Reportable

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.5769  OF 2009 (Arising out of SLP(C) No. 31192/2008)

C.I.T., Delhi                  …Appellant

Versus   Atul Mohan Bindal                …Respondent

JUDGEMENT

R.M. Lodha, J.

Delay condoned.

2. Leave granted.

3. The revenue  has come up in  appeal  by special  leave  

aggrieved by the judgement of the High Court of Delhi whereby the  

High  Court   dismissed  their   appeal  under  Section  260A  of  the  

Income Tax act, 1961 (for short, “the Act” ) on January 25, 2008 and  

upheld the order dated December 22, 2006 passed by the Income  

Tax Appellate Tribunal, Delhi Bench ‘H’, New Delhi.

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4. Atul Mohan Bindal - assessee  filed  return of his income  

for Assessment Year 2002-03 on August  8, 2002   declaring  his  

total income  Rs.1,98,50,021/-.  In the assessment proceedings u/s  

143,  a  notice  alongwith  questionnaire  was  issued  to  him  by  the  

Assessing  Officer  on  November  29,  2002.     Pursuant  thereto,  

assessee attended the assessment  proceedings and furnished the  

requisite details.  During the assessment  proceedings, it transpired  

that  assessee worked  with M/s  DHL International(S)  PTE Ltd.,  

Singapore  during the previous year and was paid salary in Singapore  

amounting  to   US$  36,680.79  equivalent  to  Rs.17,81,952/-.   The  

assessee   explained that an amount of US $ 8199.87 (Rs.3,98,350/-)  

was deducted as tax from the aforesaid  salary income and having  

paid tax on salary income earned in Singapore,  he was of the view  

that the said income was not liable to be included in the total income  

in India.  He however, offered  salary income of Rs. 17,81,952/- to be  

included in his total income.  The assessee was also found  to have  

received an amount of Rs. 5,00,000/-  from his erstwhile employer  

M/s Honeywell International (India) Pvt. Ltd. in the previous year.  His  

explanation was that  the said amount was exempted under Section  

10(10 B) of the Act being retrenchment  compensation.   According to  

the Assessing Officer,  that  amount  could not  be exempted u/s  10  

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(10B)  as  the  assessee  was  not  a  workman.   The  assessee  also  

earned interest income of Rs. 22,812/- from Bank of India which was  

not included by him in the total income but   he offered for tax the said  

amount.  The  Assessing Officer, accordingly, added  Rs.17,81,952/-,  

Rs.5,00,000/-  and  Rs.22,812/-  to  the  income  declared  by   the  

assessee in the  return and assessed  the total income  of assessee  

at Rs.2,21,54,785/-.    Penalty proceedings under Section 271(1)(c)  

were initiated separately and penalty of  Rs.7,75,211/- was imposed  

under Section 271(1)(c) by the  Assessing Officer vide Order dated  

March 16, 2003.

5. The  assessee  accepted  the  order  of  assessment  but  

challenged the order of penalty  in appeal before the CIT (Appeals)  

XXV, New Delhi.

6. After  hearing  the  assessee  and  the  departmental  

representative,   the  CIT  (Appeals)  XXV,   New Delhi  allowed  the  

appeal and set aside the order of penalty vide his order  dated August  

22, 2005.   The CIT (appeals) held that the assessee has neither  

concealed  the  particulars  of  his  income  nor  he  furnished  any  

inaccurate particulars thereof.  This is  what the CIT (Appeals) held:

“… I believe that this is a case of unintentional and  inadvertent omission and therefore, it is not a fit case  for  levy of  penalty u/s.  271(1)(c)  of   the Act as the  

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assessee  has  not  concealed  the  particulars  of  his  income;   nor  has  he  furnished  any  inaccurate  particulars thereof.  As can be seen from a perusal of  the impugned order,  the penalty has been levied with  reference to firstly,  the addition disallowing the claim  of  Retrenchment  compensation  of  Rs.5,00,000/-  made u/s 10(10B)  of  the Act,   secondly,  the salary  received in Singapore for services rendered outside  India from December to March 2002 amounting to Rs.  17,81,952/- offered by the appellant in the course of  assessment  proceedings  and  thirdly  the  interest  income  of  Rs.  22,812/-  also  offered  for  tax  in  the  revised return filed during the course of assessment  proceedings.     As  regards  the  former,  the  AO  appears  to  be  completely  satisfied  as  regard  the  genuineness  of  the   reasons  that  necessitated  the  revision.    As regard the second,  the issue involved  difference  of  opinion  even  between  two  different  benches of  the Apex Court,   and thirdly,   the A.O.  again  seems  to  be  satisfied  about  the  appellant’s  reply  in this connection.  In any case,  the additions  were made  on the basis of the particulars furnished  by the appellant and not discovered independently by  the A.O.

