Income Tax Appellate Tribunal - Pune
Motisagar Estate (P.) Ltd. vs Deputy Commissioner Of Income-Tax on 10 June, 1993
Equivalent citations: [1993]47ITD72(PUNE)
ORDER
T.V.K. Natarajachandran, Accountant Member
1. These appeals by the Talera group of assessees and other two assessees are heard and disposed of together as they involve common issue.
2. These appeals pertain to assessment years 1988-89,1989-90 in respect of Talera group of cases and assessment year 1990-91 in respect of Rajkamal Constructions and assessment years 1989-90 and 1990-91 in respect of Shri Siddivinayak Foods P. Ltd. and arise out of similar orders of the CIT(A) wherein he has confirmed the various penalties imposed by the Dy. CIT (Admn.) under Section 272A(2)(c) of the Income-tax Act, 1961 for failure of the assessees to file annual return under Section 206 of the Income-tax Act, 1961 without reasonable cause. Various grounds have been taken by the appellants to impugne the orders of the CIT(A) confirming the penalties levied. In the Talera group of cases, the appellants has also filed an additional ground to the effect that the penalty levied is enormous compared to the tax deducted at source and paid to the Government and therefore, it was urged that the penalty levied is confiscatory in nature and beyond the legislative competence which is clear from the amendment brought on the statute by the Finance (No. 2) Act 1991 and although the amendment is said to be effective from 1-10-1991, it is merely clariflcatory in nature and is applicable from the day the Section imposing the penalty is brought on the statute and therefore, penalties imposed should be cancelled or alternatively restricted to the tax deducted at source. As the matter involved in these appeals is highly controversial, these appeals were grouped together and heard together, so that the issue could be appreciated from all perspective.
3. In all these appeals admittedly there was delay in filing annual return contemplated by Section 206 of the Income-tax Act, 1961 and in Form No. 26A. The Dy. CIT (Admn.) issued show-cause notice to the various appellants to explain as to why penalty as provided in Section 272A(2)(c) should not be imposed. The appellants responded to the show-cause notice in different ways. The major thrust of the appellants was that the tax at source from interest on deposits and advances other than interest on securities has been deducted and credited to the Government well within time. The appellants did not receive any communication from the department regarding the filing of annual return under Section 206. It is only on coming to know about the obligation the appellants hastened to file the annual return. Therefore, unawareness of the requirement of law to file the annual return under Section 206 or in other words, ignorance of law was pleaded as a common cause by the appellants. It was also urged that the quantum of penalty levied was excessive and should be restricted because the measure of penalty is confiscatory and thus violative of the Constitution. After considering the different explanations offered by the appellants, the Dy. CIT (Admn.) concluded that they did not have any force. According to him, the appellants were well established in business and were advised by professionals in the matters of compliance with tax laws. Therefore, the plea of ignorance of law regarding filing of annual return was not acceptable. The letter of the ITO (TDS) dated 15-10-1990 issued to the appellants was only educative in nature and was only meant to warn the assessee that if the legal provisions in respect of tax deducted at source as provided in the Income-tax Act, 1961 were not complied with, necessary proceedings would be initiated. It was also stated that the letter was issued primarily because of the fact that the assessees, in general, have not been complying with these provisions of law. At the same time, the Dy. CIT (Admn.) duly taken into account the fact that the Financial Year 1987-88 and assessment year 1988-89 is the first year for which the proceedings were intended to be initiated. He condoned the delay partly and for the remaining period of delay, he imposed penalty at the minimum till the date of filing of annual return as detailed in the penalty order.
4. At this juncture, it is to be pointed out that except in the case of Rajkamal Constructions, the Dy. CIT (Admn.) condoned certain period of delay up to 30th April, 1989 in the case of Pandava Hotel P. Ltd., Talera Investment P. Ltd. and Meru Real Estate P. Ltd. In the case of Siddivinayak Foods Pvt. Ltd. he condoned the delay of 277 days for the assessment year 1989-90 and 52 days for the assessment year 1990-91. In the case of Machan Real Estate P. Ltd. delay up to 15-10-1988 was condoned, while in the case of Motisagar Real Estates P. Ltd. it was condoned up to 15-10-1988. Only in the case of Rajkamal Constructions, no condonation was allowed by him. Thus for the remaining period of delay, minimum penalty prescribed under the Act was levied as detailed in the orders of the Dy. CIT (Admn.).
