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PETITIONER: THE COMMISSIONER OF INCOME-TAX, WEST BENGAL I,CALCUTTA

       Vs.

RESPONDENT: M/S.  VEGETABLES PRODUCTS LTD.

DATE OF JUDGMENT29/01/1973

BENCH: HEGDE, K.S. BENCH: HEGDE, K.S. REDDY, P. JAGANMOHAN KHANNA, HANS RAJ

CITATION:  1973 AIR  927            1973 SCR  (3) 448  1973 SCC  (1) 442  CITATOR INFO :  R          1976 SC 313  (27)  D          1989 SC 501  (16)

ACT: Income Tax Act (43 of 1961), ss. 143, 156 and  271(1)(a)(i)- Penalty-Whether related to tax assessed or tax payable.

HEADNOTE: The  assessee  failed to furnish the return  of  its  income within  the  time allowed but submitted the return  after  a notice  under  s. 28(3) of: the Income-tax  Act,  1922,  was served  on  him.  A provisional assessment was made  by  the Income-tax  Officer  under s. 23B of the  1922-Act  and  the assessee  deposited the amount.  The Income-tax  Act,  1961, having  come into force thereafter, the  Income-tax  Officer the assessment under the provisions of that Act,  determined the  tax  due and the penalty payable by the  assessee.   In doing  so,  he did not take, into consideration  the  amount deposited   by   the  assessee,  that  is,  he   took   into consideration  not the amount demanded under s. 156  of  the 1961-Act  but  the  amount  assessed  under  s.  143.    The Appellate  Assistant Commissioner confirmed the  order;  but the Tribunal held that the penalty under s. 271 (1) (a)  (1) is  to be levied on the tax assessed minus the  amount  paid under the provisional assessment order, and the High  Court, on reference, agreed with the Tribunal. Dismissing the- appeal by the Revenue to this Court, HELD : (1) The acceptance of one or the other interpretation sought  to  be placed on s. 271(1) (a) (1)  by  the  parties would lead to some inconvenient result; but the duty of. the Court  is to read the section, understand its  language  and give effect to it.  If the language is plain, the fact  that the  consequence  of giving effect to it may  lead  to  some absurd  result is not a factor to be taken into  account  in interpreting a provision.  It is for the Legislature to step in  and  remove the absurdity.  On the other  hand,  if  two reasonable constructions of a taxing provision are  possible that  construction  which  favours  the  assessee  must   be adopted. [451D-F] (2)Section  271(1) (a) (i) stipulates that the  Income-tax Officer  may  direct that the assessee shall pay by  way  of

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penalty, "in addition to the amount of tax, if any,  payable by  him  a sum equal to two per cent of the  tax  for  every month..............  Quantification  of the tax  payable  is always  referred to in the Act as a tax "assessed".   A  tax payable  is  not the same thing as tax  assessed.   The  tax payable  is that amount for which a demand notice is  issued under  s.  156.   Hence,  there can be  no  doubt  that  the expression  ’the  amount  of tax, if any,  payable  by  him’ referred  to in the first part of the section refers to  the tax  payable  under a demand notice.  The  definite  article ’the’  in  the  words "the tax" in the latter  part  of  the provision, shows that it refers to the tax, if any,  payable by the assessee, mentioned in the first part of the section. [452D-G; 453A-B] (3)At any rate, the provision is capable of more than  one reasonable  interpretation, and since the provision, is  not merely  a tax provision but a penalty provision as well  the interpretation  in favour of the assessee must be  accepted. [453B-D] 449 M.   M. Annaiah v. Commissioner of Income-tax,  Mysore,  76, I.T.R. 582, approved. Vir Bhan Bansi Lai v. Commissioner of Income-tax, Punjab,  6 I.T.R 616 and Commissioner of Income-tax, Delhi v. Hindustan Industrial Corporation, 86 I.T.R. 657, disapproved.

JUDGMENT: CIVIL APPELLATE JURISDICTION : CIVIL APPEAL N0. 497 of 1970. Appeal by Certificate from the Judgment and order date  June 26, 1969 of the Calcutta High Court in Income-tax  Reference No. 145 of 1966. S.   C. Manchanda, T. A. Ramachandran, S. P. Nayar and R.   N. Sachthey, for the appellant.      B.   Sen,  S.  Sadhu  Singh,  J.  M.  Khanna and   S. Ramachandran, the respondent. S.  V. Gupte, T. S. Viswanatha Rao and A. T. M. Sampat,  for the  intervener. The Judgment of the Court was delivered by HEGDE,  J.-This  appeal  by  certificate  arises  from   the decision of the Calcutta High Court in a case stated by  the Income-tax  Appellate Tribunal, ’B’ Bench, Calcutta.   After setting  out the relevant facts, the Tribunal solicited  the opinion of the High Court on the following question of law :               ’Whether on the facts and in the circumstances               of the case, the Tribunal was right in holding               that in calculating the penalty leviable under               section  271  (1) (a) of the  Income-tax  Act,               1961 the amount paid by the assessee under the               provisional  assessment under section  23B  of               the  Indian  Income-tax Act, 1922, was  to  be               deducted  from  the amount of  tax  determined               under  section 23(2) of that Act in  order  to               determine  the  amount  of tax  on  which  the               computation of the penalty was to be based and               in reducing the amount of the penalty  imposed               on the assessee to Rs. 2,737/-." The High Court answered that question in the affirmative and in favour of the assessee.  Aggrieved by that decisions  the Commissioner has brought this appeal. Let us now proceed to state the facts relevant for  deciding the point in issue, as could be gathered from ’the statement of the case. In  this case we are concerned with the assess’s  assessment

