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Judgment
Ramanujam, J.—At the instance of Revenue, the following two questions have been referred to this court for its opinion by the Income Tax
Appellate Tribunal :
(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the concession provided by section
22 of the Direct Taxes (Amendment) Act, 1974, was available to the assessee and that the amended provisions of section 271(1)(a) would not
apply for computing the quantum of penalty ? and
(2) Whether the Appellate Tribunal was right in holding that the assessee should be treated as one who has filed an appeal to the Supreme Court
for the assessment year 1962-63 in respect of an order of penalty u/s 271(1)(a) and the expression ''the amount of tax payable'' should be
considered as the amount of tax payable by him in the notice of demand for computing the quantum of penalty in the assessee''s case ?
The assessee, which is a private limited company, was served for the assessment year 1962-63, with a notice under s. 139(2) of the I.T. Act,
calling upon the assessee to submit a return on or before November 16, 1962. The assessee, however, filed the return only on June 22, 1965. The
ITO called upon the assessee to show cause why penalty should not be imposed under s. 271(1)(a). The assessee submitted its explanation stating
that there was a strike by the employees in the year 1959, by reason of which the business had to be closed at Madras and shifted to another
place resulting in a lot of confusion and misplacement of the assessee''s documents and papers. It was also pointed out that the accounts of the
assessee for the year ended December 31, 1961, could not be finalised till July 12, 1963, when it was audited. Thus, the assessee contended that
the delay was due to circumstances beyond its control and, therefore, it should be condoned. The ITO did not accept the said explanation and he
found that even after the finalisation of the accounts on July 12, 1963, the return was not immediately filed; but it was filed long thereafter on May
22, 1965 (sic), and that the assessee was not in a position to explain the delay for the period between the finalisation of the accounts and the actual
filing of the return. As regards the explanation based on the strike in 1959, the ITO was of the opinion that it was not quite relevant. He, therefore,
levied a penalty of 50% of the tax payable, which came to Rs. 2,37,407, treating the default as 30 months'' delay.
Aggrieved by the order of the ITO levying the penalty, the assessee appealed to the AAC, contending that it was prevented by reasonable
cause from filling the return in time and, therefore, the penalty should be cancelled. The AAC, however, felt that the strike in 1959 was not relevant
and that there was no proper reason why the accounts could not have been audited earlier and why the return should not be filed in time. He,
therefore, confirmed the order of the ITO.
The assessee took the matter in appeal to the Tribunal. Before the tribunal the assessee made two submissions. One is that the delay should be
taken to have been properly explained by the assessee and, as such, the order levying penalty under s. 271(1)(a) should be set aside. The other is
that even if the levy of penalty is justified on the facts of the case, the penalty should be levied on the basis of the provision before its amendment
by the Direct Taxes (Amendment) Act, 1974. On the question as to whether the assessee had given sufficient explanation for the delay, the
Tribunal found that though the explanation given by the assessee for the delay in the audit of the accounts could be accepted, the delay in filing the
return after finalisation of the accounts cannot be taken to have been duly explained and, therefore, for the delay of ten completed months, the levy
of penalty is justified. On the other question raised by the assessee as to what is the provision that has to be applied in computing the quantum of
penalty, the Tribunal relying on s. 22 of the Amending Act, 1974, held that as the assessee was an intervener before the Supreme Court in The
Commissioner of Income Tax, West Bengal 1, Calcutta Vs. Vegetables Products Ltd., , it is entitled to get the benefit of s. 22 and that, therefore,
the provision of s. 271(1)(a) before its amendment alone would be applicable to the case of the petitioner. In this view, the Tribunal directed the
computation of penalty on the basis of the unamended provision of s. 271(1)(a). Aggrieved by the decision of the Tribunal, the Revenue has sought
and obtained a reference on the above two questions.
In this reference we are not concerned with the period of delay in filing the return. That stands concluded by the decision of the Tribunal, which
held that there is an unexplained delay of ten completed months in filing the return and, therefore, the levy of penalty is justified for the said delay of
ten months. The only question that we have to consider now is whether the assessee is entitled to the benefit of s. 22 of the Amending Act in view
of the fact that it was an intervener in the decision in The Commissioner of Income Tax, West Bengal 1, Calcutta Vs. Vegetables Products Ltd., .
For considering the above question, we have naturally consider the scope and object of s. 22 of the Direct Taxes (Amendment) Act (26 of 1974).
Before its amendment clause (i) of section 271(1)(a) was as follows :
(i) in the cases referred to in clause (a), in addition to the amount of the tax, if 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"".
The above clause was deleted and was substituted by the following clause by the Direct Taxes (Amendment) Act, 1974, with retrospective
effect from the commencement of the 1961 Act :
(i) in the cases referred to in clause (a), in addition to the amount of the tax, if any, payable by him, a sum equal to two per cent. of the assessed
tax for every month during which the default continued, but not exceeding in the aggregate fifty per cent. of the assessed tax"".
