Income Tax Appellate Tribunal - Ahmedabad
Income-Tax Officer vs Chirag Family Trust on 8 February, 1996
Equivalent citations: [1996]58ITD382(AHD)
ORDER
1. This appeal by the revenue is directed against the order passed by the Dy. CIT (A) cancelling the penalty of s. 25,000 levied u/s. 271 (1)(c).
2. The assessee filed a return of income on 3-8-1985 declaring total income of Rs. 24,700. The statement of income annexed with the return indicates that the assessee is non-discretionary trust and tax payable is Rs. Nil. All the beneficiaries have filed their returns of income and therefore, the assessee is not liable to pay tax on the total income of Rs. 24,700. The statement of income annexed with the said return, inter alia, disclosed that the assessee has shown income from business in the name of Gaurang Trading Co. amounting to Rs. 13,542. Since the said trust derived income from business, the entire income of the trust was liable to be taxed at maximum marginal rate in view of the amendment made in sec. 161 (1A) with effect from 1-4-1985. The assessment was completed u/s. 143 (3) on total income of Rs. 32,510 on 30-3-1988 and tax payable was worked out at Rs. 31,298. The Assessing Officer initiated penalty proceedings u/s. 271 (1)(c) for failure on the part of the assessee to pay tax at maximum marginal rate on the whole of the income of the said trust as required by section 161 (1A) effective from A. Y. 1985-86. The Assessing Officer levied penalty of Rs. 25,000 by holding that the assessee has committed default u/s. 271 (1)(c) by furnishing inaccurate particulars of income and has thus avoided tax liability, by not paying the tax in conformity with the amended provisions of sec. 161 (1A) of the Act.
3. The Dy. CIT (A) cancelled the said penalty in view of elaborate reasons given in the order passed by him.
4. The learned departmental representative submitted that on the facts and circumstances of the present case, the Dy. CIT (A) ought to have confirmed the said penalty as the assessee had clearly committed default of not paying the amount of tax at maximum marginal rate as required by the relevant provisions of law which were in force in A. Y. 1985-86. He placed strong reliance on the elaborate reasons mentioned in the order passed u/s. 271 (1)(c).
5. The learned counsel for the assessee submitted that this was the first year when tax was levied at maximum marginal rate on trusts which derives, inter alia, income from business. The provisions were made effective from A. Y. 1985-86. Such amended provisions escaped the notice of the assessee. It was an innocent and inadvertent omission on the part of the assessee as well as on the part of the counsel who prepared the return. The assessee had duly paid the tax and has not contested the levy of tax at maximum marginal rate. He further argued that it is a case where no income has been concealed by the assessee. The assessee has also not furnished any inaccurate particulars of its income. The mere fact that the tax has not been paid at maximum marginal rate as per the amended provision introduced with effect from A. Y. 1985-86 would not bring the assessee's case within the mischief of section 271 (1)(c), which can be invoked only in cases where the assessee has concealed its income or had furnished inaccurate particulars of income. He also supported the order of the Dy. CIT (A) on the strength of various reasons recorded in the said order.
6. I have carefully considered the submissions made by the learned representatives of the parties and have also gone through the orders of the learned departmental authorities. Sub-section (1A) of sec. 161 was inserted by the Finance Act, 1984 with effect from 1-4-1985. This section provides that where a trustee representing a trust derives income, inter alia, by way of profits and gains of business, tax shall be charged at maximum marginal rate on the whole of the income of the said trust. The learned counsel for the assessee candidly admitted that the assessee was liable to pay tax at maximum marginal rate as per the aforesaid amended provision in respect of income of the said trust in A. Y. 1985-86. The assessee in fact paid the entire amount of tax and has not contested the levy of tax at maximum marginal rate. The mistake has happened on account of the fact that this was the first year when the aforesaid amended provisions were made applicable and the assessee as well as his counsel were totally ignorant about the said amended provisions of law. Such innocent mistake and bona fide ignorance on the part of the assessee is a reasonable excuse and no penalty can be validly levied on such facts and circumstances. The aforesaid contention of the learned counsel for the assessee may probably be true because this was a new provision which was inserted with effect from 1-4-1985 and was made applicable from A. Y. 1985-86 and onwards. The Hon'ble Supreme Court in the case of Motilal Padampat Sugar Mills Co. Ltd. v. State of UP [1979] 118 ITR 326 has, inter alia, made the following important observations which will have a significant bearing on the point in issue. It will be imperative to reproduce the relevant extracts from the heard not be appearing at pg. 330 :-
"(ii) There is no presumption that every person knows the law. It is often said that everyone is presumed to know the law, but that is not a correct statement : there is no such maxim known to the law."
Once the preponderance of probabilities stands established in favour of the assessee's contention, the penalty levied will have to be cancelled.
7. The other submission made by the learned counsel for the assessee is also equally convincing. The penalty has been levied not because the assessee has concealed the particulars of income. It also cannot be validly said that the assessee has furnished any inaccurate particulars of its income. The only default on the part of the assessee is that it has not paid tax at maximum marginal rate as required by the new provisions of section 161 (1A) introduced with effect from A. Y. 1985-86. The assessee paid tax in the hands of the beneficiaries who had included their respective share income in their personal returns as they have been doing in the past. The only default on the part of the trustees was that the higher amount of tax by applying the maximum marginal rate of tax was not paid. It has nowhere been found that the assessee has concealed the particulars of income or furnished inaccurate particulars of income. The only charge which can be established on the facts of the present case is that the assessee although made a true and full disclosure of its income, but did not pay tax at maximum marginal rate as required by the amended provisions. The provisions of section 271 (1)(c) covers within its ambit only the following types of defaults :-
(a) Where the assessee has concealed the particulars of his income.
(b) Where the assessee has furnished inaccurate particulars of such income.
The various explanations appearing below section 271 (1)(c) which contain deeming provisions only provides that where the assessee fails to offer an explanation or an explanation which is found to be false or where the assessee is not able to substantiate his explanation or fails to prove that such an explanation is bona fide, the amount added or disallowed in computing the total income of such person shall be deemed to represent the income in respect of which particulars have been concealed. Thus, penalty u/s. 271 (1)(c) can be levied only in cases where the assessee has failed to make a true and full disclosure of income or has furnished inaccurate particulars of income but the said provision cannot be validly invoked in a case where the assessee's default consist only of not paying the tax at the appropriate rate and more so when the assessee was bona fidely ignorant about the newly inserted provision of law providing for levy of a different rate of tax as compared to the rate of tax leviable in the earlier years.
8. In view of the aforesaid facts and discussions, I am of the considered opinion that the Dy. CIT (A) has rightly cancelled the penalty levied on the assessee. The revenue's appeal, has no merit.
9. In the result, the appeal is dismissed.