5. On appeal, the CIT(A), Pune, passed a speaking order dated 18-3-1992 in the case of Machan Real Estate Pvt. Ltd. and these reasons were followed in other files of Talera group of assessees and Siddivinayak Foods P. Ltd. The CIT (A), Kolhapur passed the order in the case of Rajkamal Constructions confirming the penalty and rejecting the plea of ignorance of law pleaded as an excuse. The CIT(A) referred to the relevant provisions of Section 272A(2)(c) and Section 273B and stated that the default committed by the assessees has been accepted by them and therefore, he confined himself to point out whether any reasonable cause was shown by the assessees for the delay in filing the return in Form No. 26A. Pointing out that the relevant provisions were mandatory in nature and the law requires that the assessee must prove the existence of reasonable cause so as to be exonerated from the levy of penalty, he observed that the penalty proceedings were not criminal proceedings and relied on the observations of the Allahabad High Court in the case of Raghunandan Prasad Mohan Lal v. ITAT [1970] 75 ITR 741 (FB), for the proposition that penalty proceedings have a civil sanction and are revenue in nature and the penalty is pecuniary compensation which the assessee pays for not complying with the provisions of taxing statutes. He also relied on the decision of the Supreme Court in the case of Gujarat Travancore Agency v. CIT [1989] 177 ITR 455 : 44 Taxman 278 for the proposition that there is nothing in Section 271(1)(a) which requires that 'mens rea' must be proved before penalty could be levied. While Section 271 (1)(a) contemplated adducing of reasonable cause on the part of the assessee, provisions of Section 273 contemplates that the assessee must prove that there was reasonable cause a fact which could be proved by preponderance of probabilities as in civil case. Applying the aforesaid proposition, the CIT(A) observed that except stating that the assessee was not aware of the provisions, i.e. pleading of ignorance of law and that it is the first year of committing the offence, did not amount to a reasonable cause. According to him, even the gross negligence also would bring the assessee within the mischief of this Section and there must be some element or circumstances beyond the control to eliminate the operation of the Section. Accordingly, he concluded that the assessee had not shown any circumstances which could be termed as beyond his control so as to amount to reasonable cause in not filing Form No. 26A within the stipulated time.
6. As regards the quantum of penalty, it is not competent for the authorities to go into it, however, harsh it might be. The Legislature's intent by enhancing the quantum of penalty showed that it has attached greater importance for filing such return well within time. He also pointed out the fact that there was no pecuniary loss to the Government would not by itself be used as a handle by the assessee for not complying with the statutory requirements in terms of Section 206. Thus after considering the facts and circumstances of the case, the CIT(A) concluded that the assessee was not able to advance a reasonable cause for the failure to file Form No. 26A within the time as required by the Act and for that reason he upheld the penalties imposed by the Dy. CIT (Admn.) on these appellants. Hence the appeals.
7. In the case of Rajkamal Constructions, it was pleaded before the CIT(A) that the firm came into existence recently and earlier the business was run as a proprietary concern and therefore, the appellant was unaware of the obligations regarding obtaining of TDS number, payment of taxes and filing annual return in Form No. 26A. However, it was submitted that the appellant had paid taxes in time and therefore, the default in not furnishing annual return in Form No. 26A should be condoned. It was also stated that the mistake was inadvertent and there was no mala fide intention in not submitting the annual return in Form No. 26A in time. As regards the quantum of penalty, amendment made by Finance (No. 2) Act, 1991 with effect from 1-10-1991 inserting proviso to Section 272A(2) restricting the penalty to the amount of tax deductible or collectible at source has been brought to the notice of the CIT(A).
8. The CIT(A) rejected the plea of ignorance of law and even the plea of fresh partnership was not accepted as reasonable cause because the assessee was assisted by experts. Consequently, he confirmed the penalty imposed by the Dy. CIT (Admn.).
