R. Lakshminarayana Reddiar vs Commissioner of Income Tax

Ismail, J.—The matter relates to the assessment year 1962-63. Admittedly, the assessee did not file a voluntary return as required by

Section 139(1) of the I.T. Act, 1961 (hereinafter referred to as "" the Act ""). A notice was issued u/s 139(2) read with Section 148 of the Act,

calling upon the assessee to file the return of income on February 8, -1966. Thereafter, the ITO issued a show cause notice calling upon the

assessee to explain why a penalty should not be levied for his failure to furnish the return u/s 139(1) of the Act. The assessee offered his

explanation, but the ITO held that the assessee had no reasonable cause for not filing the return as required by Section 139(1) of the Act and

levied a penalty of Rs. 8,607. The assessment as well as the levy of penalty were taken up in appeal to the AAC, who reduced the quantum of tax

and consequently reduced the penalty to Rs. 5,545. Against the order of the AAC, the assessee took up the. matter in further appeal to the

Tribunal, and before the Tribunal the assessee contended that once the ITO issued a notice u/s 139(2) of the Act and the assessee had filed the

return in response to that notice, no penalty could be levied against the assessee u/s 139(1), because after the filing of the return pursuant to the

notice issued u/s 139(2) of the Act, there is no default on the part of the assessee. The Tribunal rejected the said contention of the assessee and

dismissed the appeal. Subsequently, the assessee applied, u/s 256(1) of the Act, for a reference of the following question for the opinion of this

court and the Tribunal has referred the same :

Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the default u/s 139(1) was independent of

Section 139(2) of the Income Tax Act, 1961, and the same survived after the applicant had complied with a notice u/s 139(2) of the Act ?

We shall first refer to the relevant statutory provisions and express our view on the construction of those statutory provisions and thereafter

examine the decisions of courts bearing on the same. Section 139(1) of the Act reads as follows :

Section 139(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 six 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 o''f 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 off the furnishing of the return-

(a) in the case of a 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.

Section 139(2) of the Act is as follows :

In the case of any person who, in the Income Tax Officer''s opinion, is assessable under this Act, whether on his own total income or on the total

income of any other person during the previous year, the Income Tax Officer may, before the end of the relevant assessment year, serve a notice

upon him requiring him to furnish, within thirty days from the date of service of the notice, 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

: Provided that on an application made in the prescribed manner the Income Tax Officer may, in his discretion, extend the date for the furnishing of

the return, and when the date for furnishing the return, whether fixed originally or on extension, falls beyond the 30th day of September or, as the

case may be, the 31st day of December of the assessment year, the provisions of Sub-clause (iii) of the proviso to Sub-section (1) shall apply.

Section 139(7) reads as follows :

No return under Sub-section (1) need be furnished by any person for any previous year, if he has already furnished a return of income for such

year in accordance with the provisions of Sub-section (2).

Section 147 of the Act deals with the procedure for assessing escaped income and in that context Section 148(1) reads as follows :

Before making the assessment, reassessment or recomputation u/s 147, the Income Tax Officer shall serve on the assessee a notice containing all

or any of the requirements which may be included in a notice under Sub-section (2) of Section 139 ; and the provisions of this Act shall, so far as

may be, apply accordingly as if the notice were a notice issued under that sub-section.

The last statutory provision to which attention must be drawn is Section 271(1)(a)(i), which is to the following effect :

Section 271. (1) "" If 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 under Sub-section (1) of Section 139

or by notice given under Sub-section (2) of Section 139 or Section 148 or has without reasonable cause failed to furnish it within the time allowed

and in the manner required by Sub-section (1) of Section 139 or by such notice, as the case may be......

he may direct that such person shall pay by way of penalty,--

(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......

