Madhya Pradesh High Court
Kaluram Ganeshram (Huf) vs Commissioner Of Income-Tax on 10 November, 1987
Author: N.D. Ojha
Bench: N.D. Ojha
JUDGMENT
N.D. Ojha C.J.
1. The Income-tax Appellate Tribunal, Nagpur Bench, Nagpur, has referred the following question to this court for its opinion, under Section 256 of the Income-tax Act, 1961 (hereinafter referred to as " the Act ").
" Whether the Tribunal was justified in imposing a penalty of Rs. 9,000 when the additional tax was only on the income of Rs. 2,200 ? "
2. The facts in a nutshell which are necessary for answering the aforesaid question are that during the assessment year 1969-70, it was discovered that the assessee had concealed the particulars of capital gains received by it in the sum of Rs. 9,000, consequent upon the sale of certain immovable properties. On its basis, proceedings for imposition of penalty under Section 271(1)(c) of the Act were initiated against the assessee. Clause (iii) of Section 271(1) of the Act as it stood at the relevant time contemplated imposition of penalty " in the cases referred to in Clause (c), in addition to any tax payable by him a sum which shall not be less than but which shall not exceed twice the amount of the income in respect of which the particulars have been concealed or inaccurate particulars have been furnished ". After having found in the penalty proceedings that a case for imposition of penalty under Section 271(1)(c) of the Act has been made out, the Income-tax Officer imposed penalty in the sum of Rs. 9,000 which according to him was the minimum amount of penalty imposable inasmuch as the income by way of capital gains concealed was of the same amount. The view taken by the Income-tax Officer was reversed by the Appellate Assistant Commissioner of Income-tax in the appeal filed by the assessee. Against this order, the Department preferred a second appeal before the Tribunal which was allowed and the order of the assessing authority was restored. An application was thereafter made by the assessee before the Tribunal for referring the aforesaid question to this court for its opinion under Section 256(1) of the Act. The said application having been dismissed, the application was made by the assessee in this court under Section 256(2) of the Act which was allowed and the Tribunal was directed to refer the aforesaid question after drawing up a statement of the case. It is in pursuance of that order that the aforesaid question has been referred to this court for its opinion.
3. It has been urged by learned counsel for the assessee that as is apparent from the order of assessment passed under Section 143(3) of the Act by the Income-tax Officer on February 21, 1972, the amount of income on the basis of the capital gain of Rs. 9,000 was determined to be Rs. 2,200 after allowing permissible deductions. On this basis, it has been urged that when Clause (iii) of Section 271(1) of the Act as it stood at the relevant time contemplated that the amount of penalty leviable in cases referred to under Clause (c) thereof shall not be less than, but shall not exceed twice, " the amount of income " it is this amount of income, namely, Rs. 2,200, which has to be taken into consideration and not the amount of Rs. 9,000 which constituted the capital gain. For the Department, on the other hand, it was urged by Shri B. K. Rawat relying on the definition of the term " income " contained in Section 2(24)(vi) of the Act that since "income" includes " capital gains" chargeable under Section 45, it is the entire sum of Rs. 9,000 which is to be treated as the income of the assessee for purposes of computing the income of the assessee under Clause (iii) aforesaid.
4. Having heard learned counsel for the parties, we find it difficult to agree with the submission made by learned counsel for the Department. When Section 2(24) defines the term "income", it does not make any distinction between the gross income and the taxable income for purposes of taxation. However, there is no doubt that it is not the gross income, but it is the taxable income which constitutes the basis of determination of the amount of tax payable. Section 28 of the Indian Income-tax Act, 1922, which was the corresponding section of Section 271 of the Act came up for consideration before a Division Bench of the Lahore High Court in Nagin Chand Shiv Sahai v. CIT [1938] 6 ITR 534. It was held that the word "income" is not used in Section 28 of the Indian Income-tax Act in the popular meaning of money received but is used in a much wider sense and connotes the assessable figure arrived at after accounting for all the legitimate deductions and exemptions. In our opinion, this view, to some extent, finds support from the legislative history of Section 271(1)(c) of the Act, read with Clause (iii) referred to above. Clause (iii) as it originally stood read as hereunder :
" (iii) in the cases referred to in Clause (c), in addition to any tax payable by him, a sum which shall not be less than twenty per cent, but which shall not exceed one and a half times the amount of the tax, if any, which would have been avoided if the income as returned by such person had been accepted as the correct income."
5. This Clause (iii) was substituted by the Finance Act, 1968, with effect from April 1, 1968, and continued to be operative till March 31, 1976. The clause so substituted and which was applicable during the relevant assessment year has already been quoted above. Thereafter, the Taxation Laws (Amendment) Act, 1975, came into force with effect from April 1, 1976, whereby the present Clause (iii) was substituted along with the proviso whereunder the amount of tax sought to be evaded is to constitute the basis for quantifying the amount of penalty. There seems to be no doubt that for determining the amount of tax sought to be avoided or evaded, it is not the gross income but the taxable income which would be relevant. We see no reason to hold that during the period from April 1, 1968, to March 31, 1976, when in place of the amount of tax sought to be avoided or evaded, the amount of income was made the basis for quantification of the amount of penalty, the term " income " contemplated gross income and not taxable income.
6. The matter can be looked at from another angle. Even if it may be taken that the word "income" used in Clause (iii) as it stood at the relevant time was capable of both interpretations, namely, " gross income " or " taxable income ", it is settled law that in such a situation, particularly while dealing with penalty provisions, it is that interpretation which will be favourable to the taxpayer that has to be accepted.
7. Consequently, in our opinion, the income in the instant case which was to be taken into consideration for quantifying the amount of penalty under Clause (iii) aforesaid would be Rs. 2,200, which was found to be the income of the assessee even by the Income-tax Officer for the relevant assessment year and not Rs. 9,000.
8. In view of the foregoing discussion, our answer to the question referred to us is that the Tribunal was not justified in imposing penalty of Rs. 9,000 when the additional tax assessed was only on an income of Rs. 2,200. In other words, the question referred to us is answered in the negative, in favour of the assessee and against the Department, In the circumstances of the case, there shall be no order as to costs.