. 1-company. Petitioner No. 1-company (hereinafter referred to as the "assessee") filed a return for the assessment year 1991-92 on December 31, 1991, showing a total loss of Rs. 1,80,22,480. The Deputy Commissioner of Income-tax, Assessment, Special Range-I, Guwahati (hereinafter referred to as "the Assessing Officer"), however, found that the depreciation amount of Rs. 70,37,350 on fixed assets up to March 31, 1990, debited in the profit and loss account for the year was not allowable under Section 32 of the Income-tax Act, 1961 (for short "the Act") and, accordingly, disallowed the same and in his intimation dated October 7, 1992, to the assessee under Section 143(1)(a), of the Act reduced the total loss of Rs 1,09,85,130 and imposed additional tax of Rs. 8,09,290 under Section 143(1A) of the Act on the assessee. On receipt of the said intimation dated October 7, 1992, the assessee submitted a petition under Section 154 of the Act for rectification of the assessment order on the ground that even after adjustment made by the Assessing Officer, the resultant figure for the assessment year 1991-92 was a loss and no additional tax was leviable in view of the decision of the Delhi High Court in the case of Modi Cement Ltd. v. Union of India [19921 193 ITR 91 and the decision of the Allahabad High Court in the case of Indo-Gulf Fertilizers and Chemicals Corporation Ltd. v. Union of India [1992] 195 ITR 485. By order dated December 14, 1992, the Assessing Officer rejected the said contention of the assessee stating that no condition has been laid down in Section 143(1A) of the Act that additional tax could be levied only if income-tax was payable on the total income after adjustment. Aggrieved, the petitioners have moved this court for a declaration that Section 143(1A) of the Act is ultra vires, illegal, unconstitutional and void and for quashing the order dated December 14, 1992, of the Assessing Officer.
4. Sub-section (1A) was introduced in Section 143 of the Act by the Direct Tax Laws (Amendment) Act, 1989, with effect from April 1, 1989, and it read as follows :
"(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 (1), exceeds the total income declared in the return by any amount, the Assessing Officer shall,--
(i) further increase the amount of tax payable under Sub-section (1) by an additional income-tax calculated at the rate of twenty per cent. of the tax payable on such excess amount and specify the additional income-tax in the intimation to be sent under Sub-Clause (i) to Clause (a) of Sub-section (1) ;
(ii) where any refund is due under Sub-section (1), reduce the amount of such refund by an amount equivalent to the additional income-tax calculated under Sub-Clause (i).
(b) Where as a result of an order under Sub-section (3) of this section or Section 154 or Section 250 or Section 254 or Section 260 or Section 262 or Section 263 or Section 264, the amount on which additional income-tax is payable under Clause (a) has been increased or reduced, as the case may be, the additional income-tax shall be increased or reduced accordingly, and,--
(i) in a case where the additional income-tax is increased, the Assessing Officer shall serve on the assessee a notice of demand under Section 156 ;
(ii) in a case where the additional income-tax is reduced, the excess amount paid, if any, shall be refunded.
Explanation.--For the purposes of this sub-section, tax payable on such excess amount means,--
(i) in any case where the amount of adjustments made under the first proviso to Clause (a) of Sub-section (1) exceeds the total income, the tax that would have been chargeable had the amount of the adjustments been the total income ;
(ii) in any other case, the difference between the tax on the total income and the tax that would have been chargeable had such total income been reduced by the amount of adjustments."
5. Thereafter, the Delhi High Court held in Modi Cement Ltd. v. Union of India [1992] 193 ITR 91 and J. K, Synthetics Ltd. v. Asst. CIT [1993] 200 ITR 584 (Delhi) and the Allahabad High Court held in Indo-Gulf Fertilizers and Chemicals Corporation Ltd. v. Union of India [1992] 195 ITR 485 that the said Sub-section (1A) of Section 143 of the Act did not apply where after the adjustments made by the Assessing Officer, the assessee had a loss and did not have income liable to tax under the Act. Thereafter, by the Finance Act, 1993, the said Clause (a) of Sub-section (1A) of Section 143 of the Act was substituted with effect from April 1, 1989, as under :
"(a) Where, as a result of the adjustments made under the first proviso to Clause (a) of Sub-section (1),--
(i) the income declared by any person in the return is increased ; or
(ii) the loss declared by such person in the return is reduced or is converted into income, the Assessing Officer shall,--
(A) in a case where the increase in income under Sub-Clause (i) of this clause has increased the total income of such person, further increase the amount of tax payable under Sub-section (1) by an additional income-tax calculated at the rate of twenty per cent, on the difference between the tax on the total income so increased and the tax that would have been chargeable had such total income been reduced by the amount of adjustments and specify the additional income-tax in the intimation to be sent under Sub-Clause (i) of Clause (a) of Sub-section (1) ;
(B) in a case where the loss so declared is reduced under Sub-Clause (ii) of this clause or the aforesaid adjustments have the effect of converting that loss into income, calculate a sum (hereinafter referred to as additional income-tax) equal to twenty per cent, of the tax that would have been chargeable on the amount of the adjustments as if it had been the total income of such person and specify the additional income-tax so calculated in the intimation to be sent under Sub-Clause (i) of Clause (a) of Sub-section (1) ;
(C) where any refund is due under Sub-section (1), reduce the amount of such refund by an amount equivalent to the additional income-tax calculated under Sub-Clause (A) or Sub-Clause (B), as the case may be."
6. Sub-Clause (ii) of Clause (a) of Sub-section (1A) of Section 143 of the Act as substituted by the Finance Act, 1993, thus provides that where the loss declared by the assessee in the return is reduced, the Assessing Officer shall calculate as additional income-tax a sum equal to twenty per cent, of the tax that would have been chargeable on the amount of the adjustments as if it had been the total income of such person and specify the additional income-tax so calculated in the intimation to be sent under Sub-Clause (i) of Clause (a) of Sub-section (1) of Section 143 of the Act. It is this provision introduced for the first time by the Finance Act, 1993, with retrospective effect from April 1, 1989, which has been challenged by the petitioners-assessees in these two writ petitions as ultra vires, unconstitutional, illegal and null and void.