5.1   That the  appellant had a bona fide belief of the  non-taxability  of  the  salary  income  earned  in  Singapore  where  tax-  withholding  had  taken  place  and India had DTAA with Singapore,  so he did not  include  this  receipt  in  his  salary  income cannot  be  rejected out of hand.  During assessment proceedings  however,  assessee  offered  this  salary  receipt  for  taxation as per IT Act, 1961.    Therefore,  an amount  of Rs. 17,81,952/- was included in the total income of  the assessee.   In such setting of facts,  I am afraid,  the impugned addition may not lead to  concealment  of  income  or  furnishing  of  inaccurate  particulars  thereof.”

7. The  Revenue  challenged  the  order  of  CIT  (Appeals)  

before  the  Income  Tax  Appellate  Tribunal,   Delhi  (for  short,  “the  

Tribunal”).

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8. The Tribunal heard the departmental representative and  

the authorized representative of the assessee and by its order dated  

December 22, 2006 upheld the order of CIT (Appeals).  The Tribunal  

considered the matter thus:

“ 12. On   a  careful  consideration  of  the  rival  submissions,   we  are  of  the  view  that  the  CIT  (Appeals)  was  justified  in  canceling  the   penalty  in  respect of all  the three items.  So far as the salary  received in  Singapore from DHL is  concerned,  it  is  true that since the assessee was a resident of India,  the salary received in Singapore should be taxed in  his hands.  The claim of the assessee  was that he  was under a bona fide though mistaken impression  that because of the existence of the DTAA between  India  and  Singapore,   if  taxes  are  deducted  from  salary   income  in  Singapore  than  the  said  income  cannot be  taxed by the Indian Income tax authorities.  Though,   considering  the  position  occupied  by  the  assessee  (  as  vice-president/general  manager  of  a  multinational  company drawing a huge salary)  it  is  expected  that  he  would  have  been  advised  by  a  professional  with regard to his taxation matters and  therefore,  it  somewhat  difficult  to  accept  the  explanation,  more  particularly  when  the  assessee  knew of the existence of a double taxation avoidance  agreement  between  India  and  Singapore,   still  one  can  perhaps  extend  the  benefits  of  doubt  to  him  because  the  moment  he  was  informed  by  the  Assessing Officer that is not the correct legal  position,  the  assessee included the salary in the total  income.    Further,  there  is  no  dispute  that  the  assessee was  eligible to get credit for the taxes paid  in  Singapore.   In  fact,   the  Assessing  Officer  has  acknowledge the same in the assessment order itself.  As  regards  the  claim  for  exemption  of  the  retrenchment  compensation  received  by  the  assessee,  the CIT Appeals) is right in saying that the  claim was on account  of  the opinion bona fide and  honestly  entertained  by the  assessee that  he  is   a  workman and, therefore,  the exemption is available.  The  assessee’s   claim  that  he  is  a  workman  was  disputed by the Assessing Officer and he referred to  the definition of   the workman as per the Industrial  

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Dispute  act,   1947  to  reject  the  assessee’s  claim.  Here also,  it is a case of a difference of opinion as  regards the interpretation of  the work ‘workman’ for  which no penalty is imposable.  At best, it can only be  said that the assessee did not take pains to study the  Industrial  Disputes act and to find out how the work  ‘workman’ is defined therein.   Lastly,  with regard to  the claim of interest banks,  since the bank certificates  were initially  not available to the assessee,   it was  not included in the return.    The omission thus seems  to be due to reasons beyond the assessee’s control.  Moverover,  in respect of all the three items,  the CIT  (Appeals) has recorded a finding in paragraph 6 of his  order  that  all  the  facts  were  disclosed  by  the  assessee  in  the  annexure  to  the  return  and  the  information leading to the additions was taken by the  Assessing  Officer  only  from the  return  filed  by  the  assessee and that such information was not found to  be false.  Thus,  there has been no failure on the part  of  the  assessee  to  declare  all  the  facts  before  the  Assessing Officer.  We are, therefore, in agreement  with the view taken by the CIT (Appeals) that this is  not a case where the assessee can be said to have  concealed  his  income  or  furnished  inaccurate  particulars even within the meaning of Explanation 1  to Section 271(1)(c).”

