REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION  CIVIL APPEAL NO.4278 OF 2010

[Arising out of SLP(C) No.5241 of 2007]

Joint Commissioner of Income Tax, Surat ....Appellant

Versus Saheli Leasing & Industries Ltd. ....Respondent

WITH CIVIL APPEAL NO.4279  OF 2010

[Arising out of SLP(C)No.5242 of 2007]

J U D G M E N T Deepak Verma, J. 1. Leave granted. 2. The facts of both the appeals being identical, the  

facts  of  civil  appeal  arising  out  of  S.L.P.(C)  No.5241  of  2007  are  being  referred  to  in  this  judgment.

3. On a first flush, after bare perusal of the impugned  order passed in Revenue Tax Appeal No. 1904 of 2005,  decided on 8.8.2006 by Division Bench of the High  Court  of  Gujarat  at  Ahmedabad,  we  thought  of  remanding the matter for a fresh decision on merits,

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in accordance with law but, on a deeper  and studied  scrutiny, we thought it apt instead of directing to  remit,  it would be  just and proper to consider the  matter on merits  ourselves and to set at rest the  legal  controversy  involved  in  the  appeal.   It  is  further so that Division Bench in the impugned order  has  decided the question of law as projected before  it in the appeal preferred under Section 260 (A) of  the Income Tax Act, 1961, (hereinafter referred to  as  'the Act') in a most casual manner.  The order  is not only cryptic but does not even remotely deal  with the arguments which were sought to be projected  by the  Revenue before it.

4. This  Court,  time  and  again,  reminded  the  courts  performing judicial functions, the manner in which  judgments/orders  are  to  be  written  but,  it  is,  indeed,  unfortunate  that  those  guidelines  issued  from time to time are not being adhered to.   

5. No doubt, it is true that brevity is an art but  brevity  without  clarity  likely  to  enter  into  the  realm of absurdity, which is impermissible. This is  what has been reflected in the impugned order which  we would reproduce hereinafter.

6. We,  therefore,  before  proceeding  to  decide  the

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matter on merits, once again would like to reiterate  few guidelines for the Courts, while writing orders  and judgments to follow the same.

7. These  guidelines  are  only  illustrative  in  nature,  not exhaustive and can further be elaborated looking  to the need and requirement of a given case:-

a) It should always be kept in mind that nothing  should be written in the judgment/order, which may  not be germane to the facts of the case; It should  have  a  co-relation  with  the  applicable  law  and  facts.   The  ratio  decidendi  should  be  clearly  spelt out from the judgment / order. b) After preparing the draft, it is necessary  to go through the same to find out, if anything,  essential to be mentioned, has escaped discussion. c) The ultimate finished judgment/order should  have sustained chronology, regard being had to the  concept that it has readable, continued interest  and  one does not feel like parting or leaving it  in the midway.  To elaborate,  it should have flow  and  perfect  sequence  of  events,  which  would  continue to generate interest in the reader. d) Appropriate care should be taken not to load  it with all legal knowledge on  the  subject  as  citation  of  too  many  judgments  creates  more  confusion  rather  than  clarity.   The  foremost  requirement  is  that  leading  judgments  should  be  mentioned and the evolution that has taken place  ever  since  the  same  were  pronounced  and  thereafter, latest judgment, in which all previous  judgments  have  been  considered,  should  be  mentioned.  While writing judgment, psychology of  the reader has also to be borne in mind,  for the  perception on that score is imperative. e) Language  should  not  be  rhetoric  and  should

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not reflect a contrived effort on the part of the  author. f) After arguments are concluded, an endeavour  should be made to pronounce the judgment at the  earliest and in any case not beyond a period of  three months.  Keeping it pending for long time,  sends  a  wrong  signal  to  the  litigants  and  the  society. g) It should be avoided to give instances,which  are  likely  to  cause  public  agitation  or  to  a  particular society.  Nothing should be reflected  in  the  same  which  may  hurt  the  feelings  or  emotions of any individual or society.

8. Aforesaid  are  some  of  the  guidelines  which  are  required to be kept in mind while writing judgments.  In fact, we are only reiterating what has already  been said in several judgments of this Court.