7. At the hearing and in the written submissions, Dr. A.K. Saraf, learned counsel appearing for the petitioners, submitted that sub Clause (ii) of Clause (a) of Section 143(1A) of the Act as substituted by the Finance Act, 1993, in so far as it sought to impose additional tax even where after the adjustments made by the Assessing Officer the net figure is a loss is beyond the legislative competence of the Union Parliament. He contended that the word "income" occurring in entry 82, List I of the Seventh Schedule to the Constitution construed in its widest possible extent cannot include loss and, therefore, no law can be made by Parliament to tax loss incurred by the assessee. He cited the decision of the Supreme Court in the case of Navnit Lal C. Javeri v. K.K. Sen, AAC [1965] 56 ITR 198 for the proposition that entries in the list purporting to confer legislative power should be given the widest possible construction but this did not mean that Parliament could choose to tax as income an item which in no rational sense could be regarded as a citizen's income. He referred to the observations of the Supreme Court in the case of Navinchandra Mafatlal v. CIT [1954] 26 ITR 758 and reiterated in CIT v. G.R. Karthikeyan [1993] 201 ITR 866 that according to the dictionary meaning of the word "income", it means "a thing that comes in", and submitted that since loss is not a thing which comes in, it is not income according to the natural meaning of the word "income" and cannot by any rational sense be regarded as a citizen's income. Dr. Saraf further argued that the definition of "income" given in Section 2(24) of the Act being not exhaustive but inclusive will have the same meaning as the word "income" occurring in entry 82, List I of the Seventh Schedule to the Constitution and, therefore, would not cover "loss". He pointed out that "total income" has been defined in Section 2(45) of the Act to mean the total amount of income as referred to in Section 5, computed in the manner as laid down in the Act and that the loss which is sought to be subjected to additional income-tax under Section 143(1A) of the Act does not come within the scope of total income as indicated in Section 5 of the Act. According to Dr. Saraf, even though Section 4 of the Act provides that income-tax shall be charged for any assessment year in accordance with, and "subject to the provisions including the provisions for levy of additional income-tax", Section 143(1A) of the Act which provides for levy of additional income-tax cannot override the provisions of Section 5 of the Act. He cited the decision of the Bombay High Court in the case of CIT v. F.Y. Khambaty [1986] 159 ITR 203, which held that the expression "subject to" used in the opening portion of both Sub-sections (1) and (2) of Section 5 of the Act has to be read keeping in mind that Section 5 is intended to explain the scope of total income and thus one has to exclude from the scope of total income such income as is excluded therefrom by the provisions other than Section 5 of the Act and not that the other provisions of the Income-tax Act, override the provisions of Section 5 of the Act. He pointed out that Sections 29 to 44 of the Act indicate the manner of computation of income from business and submitted that loss may be a factor in the computation of total income, but after computation in the manner provided in the Act, if the total income is found to be a minus income and not a plus income, no tax would be payable by the assessee. He cited the judgment of the Supreme Court in the case of CIT v. Harprasad and Co. P. Ltd. [1975] 99 ITR 118 wherein it has been explained that both profits and losses must enter into computation of the taxable income of the assessee but unless the loss is set off against profits of the assessment year in question or carried forward and set off against the profits of a subsequent assessment year and the resultant figure is a plus income, no income-tax is payable by the assessee. He further contended that if no income-tax is payable, no additional income-tax will be payable by the assessee. He relied on the observations of the Supreme Court in the case of CIT v. Elphinstone Spinning and Weaving Mills Co. Ltd. [1960] 40 ITR 142, that the word "additional" in the expression "additional income-tax" must refer to a state of affairs in which there has been a tax before. He also cited the decision of the Supreme Court in the case of Ashok Service Centre v. State of Orissa [1983] 53 STC 1 in which it has been held that if any dealer who is not liable to pay sales tax under the principal Act either by reason of his not having sufficient gross turnover of goods or by reason of exemption given in section 7 of the principal Act, he is not liable to pay additional sales tax.
8. Mr. M.S. Usgaocar, learned Additional Solicitor General of India, submitted at the hearing and in his written submissions, on the other hand, that the word "income" in entry 82, List I of the Seventh Schedule to the Constitution must be widely construed as has been held by the Supreme Court in the case of Navinchandra Mafatlal v. CIT [1954] 26 ITR 758, and so construed it will not only include the traditional view of the term "income" but also "deemed income" or "notional income". He contended that in the case of Navnit Lal C. Javeri v. K.K. Sen, AAC [1965] 56 ITR 198, the Supreme Court has observed that in considering the question as to whether a particular item in the hands of a citizen can be regarded as his income or not, it would be inappropriate to apply the tests traditionally prescribed by the Income-tax Act as such, and held that the fiction created by the Legislature by the impugned provision for taxing an amount advanced to a shareholder as a loan as the payment of dividend to him was within the competence of Parliament. He pointed out that in the said case of Navnit Lal C. Javeri [1965] 56 ITR 198 (SC), the Supreme Court took note of its decision in the case of Sardar Baldev Singh v. CIT [1960] 40 ITR 605, in which a similar fiction created by Section 23A of the 1922 Act treating the undistributed portion of assessable income of the company as deemed to have been distributed as a dividend amongst the shareholders was upheld by the court as within the power of the Legislature. He also referred to the judgment of the Supreme Court in the case of CIT v. Bhogilal Laherchand [1954] 25 ITR 50 in which it was observed that the term "deemed" brought within the net of chargeability income both actually accruing and which was supposed notionally to have accrued. He pointed out that in the case of Bhagwan Das Jain v. Union of India [1981] 128 ITR 315, the Supreme Court has held that the expression "income" in its ordinary economic sense includes not merely what is received or what comes in by exploiting the use of a property but also what one saves by using it oneself and that which can be converted into income can be reasonably regarded as giving rise to income. He submitted that the aforesaid decisions of the Supreme Court in the cases of CIT v. Bhogilal Laherchand [1954] 25 ITR 50 and Bhagwan Das Jain v. Union of India [1981] 128 ITR 315 were taken note of by the Supreme Court in the case of CIT v. G.R. Karthikeyan [1993] 201 ITR 866 and it was held that the prize received in a car rally fell within the definition of "income" occurring in entry 82, List I of the Seventh Schedule to the Constitution. Mr. Usgaocar cited the decision of the Supreme Court in the case of Union of India v. A. Sanyasi Rao [1996] 219 ITR 330 in which the Supreme Court after considering all the earlier judgments held that entry 82, List I of the Seventh Schedule to the Constitution would take within its fold any profits or gains not only actually received, but also income which was supposed by the Legislature to have notionally accrued and what could be converted into income would also come within its fold. According to Mr. Usgaocar, therefore, even "deemed", "notional" or "fictional" income can be taxed by Parliament under entry 82, List I of the Seventh Schedule to the Constitution. He pointed out that the scheme of the Act would show that "income" can be grouped into three categories : (i) real income received as indicated in Section 4 ; (ii) income deemed as received as indicated in section 7 ; and (iii) income deemed as accrued or arisen as indicated in section 9 of the Act. He submitted that the words "as if it had been the total income of such person" used in Sub-Clause (B) of Clause (a) of Sub-section (1A) of Section 143 of the Act would show that the Legislature has treated the difference in the figure of loss as returned by the assesses and the figure of loss as intimated by the Assessing Officer after adjustments as a deemed, fictional or notional income for the purpose of levy of additional income-tax. Mr. Usgaocar further submitted that the scheme of the Act would show that the total income is the result of computation after excluding deductions and allowances and, therefore, does not mean only positive income simpliciter but a combination of heads of receipts and heads of expenditure and the end-product of such a combination may be a loss. He referred to the observations of the Supreme Court in the case of CIT v. Harprasad and Co. P. Ltd. [1975] 99 ITR 118, that the concept of carry forward of loss does not stand in vacuo and that it involves the notion of set-off and the sole purpose is to set-off the loss against the profits of a subsequent year. According to Mr. Usgaocar, therefore, when an assessee files a return claiming loss, his intention is to have the said loss carried forward and set it off against the profits of the subsequent year. Loss, therefore, has a direct nexus with the income that may be charged to income-tax in the subsequent year and any provision made by the Legislature imposing additional income-tax on the difference between loss declared by the assessee and that intimated by the Assessing Officer after adjustment cannot be held to be beyond the legislative power of Parliament to make law on tax on income under entry 82, List I of the Seventh Schedule to the Constitution.
