Income Tax Appellate Tribunal - Mumbai
Satyam Enterprises vs Joint Commissioner Of Income Tax on 31 December, 2004
Equivalent citations: [2005]93ITD606(MUM), [2005]277ITR182(MUM), (2005)93TTJ(MUM)489
ORDER
Pramod Kumar, A.M.
1. The short and interesting legal issue requiring our adjudication in this case is whether or not the provisions of Section 249(4} of the IT Act, i.e., requirement of paying admitted tax liability before filing the appeal, also extend to an appeal which is directed against the penalty under Section 221 for being an assessee in default in respect of non-payment of the admitted tax liability, i.e., self-assessment tax itself.
2. The factual matrix giving rise to this appeal before us is as follows. The assessee filed its IT return for the asst. yr. 1996-97 showing a self-assessed tax liability of Rs. 13,68,183, but this admitted tax liability was not paid by the assessee at the time of filing of IT return. On completion of the assessment under Section 143(3), i.e., on 9th Sept., 1997, the AO raised a demand of Rs. 20,20,310. This demand remained unpaid. The assessee issued two post-dated cheques--one for Rs. 10,00,000 and the other for the balance amount of Rs. 10,20,310. These cheques were payable on 5th Nov., 1999, and 26th Nov., 1999 respectively. However, these cheques could also not be honoured and the assessee sought more time for payment of taxes as the assessee was making efforts to sell some property for paying the taxes. In the meantime and exhausted by assessee's repeated failures to meet the deadlines for payment of admitted tax liabilities, the AO proceeded to impose penalty under Section 221 for assessee being an assessee in default in respect of the said self-assessment tax. The penalty was thus, in effect, imposed for non-payment of the admitted tax liability. Subsequent to the imposition of this penalty, the assessee has paid amounts aggregating to Rs. 5,23,333 out of his box office collections, but that aspect of the matter is not really relevant in the context of issue requiring our adjudication in this appeal. Coming back to the penalty order imposing penalty of Rs. 20,20,310, the assessee challenged the said order in appeal before the GIT(A). The learned CIT(A), however, declined to deal with the same on merits on the ground that in terms of the provisions of Section 249(4) of the Act, he did not have the powers to admit an appeal, in a case where a return has been filed by the assessee but the assessee has not paid the tax due on income returned by him. Learned CIT{A) also added that 'it is to be noted that all appeals, whether against the assessment or the penalty are treated alike and no preferential treatment is given to the appeal against penalty in the said section. In view of the admitted position that self-assessment tax is not paid by the assessee, and aimed with his interpretation of Section 249(4} as above, learned CIT(A) thus declined to admit the appeal for consideration on merits. The assessee is aggrieved of being denied an adjudication on merits of his case and of dismissal of. the appeal as unadmitted. The assessee is, therefore, in appeal before us.
3. We have heard Shri Vora, learned counsel for the assessee, and Shri Venupani, learned Departmental Representative, at considerable length. We have also carefully perused the material before us and duly considered the applicable legal position as also factual matrix of the case.
4. We consider it useful to reproduce the contents of Section 249(4) for our ready reference :
"249--Form of appeal and limitation (1)..........
(2)..........' (3).......
(4) No appeal under this chapter shall be admitted unless at the time of filing appeal,-
(a) where a return has been filed by the assessee, the assessee has paid the tax due on income returned by him; or
(b) where no return has been filed by the assessee, the assessee has paid an amount equivalent to the amount of advance tax which was payable by him :
Provided that, in a case falling under Clause (b) and on an application made by the appellant in this behalf, the CIT(A) may, for any good or sufficient reasons to be recorded in writing, exempt him from operation of the provisions of that clause".
The question before us is whether, in view of the above legal provision, it is open to the CIT(A) to admit the appeal, against an order imposing penalty under Section 221 for non-payment of self-assessment tax liability, in a situation where such sell-assessment tax liability itself remains unpaid. In the case before us, the self-assessment tax liability has remained unpaid and by way of the penalty in question, the assessee is being penalised for non-payment of such a self-assessment tax liability. But then, CIT(A)'s interpretation of the above legal provision is that unless the assessee pays the self--assessment tax liability itself, his grievance even against the imposition of penalty for such a non-payment cannot even be entertained.