9. At the time of hearing, Shri V.G. Bhide, the learned counsel for the Talera group of cases filed additional ground as stated above and as it raised purely a question of law it has been admitted. He has filed a common compilation as well as specific compilation for each of the appellants of the Talera group of cases and referred to them in the course of his arguments. Further compilations were also filed in this regard. He referred to the observations of the Dy. CIT (Admn.) contained in para 4 of his penalty order wherein he says that the letter of the ITO (TDS) dated 15-10-1990 was educative in nature as the assessees in general have not been complying with these provisions of law. This fact, according to the learned counsel, has been duly noted by the Dy. CIT (Admn.) himself and therefore, it revealed the state of affairs that prevailed in the minds of the assessees in this regard and this state of affairs could not be proved because the assessees could not prove the negative. He referred to the statement of facts contained in the appeals wherein it has been stated that difficulties have been experienced in obtaining TDS Account Number (TAN) from the department and though that could have prevented the assessees from paying the TDS in the treasury in time, but the assessees have admittedly deducted and credited tax to the treasury within 7 days of deduction. Thus, he pointed out that the assessee has complied with one aspect of the requirement of law. At the same time, failure to furnish annual return under Section 206 was not due to mala fide intention or to make any gain to the assessee. He referred to certain observations of the CIT(A) contained in his appellate order and pointed out the case law in the case of Raghunandan Prasad Mohan Lal (supra) referred to by the CIT(A) relates to constitutional validity of the scope of Section 271 with which we are not concerned in these appeals. He referred to the fact that Section 272A came into statute as on 1-4-1976. In case of default under Section 285A for failure in not furnishing the information regarding execution of contract exceeding Rs. 50,000 value, a token penalty could be levied as the assessee who was a contractor was under the impression that Section 285A was not attracted in his case. Reliance was placed on the order of the Tribunal, E-Bench, Delhi in the case of Northern (India) Tiles Corporation v. IAC [1992] 42 ITD 464. It was also contended that the measure of penalty vis-a-vis the quantum deducted at source is confiscatory in nature and in this connection, he referred to the order of the CIT(A)-I, Pune dated 10-1-1992 in the case of K.G. Consultants, Pune dated 10-1-1992 appearing in pages 7 to 13 of the common compilation wherein in similar circumstances and taking into account the fact that there was no pecuniary loss to the Government, he restricted the penalty to Rs. 200 and condoning the delay for the rest of the period. He also referred to page 25 of the common compilation where in the case of Deccan Real Estate P. Ltd. Pune, the Dy. CIT (Admn.), Pune by his order dated 16-7-1991 dropped the penalty proceedings under Section 272A(2) for the assessment years 1987-88 and 1988-89. He also referred to the decision in the case of New Roshan Talkies v. Third ITO [1979] 8 TTJ (Bom.) 481 wherein tax was deducted and paid in time and the plea of accountant's illness for the delay in filing return under Section 206 was accepted as valid. He referred to several other decisions of the Tribunal in this regard wherein the assessee did not cook up any excuse, but relied on ignorance of law which amounted to a technical default. He submitted that in the latter years, the assessee filed returns under Section 206 in time. He referred to the judgment of the Supreme Court in the case of Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26 for the proposition that even if minimum penalty is prescribed, the authority competent to levy the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bonajide belief that the offender is not liable to act in the manner prescribed by the statute. He referred to the judgment of the Supreme Court in the case of Motilal Padampat Sugar Mills Co. Ltd. v. State of U.P. [1979] 118 ITR 326 at page 339 wherein the following observations of their Lordships of the Supreme Court have been relied upon :
Moreover, it must be remembered that there is no presumption that every person knows the law. It is often said that every one is presumed to know the law, but that is not a correct statement: there is no such maxim known to the law.
In view of the aforesaid rulings, he pleaded that it is a fit case for dropping the penalties.
10. Alternatively, it was pleaded that the quantum of penalty should be restricted to tax deducted at source in the light of the amendment made by the Finance (No. 2) Act, 1991 with effect from 1-10-1991 holding it to be retrospective from 1-4-1976.
11. Dr. R.L. Bhutani, the learned counsel for the assessee, contended that the appellant M/s Rajkamal Constructions was a new firm and the first year of assessment was 1990-91 and it has applied for TAN on 12-6-1990, but it was not allotted till 6-2-1991 when the annual return under Section 206 in Form No. 26A was filed. He further pointed out that TDS was duly paid to the Government on 28-3-1990. Being a new partnership firm created out of erstwhile proprietorship business, the assessee was not aware of the rules and regulations regarding obtaining of Tax Deduction Account Numbers, paying of tax and filing of annual return. Therefore, there was inadvertent mistake committed by the assessee and there was no rnala fide intention in not submitting the annual return under Section 206 of the Income-tax Act, 1961. He referred to a show cause reply given by the assessee to the Dy. CIT (Admn.) and to the CIT (A) where in similar plea was taken by the assessee. Reference is also made to the amendment made to Section 272A(2) by the Finance (No. 2) Act, 1991 with effect from 1-10-1991 restricting the penalty to the tax deducted at source. In particular, the plea of ignorance of law was reiterated before the Dy. CIT (Admn.) as seen from page 2 of the compilation filed. Similar plea was taken in another correspondence addressed to the Dy. CIT (Admn.) at page 3 of the compilation. Based on the aforesaid pleas taken by the assessee before the authorities, the learned counsel for the assessee vehemently contended that Section 272A is nonest. Inadvertent mistake on the part of the assessee which is a new case is reasonable cause for the delay in filing annual return. TDS payment in time amounted to reasonable cause. The quantum of penalty could not be more than tax deducted at source. The amendment made by the Finance (No. 2) Act 1991 exposes the intention of the Legislature. The Dy. CIT (Admn.) levied penalty for the entire default of 281 days. But penalty if at all is required to be computed from 1-7-1990 and not from 1-5-1990 and thus 61 days should be reduced from the period of delay computed by the Dy. CIT (Admn.). Further he pointed out that Section 272A(2)(c) contains only the starting point, but the terminal point and the period of default are not specified and therefore, it is non est. He referred to the judgment of the Supreme Court in the case of K. Satwant Singh v. State of Punjab AIR 1960 SC 266 quoted by the Supreme Court in the case of Maya Rani Punj v. CIT [1986] 157 ITR 330 : 24 Taxman 1 for the proposition that the quantum of penalty at the time of commission of default cannot be made higher than the penalty at the time of levy. He further submitted that there was unintended default and the assessee was new to the provisions of law and, therefore, that constituted reasonable cause. Payment of TDS itself amounted to reasonable cause. He pointed out that even when there is one decision of the Tribunal in favour of the assessee it was required to be followed and it is binding on the Tribunal.