9. The aforesaid submissions of Dr. Saraf and Mr. Usgaocar proceed on the premise that Sub-section (1A) of Section 143 of the Act levies a tax on loss or income. That this premise is not at all correct would be evident from the bare language of Sub-section (1A) of Section 143 of the Act as substituted by the Finance Act, 1993, and the legislative history of Section 143 as it now stands. By the Direct Tax Laws (Amendment) Act, ' 1987, Section 143 of the Act was substituted and Sub-section (1) of the substituted Section 143 provided for a new scheme whereunder on the basis of the return filed by the assessee under Section 139 of the Act, the Assessing Officer was to make various adjustments in the income or loss as declared in the return and after such adjustments send an intimation to the assessee indicating whether any tax or interest was found due from the assessee or any refund was due to the assessee. Under the said Sub-section (1) of Section 143, as substituted, no notice was required to be served on the assessee for regular assessment under Sub-section (2) of Section 143, but the adjustments were to be made and the intimation was to be sent by the Assessing Officer to the assessee without prejudice to the provisions of Sub-section (2) of Section 143 of the Act. Thus what was sought to be introduced by Sub-section (1) of Section 143 as substituted by the Direct Tax Laws (Amendment) Act, 1987, with effect from April 1, 1989, was a scheme of an expeditious assessment on the basis of income or loss as declared in the return of the assessee without calling upon the assessee under Sub-section (2) thereof to satisfy the Assessing Officer by producing evidence on which the assessee relied in support of the return.
10. The Direct Tax Laws (Amendment) Act, 1987, was thereafter followed by the Direct Tax Laws (Amendment) Act, 1989, by which Sub-section (1A) was introduced in Section 143 of the Act. Glause (a) of the said Sub-section (1A) of Section 143 provided that where, in the case of any person, the total income, as a result of adjustments made by the Assessing Officer under Clause (a) Sub-section (1), exceeded the total income declared in the return by any amount, the Assessing Officer would have to further increase the amount of tax by an additional income-tax calculated at the rate of twenty per cent, of the tax payable on such excess amount and where any refund is due, reduce the amount of such refund by an amount equivalent to the additional income-tax calculated at the said rate. The aforesaid provision introduced by the Direct Tax Laws (Amendment) Act, 1989, therefore, levied an additional income-tax on the difference between the total income as declared in the return and the total income arrived at as a result of adjustments made by the Assessing Officer. The obvious intent of such a provision was to ensure that the assessee declared his total income in the return correctly, and where an assessee either deliberately or negligently made a mistake in the declaration of his total income, he was liable to pay additional income-tax or was not entitled to refund of the amount equivalent to additional income-tax, as the case may be. Though the said provision used the expression "additional income-tax", it did not really levy a tax on the income of the assessee but imposed such additional income-tax by way of punishment on the assessee who did not declare his total income in the return correctly. Further, the sum of twenty per cent, of tax payable on the differential amount between the total income declared and the total amount arrived at by the Assessing Officer as a result of adjustments was fixed by the said provision as the quantum of penalty that was to be payable by the assessee and it was proportionate to the amount of total income which the assessee did not declare in his return. My aforesaid conclusion that the levy under Sub-section (1A) of Section 143 of the Act introduced by the Direct Tax Laws (Amendment) Act, 1989, with effect from April 1, 1989, was a penalty on the assessee for not filing the return of his income or loss correctly is fortified by the fact that by the Direct Tax Laws (Amendment) Act, 1989, the Legislature also introduced Explanation 6 to Sub-section (1) of Section 271 of the Act to the effect that where any adjustment is made in the income or loss declared in the return under the proviso to Clause (a) of Sub-section (1) of Section 143 and additional tax was charged under that section, the provisions of Sub-section (1) of Section 271 for imposition of penalty would not apply in relation to the adjustments so made. The Legislature, therefore, provided that once additional tax was charged as a result of the adjustments made under Section 143 no further penalty was to be imposed on the assessee for not declaring his income correctly in the return in relation to the adjustments. As a matter of fact, a Circular No. 549 (see [1990] 182 ITR (St.) 1), dated October 31, 1989, was issued stating that the provisions of Sub-section (1A) inserted in Section 143 of the Act were on the same lines as the provisions for levy of penalty under Section 271(1)(c) of the Act and clarifying that Clause (i) of the Explanation to the said Sub-section (1A) of Section 143 applied to the loss return only. On the basis of the said clarification, the Assessing Officers levied additional income-tax not only in cases where as a result of adjustments made by them, the total income exceeded the total income declared in the return but also where as a result of such adjustments the loss as declared by the assessees in the return was reduced. The assessees concerned then moved the Delhi High Court and the Allahabad High Court and the two High Courts held that no additional income-tax can be imposed on the assessee where, after such adjustments, the assessee still had a loss and did not have any income liable to tax under the Act.