5. Hon'ble Supreme Court, in the case of K.P. Varghese v. ITO (1981) 131 ITR 597 (SC), has held that the task of interpretation is not a mechanical task and, quoted with approval, Justice Hand's observation that "it is one of the surest indexes of a mature and developed jurisprudence not to make a fortress out of the dictionary, but to remember that statutes always have some purpose or object to accomplish, whose sympathetic and imaginative discovery is the surest guide to their meaning". Their Lordships observed as follows :
"......The task of interpretation of a statutory enactment is not a mechanical task. It is more than a mere reading of mathematical formulae because few words possess the precision of mathematical symbols. It is an attempt to discover the intent of the legislature from the language used by it and it must always be remembered that language is at best an imperfect instrument for the expression of human thought and, as pointed out by Lord Denning, it would be idle to expect every statutory provision to be 'drafted with divine prescience and perfect clarity'. We can do no better than repeat the famous words of Judge learned Hand when he said :
'...It is true that the words used, even in their literal sense, are the primary and ordinarily the most reliable source of interpreting the meaning of any writing : be it a statute, a contract or anything else. But, it is one of the surest indexes of a mature and developed jurisprudence not to make a fortress out of the dictionary; but to remember that statutes always have some purpose or object to accomplish, whose sympathetic and imaginative discovery is the surest guide to their meaning.' We must not adopt a strictly literal interpretation of ......... but we must construe its language having regard to the object and purpose which the legislature had in view in enacting that provision and in the context of the setting in which it occurs. We cannot ignore the context and the collection of the provisions in which ........ appears, because, -as pointed out by Judge learned Hand in the most felicitous language ; interpret '... the meaning of a sentence may be more than that of the separate words, as a melody is more than the notes, and no degree of particularity can ever obviate recourse to the setting in which all appear, and which all collectively create.....'."
One of the things which is clearly discernible from the above observations of their Lordships is that while interpreting the statutes, one must not surrender to become prisoner of the words employed and thereby disregard the context and underlying scheme of the legislation in which the words are set out.
6. Hon'ble Supreme Court in the case of CIT v. Teja Singh (1959) 35 ITR 408 (SC) has observed that a construction which results in rendering a provision redundant must be avoided. Their Lordships held that the principle of ut res magis valeat quam pereat, i.e., to make the statute effective rather than making it redundant, is to be followed in construction of the statutes. Their Lordships then observed as follows :
".....Vide Courtis v. Stovin (1889) 22 QBD 513, and in particular, the following observations of Fry, LJ :
'The only alternative construction offered to us would lead to the result that the plain intention of the legislature has entirely failed by the reason of slight in exactitude in the language of the section. If we were to adopt this construction, we should be construing the Act in order to defeat its object rather than with a view to carry its object into effect'.
Vide also Craies on Statute Law, p. 90, and Maxwell on the Interpretation of Statutes, Tenth Edition, pp. 236-237, "A statute is designed" observed Lord Dunedin in Whitney v. IRC (1925) 10 Tax Cases 88, "to be workable and the Interpretation thereof by a Court should be so as to secure that object, unless crucial omission or clear direction makes that end unattainable".
Here again, the emphasis of the Hon'ble Supreme Court was on an interpretation which make the statute workable, rather than making it redundant, and on an interpretation which advances the object of the provision rather than defeats the same.
7. While considering the scope of the provisions of Section 249(4) of the Act, Hon'ble Karnataka High Court, in the case of T. Govindappa Shetty v. ITO and Anr. (1998) 231 ITR 892 (Kar), has observed that "Sub-s. (4) of Section 249 has to be construed in the backdrop of the right to appeal provided to the assessee under Section 249 of the Act.....while interpreting the Sub-section (4) of Section 249 of the Act, the Court will have to keep in mind the object of Sub-section (4) of Section 249 and also the right to prefer an appeal guaranteed to an assessee". Hon'ble High Court further observed that, "In that view of the matter, Sub-section (4) has to be liberally construed to serve the object of the right of the appeal provided to an assessee, and not with a view to deprive the right provided to an assessee to prefer an appeal".
