Commissioner of Income Tax vs Haryana Iron and Steel Mills

Iqbal Singh, J.—The Tribunal referred the following questions of law u/s 256(1) of the income tax Act, 1961 (''the Act'') for the opinion of this Court :

"1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that for the limited purpose of determining the interest chargeable under the proviso to section 139(1) of the Act, the assessee was entitled to the deduction in respect of annuity deposit u/s 280-O of the Act ?

Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the income tax Officer should have allowed the claim made by the assessee-firm in its application u/s 154 of the Act and allowed a deduction u/s 280-O in determining the tax payable by the assessee-firm for the purposes of clause (iii)(a) of the proviso to section 139(1) ?"

Facts - The assessee had been assessed in the status of a registered firm for the assessment year 1966-67. Since the assessee-firm had failed to furnish its return of income within the specified time, the ITO charged interest under the proviso to section 139(1) of the Act. After the compilation of the assessment, the assessee-firm made an application u/s 154 of the Act requesting that the interest charged under the aforesaid provision should be recalculated in the light of the provision of section 280-O of the Act which provides that the annuity deposit required to be made under Chapter XII-A of the Act shall be allowed as a deduction in computing the total income of the assessee. The ITO rejected the application made by the assessee-firm on the ground that the deduction u/s 280-O could be allowed only in the case of unregistered firms and not in the case of registered firms. Besides, the ITO held that the question whether the deduction u/s 280-O could be allowed even in the case of registered firms for the limited purpose of calculating interest chargeable for delayed furnishing of returns involved a debatable point of law and, therefore, the application made by the assessee-firm was beyond the scope of section 154.

The assessee-firm not satisfied with the order of the ITO went in appeal, but the AAC confirmed the order of the ITO. Again not satisfied, the assessee-firm filed a second appeal before the Tribunal. The Tribunal accepted the contention of the assessee-firm that for the limited purpose of determining the interest chargeable under the provisions of section 139(1) it was entitled to the deduction in respect of annuity deposit u/s 280-O. The Tribunal rejected the contention of the department that the question under consideration could be decided only by a long-drawn process of reasoning and that there could not conceivably be two opinions in the matter. Accordingly, the appeal of the assessee-firm was allowed.

By the reference application, the Commissioner, Haryana, proposed the following four questions of law before the Tribunal for being referred to this Court for its opinion :

"1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that for the limited purpose of determining the interest chargeable under the proviso to section 139(1) of the Act, the assessee was entitled to the deduction in respect of annuity deposit u/s 280-O of the Act ?

Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the income tax Officer should have allowed the claim made by the assessee-firm in its application u/s 154 of the Act and allowed a deduction u/s 280-O in determining the tax payable by the assessee-firm for the purposes of clause (iii)(a) of the proviso to section 139(1) ?

Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in ignoring its earlier order dated 3-9-1975 passed in ITA No. 481 of 1972-73 wherein departmental appeal was allowed and the Appellate Assistant Commissioner''s order deleting the interest u/s 139 was reversed by it ?

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in allowing the assessee''s appeal merely against charging of interest u/s 139(3) when such an appeal is not maintainable under the law ?"

The Tribunal, in its opinion, found that two questions, as referred to above in the opening part of the judgment, arise whereas question Nos. 3 and 4 do not arise out of the order of the Tribunal as the appeal decided by the Tribunal was against an order u/s 154 and not against the charging of interest u/s 139.

We have heard Mr. R.P. Sawhney, senior Advocate, the learned counsel for the petitioner and Mr. Ajay Mittal, Advocate, the learned counsel for the respondent.

Relevant provisions of section 139(1), as they stood at the relevant time, and section 280-O are as under :

"139. Return of income. -(1) Every person, if his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income tax, shall furnish a return of his income or the income of such other person during the previous year in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed-

(a) in the case of every person whose total income, or the total income of any other person in respect of which he is assessable under this Act, includes any income from business or profession, before the expiry of four months from the end of the previous year or where there is more than one previous year, from the end of the previous year which expired last before the commencement of the assessment year, or before the 30th day of June of the assessment year, whichever is later;

(b) in the case of every other person, before the 30th day of June of the assessment year :

Provided that, on an application made in the prescribed manner, the income tax Officer may, in his discretion, extend the date for furnishing the return-

(i) in the case of any person whose total income includes any income from business or profession the previous year in respect of which expired on or before the 31st day of December of the year immediately preceding the assessment year, and in the case of any person referred to in clause (b), up to a period not extending beyond the 30th day of September of the assessment year without charging any interest;

(ii) in the case of any person whose total income includes any income from business or profession the previous year in respect of which expired after the 31st day of December of the year immediately preceding the assessment year, up to the 31st day of December of the assessment year without charging any interest; and

(iii) up to any period falling beyond the dates mentioned in clauses (i) and (ii) in which case, interest at six per cent per annum shall be payable from the 1st day of October or the 1st day of January, as the case may be, of the assessment year to the date of furnishing the return-

(a) in the case of registered firm or an unregistered firm which has been assessed under clause (b) of section 183, on the amount of tax which would have been payable if the firm had been assessed as an unregistered firm, and

(b) in any other case, on the amount of tax payable on the total income reduced by the advance tax, if any, paid or by any tax deducted at source, as the case may be.