He emphasised the fact that the quantum of penalty levied is greater than the quantum of TDS and therefore, pleaded that the amendment contained in the Proviso should be made effective from the beginning of the provision as hardship has been caused. In this connection, ratio of the Supreme Court in the case of CIT v. P. Domiswamy Chetty [1990] 183 ITR 559 was relied upon, wherein the Supreme Court in direct reference from the order of the Tribunal, held that the assessee was entitled to carry forward to subsequent years not only his share but also the share of his wife in the loss of the firm. Explanation 2 inserted in Section 64(2) of the Income-tax Act, 1961 with effect from 1-4-1980 though not retrospective in its operation, serves as a legislative exposition of the import of Section 64(1)(i). He also referred to the decision of the Tribunal, Special Bench in the case of ITO v. V.R.V. & Co. [1992] 198 ITR (AT) 25 (Mad.). The Taxation Laws (Amendment) Act, 1984 added Explanation 2 to Section 40(b) with effect from 1-4-1985 by which the Parliament has recognised the representative capacity of a partner and has provided that where interest is received in a capacity other than the capacity in which he was a partner, such interest should not be disallowed under Section 40(b). The Tribunal observed that it is well recognised that such declaratory legislation is retrospective in the sense that it serves to clarify the meaning from the inception of the statute. He also referred to the decision of the Supreme Court in the case of Collector, Land Acquisition v. Mst. Katiji AIR 1987 SC 1353 wherein it has been held that the Court is not to legalise the illegal. In these circumstances, he vehemently urged that the penalty levied by the Dy. CIT (Admn.) and confirmed by the CIT(A) should be deleted or limited to the TDS.
12. Shri S.C. Shah, learned counsel for the assessee arguing the case of Siddivinayak Foods P. Ltd. submitted that this was the first year of business. TDS was paid within time and the penalty levied is exorbitant. He pointed out that the annual return is required to be filed under Section 206 in April while TDS can be paid within two months of the expiration of the month in which the date or the credit for payment falls. He also pointed out that there were disputes between the directors and some of them resigned and some of them were removed and the auditor also resigned and thereafter annual return was filed, vide paper compilation filed pages 20 to 22. He also pointed out that the quantum of penalty levied was exorbitant compared to the TDS. He also referred to the fact that the Dy. CIT (Admn.) has dropped the penalty in respect of contractors for late filing of Form No. 27C. He submitted that the case laws relied upon by the CIT(A) are not applicable. He summed up his arguments by saying that this is the first year of default and there was technical default and TDS was paid in time to Government and the Form No. 26A was filed on 27-11-1990 or 28-11-1990. In view of the amendment made by the Finance (No. 2) Act, 1991 with effect from 1-10-1991 it is to be applied retrospectively and the penalty levied is to be restricted to the TDS.
13. Shri A.K. Khaladkar, learned departmental representative was heard at great length. Referring to the case of Siddivinayak Foods P. Ltd., the learned departmental representative contended that there was no proof or substantiation of belief contained in show cause reply furnished by the assessee to the Dy. CIT (Admn.). In this connection, he referred to the judgment of the Bombay High Court in the case of Vithaldas Jayawant v. CIT [1978] 113 ITR 866 wherein the penalty levied under Section 271(1)(a) was upheld by the Bombay High Court for the reason that no evidence was let in to support the explanation for the delay in filing the return of income. Thus, he vehemently urged that the levy of penalty in the case of Siddivinayak Foods P. Ltd. was quite justified in the absence of any evidence in support of the plea taken by the appellant. Regarding the clash between Rule 30 and 37, he readily conceded that penalty could be calculated from 1st July onwards. He pointed out that dropping of penalty by the Dy. CIT (Admn.) relied upon by the learned counsel for the assessee related to default under Section 184C or filing of 27C form which was based on the judgment of the Supreme Court in the case of Hindustan Steel Ltd. (supra). In the case of the assessee, default is under Section 184A and the assessee has not relied on Hindustan Steel Ltd.'s case (supra). Alternatively, he pleaded that dropping of penalty by the Dy. CIT (Admn.) in that case was erroneous and this did not lead the litigants anywhere. He referred to the judgment of the Supreme Court in the case of Gujarat Travancore Agency (supra) for the proposition that mens rea was not necessary to be proved for the purpose of levy of penalty under Section 271(1)(a).