9. The revenue  filed   appeal  u/s  260A before  the   High  

Court of Delhi.  The High Court considered the question whether the  

Assessing   Officer  had  recorded  a  valid  satisfaction  for  initiating  

penalty proceedings under Section 271(1)(c) of the Act.  Inter alia,  

relying upon  a decision of that Court in  Commissioner of Income  

Tax vs. Ram Commercial Enterprises Ltd.   and noticing  that Ram  

Commercial Enterprises has been   approved by this Court in Dilip  

N. Shroff vs. Joint Commissioner of Income Tax1,  and T. Ashok Pai  

1 (2007) 291 ITR 519 (SC)   

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vs. Commissioner of Income Tax2, held that from the reading of  the  

assessment order, it was not discernible  as to why the Assessing  

Officer chose to initiate proceedings against the assessee and under  

which  part  of  Section  271(1)(c).   The  High  Court,   therefore,  

accepted the view of the Tribunal and  CIT (Appeals) and dismissed  

the appeal of the Revenue  with cost of Rs. 5,000/-.

10. Section 271(1)(c) as was operative  during the relevant  

year reads thus:  

“271.   (1) If  the  Assessing  Officer  or  the  (***) (Commissioner (Appeals) in the course of any  proceedings under this Act ,  is  satisfied  that  any  person.    

(a) ………….. (b) …………..  (c) has concealed the particulars of his income or (***) furnished  

inaccurate particulars of such income, he may direct that such person shall pay by way of  penalty,

(i) ………….

(ii) ………… (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,  but  which shall  not exceed  (three times),  the amount of tax  sought  to  be  evaded  by  reason  of  the  concealment of particulars of his income or the  furnishing  of  inaccurate  particulars  of  such  income.

(***)

2 (2007) 292 ITR 11 (SC)

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(Explanation 1. Where in respect of any facts  material to the computation of the total income  of any person under this Act.

(A) such  person  fails  to  offer  an  explanation  or  offers  an  explanation which is found by the Assessing Officer or the  (**) (Commissioner (Appeals) to be false, or

(B) such person offers an explanation which he is not able to  substantiate   (  and fails  to prove that  such explanation is  bona fide  and  that  all  the  facts  relating  to  the  same and  material  to the computation of his total  income have been  disclosed by him),

then, the amount added or disallowed in  computing  the  total  income  of  such  person as a result thereof shall, for the  purposes  of  clause  (c)  of  this  sub- section,  be  deemed  to  represent  the  income  in  respect  of  which  particulars  have been concealed. ……………………………………..”

11. A close look at  Section 271(1)  (c)  and Explanation (1)  

appended  thereto  would  show  that  in  the   course  of  any  

proceedings under the Act,   inter  alia,   if  the Assessing Officer  is  

satisfied  that a person has concealed  the particulars of his income  

or furnished inaccurate particulars of such income, such person may  

be directed to pay penalty.    The quantum of penalty is prescribed  in  

Clause (iii).  Explanation 1, appended to section  271(1) provides that  

if that  person fails to offer an explanation or the explanation    offered  

by  such person is found to be  false or the explanation offered by him  

is not  substantiated and he fails  to prove that  such explanation is  

bona fide and that all the facts relating the same and material to the  

computation of his total  income has been disclosed by him, for the  

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purposes of  Section 271(1)(c),  the amount added or disallowed in  

computing the total  income is  deemed to represent  the concealed  

income.    The penalty  spoken  of   in  Section  271(1)(c)  is  neither  

criminal   nor quasi criminal but a civil liability; albeit  a strict liability.  

Such liability  being civil in nature, mens rea  is not essential.  