The effect of the amendment brought about by the Amending Act was to substitute ""assessed tax"" for ""the tax"" and to insert the Explanation.
Clause (i) of s. 271(1) as it existed before its amendment in the year 1974 came up for consideration before the Supreme Court in The
Commissioner of Income Tax, West Bengal 1, Calcutta Vs. Vegetables Products Ltd., , and in that case the Supreme Court held that clause (i) of
s. 271(1) having used the expression ""tax"", it should be taken to refer to the amount for which a demand issued under s. 156 of the I.T. Act, 1961,
and in determining the tax payable, the tax already paid has to be deducted. Thus, the Supreme Court took the view that the words ""the tax
occurring in clause (i) of s. 271(1)(a) can only refer to the tax, if any, payable and it will not refer to the tax assessed. Taking note of the said view
expressed by the Supreme Court in that case, the Parliament chose to amend clause (i) of s. 271(1)(a) by substituting the words ""assessed tax"" in
the place of the words ""the tax"". While making that amendment by s. 13 of the Amending Act, Parliament introduced a saving clause in s. 22 with a
view to respect the decisions rendered by the Supreme Court earlier. Section 22 is in the following terms :
Section 13 not to apply in certain cases. - Where, in the case of an assessee, the Supreme Court has before the date of introduction of the
Direct Taxes (Amendment) Bill, 1973, in the House of the People, held, on an appeal in respect of an order imposing a penalty under clause (i) of
sub-section (1) of section 271 of the Income Tax Act, for any particular assessment year, that the expression ''the amount of the tax, if any,
payable by him'' in the said clause shall be construed as the amount of the tax payable by him under the notice of demand u/s 156 of the Act issued
in pursuance of an order of assessment, nothing contained in section 13 of this Act shall apply or be deemed to have ever applied in relation to the
order of penalty in the case of such assessee for that particular year"".
The object of introducing the saving clause in s. 22 as seen from the explanatory notes is given by the Board for bringing the amendment and for
introducing the saving clause, which finds a place at page 220 of A. N. Aiyar''s Indian Tax Laws (1975), Part III, is to give sanctity to the
decisions of the Supreme Court. The Amending Act has specifically excluded from the operation of the amendment, cases in which the court has
given a ruling adverse to the Revenue before September 3, 1973, that is, the date of the introduction of the Direct Taxes (Amendment) Bill, 1973,
in the Lok Sabha and the saving clause will apply only in relation to the order of penalty for the particular assessment year in respect of which the
supreme Court has given its ruling. The purport of s. 22 is that even though s. 271(1)(a)(i) has been amended by s. 13 of the Amending Act with
retrospective effect, that will not affect the decisions rendered by the supreme Court on the basis of the unamended section in the case of the
particular assessee with reference to particular assessment years. To make sure that the benefit of that section should be limited to those persons,
whose assessments in respect of a particular year were the subject-matter of an an appeal before the supreme Court a reference was made therein
to a n assessee against whom an order of penalty has been levied under clause (i), which has been made the subject-matter of an appeal before the
Supreme Court. On the language used in s. 22, the saving clause contemplated by that section can only apply to persons whose cases have gone
before the supreme Court and the Supreme Court rendered its decision before September 3, 1973, the date of the introduction of the Amending
Bill.
The question is whether the assessee, who was an intervener before the Supreme Court while it decided the case in The Commissioner of
Income Tax, West Bengal 1, Calcutta Vs. Vegetables Products Ltd., , could be taken to be a person covered by s. 22. The Tribunal, though it felt
that according to the language of s. 22 the assessee may not come within its scope, chose to construe the expression ""appeal"" occurring therein in a
wide context and proceeded to hold that though the assessee is not an appellant, it being an intervene before the Supreme Court and its
intervention being based on the fact that it was interested in the same question as it was agitating before the authorities below in other proceedings
against similar order of penalty, the method of computation of the penalty under s. 271(1)(a)(i) should be taken to be covered by this provision. In
support of its view that such a liberal construction of the word ""appeal"" is possible, the Tribunal referred and relied on a decision of the Supreme
Court in Challapalli Sugar Ltd. Vs. The Commissioner of Income Tax, A.P., Hyderabad, . In that case the question which arose before the
Supreme Court was whether the assessee was entitled to the benefit of the saving clause in s. 5 of the Income Tax (Amendment) Act 1972.