11. Thereafter, by the Finance Act, 1993, Clause (a) of Sub-section (1A) of Section 143 of the Act was substituted with retrospective effect from April 1, 1989, levying additional tax not only in cases where as a result of adjustments made by the Assessing Officer, the income declared by any person in the return was increased but also in cases where loss declared by such person in the return was reduced or was converted into income. The intent of the Legislature in making the aforesaid provision again was to ensure that the assessee also declared his loss in the return correctly and where the assessee made a mistake in the declaration of his loss in the return, either deliberately or negligently, and in the adjustments made by the Assessing Officer the loss was reduced or converted into income, he was liable to pay additional income-tax. Here also, the levy of such additional income-tax was not really a tax on the excess loss declared by the assessee but was a punishment on the assessee for not declaring the loss in the return correctly and it was in the nature of a penalty though named as additional income-tax. A sum equal to twenty per cent, of the tax that would be chargeable on the amount of adjustments was the quantum of penalty that the assessee was to pay for not declaring the loss in the return correctly and such quantum was proportionate to the quantum of loss which the assessee had declared in the return in excess of the loss determined as a result of the adjustments. The words "the amount of the adjustments as if it had been the total income of such person" have been used in Sub-clause (B) of Clause (a) of Sub-section (1A) of Section 143 of the Act as introduced by the Finance Act, 1993, only for the purpose of determining the quantum of additional income-tax by way of penalty that was to be paid where the loss is reduced or is converted into income as a result of the adjustments and the said words do not indicate that the Legislature intended to tax the assessee by treating the amount of adjustments in a case of loss return as a "deemed", "fictional", or "notional" income. The provisions of the impugned Sub-section (1A) of Section 143 of the Act are thus materially different from the provisions which were interpreted by the Supreme Court to have treated some receipts by persons as "deemed", "notional" or "fictional" payments or income for the purposes of the Act in the different cases cited by Mr Usgaocar.
12. Dr. Saraf, however, contended that Section 143(1A) cannot be construed as a penal provision as it did not provide for a hearing to the assessee before imposition of additional income-tax. He further argued that normally no penalty was imposable in the absence of mens rea on the part of the assessee to evade income-tax, but under the impugned Section 143(1A) additional income-tax is to be levied on the assessee for an incorrect declaration of his income or loss irrespective of whether such incorrect declaration was deliberate or not. He further submitted that penalty is also not imposed when no tax is payable as such by an assessee, but Section 143(1A) imposes additional income-tax even where the assessee is not liable to pay any tax on the loss declared by him. In support of his aforesaid submission, he relied on the decision of the Supreme Court in the case of Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26.
13. In the said case of Hindustan Steel Ltd. [1972] 83 ITR 26, the Supreme Court held that under the provisions of the Orissa Sales Tax Act, 1947, penalty will not be imposed unless the party obliged acted deliberately in defiance of law. In the said case, the court was not called upon to decide as to whether any provision in the Orissa Sales Tax Act, 1947, was a tax or a penalty. One has to look at the plain language of Sub-section (1A) of Section 143 of the Act to find out what the said provision intended. As has been held by the Supreme Court in the case of Polestar Electronic (Pvt.) Ltd. v. Addl CST [1978] 41 STC 409 if the language of a statute is clear and explicit, effect must be given to it, for in such a case the words best declare the intention of the law-giver and it would not be right to refuse to place on the language of the statute the plain and natural meaning which it must bear on the ground that it produces a consequence which could not have been intended by the Legislature. So construed, it is clear from Clause (a) of Sub-section (1A) of Section 143 of the Act as substituted by the Finance Act, 1993, quoted above that where, as a result of the adjustments made under the first proviso to Clause (a) of Sub-section (1) of Section 143, (i) the income declared by any person in the return is increased ; or (ii) the loss declared by such person in the return is reduced or is converted into income, the Assessing Officer has to levy additional income-tax on the assessee. The levy of additional income-tax, therefore, has to be imposed as soon as the income declared by any person is increased or the loss declared by such person in the return is reduced or converted into income. Sub-clauses (A), (B) and (C) of Clause (a) of Sub-section (1A) of Section 143 of the Act indicate the quantum of such levy of additional income-tax on the assessee in a case where the income is increased, in a case where the loss is reduced and in a case where refund is due respectively. The language used in Sub-section (1A) of Section 143 of the Act makes it clear that the levy of additional income-tax under the said sub-section is actually a penalty on the conduct of the assessee for not declaring his income or loss correctly. The aforesaid intention of the Legislature as gathered from the very language of Section 143(1A) has to be given effect to by the court even though the said statutory provision imposes additional income-tax by way of penalty also in cases where no income-tax is payable. Such additional income-tax is payable also in cases where the assessee has made a mistake in declaring his income or loss in the return without any mens rea, and the additional income-tax is to be imposed without providing an opportunity of hearing to the assessee.
14. The impugned Sub-section (1A) of Section 143 of the Act substituted by the Finance Act, 1993, is, therefore, a penal provision and the question which really needs to be answered in this case is whether Parliament has the power under entry 82, List I of the Seventh Schedule to the Constitution to enact a provision imposing penalty on a person when he makes a mistake in his declaration of his loss in his return. In the case of Sardar Baldev Singh v. CIT [1960] 40 ITR 605 (SC), cited by Mr. Usgaocar, the Supreme Court observed (page 615) :
"As is well known the legislative entries have to be read in a very wide manner and so as to include all subsidiary and ancillary matters. So entry 54 should be read not only as authorising the imposition of a tax but also as authorising an enactment which prevents the tax imposed being evaded. If it were not to be so read, then the admitted power to tax a person on his own income might often be made infructuous by ingenious contrivances. Experience has shown that attempts to evade the tax are often made."
15. Entry 54, List I of the Seventh Schedule to the Government of India Act, 1935, is the same as entry 82, List I of the Seventh Schedule to the Constitution of India and these entries authorise the Union Legislature to make laws in respect of tax on income and the Supreme Court in the later decision in the case of Union of India v. A Sanyasi Rao [1996] 219 ITR 330, cited by Mr. Usgaocar, has construed entry 82, List I of the Seventh Schedule to the Constitution similarly to include all subsidiary and ancillary matters. The object of Clause (a) of Sub-section (1A) of Section 143 in imposing penalty on persons who do not declare their income or loss in the return correctly is to ensure that the assessees file their returns without mistake and do not either deliberately or negligently understate their income or inflate their losses in the returns resulting in loss of tax on income. This object of the Legislature in enacting Sub-section (1A) of Section 143 of the Act is not only clear from the plain language of the said provision and its legislative history detailed above but also from the memorandum explaining the amendment to Section 143(1A) sought to be made by the Finance Bill, 1993 (see [1993] 200 ITR (St.) 161), in which it has been stated that the provisions of Section 143(1A) are meant to have a deterrent effect and the purpose of levy of additional income-tax is to persuade all assessees to file their returns of income carefully to avoid mistakes. Dr. Saraf, however, vehemently contended that in a case where the assessee files a return of loss, no tax as such is evaded until the loss is carried forward to a subsequent assessment year or years and set off against profits. This argument of Dr. Saraf overlooks the fact that under section 80 of the Act, loss of a particular assessment year has to be determined in pursuance of the return filed by the assessee for that assessment year and once the loss is so determined by the Assessing Officer under Section 143 of the Act, the said loss will have to be carried forward and set off against the profits in subsequent assessment year or years. It is for this reason that the Legislature amended the provisions of Section 143(1A) of the Act by the Finance Act, 1993, so as to impose additional income-tax not only in cases where the income declared by any person in the return is increased but also in cases where the loss declared by such person in the return is reduced or is converted into income as a result of adjustments made by the Assessing Officer under the first proviso to Clause (a) of Sub-section (1) of Section 143 of the Act. Since the said amendment is for the purpose of preventing the loss of tax on income by ensuring that the return of loss is filed by the assessee without any mistake, the said amendment is a law made by Parliament on a subsidiary or ancillary matter relating to tax on income and is within the legislative competence of Parliament in entry 82, List I of the Seventh Schedule to the Constitution.