12. In the case of Union of India  and Ors. vs. Dharamendra  

Textile Processors and Ors3,  a three judge Bench of this Court held  

that  Dilip N. Shroff did not lay down correct law as the  difference  

between Section 271(1)(c)  and Section 276(c)  of  the Act  was lost  

sight of.   The Court held that the explanation appended to Section  

271(1)(c)  indicates  element  of   strict  liability  on  the  assessee  for  

concealment  or  for  giving  inaccurate  particulars   while  filing  the  

return.   The Court held thus:  

“The Explanations appended to Section 271(1)(c) of  the Income Tax Act, 1961, indicate the elements of  strict liability on the assessee for concealment or  for  giving  inaccurate  particulars  while  filing  the  return.  The judgment in Dilip N. Shroff  case (supra) has not  considered the effect  and relevance of  Section 276  (c) of the I.T. Act. The object behind the enactment of  Section  271(1)(c)  read   with  Explanations  indicates  that  the Section has been enacted to  provide for  a  remedy for loss of revenue.   The penalty under that  provision is a civil liability.   Willful concealment is not  an  essential ingredient for attracting civil liability as  is  the case in the matter of prosecution under Section  276 (c).”

3 (2008) 306 ITR 277

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13. The decision of this Court in Dharamendra  Textile  

Processors has been explained recently by this Court in the case of  

Union of India vs. M/s Rajasthan Spinning & Weaving Mills4 thus:

“20. At this stage, we need to examine the recent  decision of  this court  in  Dharmendra Textile(supra).   In almost every case relating to penalty, the decision  is  referred to on behalf  of  the Revenue as if  it  laid  down  that  in  every  case  of  non-payment  or  short  payment  of  duty  the  penalty  clause  would  automatically get attracted and the authority had no  discretion in the matter.  One of  us (Aftab Alam, J.)  was a party to the decision in Dharamendra Textiles  and  we  see  no  reason  to  understand  or  read  that  decision in that manner.   In Dharmendra Textile the  Court framed the five issues before it,  in paragraph 2  of the decision as follows:

“2. A Division Bench of this Court has referred  the controversy involved in these appeals to a larger  Bench  doubting  the  correctness  of  the  view  expressed in Dilip N. Shroff vs. Joint Commissioner of  Income Tax, Mumbai and Another [(2007) 8 SCALE  304].    The question which arises for determination in  all  these  appeals  is  whether  Section  11AC  of  the  Central Excise Act, 1944 (in short the ‘Act’) inserted  by Finance Act  1996 with the intention of  imposing  mandatory penalty on persons who evaded payment  of  tax  should  be   read  to  contain  mens rea  as  an  essential ingredient and whether there is a scope for  levying  penalty  below  the  prescribed  minimum.  Before the Division Bench,  stand of the revenue was  that   said  section  should  be  read   as  penalty  for  statutory offence and the authority imposing penalty  has no discretion in the matter of imposition of penalty  and  the adjudicating authority in such cases was duty  bound  to  impose  penalty  equal  to  the  duties  so  determined.  The assess on the other hand referred to  Section  271(1)(c)  of  the  Income  Tax  Act,  1961  (in  short the ‘IT Act’) taking the stand that Section 11AC  of the Act is identically worded and in a given case it  was open to the assessing officer not to impose any  penalty.  The Division Bench made reference to Rule  96ZQ  and Rule 96ZO of the Central Excise Rules,  

4 (2009) 8 SCALE 231  

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1944  (in  short  the ‘Rules’)   and a decision of  this  court in Chairman,  SEBI vs. Shriram Mutual Fund &  Anr. {2006 (5) SCC 361) and was of the  view that the  basic scheme for imposition of penalty under section  271(1)(c)  of  IT Act,   Section 11 AC of  the Act  and  Rule 96ZQ(5) of the Rules is common.    According to  the  Division  Bench  the  correct  position  in  law  was  laid down in  Chairman,  SEBI’s case (supra) and not  in  Dilip Shroff’s  case (supra).  Therefore,  the matter  was referred to a larger Bench” After  referring  to  a  number  of  decisions  on  interpretation  and  construction  of  statutory  interpretation and construction of statutory provisions,  in paragraphs 26 and 27 of the decision,  the court  observed and held as follows:

“26.   In  Union  Budget  of  1996-97,   Section  11AC of  the  Act  was introduced.   It  has made the  position clear that there is no scope for any discretion.  In para 136 of the Union Budget reference has been  made to the provision stating that the levy of penalty  is a mandatory penalty.  In the Notes on Clauses also  the similar indication has been given.