Section 5 of that Act excluded from the operation of the amending provision, cases in which a decision contra has been rendered by the Supreme
Court. The Supreme Court held that in view of the special circumstances of that case, the benefit of s. 5 is available to the assessee. The special
facts referred to by the Supreme Court in that case are these :
In a batch of appeals before the Supreme court, the common question that arose was whether wealth-tax paid was deductible as a business
expenditure under s. 10 of the Indian I.T. Act 1922. The entire batch of cases was heard by a Constitution Bench of the Supreme Court along
with the appeals filed by the Indian Aluminium Company and Standard Vacuum Oil Company. The Supreme Court, after hearing the counsel,
reserved judgment in the appeals filed by the Indian Aluminium Company and Standard Vacuum Oil Company. But, in view of the fact that an
additional question relating to the inclusion of interest on borrowed moneys in the calculation of actual cost for the purpose of depreciation and
development allowance arose in the appeal of the Standard Vacuum Refining Company, after hearing arguments, the Supreme Court directed that
the appeal of that company be heard by a Division n Bench after pronouncement of judgment in the appeals of the other two companies. The
judgment was rendered by the constitution Bench on the main question as to the allowability of wealth-tax deduction under the I.T. Act. The
judgment was pronounced on March 29, 1972. The appeal of the Standard Vaccum Refining Company was subsequently heard by a Division
Bench and a decision was rendered therein after the passing of the Income Tax (Amendment) Act, 1972, would the main question, s. 5 of the
Income Tax (Amendment) Act, 1972, would apply to the case of the Standard Vacuum Refining Company in whose case the Supreme Court
delivered judgment long after the passing of the Amending Act, the Supreme Court refereed to the fact that on the common question the judgment
has been delivered by the Supreme Court on March 29, 1972, long before the passing of the Amending Act and, therefore, the main question in
the case of Standard Vacuum Refining Company should be taken to have been decided by the Supreme Court on March 29, 1972, though the
decision in respect of the additional point should be take to have been rendered after the passing of the Act. Therefore, the decision in that case,
i.e. Challapalli Sugar Ltd. Vs. The Commissioner of Income Tax, A.P., Hyderabad, , is not applicable to the facts of this case. Therefore, the
Tribunal is not correct in applying said decision to this case.
As already stated, the object of s. 22 is to see that the decision rendered by the Supreme Court should be given credence and the Amending
Act will not have any effect on those decisions. Therefore, the substantial point to be considered here is whether the assessee''s case was the
subject matter of any decision of the Supreme Court. It is no doubt true that the assessee was an intervener in the case of The Commissioner of
Income Tax, West Bengal 1, Calcutta Vs. Vegetables Products Ltd., . However, it cannot be availed of by the assessee, as the assessee''s case
was not before the Supreme Court either by way of appeal or in any other form and the Supreme Court had no occasion to give its dicision on the
assessee''s matter. The position of an intervener is not that of an appellant. The position of an intervener before the Supreme Court has been
explained by the Supreme Court in Mohd. Hanif Quareshi and Others Vs. The State of Bihar, . Dealing with the position of an intervener, the
Supreme Court has observed at p. 738 as follows :
Under O. XLI, r. 2 Supreme Court Rules, intervention is permitted only to the Attorney-General of India or the Advocates-General for the
States. There is no other express provision for permitting a third party to intervene in the proceedings before this court. In practice, however, this
court, in exercise of its inherent powers, allows a third party to intervene when such third party is a party to some proceedings in this court or in the
High Courts where the same or similar question are in issue, for the decision of this court will conclude the case of that party.
In a subsequent decision in Khyerbari Tea Co. Ltd. and Another Vs. The State of Assam, , the Supreme Court again pointed out that though a
party, who will be affected by the decision, if any, of the Supreme Court, can be allowed to intervene and address arguments in court in respect of
the general question arising in the case in which he seeks intervention he has no right of reply. Having regard to the observations of the Supreme
Court in the above two cases, that an intervener cannot seek any relief apart from making submissions on the general question arising in the case in
which he has been allowed to come in as an intervener, the assessee''s case cannot be taken to be the subject-matter of the decision of the
Supreme Court either in an appeal or otherwise so as to attract s. 22 of the Amending Act referred to above. In fact, s. 22 refers to an appeal in
respect of an order imposing penalty under clause (i) of sub-s. (1) of s. 271 of the I.T. Act for any particular assessment year. Here, the levy of
penalty on the assessee for any particular year was not the subject-matter of a proceeding before the Supreme Court. Therefore, the assessee will
not clearly come within the scope of s. 22 and the fact that it appeared as an intervener in The Commissioner of Income Tax, West Bengal 1,
Calcutta Vs. Vegetables Products Ltd., , is of no consequence. Therefore, we have to disagree with the Tribunal and hold that the assessee is not
entitled to the benefit of s. 22 of the Amending Act, 1974. In this view, we answer the questions referred to us in the negative and against the
assessee. The assessee will pay the costs of the Revenue. Counsel''s fee Rs. 500.