14. Coming to the arguments advanced by other counsels, he submitted that there could be no doubt about the fact that TDS was paid in time. He pointed out that if the contention of the learned counsels for the appellants that there was only a technical breach or a venial breach, if accepted as such, then Section 272A would become redundant. His point was that provisions are on the statute book though there may be draconian and therefore, they are required to be implemented. He referred to the decision of the Supreme Court in the case of Gujarat Travancore Agency (supra) for the proposition that penalty imposed for a tax delinquency is a civil obligation, remedial and coercive in its nature and is far different from the penalty for a crime or a fine or forfeiture provided as punishment for the violation of criminal or penal laws. He pointed out that the judgment of the Supreme Court in the case of Hindustan Steel Ltd. (supra) dealt with the Orissa Sales Tax Act and quasi-criminal proceedings. His point was that the judgment of the Supreme Court in the case of Gujarat Travancore Agency (supra) also applies to Section 272A which falls in Chapter XXI of the Income-tax Act, 1961. Therefore, he vehemently urged that the Tribunal cannot hold Section 272A as redundant and everything boils down to the question whether there is reasonable cause or not. Referring to the plea of inadvertence, the learned departmental representative wondered whether inadvertence could lead to indifference to law. In this connection, he referred to the judgment of the Supreme Court in the case of Indo-Aden Salt Mfg. & Trading Co. (P.) Ltd. v. CIT [1986] 159 ITR 624 : 25 Taxman 356. at 628 wherein it is pointed out that failure to disclose material facts may be deliberate or inadvertent, but that was immaterial. His point was that even inadvertent failure or omission would attract penalty. He further submitted that there would be no dispute about the ruling of the Supreme Court holding that ignorance of law can be an excuse, but he vehemently pleaded that it must be proved by the assessee as required by law. According to him, the plea of ignorance of law in not filing annual return under Section 206 cannot be accepted because it is the obverse and converse of the same coin, namely, action of deducting TDS and paying the same to the Government. He referred to the mandatory nature of Sections 272A and 273B which require that the assessee should prove existence of reasonable cause. He referred to the Commentary of the author Sampath Iyengar for the proposition that onus is on the assessee to prove the existence of reasonable cause. Referring to the contention of the learned counsel Dr. Bhutani that Section 272A is non est, the learned departmental representative stated that as and when the Dy. CIT (Admn.) imposed penalty, the period of default crystallised and the period is determined. Even if the company or the assessee is new, it did not mean that the persons who carried on business were also new. Referring to the amendment made by the Finance (No. 2) Act, 1991 with effect from 1-10-1991, he referred to the Circular thereon which states that the amendment is effective from 1-10-1991 only and there could be no general presumption that it is retrospective in the same manner as it was held by the Patna High Court in the case of Jamshedpur Motor Accessories Stores v. Union of India [1991] 189 ITR 70 at 78. On the contrary, at page 78 of the Judgment, it has been observed that ordinarily a statute and particularly when the same has been made applicable with effect from a particular date should be construed prospectively and not retrospectively. The Circular of the CBDT on Finance (No. 2) Act, 1991 at page 204 (St.) of 1985 ITR has been relied on. He further submitted that Article 20 of the Constitution is not applicable to fiscal laws and penalty is a civil liability though penal in character. For all these reasons, he vehemently contended that the penalties were warranted and the CIT(A) was quite justified in confirming the same.
15. In reply, it was submitted by Dr. R.L. Bhutani that penalty be calculated from 1st July as conceded by the learned departmental representative. He reiterated the plea of ignorance of law and when the assessee came to know about the obligation, it filed the annual return. The TDS return filed in time was reasonable cause in view of the fact that hardship is caused to the assessee, amendment was made by the Finance (No. 2) Act, 1991 and therefore, that proviso was declaratory of the exposition of law and therefore, retrospective in nature.
16. Shri V.G. Bhide, learned counsel for the Talera group of assessees submitted that the department itself had not issued penalty notices for long time but started levying penalty which permitted the assessee to entertain the plea of ignorance. He further submitted that the ruling of the Supreme Court in the case of Gujarat Travancore Agency (supra) did not do away with the judgment of the Supreme Court in the case of Hindustan Steel Ltd. (supra) as it was rendered by three Judges and therefore, still holds the field. He pointed out that the assessees under Talera group have applied for TAN in October 1987 and hardship is a continuous process even from 1-10-1991 and therefore, reasonable interpretation would be that the proviso is retrospective. The benefit of doubt should be given to the assessee.