9. Aforesaid  background  has  been  given  after  going  through the impugned judgment of Division Bench of  the  High  Court.  Following  substantial  question  of  law, as contemplated under Section 260 A  of the  Act, was formulated to be answered by it :

“Whether,  on  the  facts  and  in  the  circumstances of the case, and in law, the Income  Tax Appellate Tribunal is right in coming to the  conclusion  that  where  assessed  income  is  loss,  penalty cannot be levied under section 271 (1) (c)  of the Income Tax Act in spite of the fact that  Explanation 4 (a) was added in the Income Tax Act  with  effect  from  1.4.1976  and  subsequently,  further clause (a) was replaced by another clause  (a) which is in clarificatory nature, with effect  from 1.4.2003?”

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10. However, the Division Bench in its wisdom thought it  fit to dispose of the appeal as under:-

“Admitted facts are that the appellant has filed  return  showing  loss  and  the  income  is  also  assessed as “NIL income”.  When the return was  shown as loss as well as assessment of income is  also NIL, no penalty under Section 271 (1) (c) of  the Income Tax Act is attracted.  No case is made  out  for  admission  of  the  appeal.   The  appeal  stands dismissed at admission stage.

Sd/- Judge  Sd/- Judge”  

11. Considering the important question of law and its wide  repercussions, it was least expected from the Division Bench  of  the  High  Court  to  have  dealt  with  the  issue  more  seriously, keeping in mind the question of law that was  being answered by it. 12. Feeling aggrieved, this appeal has been preferred by  Revenue before us.  Factual matrix is as under:- 13. On return being filed by the Respondent/Assessee, an  order  under  Section  143  (3)  of  the  Act  was  passed  on  27.2.1998, showing total income of Rs. NIL for assessment  year 1995-1996. 14. During  the  course  of  assessment  proceedings,  it  was  noticed that Assessee had claimed depreciation, which was  viewed to be incorrect.  Thus, an amount of Rs. 24,22,531/-

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was disallowed out of depreciation.   Penalty proceedings  under Section 271 (1) (c) of the Act were initiated.  In  response to the show cause notice issued by the Revenue,  Assessee  filed  its  reply  denying  the  allegations  and  contending  that  no  penalty  can  be  imposed  on  it,  when  returned income was NIL. 15. Penalty was sought to be imposed in respect of an item  having an effect in reducing the loss.  No appeal was filed  against the item, added to the income on account of which  the  loss  was  reduced.  Admittedly,  Assessee,  a  leasing  company had claimed depreciation on plant and machinery @  100% on various items.  The statement of depreciation filed  along with the computation of income showed the claim at  Rs.1,05,08,824/-. On enquiries being made it was revealed  that  100%  depreciation  was  claimed  along  with  Lease  Agreements  entered  into  with  different  parties.   Even  though, terms and conditions of the Lease Agreements entered  into with different parties were the same, except the names  of the parties had been changed.  Even after dis-allowance  of the said depreciation, the taxable income of the Assessee  was NIL and hence, there was no tax liability.  According to  Assessee, in such a case no penalty under Section 271 (1)  (c) could have been levied. 16. Deputy Commissioner of Income tax,  Special Range-2,

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Surat, on the basis of the discussion in the order held that  Assessee was liable to pay penalty, with reference to such  additions to income to be treated as its total income, with  reference to explanation 4 (a) to Section 271 (1) (c) of the  Act.   Accordingly,  the  penalty  was  levied  on  concealed  income of Rs. 24,22,531/- at minimum rate of 100% of tax  sought to be evaded.  Thus, a penalty of Rs. 11,14,364/- was  imposed on the Assessee. 17. Feeling aggrieved thereof, Assessee preferred an appeal  before  the  Commissioner  of  Income  Tax  (Appeals-II).  Considering various judgments of the Tribunal and the High  Courts, the appeal of the Assessee came to be dismissed and  penalty levied on it stood confirmed.  18. Assessee preferred further appeal before the Income-Tax  Appellate Tribunal, Ahmedabad. Tribunal, on the strength of  an  earlier  order  passed  by  Special  Bench  of  Ahmedabad  Tribunal in the case of Apsara  Processors (P) Ltd. and Ors.  in  ITA  No.  284/Ahd./2004  dated  17.12.2004  came  to  the  conclusion that no penalty can be levied, if the returned  income and the assessed income is loss.   Accordingly, the  orders  passed  by  the  Assessing  Officer  as  well  as  Commissioner (Appeals) were set aside and quashed and the  penalty imposed on the Assessee was deleted. It was this  order of the Tribunal which was carried further by filing