16. Dr. Saraf next submitted that in case section 143(1A) of the Act imposing additional income-tax is construed as a penal provision, it is unreasonable, arbitrary and violative of article 14 of the Constitution inasmuch as (i) imposition of additional income-tax is automatic irrespective of as to whether the mistake made by the assessee in his declaration of income or loss is bona fide or deliberate ; (ii) no opportunity of hearing whatsoever is provided to the assessee before additional income-tax is imposed and (iii) additional income-tax under the said provision is payable even where no income-tax is payable in case where as a result of adjustments made by the assessee, the final figure is still a loss. He further submitted that in so far as Sub-section (1A) imposes additional income-tax even in cases where no income-tax is payable, it is a colourable exercise of power and is a fraud on the Constitution and is confiscatory in nature and violative of the right of a person to his property under article 300A of the Constitution.
17. Mr. Usgaocar, on the other hand, submitted that there is always a presumption in favour of the constitutionality of a statute and the burden is upon him who attacks it to show that there has been a clear transgression of the constitutional provisions and this rule is based on the judicially recognized and accepted assumption that the Legislature understands and correctly appreciates the needs of its own people and its laws are directed to problems made manifest by experience. In support of this submission, he cited the decision of the Supreme Court in R.K. Garg v. Union of India [1982] 133 ITR 239, in which it has been held that in respect of laws on economic activities, the Legislature should be allowed a greater latitude than laws touching civil rights and it should be allowed a free play in the joints because it has to deal with complex problems which do not admit of solution through any doctrinaire or strait-jacket formula. Mr. Usgaocar pointed out that the Legislature after appreciating the problems of the assessees as well as of the Department has introduced a new scheme of voluntary compliance by the Direct Tax Laws (Amendment) Act, 1987, which consisted of the Department accepting without scrutiny the return submitted by the assessees on the basis of particulars furnished by them. Such a scheme, according to Mr. Usgaocar, can work only if the assessee makes a correct, complete and truthful disclosure as per the verification clause contained at the foot of the return and if the disclosures are correct the Department gives the assessee full benefit of his disclosures without questioning the quantum of the respective particulars in the return, but where it is found that there are some arithmetical errors or some allowances wrongly claimed by the assessee on the face of the return, such wrong claims are disallowed by the Assessing Officer without questioning the quantum of particulars, and necessary adjustments are made by the Assessing Officer in the intimation sent to the assessee under Section 143(1) of the Act. He submitted that it is for this reason that additional income-tax has been levied on the assessees not filing correct return of their income or loss without giving an opportunity of hearing to the assessees. He further brought to the notice of the court that in the Explanation to Section 143 of the Act introduced with effect from October 1, 1991, by the Finance (No. 2) Act, 1991, the intimation sent to the assessee containing the adjustments under Section 143 is deemed to be an order for the purpose of Section 264 of the Act which provides for revision of orders by the Commissioner. He further stated that the said Explanation to Section 143 of the Act was amended by the Finance Act, 1994, providing therein that the intimation sent to the assessee shall be deemed to be an order for the purpose of also Section 246 which provides for appealable orders. He submitted that if an assessee is aggrieved by any adjustment in the intimation sent under Section 143(1) of the Act, he can always file an appeal or revision against the said intimation and in case the adjustments made by the Assessing Officer are altered in such an appeal or revision, the additional income-tax levied under Sub-section (1A) of Section 143 of the Act will accordingly be altered. According to Mr. Usgaocar, therefore, the impugned amendment in so far as it imposes additional income-tax to the extent of only twenty per cent, of the tax that would have been chargeable on the amount of adjustments made in respect of the income or loss as declared by the assessee for the mistakes committed by the assessee in the declaration of his income or loss in his return is not unreasonable or arbitrary and is not violative of article 14 of the Constitution.
18. Once the court finds that a law or an amendment is within the legislative competence of the Legislature, it has to assume that the Legislature while enacting the law or the amendment properly appreciated the need for enacting the law or the amendment. It was for the Legislature in its own wisdom to provide in Sub-section (1A) of Section 143 of the Act for strict liability on the assessee and indicate in the said provision that additional income-tax by way of penalty would be payable by the assessee for any mistake made by him in the declaration of his income or loss irrespective of whether such a mistake is deliberate or bona fide and the reasonableness of such a penal provision imposing strict liability has to be judged by the court keeping in mind the object of the statutory provisions. The object of bringing about the amendments to Sections 143(1) and 143(1A) by the Direct Tax Laws (Amendment) Act, 1987, the Direct Tax Laws (Amendment) Act, 1989, and the Finance Act, 1993, is to ensure that after the assessee files his return of income or loss, the Assessing Officer sends to him an intimation informing the assessee of the tax, interest or additional income-tax payable by him and the assessee is not unnecessarily called upon to produce evidence in support of his return under Sub-section (2) of Section 143 of the Act for the purpose of regular assessment. Such a scheme of assessment of income or loss of the assessee on the basis of the particulars as disclosed in the income-tax return can only work if the assessee discharges his obligation under the Act to file a correct return of his income or loss and does not make any mistake in the return either deliberately or negligently. If the aforesaid scheme was not to result in loss of revenue, the Legislature has necessarily to make the assessee fully responsible in declaring his income or loss in the return carefully and without any mistake, and to ensure that such a full responsibility was discharged by the assessee, the Legislature has provided for strict liability on the assessee for additional income-tax by way of penalty. Therefore, there appears to be legislative justification for imposition of additional" income-tax by way of penalty even in cases where the assessee has made a bona fide mistake in declaring his income or loss in the return and the provisions of the impugned amendment so far as they authorise imposition of additional income-tax by way of penalty even in cases where there is no mens rea on the part of the assessee in declaring a wrong figure of his income or loss cannot be held to be unreasonable. Again, since the object of the said scheme is that the asses-see should not be called upon by the Assessing Officer to produce evidence and justify his return of income or loss, the said object would be frustrated if a provision was made therein for giving opportunity of hearing to the assessee before the Assessing Officer imposed additional income-tax as a result of the adjustments made by the Assessing Officer in the income or loss declared by the assessee. The Legislature, however, has thought it fit to provide a hearing to the assessee in respect of the adjustments made by the Assessing Officer after the intimation containing the adjustments is sent to the assessee by stating in the Explanation to Section 143 of the Act that the intimation is deemed to be an order appealable or revisable under Sections 246 and 264 of the Act, respectively. What is provided therefore against the tax, interest and additional income-tax as levied in the intimation after the adjustments are made by the Assessing Officer is a post-decisional hearing at the hearing in the appeal or revision that may be filed by the assessee against the intimation and such post-decisional hearing is consistent with the object of the new scheme introduced in Section 143(1) and (1A) of the Act. Section 143(1A) of the Act, therefore, cannot be held to be unreasonable for not providing for an opportunity of hearing to the assessee before imposition of additional income-tax on the assessee. Further, as would be clear from section 80 of the Act, any mistake in the determination of loss of the assessee in pursuance of the return filed by him for any particular assessment year would enable him to take advantage of such mistake and set off a wrong figure of loss against the profits of a subsequent year. By penalising the mistake in the declaration of loss by the assessee in his return through imposition of additional income-tax, the impugned amendment seeks to prevent loss of tax on income in future. The impugned provision therefore cannot be held to be unreasonable, confiscatory or colourable or a fraud on the Constitution on the ground that it imposes a penalty even where the assessee suffered loss and is not liable to tax on income.