“27. Above being the position,  the plea that  the  Rules  96ZQ  and  96ZO  have  a  concept  of  discretion inbuilt  cannot be sustained.  Dilip Shroff’s  case (supra) was not correctly decided but Chairman,  SEBI’s case (supra) has analysed the legal position in  the  correct  perspectives.  The  reference  is  answered……”

21. From  the  above,  we  fail  to  see  how  the  decision  in  Dharamendra Textile can be said  to hold that Section 11C  would apply to every case of non-payment or short payment  of duty regardless of the conditions expressly mentioned in  the section for its application.

22. There  is  another  very  strong  reason  for  holding  that  Dharamendra  Textile  could  not  have  interpreted  Section  11AC in the manner as suggested because in that  case that  was not even the stand of the  revenue.  In paragraph 5 of  the decision the court noted the submission made on behalf  of the  revenue as follows:

“5. Mr.  Chandrashekharan,  Additional  Solicitor General submitted that in Rules 96ZQ  and 96ZO there is no reference to any mens  rea as in Section 11 AC  where mens rea is  prescribed  statutorily.   This  is  clear  from the  extended period of limitation permissible under  

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section  11A  of  the  Act.    It  is   in  essence  submitted  that  the  penalty  is  for  statutory  offence.   It  is  pointed out  that  the proviso to  Section 11A deals with the time for initiation of  action.  Section 11AC  is only a mechanism for  computation and the quantum of penalty.  It is  stated  that  the  consequences  of  fraud  etc.  relate to the extended period of limitation and  the onus  is on the revenue to establish that  the extended period of limitation is applicable.  Once that  hurdle  is  crossed by the  revenue,  the  assessee  is  exposed  to  penalty  and  the  quantum of penalty is fixed.   It is pointed out  that  even  if  in  some   statues  mens  rea  is  specifically  provided  for,  so  is  the  limit  or  imposition  of  penalty,  that  is  the  maximum  fixed or ;the quantum has to be between two  limits fixed.  In the cases at hand,  there is no  variable  and,  therefore,  no  discretion.   It  is  pointed  out  that  prior  to  insertion  of  Section  11AC,  Rule 173Q was in  vogue in which no  mens  rea  was  provided  for.   It  only  stated  “which  he knows or  has reason to believe”.  The  said  clause  referred  to  willful  action.  According  to  learned  counsel  which  was  inferentially provided in some respects in Rule  173Q,   now  stands   explicitly  provided  in  Section 11AC.  Where the outer limit of penalty  is fixed and the statute provides that it should  not  exceed  a  particular  limit,   that  itself  indicates scope for discretion but that is not the  case here.”

23. The  decision  in  Dharamendra  Textile  must,  therefore,  be  understood to mean that  though the application of  section  11AC would depend upon the existence or otherwise of; the  conditions expressly stated in the section,  once the section  is applicable in a case the concerned authority would have  no discretion in quantifying the amount and penalty must be  imposed equal to the duty determined under sub-section (2)  of  Section 11A.  That is what Dharamendra Textile decides.”

14. It  goes  without  saying   that  for  applicability  of  Section  

271(1)(c), conditions stated  therein  must exist.

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15. Insofar  as  the  present  case  is  concerned,  as  noticed  

above,   the  High  Court  relied  upon  its  earlier  decision  in  Ram  

Commercial Enterprises  which is said to have been approved by this  

Court in  Dililp N. Shroff.    However,  Dillip N. Shroff  has been held  

to  be  not  laying  down  good  law  in   Dharamendra  Textiles.   

Dharamendra Textiles is explained by this Court in Rajasthan Spining  

and Weaving  Mills.  Having   thoughtfully considered the matter,  in  

our judgment,  the matter needs to be reconsidered by the High Court  

in the light of the decisions of this Court in Dharamendra Textiles and  

Rajasthan Spinning and Weaving Mills.    

16. In the result, appeal is allowed and the judgment of the  

High Court  of Delhi  passed on January 25, 2008 is set aside.  The  

matter is remitted back to the High Court  for fresh consideration and  

decision as indicated  above.  Since the assessee has not chosen to  

appear, no order as to costs.

……………………J         (Tarun Chatterjee)

         …….……………..J          (R. M. Lodha)

New Delhi August 24,  2009.

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