8. Let us now come back to the fact situation before us. In case an assessee files an IT return but has not paid the self-assessment tax, two sets of consequences follows-one as normal course of assessment and the other as a penal course of action for non-payment of self-assessment taxes. The normal assessment proceedings continue whether or not the self-assessment tax is paid, but in addition to those proceedings, the AO may initiate penalty proceedings under s.- 221 for being an assessee in default. These two proceedings are quite distinct and separate. These are in no way interconnected save and except for the fact that penalty proceedings are in respect of the self-assessment tax liability, but then the nature of liability is not relevant for the purpose of penalty proceedings under Section 221 of the Act. The penalty under Section 221 can be imposed for non-payment of any tax in respect of payment of which an assessee is in default or is deemed to be in default. The very nature of penal proceedings under Section 221 is different from, and has nothing to do with, the assessment proceedings. As far as the assessment is concerned, the assessee is deprived of his right to appeal until and unless he atleast pays the admitted tax liability. The rationale for this scheme of things has been summed up by the Hon'ble Karnataka High Court in Govindappa Shetty's case (supra) as "what is contemplated by Clause (a) of Sub-section (4) of Section 249 is that when there is an undisputed liability, the appeal in respect of a disputed liability cannot be admitted unless the assessee pays the undisputed tax liability". This clearly proceeds on the premises that the disputed tax and undisputed tax pertain to the same set of or related set of proceedings. However, when it comes to the maintainability of an appeal against penalty under Section 221, in our considered view, the payment of taxes in the assessment proceedings is not really relevant. It is so for the reason that the proceedings under Section 221 are wholly distinct and separate from the assessment proceedings and these proceedings belong to a different genus altogether. It is a different kind of dispute on as to whether the assessee has good and sufficient reasons for not paying the taxes. The adjudication on the correctness of levy of penalty under Section 221 has nothing to do with the quantum assessment proceedings or even penalties imposable for concealment of income and furnishing of inaccurate particulars.
9. In our considered view, it is nothing short of an absurdity to demand, as a pre-condition for determination of correctness of penalty for non-payment of admitted taxes, that the admitted taxes be paid by the assessee. The advice of Justice Hand, quoted with approval in K.P. Varghese's case (supra) by Hon'ble Supreme Court, that "statutes always have some purpose or object to accomplish, whose sympathetic and imaginative discovery is the surest guide to their meaning" does not go along with such a mechanical interpretation of statute. As we will now see, the interpretation adopted by the learned CIT is also clearly not ut res magis valeat quam pereat because the said interpretation does not make the appellate right in the statute effective, rather it renders the such right nugatory. Let us visualise a situation in which an assessee has good and sufficient reasons for non-payment of self-assessment taxes, but he is still imposed penalty under Section 221 for nonpayment of self-assessment taxes. Now, the words of AO are not final nor are they so sacrosanct that even an appeal against the same is a meaningless formality, but then before the assessee can got an adjudication on the correctness of this penalty from the appellate authority, he has to pay the self-assessment taxes first. It is nothing short of an absurdity that as a precondition of adjudication as to whether or not his reasons for not paying the taxes are good and sufficient, he has to pay the taxes first. Let us say his genuine financial constraints are so severe that he cannot pay the taxes. Can it advance the cause of justice or serve the object of the appellate mechanism provided in the IT Act, if an assessee is to be deprived of an appellate remedy in such a situation ? If not, then we have to seek guidance from the words of Hon'ble Karnataka High Court in Govindappa Shetty's case (supra) to the effect that "..... Sub-section (4) has to be liberally construed to serve the object of the right of the appeal provided to an assessee, and not with a view to deprive the right provided to an assessee to prefer an appeal". In this view of the matter, we are of the considered view that the provisions of Section 249(4) are relevant only in the context of an appeal which is relatable to the assessment of income, i.e., appeals against the assessment orders and against the orders imposing penalties in connection with the assessment of income. Viewed in the above perspective, the limitation under Section 249(4) can apply only in a situation in which the issue in appeal has something to do with the result of assessment or penalty in connection with the said return. In the light of the above discussions, in our considered view, the provisions of Section 249(4) will not apply in a case where the appeal is not relatable to the assessment of income, such as, penalty for being an assessee in default under Section 221.
10. For the detailed reasons set out above, we are of the considered view that the CIT(A) should have admitted the appeal and considered the same on merits. We, therefore, deem fit and proper to direct the CIT(A) to dispose of the appeal on merits in accordance with the law, by way of a speaking order and after giving due and fair opportunity of hearing to the assessee. Accordingly, the matter stands restored to the file of the CIT(A) with the above directions. For this reason, we also see no need to address ourselves to merits of the case and decline to deal with the grounds challenging imposition of penalty under Section 221 on merits.
11. In the result, appeal is allowed for statistical purposes.