19. Finally, Dr. Saraf submitted that the impugned amendment in so far as it has been enacted retrospectively with effect from April 1, 1989, is unreasonable and violative of the rights of the petitioners under article 14 of the Constitution. Dr. Saraf contended that prior to the impugned amendment, no additional income-tax was payable by an assessee under Section 143(1A) of the Act so long as the final figure after adjustments made by the Assessing Officer in the declaration of loss of the assessee in the return remained a loss. This is what was held by the Delhi High Court and the Allahabad High Court in the cases of Modi Cement Ltd. v. Union of India [1992] 193 ITR 91 ; J.K. Synthetics Ltd. v. Asst. CIT [1993] 200 ITR 584 and Indo-Gulf Fertilizers and Chemicals Corporation Ltd. v. Union of India [1992] 195 ITR 485 on the basis of the interpretation given by the said two High Courts to Sub-section (1A) of Section 143 of the Act as it stood prior to the impugned amendment made in the year 1993. Thus, under the law as is stood prior to the impugned amendment by the Finance Act, 1993, the petitioners in the present two civil rules were not liable for additional income-tax under the said Sub-section (1A) of Section 143 of the Act for the incorrect returns of their losses for the period from July 1, 1987, to March 31, 1989, filed on December 27, 1989 (in Civil Rule No. 2072 of 1993), and for the assessment year 1991-92 filed on December 31, 1991 (in Civil Rule No. 2089 of 1993), because even after the adjustments made by the Assessing Officer in the intimations sent to the assessees, the final figures were losses. But it is because of the retrospective effect that has been given by the Finance Act, 1993, that the impugned amendment though made in the year 1993 is effective from April 1, 1989, and the petitioners have been made liable to pay additional income-tax of Rs. 5,62,480 and Rs. 8,09,290 for the adjustments made in the losses declared by the assessees in Civil Rule No. 2072 of 1993 and Civil Rule No. 2089 of 1993, respectively. Dr. Saraf pointed out that similarly no penalty was payable by the assessees under Section 271(1)(c) of the Act because under the said provision penalty was to be paid at a minimum rate of the tax and at the maximum rate of three times the tax that was evaded, and since no tax was payable by an asses-see having a loss, the two assessees were also not liable for any penalty under the said Section 271(1)(c) of the Act. He cited the decision of A.N. Sen J., in the case of Lohia Machines Ltd. v. Union of India [1985] 152 ITR 308 (SC), for the proposition that any retrospective amendment to be valid must be reasonable and not arbitrary and must not be violative of any of the fundamental rights guaranteed under the Constitution. According to Dr. Saraf, since the retrospective operation of the impugned amendment made by the Finance Act, 1993, has resulted in levy of additional income-tax to the extent of Rs. 5,62,480 and Rs. 8,09,290 for mistakes made in their declaration for loss in the return for which they were not liable for any penalty when they filed their return of loss, the retrospective operation of the impugned amendment is unreasonable, arbitrary and violative of the fundamental right of the petitioners under article 14 of the Constitution.
20. In reply to the aforesaid contention of Dr. Saraf, Mr. Usgaocar submitted that the judgment of A.N. Sen J., in the case of Lohia Machines Ltd. [1985] 152 ITR 308 (SC), is a minority judgment and cannot be of any assistance to the petitioners. He argued that this is not a case where retrospective operation to the impugned amendment has been given without a valid reason. He pointed out that prior to the impugned amendment to Section 143(1A) by the Finance Act, 1993, the Direct Tax Laws (Amendment) Act, 1989, had introduced Section 145(1A) with effect from April 1, 1989, and in Sub-section (1A) of Section 143 as introduced with effect from April 1, 1989, provision was made imposing additional income-tax on the assessee where, as a result of the adjustments, the total income of the assessee exceeded the total income declared by him. He submitted that as would be evident from Explanation (i) to Sub-section (1A) of Section 143 of the Act as it stood prior to the Finance Act, 1993, such additional income-tax was payable by an assessee also where adjustments were made by the Assessing Officer in the intimation in respect of return of loss. Yet, the Delhi High Court and the Allahabad High Court in the cases of Modi Cement Ltd. v. Union of India [1992] 193 ITR 91 ; J. K. Synthetics Ltd. v. Asst. CIT [1993] 200 ITR 584 and Indo-Gulf Fertilizers and Chemicals Corporation Ltd. v. Union of India [1992] 195 ITR 485 held that the said Sub-section (1A) of Section 143 of the Act did not provide for imposition of additional income-tax on an assessee in a case where after adjustments made by the Assessing Officer in the intimation the final figure continued to be a loss. Against the said decisions of the Delhi High Court and the Allahabad High Court, the Union of India has filed special leave petitions before the Supreme Court, which are pending, but in the meanwhile, the Legislature, in the Finance Act, 1993, has clarified the law by amending Sub-section (1A) of Section 143 of the Act providing therein that additional income-tax is payable not only where the income as declared by the assessee is increased but also where the loss as declared by the assessee is either reduced or converted into income after adjustments made by the Assessing Officer in the intimation sent to the assessee. According to Mr. Usgaocar, there was no unreasonableness or arbitrariness at all in making the impugned amendment restrospective with effect from April 1, 1989, by the Finance Act, 1993.