17. Shri S.C. Shah, learned counsel for the assessee Siddvinayak Foods P. Ltd. submitted that there was reasonable cause and therefore, penalty should be cancelled.
18. We have carefully considered the arguments advanced by the parties, grounds of appeal taken, the additional ground filed at the time of hearing and perused the paper compilations filed by the parties.
19. We shall not go into the constitutional question nor the question of Section 272A being non est as canvassed by the counsels before us, the Tribunal being creature of the Income-tax Act.
20. In our opinion, the whole issue hinges on the existence or non-existence of reasonable cause for the delay in filing Form No. 26A under Section 206 of the Income-tax Act, 1961. The appellants were unanimous on the point that they were not aware of the provisions of rules and regulations requiring the assessee to file annual return of TDS in terms of Section 206 and prescribed by Rule 37 of the Income-tax Rules. They were equally unanimous or vehement on the point that all of them have deducted tax from interest paid on advances or deposits in time and also paid the same to the Treasury well in time and discharged the duty imposed on them by the statute. There is no dispute whatsoever on this factual position. Talera group of assessees have further taken a plea that they have applied for TAN to the concerned authority on 19-10-1987 or 10-10-1987, but it was not allotted to them till they filed annual return under Section 206, except in the case of Talera Investments Pvt. Ltd. for the latter assessment year 1989-90 and Pandav Hotel P. Ltd. when it was allotted on 17-4-1989. Yet the annual returns were filed by the aforesaid two concerns on 10-10-1990 and 31-1-1991 respectively, i.e., there is a clear default even with reference to the date of receipt of TAN. In other cases where TAN was not allotted, the returns were filed belatedly in October 1990 so far as other Talera group of cases is concerned. Thus, there is default in the matter of filing annual return by Talera group of cases. Similarly in the case of Rajkamal Constructions, TAN was applied for on 12-6-1990 but it was not allotted yet till the assessee filed annual return on 6-2-1991. In the case of Siddivinayak Foods P. Ltd. the assessee deducted tax in time and paid to the credit of the Government in time. The annual returns filed one on (sic) for asst. year 1989-90 and another on (sic) for asst. year (sic) long after revised certificate form (sic) came into force (sic) indicating annual return under Section 206 is also to be delivered to the Assessing Officer. In reply dated 3-1-1990 to the show-cause notice the assessee stated that "at most could be a technical (sic) of the rule (sic)". Thus, there is also clear default in respect of the aforesaid two concerns.
21. Now we shall consider whether the plea of ignorance of provisions of law could have been entertained by the assessee or not. Here, we want to preface our order with the remark given by the Dy. CIT (Admn.) himself in his impugned penalty order where he has stated that the assessees, in general, have not been complying with these provisions of law, vide para 4 of the impugned order of penalty. Form No. 19A prescribed by Rule 31(4A) of the Income-tax Rules with effect from 1-6-1978 to 31-3-1989 provides for issue of certificate of deduction of tax on interest other than interest on securities under Section 203 of the Income-tax Act, 1961. Thus, in this form, there is no indication that the person responsible for deducting and paying tax was required to file annual return under Section 206 of the Income-tax Act, 1961. This Form No. 19A was changed into consolidated Form No. 16 with effect from 1-4-1989 brought out by the Income Tax (Ninth) Amendment Rules, 1988. By Notification No. SO 937(E) dated 10-10-1988 uniform Form No. 16 has been prescribed and serially numbered paper printed book is to be obtained for issuing TDS. In this new Form No. 16 applicable with effect from 1-4-1989 serial No. 4 provides for "complete address of the Assessing Officer before whom annual return or statement under Section 206 is to be delivered". Thus, there is clear indication in Form No. 16 itself that persons responsible for deduction of tax is also required to file annual return or statement under Section 206 before the Assessing Officer. Thus from the changes enforced in the Forms by the Government, it could be seen that only with effect from 1-4-1989 and that too when it comes to the knowledge of the assessee as a matter of course brought to the notice by the counsels or chartered accountants the assessee could obtain Tax Deduction Account (TAN) and also TDS certificate numbers, besides permanent account numbers which are required to be mentioned in the certificate of payee. In the circumstances, therefore, though the appellants were going about deducting tax and paying the tax to the Government, there was no requirement in tax deduction certificate to file annual return under Section 206 to the concerned authority till uniform Form No. 16 was made applicable with effect from 1-4-1989. In those circumstances, one could conclude, taking into account the reality of the situation as pointed out by the Dy. CIT (Admn.) in para 4 of the impugned order that the assessees in general were not filing annual returns though Section 206 was very much in the statute, the appellants could be said to have been ignorant of the provisions requiring filing of annual returns under Section 206. Even the amended Form No. 16, though it came into force from 1-4-1969, the assessees could not have become aware of such rules, unless it is brought to their notice by the concerned counsels or Chartered Accountants. In this view of the matter, therefore, the contention of the learned departmental representative that the deduction of tax and payment of tax and filing of returns under Section 206 are the obverse and converse of the same coin is not acceptable, in view of the reality of the situation stated above, a fact which has been duly taken note of by the Dy. CIT (Admn.). The learned departmental representative has also not disputed the observation of their Lordships of the Supreme Court in the case of Mottled Padampat Sugar Mills Co. Ltd. (supra) at page 339 which has been abstracted supra In this view of the matter, in the case of Motisagar Estate P. Ltd. for assessment year 1988-89, Meru Real Estate P. Ltd. for assessment year 1988-89, Machan Real Estate P. Ltd. for assessment year 1988-89, Talera Investment P. Ltd. for assessment year 1988-89 and Pandav Hotel P. Ltd. for assessment year 1988-89, the plea of ignorance of law advanced by the appellants is accepted as reasonable cause and therefore, notwithstanding the delay in filing annual returns, penalty is not to be imposed.