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Appeal under Section 260A of the Act in the High Court,  which met the fate of dismissal by the Division Bench. 19. Shri V. Shekhar, learned senior counsel appearing for  the  appellant  at  the  outset  contended  that  the  point  projected in this appeal stands answered in favour of the  Revenue by a judgment of Bench of three learned Judges of  this Court reported in (2008)  304 ITR 308 (SC) titled  CIT  Vs. Gold Coin Health (P) Ltd.        20. In  Gold  Coin   (supra)  an  earlier  judgment  of  this  Court, reported in (2007) 289 ITR 83 SC titled Virtual  Soft  Systems Ltd. Vs. CIT,  pronounced  by two learned Judges has  been over-ruled.   21. It is pertinent to point out here that in Gold Coin  (supra), what was being challenged by the Revenue, was the  order passed by same Bench of the High Court of Gujarat at  Ahmedabad, which finds place at page 309, wherein before  proceeding to decide the matter, the three learned judges of  this  Court  thought  it  fit  to  reproduce  the  same.  The  question of law as projected in Gold Coin (supra) before the  High Court and the question of law as projected in this  appeal is identical but what is being deciphered by us is  the manner in which the impugned judgment has been written  and pronounced.  After all, at the High Court level, when a  matter is considered on merits by a Division Bench, not only

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factual but even legal aspect of the matters is required to  be considered at some length.   22. The matter of Gold Coin (supra) was placed before three  learned judges of this Court, as correctness and propriety  of the order passed by two learned judges of this Court in  Virtual Soft Systems (supra) was doubted.  Thus, to clear  the doubts, on the correct exposition of law, a three Judge  Bench was constituted which decided the matter in Gold Coin  (supra). 23. It is to be seen that purpose behind Section 271 (1)(c)  of the Act is to penalise the Assessee for -  a)concealing  particulars of income and / or    b)furnishing inadequate particulars of such income. 24. Whether income returned was a profit or loss, was really  of no consequence.  Therefore, even if no tax was payable,  the penalty was still leviable.  It is in that context, to be  noted that even prior to the amendment it could not be read  to mean that if no tax was payable by the Assessee, due to  filing  of  return,  disclosing  loss,  the  Assessee  was  not  liable to pay penalty even if the Assessee had concealed  and/or furnished inadequate particulars. 25. Some of the High Courts had taken a contrary view,  thus, Parliament in its wisdom thought it fit to clarify the  position  by  changing  the  expression  “any” by  “if  any”.

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Thus, this was not a substantive amendment which created  imposition of penalty for the first time.  The amendment  by  the  Finance Act of the relevant year as specifically noted  in the notes on clauses shows that proposed amendment was  clarificatory in nature and would apply to all assessments  even prior to the  assessment year 2003-2004. 26. Thus, in Gold Coin (supra), after combined reading of  the recommendations  of  Wanchoo Committee,  and Circular  No. 204 dated 24.7.1976, it was clarified that points had  been made clear with regard to Explanation 4 (a) to Section  271 (1) (c)  (iii) to intend  to levy penalty not only in a  case  where  after  addition  of  concealed  income,  a  loss  returned, after assessment becomes positive income, but also  in a case where addition of concealed income reduces the  returned loss and finally the assessed income is also a loss  or minus figure.  Therefore, even during the period between  1.4.1976 and 1.4.2003, the position was that penalty was  still leviable in a case where addition of concealed income  reduces the returned loss. 27. In the aforesaid case, the expression “income” in the  statute appearing in Section 2 (24) of the Act has been  clarified to mean that it is an inclusive definition and  includes losses, that is, negative profit.  This has been  held so on the strength of earlier judgments of this Court

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in CIT Vs. Harprasad and Co. P. Ltd (1975) 99 ITR 118 and  followed in Reliance Jute and Industries Ltd. Vs. CIT (1979)  120 ITR 921. After elaborate and detailed discussion, this  Court  held  with  reference  to  the  charging  provisions  of  statute that the expression “income” should be understood to  include losses.  The expression “profits and gains” refers  to  positive  income  whereas  “losses”  represent  negative  profit or in other words minus income. 28. Considering  this  aspect  of  the  matter  in  greater  details, Gold Coin (supra) over-ruled the view expressed by  two learned judges in Virtual Soft Systems (supra). 29. Relevant paras 11 and 12 of Gold Coin (supra) dealing  with income and losses are reproduced herein below:-