21. While it is true that the judgment of A. N. Sen J., in the case of Lohia Machines Ltd. [1985] 152 ITR 308 (SC) is a minority judgment, the proposition of law relating to the validity of a retrospective amendment has been laid down in the said judgment after considering several decisions of the Supreme Court rendered earlier on the subject, which I would now like to discuss. In the case of Epari Chinna Krishna Moorthy v. State of Orissa [1964] 15 STC 461, 467, the Supreme Court held that : "it is true that in considering the question as to whether legislative power to pass an Act retrospectively, has been reasonably exercised or not, it is relevant to enquire how the retrospective operation operates. But it would be difficult to accept the argument that because the retrospective operation may operate harshly in some cases, therefore, the legislation itself is invalid . . ." In the case of Rai Ramhrishna v. State of Bihar [1963] 50 ITR 171, the Supreme Court observed that no mechanical test can be applied in determining the validity of the retrospective operation of the Act and it is conceivable that cases may arise in which the retrospective operation of a taxing or other statute may introduce such an element of unreasonableness that the restrictions' imposed by it may be open to serious challenge as unconstitutional. In the case of Jawaharmal v. State of Rajasthan, AIR 1966 SC 764, the Supreme Court has held that cases may conceivably occur where the court may have to consider the question as to whether excessive retrospective operation prescribed by a taxing statute amounts to the contravention of the citizen's fundamental right ; and in dealing with such a question, the court may have to take into account all the relevant and surrounding facts and circumstances in relation to the taxation. In the case of Asst. Commissioner of Urban Land Tax v. Buckingham and Carnatic Co. Ltd. [1970] 75 ITR 603, the Supreme Court observed that it is not right to say as a general proposition that the imposition of tax with retrospective effect per se renders the law unconstitutional, but in applying the test of reasonableness to a taxing statute, it is of course a relevant consideration that the tax is being enforced with retrospective effect but that is not conclusive in itself. In Krishnamurthi and Co. v. State of Madras [1973] 31 STC 190, the Supreme Court observed that the object of such an enactment is to remove and rectify the defect in phraseology or lacuna of other nature and also to validate the proceedings, including realisation of tax, which have taken place in pursuance of the earlier enactment which has been found by the court to be vitiated by an infirmity and such an Amending and Validating Act in the very nature of things has a retrospective operation, its aim being to effectuate and to carry out the object for which the earlier principal Act had been enacted. Again in the case of Hira Lal Rattan Lal v. STO [1973] 31 STC 178, the Supreme Court further held that the amendment of the Act was necessitated because of the Legislature's failure to bring out clearly in the principal Act its intention to separate the processed or split pulses from the unsplit or unprocessed pulses and that the retrospective amendment became necessary as otherwise the State would have to refund large sums of money. In the case of State of Gujarat v. Ramanlal Keshav Lal Soni [1983] 2 SCC 33, the Supreme Court held that the Legislature is undoubtedly competent to legislate with retrospective effect to take away or impair any vested right acquired under existing laws but since the laws are made under a written Constitution, and have to conform to the dos and don'ts of the Constitution, neither prospective nor retrospective laws can be made so as to contravene fundamental rights. After considering the aforesaid decisions of the Supreme Court on the point, A.N. Sen J., held in the case of Lohia Machines Ltd. v. Union of India [1985] 152 ITR 308 (SC) that the power and competence of Parliament to amend any statutory provision with retrospective effect cannot be doubted but any retrospective amendment to be valid must, however, be reasonable and not arbitrary and must not be violative of any of the fundamental rights guaranteed under the Constitution. His Lordship further held that the mere fact that any statutory provision has been amended with retrospective effect does not by itself make the amendment unreasonable and the unreasonableness or arbitrariness of any such amendment with retrospective effect has necessarily to be judged on the merits of the amendment in the light of the facts and circumstances under which such amendment is made. His Lordship also observed that in considering the question as to whether the legislative power to amend a provision with retrospective operation has been reasonably exercised or not, it becomes relevant to enquire as to how the retrospective effect of the amendment operates.
22. Applying the aforesaid law with regard to the validity of a retrospective amendment, one has to take into account the facts and circumstances under which the impugned amendment was made and to enquire as to how the retrospective effect of the impugned amendment operated. As has been pointed out by Mr. Usgaocar, by the Direct Tax Laws (Amendment) Act, 1989, Sub-section (1A) of Section 143 had been introduced with effect from April 1, 1989, imposing additional income-tax where as a result of the adjustments made by the Assessing Officer the total income of the assessee exceeded the total income declared in the return by any amount. Although a stand was taken by the Department before the Delhi High Court and the Allahabad High Court that the said Sub-section (1A) of Section 143 of the Act introduced with effect from April 1, 1989, authorised the imposition of additional income-tax also where the loss as declared by the assessee was reduced as a result of the adjustments made by the Assessing Officer, the Delhi High Court and the Allahabad High Court held in the three decisions discussed above that no additional income-tax could be imposed under the said Sub-section (1A) of Section 143 of the Act where as a result of the adjustments made by the Assessing Officer the loss declared in the return by the assessee was reduced and the assessee did not have any income which was liable to tax under the Act. To cure the lacuna or phraseology in the said Sub-section (1A) of Section 143 of the Act, the impugned amendment has been made by the Finance Act, 1993 with retrospective effect from April 1, 1989. The object of the impugned amendment was therefore to remove the defects in the phraseology used in Sub-section (1A) of Section 143 of the Act. Such removal of defects in the phraseology of a provision has been described as "small repairs" in a passage in 73 Harvard Law Review 692 at page 705 which was quoted with the approval by the Constitution Bench of the Supreme Court in the case of Assistant Commissioner of Urban Land Tax v. Buckingham and Carnatic Co. Ltd. [1970] 75 ITR 603. The said passage was to the following effect (page 622) :
"It is necessary that the Legislature should be able to cure inadvertent defects in statutes or their administration by making what has been aptly called 'small repairs'. Moreover, the individual who claims that a vested right has arisen from the defect is seeking a windfall since had the Legislature's or administrator's action had the effect it was intended to and could have had, no such right would have arisen. Thus, the interest in the retroactive curing of such a defect in the administration of Government outweighs the individual's interest in benefiting from the defect . . . The court has been extremely reluctant to override the legislative judgment as to the necessity for retrospective taxation, not only because of the paramount Governmental interest in obtaining adequate revenues, but also because taxes are not in the nature of a penalty or a contractual obligation but rather a means of apportioning the costs of Government among those who benefit from it."