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for  the assessment year 1960-61, the relevant account  year ending on December 31, 1959.  In that regard the  Income-tax Officer issued a notice under s. 22(2) of the Indian Income- tax  Act, 1922 (to be hereinafter referred to as  the  "1922 Act") on June 1, 1960.  The same was served on the  assessee on  June  13, 1960.  That notice required  the  assessee  to submit its return on or before July 450 18,  1960.   On  July  18,  1960,  the  assessee  moved  for extension  of time for submitting its return.  The  Income- tax Officer extended the time by two months and at the  same time the informed the assessee that no further time would be allowed.   The assessee failed to furnish its return  within the extended time.  Thereafter a notice under s.28(3) of the 1922  Act was served on’ the assessee on January  16,  1961. On  the very next day viz.  January 17, 1961,  the  assessee filed  its return for the assessment year in question.   The assessment  was completed by the Income-tax Officer only  on October 31, 1962.  Meanwhile on April 1, 1961 the Income-tax Act,  1961 to be hereinafter referred to as the "Act")  came into force.  As under the provisions of s.297(2) (g) of  the Act the proceedings for the imposition of the penalty had to be  initiated  and completed under the Act, a  fresh  notice under s. 274(1) of the Act was served on the assessee.   The assessee  objected  to the validity of the notice  but  that objection  was overruled.  At present we are  not  concerned with  that  objection.  We are also not concerned  with  the other objections taken by the assessee which were  negatived by the Tribunal.  The Income-tax Officer determined the  tax due  from  the  assessee  for the  assessment  year  at  Rs. 1,25,512/10 P. and on that basis, the penalty payable by the assessee was fixed at Rs. 12,7 3 4 / IO P. At this stage  it may  be  mentioned that on February  2,1961,  a  provisional assessment  was made by the Income-tax Officer under s.  23B of  the  1922  Act.  Immediately  thereafter  the,  assessee deposited  Rs. 92,294/55 P. In determining the  penalty  due from   the  assessee,  the  Income-tax  Officer  took   into consideration  not the amount demanded under s.  156 of  the Act  but  the amount assessed under s. 143 of the  Act.   In appeal,  the Appellate Assistant Commissioner confirmed  the order  of the Income-tax Officer.  On a further appeal,  the Tribunal came to the conclusion that the penalty under s.271 (1)  (a) (i) is to, be levied on the tax assessed minus  the amount  paid under the provisional assessment  order  namely Rs. 92,294/55 P. On the basis of that finding, it determined the  penalty payable by the assessee at Rs. 2,737/44 P.  The conclusion  of the Tribunal was accepted as correct  by  the High Court. Learned  Counsel  for the Revenue, Mr.  Manchanda  contended that  on  a proper construction of s. 27 1 (1)  (a)  (i)  it would  be seen that the penalty had to be determined on  the basis of the tax assessed under s. 143 of the Act.   Counsel urged  that if that is not the true construction  then  ’the effectiveness  of  the  section may be  taken  away  by  the assessee  paying the tax due by him a day before the  demand notice  is served on him.  In support of the  interpretation placed by him, Mr. Manchanda relided on the decisions of the Lahore  High Court in Vir Bhan Bansi Lal v. Commissioner  of Income-tax, Punjab(1) and the decision of the Delhi 6 I.T.R. 616. 451 High-Court in Commissioner of Income-tax, Delhi v. Hindustan Industrial  Corporation(1).  The Delhi High  Court  followed the  decision of the Lahore High Court.  On the other  hand, it was urged by Mr. B. Sen, learned Counsel for the assessee