“11. When the word “income” is read to include  losses as held in Harprasad's case it becomes  crystal  clear  that  even  in  a  case  where  on  account  of  addition  of  concealed  income  the  returned  loss stands  reduced and  even if  th  final assessed income is a loss, still penalty  was  leviable  thereon  even  during  the  period  April 1, 1976 to April1, 2003.  Even in the  Circular  dated  July  24,  1976,  referred  to  above,  the  position  was  clarified  by  the  Central Board of direct Taxes (in short “the  CBDT”).  It is stated that in a case where on  setting off the concealed income against any  loss incurred by the Assessee under any other  head of income or brought forward from earlier  years, the total income is reduced to a figure  lower than the concealed income or even to a  minus  figure  the  penalty  would  be  imposable  because in such a case 'the tax sought to be  evaded”  will  be  tax  chargeable  on  concealed  income as if it is “total income”.

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12.  Law is well-settled that the applicable  provision would be the law as it existed on the  date of the filing of the return.  It is of  relevance  to  note  that  when  any  loss  is  returned in any return it need not necessarily  be the loss of the concerned previous year. It  may also include carried forward loss which is  required  to be  set up  against future  income  under Section 72 of the Act.  Therefore, the  applicable law on the date of filing of the  return cannot be confined only to the losses of  the previous accounting years.”

30. The necessary consequence thereof would be that even if  Assessee has disclosed NIL income and on verification of the  record, it is found that certain income has been concealed  or has wrongly been shown, in that case, penalty can still  be levied.  The aforesaid position is no more  res integra  and according to us, it stands answered in favour of the  Revenue and against the Assessee. 31. The learned senior counsel appearing for the respondent  Assessee, Mr. D.N Sawhney, contended that the observations  made in Gold Coin (supra) can at best be treated as obiter  but  not  as  binding  precedent.   According  to  him,   the  earlier  judgment  of  the  Coordinate  Bench  in  CIT  Vs.  Elphinstone Spinning and Weaving Mills Co. Ltd. XL ITR 142,  

would still hold the field and applies fully to the facts of  the said case.   32. Much  emphasis  has  been  laid  on  the  following  observations in Elphinstone (supra) reproduced hereinbelow :

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   “There is no doubt that if the words of a  taxing  statute fail,  then so  much the  tax.  The courts cannot, except rarely and in clear  cases,  help  the  draftsmen  by  a  favourable  construction.  Here, the difficulty is not one  of  inaccurate language  only.  It is  really  this that a very large number of taxpayers are  within the words but some of them are not.  Whether the enactment might fail in the former  case on some other ground (as has happened in  another case decided today) is not a matter we  are  dealing  with  at  the  moment.   It  is  sufficient to say there that the words do not  take in the modifications which the learned  counsel for the appellant suggests.  The word  “additional”  in  the  expression  “additional  income-tax” must refer to a state of affairs  in which there has been a tax before.  The  words  “charge on  the total  income” are  not  appropriate to describe a case in which there  is no income or there is loss.  The same is  the case with the expression “profits liable  to  tax”    The  last  expression  “dividends  payable out of such profits” can only apply  when there are profits and not when there are  no profits.

It is clear that the Legislature had in  mind  the  case  of  persons  paying  dividends  beyond a reasonable portion of their income.  A rebate was intended to be given to those who  kept within the limit and an enhanced rate was  to be imposed on those who exceeded it.  The  law was calculated to reach those persons who  did the latter even if they resorted to the  device of keeping profits back in one year to  earn  rebate to pay out the same profits in  the next.  For this purpose, the profits  of  the earlier years were deemed to be profits of  the succeeding years.  So far  so good.  But  the Legislature failed to fit in the law in  the scheme of the Indian Income-tax Act under  which and to effectuate which the Finance Act  is  passed.  The  Legislature  used  language  appropriate to income, and applied the rate to  the “total income”.  Obviously, therefore, the  law must fail in those cases where there is no

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total income at all, and the courts cannot be  invited  to supply  the omission  made by  the  Legislature.”