23. The aforesaid passage from 73 Harvard Law Review 692 at page 705 would show that the court has been extremely reluctant to override the legislative judgment as to the necessity for retrospective taxation, because taxes are not in the nature of penalty but rather a means of apportioning the costs of Government among those who benefit from it. In case, therefore, the provisions of Sub-section (1A) of Section 143 of the Act as introduced by the Direct Tax Laws (Amendment) Act, 1989, with effect from April 1, 1989, imposed a tax and not a penalty and because of defects in the phraseology of the said provisions the income of some assessees escaped the levy of such tax, the court would have been hesitant to interfere with the legislative judgment in giving retrospective effect to Sub-section (1A) of Section 143 of the Act as amended by the Finance Act, 1993. But as has been held by me in this judgment additional income-tax levied under Sub-section (1A) of Section 143 of the Act with effect from April 1, 1989, on the assessees declaring incorrect income in their returns was not really a tax but a penalty on the assessee for not correctly declaring his income or loss in the return.
24. Not that the Legislature can in no case give retrospective effect to a penal provision. Rather, the bar under Article 20(1) of the Constitution is against retrospective criminal law only. But the background of facts and circumstances in which the impugned amendment was made retrospective make such retrospective operation arbitrary and unreasonable.
25. Sub-section (1A) of Section 143 of the Act as it stood prior to the Finance Act, 1993, was interpreted by the Delhi High Court and the Allahabad High Court in the cases of Modi Cement Ltd. v. Union of India [1992] 193 ITR 91 ; J. K. Synthetics Ltd. v. Asst. CIT [1993] 200 ITR 584 and Indo-Gulf Fertilizers and Chemicals Corporation Ltd. v. Union of India [1992] 195 ITR 485 and it was held that no additional income-tax was payable under the said provision by an assessee who had filed an incorrect return of his loss and after the adjustments made by the Assessing Officer the assessee continued to have a loss and did not have any income which was liable to tax. In the said decisions, the Delhi High Court and the Allahabad High Court have also considered Explanation (i) to the said Sub-section (1A) as it stood prior to the Finance Act, 1993, which, according to Mr. Usgaocar, indicated that additional income-tax was to be levied where the loss was reduced as a result of the adjustments. I also agree with the said decisions of the Delhi High Court and the Allahabad High Court because I do not find any clear provision in Sub-section (1A) of Section 143 of the Act as it stood prior to the Finance Act, 1993, to show that additional income-tax was to be levied also where the loss declared by a person in the return is reduced as a result of the adjustments. Similarly, under Section 271(1)(c) an assessee who had concealed the particulars of his income or had furnished inaccurate particulars of his income in his return was liable to penalty by a sum not less than the amount of tax and not more than three times the amount of tax sought to be evaded by reason of the concealment of particulars of his income or the furnishing of inaccurate particulars of such income ; he was therefore not liable to penalty as no tax was payable on the loss return filed by him. Thus, neither under Sub-section (1A) of Section 143 of the Act nor under Section 271 of the Act was the assessee liable to penalty for incorrect declaration of his loss in the return. It is the impugned amendment by the Finance Act, 1993, that for the first time made such an assessee liable to penalty by way of additional income-tax for incorrect declaration of his loss in the return. By the impugned amendment, such liability of the assessee was made a strict liability as the assessee was liable not only where he deliberately made a wrong declaration of his loss in the return but also where he made a bona fide mistake in declaring his loss in the return and as a result of final adjustments made by the Assessing Officer the loss was reduced by the Assessing Officer.
26. It is true that the assessee was to sign a verification at the foot of the return and was under an obligation under the Act as it stood prior to the impugned amendment to file his return of loss correctly. But even where such return of loss was found to be incorrect, the assessee was not exposed to any penalty or prosecution in the absence of mens rea. The impugned provision enacted by the Finance Act, 1993, with retrospective effect from April 1, 1989, has done away completely with the element of mens rea for the purpose of imposing additional income-tax by way of penalty and has imposed a strict liability on the assessee. The result is that, the assessees such as the two assessees in the present cases were automatically liable to additional income-tax by way of penalty even though they had suffered losses and were not made aware when they filed their returns by any clear declaration of the law that they would be so liable if they did not carefully and meticulously declare their losses in their returns and instead made bona fide mistakes in their returns of losses. The retrospective operation of the impugned amendment by the Finance Act, 1993, imposing additional income-tax on a person where his declaration of loss is reduced as a result of the adjustments made by the Assessing Officer under Section 143 of the Act is, therefore, unreasonable and arbitrary and ultra vires article 14 of the Constitution.
27. Mr. Usgaocar cited the decisions of the learned single judge of the Kerala High Court in the case of Kerala State Coir Corporation Ltd. v. Union of India [1994] 210 ITR 121, of the Division Bench of the Madhya Pradesh High Court in the case of Sanctus Drugs Pharmaceuticals (P.) Ltd. v. Union of India [1997] 225 ITR 252 and of the learned single judge of the Madras High Court in the case of Sukra Diamond Tools Pvt. Ltd. v. Deputy CIT [1998] 229 ITR 682, wherein the impugned amendment by the Finance Act, 1993, with retrospective effect from April 1, 1989, has been held to be intra vires the Constitution. While I agree with the conclusions in the said decisions of the Kerala High Court, the Madhya Pradesh High Court and the Madras High Court that the impugned amendment to Section 143(1A) of the Act substituted by the Finance Act, 1993, is constitutionally valid, with great respect to the brother judges who have rendered the aforesaid judgments, I am unable to persuade myself to take a view that the retrospective operation given to the impugned amendment by the Finance Act, 1993, is constitutionally valid.
28. In the result, I hold that Sub-section (lA)(a) of Section 143 of the Income-tax Act, 1961, substituted by the Finance Act, 1993, is constitutionally valid, but the retrospective operation given to the provision therein that additional income-tax is to be imposed where the loss declared by a person is reduced as a result of adjustments is ultra vires the Constitution. The impugned orders/intimations imposing additional income-tax under Sub-section (1A) of Section 143 of the Income-tax Act, 1961, on the two assessees/petitioners in the two Civil Rules Nos. 2072 of 1993 and 2089 of 1993 are quashed, and the writ petitions are allowed to the extent indicated above. However, considering the entire facts and circumstances of the cases, the parties shall bear their own costs.