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and  Mr.  S. V. Gupta, learned Counsel for  the  interveners that. on a proper interpretation of the provision  mentioned earlier,  it  would be, clear that the penalty can  be  only imposed  on  the amount payable under s. 156.In  support  of their contention, they relied on the decision of the Mysore, High Court in M. M. Annaiah v. Commissioner of  Income-:tax, Mysore(2).   They  further  urged  that  if  ,interpretation placed  by the Revenue on s. 271 (1) (a) (i) is accepted  as correct,  the result would be that the advance tax  paid  or taxes   deducted  at  the  source  cannot  be   taken   into consideration  in determining the penalty payable.  If  that be  true,  the Counsel urged that even if the  assessee  had paid more tax than he need have paid, but had not  submitted his return within the time fixed, he would be liable to  pay penalty  on the entire amount assessed.  According  to  them the law cannot be presumed to be so harsh at that. There  is no doubt that the acceptance of one or  the  other interpretation sought to be placed on S. 271 (1) (a) (i)  by the parties would lead to some inconvenient result, but  the duty  of  the court is to read the section,  understand  its language  and give effect to the same.  If the  language  is plain, the fact that the consequence of giving effect to it. may  lead to some absurd result is not a factor to be  taken into  account  in interpreting a provision.  It is  for  the legislature  to  step in and remove the absurdity.   On  the other  hand,  if two reasonable constructions  of  a  taxing provision  are possible that construction which favours  the assessee must be adopted.  This is a well ’accepted rule  of construction  recognised  by this Court in  several  of  its decisions.   Hence all that we have to see is, what  is  the true  effect  of the language employed in s. 271 ( 1  )  (a) (i).  If we find that language to be ambiguous or capable of more  meanings  than  one,  then  we  have  to  adopt   that interpretation which favours the assessee, more particularly so because the provision relates to imposition of penalty. Let us now read section 271 (1 )(a) (i).  The section to the extent material for our present purpose reads :               "It  the Income-tax Officer or  the  Appellate               Assistant  Commissioner in the course of  ’any               proceedings under this Act, is satisfied  that               any person-               (a)   has  without reasonable cause failed  to               furnish  the return of total income  which  he               was required to furnish...... by notice  given               under sub- (1) 86.  I.T.R. 657.         (2) 74 I.T.R. 582 452               section(2)  of section 139. . .. . .,  Dr  has               without reasonable cause failed to furnish  it               within  the  time allowed and  in  the  manner               required... by such notice he may direct  that               such person shall pay by way of penalty-               (i)   in the casts referred to in clause  (a),               in addition to the amount of the tax, it  any,               payable by him a sum equal to two per cent, of               the  tax  for  every month  during  which  the               default  continued, but not exceeding  in  the               aggregate fifty per cent, of the tax."                              (emphasis supplied) Section 271(1)(a)(i) stipulates that the Income-tax  Officer may direct that the assessee shall pay by way of penalty, in cases  similar  to  the  one that  we  are  considering  "in addition to the amount of the tax, if any, payable by him  a sum  equal to 2 per cent of the tax for every  month  during which  the)  default  continued but  not  exceeding  in  the

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aggregate 50 per cent of the tax". We  must  first  determine  what  is  the  meaning  of   the expression  "the amount of the tax, if any, payable by  him" in  271 (1) (a) (i), Does it mean the amount of tax assessed under s. 143 or the amount of tax payable under s. 156.  The word  "assessed" is a term often used in taxation laws.   It is used in several provisions in the Act.  Quantification of the  tax payable is always referred to in the Act as  a  tax "assessed".   A  tax payable is, not the same thing  as  tax assessed.  The tax payable is that amount for which a demand notice  is  issued  under s. 156.  In  determining  the  tax payable,  the  tax already paid has to be  deducted.   Hence there can be no doubt that the expression "the amount of the tax,  if any, payable by him" referred to in the first  part of  s.  271 (1) (a) (i) refers to the tax  payable  under  a demand  notice.   We next come to the question what  is  the meaning to tic attached to the words "the tax" found in  the latter part of that provision.  It may be noted that the ex- pression  used  is not "tax" but "the  tax".   The  definite article "the" must have reference to something said earlier. It  can  only  refer  to the tax, if  any,  payable  by  the assessee mentioned in the first part of s. 271 (1) (a)  (i). It is true the expression "tax" is defined in s. 2(43)  thus :               "  "tax"  in relation to the  assessment  year               commencing  on the 1st day of April, 1965  and               any  subsequent assessment year means  income-               tax  chargeable under the provisions  of  this               Act.  and in relation to any other  assessment               year income-tax and super-tax chargeable under               the  provisions  of  this  Act  prior  to  the               aforesaid date." 453 But the difficulty in this case is, as mentioned Carrier the expression used is not "tax" but "the tax".  That expression can be reasonably understood as referring  to the expression earlier used in the provision namely "the amount of the tax, if any payable’ by the assessee.  At any rate, the provision in   question  is  capable  of  more  than  one   reasonable interpretation.  Two high courts namely Calcutta and  Mysore have  taken the view ’that the expression tithe tax"  in  s. 271(1) (a) (i) refers to "the tax, if any, payable" (by  the assessee) mentioned in the earlier part-of the section.   It is  true  that  Lahore and Delhi High Courts  have  taken  a different  view.   But the view taken by  the  Calcutta  and Mysore  Hi,-,It Courts cannot be said to be untenable  view. Hence,  particularly  in  view  of  the  fact  that  we  are interpreting,  not merely a taxing provision but  a  penalty provision as well, the interpretation placed by the Calcutta and Mysore High Courts cannot be rejected.. Further as  seen earlier,  the consequences of accepting  the  interpretation placed by the Revenue may lead to harsh results. For  the reasons mentioned above, this appeal  is  dismissed with, costs. V.P.S.                        Appeal dismissed. 454