22. As regards the assessment year 1989-90 In the case of Talera Investment P. Ltd., Meru Real Estate P. Ltd. and Siddivinayak Food P. Ltd., the amended rules and the new Form No. 16 would be applicable. It is precisely in view of the new rule effective from 1-4-1989, the Dy. CIT (Admn.) has condoned the delay up to 30-4-1989 in some of the cases. In view of the fact that the amended rule or amended Form of tax deduction certificate takes time to instil into the mind of the tax paying public in the normal course of business, we consider that a period of four months could be allowed, so that the persons responsible for deduction of tax at source become familiar and acquainted with the provisions of law so as to comply with the requirement of Section 206. Therefore, in the case of Talera Investments P. Ltd. for the assessment year 1989-90, Machan Real Estate P. Ltd. for assessment year 1989-90 and Siddivinayak Foods P. Ltd. for assessment year 1989-90 further period of 4 months or 120 days is to be condoned from 30th April, 1989 which should be applied in all other cases in view of the fact that the new Form No. 16 itself was substituted by Income-tax (Ninth) Amendment Rules with effect from 1-4-1989. In the case of Siddivinayak Foods P. Ltd. for the assessment year 1989-90, the Dy. CIT (Admn.) has extended the time by 277 days roughly by 9 months up to 30-1-1990 as against 31-8-1989 allowed by the Tribunal in Talera group of cases. Hence no further condonation is called for in respect of assessment year 1989-90. For the assessment year 1990-91, the Dy. CIT (Admn.) has condoned 52 days up to 21st June, 1990 whereas the Tribunal has not allowed any period of condonation for the assessment year 1990-91. However, the learned departmental representative conceded that penalty is to be reckoned from the 1st of July and consequently, we hold that penalty is to be computed from 1st of July, 1990.
23. Coming to Rajkamal Constructions, we consider that condonation of delay up to 21st June, 1990 should have been granted by the Dy. CIT (Admn.) in the same way he has condoned the delay in the case of Siddivinayak Foods P. Ltd. for the assessment year 1990-91. However, in view of the concession given by the learned departmental representative that penalty is to be computed from 1st of July, 1990, we direct that penalty in this case also is to be computed from 1st of July, 1990 for the sake of equity.
24. From the paper compilation filed in the case of Pandav Hotel P. Ltd. it is seen that the Dy. CIT (TDS) has dropped penalty proceedings taken under Section 272A(2) for the assessment years 1987-88 and 1988-89 in the cases of Laukik Real Estates (P.) Ltd., Deccan Real Estate (P.) Ltd. and Bageecha Hotel (P.) Ltd. The Income-tax Appellate Tribunal in the case of New Roshan Talkies (supra) held that when full amount of tax has been paid within the time allowed and further accountant was ill at the relevant time it amounted to reasonable cause and therefore, penalty under Section 272A(2) was not exigible.