 33. In a first glance, after considering arguments of both  sides, we thought that matter required to be referred to a  larger  Bench  for  considering  the  issue  involved  in  this  appeal but on deeper scanning of the judgments in Gold Coin  (supra) and Elphinstone (supra), we came to the conclusion  that the ratio decidendi of Gold Coin (supra) fully covers  the  issue  and  the  case  of  Elphinstone  (supra)  has  no  application to the facts of the said case.    34. Both cases are distinguishable on the following broad  grounds, namely:

(i) Gold Coin Health (supra) arose under  the Income Tax Act, 1961, whereas Elphinstone(supra)  arose  under  the  repealed  Income  Tax  Act  of  1922.  (Though this is only a distinguishing feature noticed  in 2 decisions which is not of much significance). (ii) The question that fell for consideration in Gold  Coin  (supra)  was  what  would  be  the  true  interpretation of Section 271 (1) (c) in the context  of amendments made therein whereas, the question in  Elphinstone (supra) was in relation to chargeability

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of “additional tax” on “dividend income” earned by  Assessee under paragraph – B of First Schedule to the  Income Tax Act, 1922.

(iii) Elphinstone  (supra)  interpreted  five  words occurring in para-B of First Schedule namely;  “additional”,  “additional Income Tax”, “charge on  the  total  income”,  “profits  liable  to  tax”   and  lastly,  “dividends  payable  out  of  such  profits”,  whereas,  in  Gold  Coin's  case,  the  question  arose  whether word “income” includes loss for the purpose  of  imposition  of  penalty  u/s  271  (1)  (c)  and  if  Assessee  incurs  loss  in  any  particular  year  then  whether penalty u/s 271 (1) (c) can still be imposed  on him. This has been categorically answered in Gold  Coin (supra) in favour of Revenue and against the  Assessee. (iv) The object of imposing penalty is different than  that of determining Assessee's liability to pay tax  or  additional  tax  under  any  charging  section.  The  interpretation  applied  to  penalty  provision  thus,  cannot  be  applied  while  interpreting  any  charging  section for payment of income tax or additional tax.  In  other  words,  both  provisions  i.e.  penalty  and

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charging  have  different  objects  and  consequences.  They operate in different fields qua Assessee. (v) The liability to pay additional tax under First  Schedule on the income earned out of dividend implies  that Assessee is first required to pay “tax” and then  additional  tax  on  the  specified  income.  It  was  basically  this  issue  which  was  examined  in  Elphinstone  (supra)  wherein  Their  Lordships  considered  the  object  for  enacting  first  para  of  schedule. This object has nothing to do with penalty  provisions. (vi) A particular word occurring in one Section  of the Act, having a particular object cannot carry  the same meaning when used in different Section of  the same Act, which is enacted for different object.  In  other  words,  one  word  occurring  in  different  Sections of the Act can have different meaning, if  the object of the two Sections are different and when  both operate in different fields.  (vii) Question of law involved in this appeal is  directly covered by the decision of Gold Coin (supra)  and is to be answered accordingly.  (viii) Elphinstone (supra), therefore, has no bearing  over the view taken in Gold Coin (supra) case and

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even if it had been taken note of, the decision taken  therein  would  have  been  the  same  due  to  aforementioned distinguishing feature.

(ix) The issue involved in Gold Coin (supra) being  entirely  different  than  the  one  involved  in  Elphinstone (supra), the view taken by this Court in  both  the  decisions  are  correct  operating  in  the  respective  fields,  requiring  no  reconsideration  of  the matter.  (x) In order to enable the Court to refer any case  to  a  larger  Bench  for  reconsideration,  it  is  necessary to point out that particular provision of  law having a bearing over the issue involved was not  taken note of or there is an error apparent on its  face or that a particular earlier decision was not  noticed, which has a direct bearing or has taken a  contrary  view. Such  does not  appear to  be a  case  herein.  Thus, it does not need to be referred to a  larger  Bench  as  in  our  considered  opinion;  it  is  squarely covered by the judgment of this Court in  Gold Coin (supra).

35. In the light of the aforesaid discussion, we have no  doubt in our mind that the ratio of Elphinstone (supra) has

C.As.  @ SLP (C) No. 5241 of 2007 etc….   (contd.)                                            18

no application to the facts of the case and the question of  law  projected  stands  squarely  answered  in  favour  of  the  Revenue and against the Assessee in Gold Coin (supra) as a  result  thereof,  appeal  by  Revenue  stands  hereby  allowed.  Impugned order passed by Income Tax Appellate Tribunal and  confirmed  by  Division  Bench  are  hereby  set  aside  and  quashed.  The Revenue, therefore, would be at liberty to  proceed further against the Assessee on merits in accordance  with law. 36. Appeals stand allowed as mentioned hereinabove but with  no order as to costs.

.......................CJI  [K.G. Balakrishnan]

.................... ...J.                                 

[Deepak Verma]

     .......................J.

[B.S. Chauhan]

New Delhi. May 07, 2010