280-O. Annuity deposit allowed as deduction in computing total income.- (1) Notwithstanding anything to the contrary contained in the provisions of this Act relating to the computation of income chargeable under any head of income, the annuity deposit required to be made under this Chapter shall, subject to the provisions of sub-section (2), be allowed as a deduction in computing the total income assessable for the assessment year in respect of which the annuity deposit is required to be made :

Provided that where in relation to the assessment year commencing on the 1st day of April, 1967, or any subsequent assessment year (not being an assessment year commencing on or after the 1st day of April, 1969), no annuity deposit has been made during the financial year immediately preceding such assessment year [or such further period as may be allowed by the income tax Officer under the proviso to clause (ii) of sub-section (2) of section 280C], or the amount of annuity deposit made during the financial year or further period aforesaid falls short of the annuity deposit required to be made under this Chapter, the amount to be allowed as a deduction under this sub-section shall be nil or, as the case may be, limited to the amount of the deposit so made, and the provisions of this section shall have effect as if references therein to the annuity deposit required to be made were references to the amount of annuity deposit actually so made.

(2) If the adjusted total income of the depositor includes any income chargeable under the head ''Salaries'', the allowance under sub-section (1) shall be made in computing the income under that head, and if there is no income chargeable under that head or the annuity deposit required to be made exceeds such income, the whole or the balance of the annuity deposit required to be made shall be allowed as a deduction in computing earned income chargeable under any other head, and if there is no earned income chargeable under any other head or the whole or the balance of the annuity deposit required to be made exceeds such earned income, the whole or the balance of the annuity deposit required to be made shall be allowed as a deduction in computing any other income under any head.

Explanation : In this sub-section, the expression ''earned income'' has the meaning assigned to it in the Finance Act of the relevant year."

A perusal of clause (iii)(a) of the proviso to section 139(1) of the Act shows that in the case of a registered firm, interest for delayed filing of the return on income shall be calculated ''on the amount of tax which would have been payable if the firm had been assessed as an unregistered firm'' as reduced by the advance tax paid or the tax deducted at source, if any. It is further clear from the above quoted words that in the case of a registered firm, the tax payable by the firm for the purpose of charging interest for delayed filing of return of income has to be calculated on the basis that the firm had been ''assessed'' as an unregistered firm. There is no ambiguity in regard to the above-mentioned provisions of the Act. Similarly, it is clear from a perusal of section 280-O that a deduction under that section has to be allowed for the assessment years 1964-65 to 1966- 67 irrespective of whether any annuity deposit is actually made by the assessee-firm or not. Therefore, it is of no consequence that the assessee-firm in this case had not made any annuity deposit as such. However, for the limited purpose of determining the interest chargeable under the proviso to section 139(1), the assessee-firm was entitled to the deduction in respect of annuity deposit u/s 280-O. Section 280-O of the Act, as it stood at the relevant time, permitted the annuity deposit required to be made under Chapter XXII-A to be deducted in computing the total income assessable for the assessment year in respect of which the annuity deposit was required to be made.

In Commissioner of Income Tax Vs. Gujarat Automobiles, the Court had relied upon a passage of the House of Lords cited by the Supreme Court in Commissioner of Income Tax, Delhi Vs. S. Teja Singh, , which is reproduced as under :

"If you are bidden to treat an imaginary state of affairs as real, you must surely, unless prohibited from doing so, also imagine as real the consequences and incidents which, if the putative state of affairs had in fact existed, must inevitably have flowed from or accompanied it." (p. 413)

Relying on the above passage, the Gujarat High Court in Gujarat Automobiles'' case (supra) carried the fiction to its logical end, taking the view that since the amount of penalty is co-related under clause (i) of section 271(1) to the amount of tax, the amount of tax payable by the firm, if it were an unregistered firm, would certainly arise, and in ascertaining that figure, the question of what is the total income of the firm, if unregistered, has also to be taken into account and in assessing that total income, the amount of annuity deposit u/s 280-O has to be deducted. In other words, in computing the amount of penalty payable by the firm, if unregistered, such deduction had to be reckoned. Similar view, as was taken by the Gujarat High Court in Gujarat Automobiles'' case (supra), was taken by the Karnataka High Court in Addl. Commissioner of Income Tax, Mysore Vs. Khanchand Thakurdas, Similar view was also taken by the Madras High Court in P. Subramaniam and Bros. Vs. Commissioner of Income Tax, and in Commissioner of Income Tax, Central Vs. Palaniappa Transports, The Bombay High Court, too, in Commissioner of Income Tax, Poona Vs. India Automobiles, ook a similar view as taken in Gujarat Automobiles'' case (supra). In this view of the matter, it is immaterial that the assessee-firm in this case had not made any annuity deposit u/s 280-O. Question No. 1 is, accordingly, answered in favour of the assessee and against the department.

The learned counsel for the department has not been able to cite any decision of the High Court or of the Apex Court where the provisions of section 280-O read with clause (iii)(a) of the proviso to section 139(1) have been interpreted differently to convince us to take a contrary view. In view of our discussion above, we hold that by reading the bare provisions contained in section 139(1) and section 280-O, the ITO should have allowed the claim made by the assessee-firm in its application u/s 154 and allowed the deduction u/s 280-O while working out the tax payable by the assessee-firm under clause (iii)(a) of the proviso to section 139(1). We, accordingly, answer question No. 2 also in favour of the assessee and against the department.