25. Having condoned reasonable period of delay in filing of the annual return under Section 206 as specified above, we shall now consider the quantum of penalty. We have recorded the vehement contentions urged on behalf of the appellants and equally so by the department. The proviso to Section 272A(2) was inserted by the Finance (No. 2) Act, 1991 with effect from 1-10-1991. While clarifying the amendment, the Board in its Circular No. 621, dated 19-12-1991 contained in 195 ITR (St.) 154 at 204 stated that representations have been received that the aforesaid provision creates hardship and owing to shortage of new TDS certificate forms (Form No. 16) the certificates in respect of tax deducted at source could not be issued by the tax deductors in the said form in many cases and the certificates issued in old form are not being accepted by the Assessing Officer for allowing credit for tax deducted. Thus, it is clear that in view of the various representations received by the Board and in view of the hardship caused to the taxpayers and in view of the fact that penalty is exorbitant vis-a-vis tax deducted at source, the aforesaid amendment has been introduced by way of proviso. Therefore, it is abundantly clear that the Board has toned down the rigour of law by inserting the proviso in favour of the taxpayers. The amelioration provided by the Board is to curb the hardship created in levying exorbitant penalties vis-a-vis nominal tax deducted at source and paid to the Government. Section 272A(2) contemplates continuing default and therefore, the hardship is also a continuing hardship. The reason for the hardship is not far to seek. Section 272A has been substituted by Direct Tax Laws (Amendment) Act, 1987 with effect from 1-4-1989 under which the quantum of penalty has been fixed at not less than Rs. 100 but which may extend to Rs. 200 for every day for which failure continued. The unamended provision provided for penalty by a sum which may extend to Rs. 10 for every day during which failure continued. Thus under unamended law penalty could be levied up to Rs. 10 per day of default while as per amended law the minimum penalty is Rs. 100 while maximum is up to Rs. 200 per day of default. Therefore, it is open to reason that the quantum of penalty is required to be scaled down to the amount of tax deductible or collectible at source with effect from 1-4-1989, i.e., on the day when Section 272A has been substituted by Direct Tax Laws (Amendment) Act, 1987 with effect from 1-4-1989 when hardship has been caused statutorily. In this connection, reliance is placed on the judgment of the Patna High Court in the case of Jamshedpur Motor Accessories Stores [supra). That decision related to the scope of Section 43B. The Patna High Court held that the first proviso to Section 43B inserted by the Finance Act, 1987 was enacted in order to suppress the mischief and for the purpose of giving relief to an assessee who is not an unscrupulous dealer. Under the law as amended, if an assessee has paid sales-tax, additional sales-tax, central sales-tax etc. on or before the due date applicable in his case for furnishing his return of income under Section 139(1) of the Income-tax Act, he shall be entitled to claim deduction of that amount. It is for this reason the amendment was held to be explanatory in nature and proviso to Section 43B was held to be retrospective in its operation and Explanation 2 to Section 43B inserted by Finance Act, 1989 with retrospective effect from 1-4-1984 is subject to proviso inserted by the Finance Act, 1987. In other words, rule of reasonable construction was followed and literal construction was avoided if that defeats the manifest object and purport of the Act.
26. The Supreme Court has considered the scope of Explanation 2 inserted by the Finance Act, 1979 in Section 64(2) in the case of P. Doraiswamy Chetty (supra) and held at page 160 Head Notes that the assessee was entitled to carry forward to subsequent years not only his share but also share of his wife in the loss of the firm. The Supreme Court further observed that the Explanation 2, inserted in Section 64 of the Income-tax Act, 1961, with effect from 1-4-1980, though not retrospective in its operation, serves as a legislative exposition of the import of Section 64(1)(i).
27. The Tribunal, Special Bench, in the case of V.R.V. & Co. (supra) considered the disallowance of salary paid to karta of the HUF which became partner in the partnership and held that the salary paid to karta could not be disallowed under Section 40(b) of the Income-tax Act, 1961. The Tribunal held that the Taxation Laws (Amendment) Act, 1984 which added Explanation 2 to Section 40(b) with effect from 1-4-1985 has recognised the representative capacity of a partner and has provided that where interest is received in a capacity other than the capacity in which he was a partner, such interest should not be disallowed under Section 40(b). The Special Bench observed that such declaratory legislation is retrospective in the sense that it serves to clarify the meaning from the inception of the statute. On the same reasoning, the Special Bench held that where a HUF becomes a partner of a firm and salary is paid to the karta as an individual for services rendered to the firm, the salary derived by the partner in his individual capacity not being at the disposal of the joint family which he represented as a partner could not be regarded as a share of income derived from the firm so as to be disallowed under Section 40(b).
28. The amendment made by the Finance Act, 1988 to Section 40(3)(vi) of the Finance Act, 1983 was held by the Karnataka High Court in the case of CWT v. Prakashi Talkies (P.) Ltd. [1993] 112 Taxation 500 to be certainly curative amendment and therefore, normally it could be declared as declaratory of the existing law.
29. Following the aforesaid rulings and keeping in view the avowed object of removal of hardships as clarified by the Board, it could be reasonably inferred and concluded that the proviso is retrospective in operation with effect from 1-4-1989 when the increased scale of penalty has been introduced which caused the hardship to the tax deductors. In this view of the matter, therefore, we reverse the order of the CIT(A) and direct the Dy. CIT (Admn.) to recompute the penalty for the period of delay not covered by reasonable cause subject to limitation of penalty to the tax deductible or collectible at source as alternatively prayed for by the appellants.
30. In the result, the appeals are allowed as directed above.