A combined reading of the above statutory provisions will lead to the following conclusions: Section 139(1) imposes an obligation on every

person, whose total income in the previous year exceeded the maximum amount which is not chargeable to Income Tax, to voluntarily make a

return of his income, In that context, two defaults are postulated by Section 139(1) : the first is the failure to furnish a return till the ITO takes some

action ; the second is the failure to furnish the return within the time prescribed by that section. Similarly, Sub-section (2) of Section 139 again

contemplates two defaults ; one is the failure to furnish a return in response to the notice issued by the ITO and the second is the failure to furnish

the return within thirty days from the date of service of the notice issued by the ITO as contemplated by Section 139(2). The language of Section

148 has equated the notice issued under that section to, the notice issued u/s 139(2). Consequently, the combined effect of Sections 139(1),

139(2) and 148(1) is to enact the following defaults :

(i) failure to furnish a return as contemplated by Section 139(1) ;

(ii) failure to furnish a return within the time prescribed by Section 139(1);

(iii) failure to furnish a return in response to a notice u/s 139(2) or Section 148; and

(iv) failure to furnish a return within thirty days from the date of service of the notice issued u/s 139(2) or Section 148.

All these four defaults are expressly comprehended by Section 271(1)(a). Thus, on a consideration of the statutory provisions, it will be clear

that the default committed u/s 139(1) is independent of the default committed u/s 139(2) and the fact that penalty is leviable under one pro vision

does not preclude the levy of penalty under the other provision. In the case on hand, as we pointed out already, admittedly, the assessee had

committed default in furnishing a return as required by Section 139(1) of the Act, but has furnished a return u/s 139(2), and the penalty was

imposed in respect of the default committed by the assessee u/s 139(1). The contention of the assessee, as we pointed out already, was that the

moment he filed a return in response to the notice u/s 139(2), no penalty was leviable with reference to the default alleged to have been committed

by him u/s 139(1). From the reading of the provisions, there is no warrant for accepting such a contention and the learned counsel for the assessee

merely relied on a decision of the Patna High Court in Additional Commissioner of Income Tax Vs. Bihar Textiles, . In that case, an identical

question came up before a Bench of the Patna High Court and the Bench held (p. 257):

On a true construction of Section 271(1)(a), I am of the view that once a notice under Sub-section (2) of Section 139 is issued, that precludes the

penal provision, being attracted in so far as the failure to furnish the return under Sub-section (1) of Section 139 is concerned. If a contrary view is

taken, it would lead not only to an anomalous result; but it would be doing violence to the express language of the statute. "" (This view of S. K. Jha

J. was concurred with by S. N.P. Singh C.J.).

In coming to this conclusion the Patna High Court purported to rely upon certain observations of the Supreme Court in C.A. Abraham,

Uppoottil, Kottayam Vs. The Income Tax Officer, Kottayam and Another, to the effect that in interpreting a fiscal statute, the court cannot

proceed to make good the deficiencies, if there be any ; the court must interpret the statute as it stands and, in case of doubt, in a manner

favourable to the taxpayer. With great respect to the learned judges, we are unable to see anything anomalous in the result or any doing of violence

to the express language of the statute or there being any doubt about the legal position, having regard to the categorical and express language

contained in Section 271(1)(a) of the Act read with Section 139(1) and (2).

As against the solitary decision of the Patna High Court, there are a number of decisions of other High Courts taking a contrary view. The

Rajasthan High Court had occasion to consider the identical question in The Commissioner of Income Tax, Rajasthan, Jaipur Vs. Indra and Co.,

Jodhpur, . While disagreeing with the view taken by the Income Tax Appellate Tribunal, the Bench observed (p. 706) :

If the view tak''en by the Tribunal is adopted, the result will be that if a person has not filed any return u/s 139(1), he cannot be penalised if he has

filed a return after a notice has been given under subsection (2) of Section 139. It may foe pointed out that before taking any assessment

proceedings, it is incumbent on the Income Tax Officer to issue notice under Sub-section (2) of Section 139. Such a view would mean that any

person liable to pay Income Tax may sit comfortably without any fear of the imposition of penalty and not furnish his return as required u/s 139(1)

and wait till a notice is given to him u/s 139(2) and then file a return within the time mentioned in that notice. This view does not appeal to us.

An argument has been addressed to us that as soon as a notice is issued under Sub-section (2) of Section 139 giving time for furnishing the return,

it must be taken that the Income Tax Officer had condoned whatever the default may have been in not furnishing the return under subsection (1) of

Section 139. Unless there is any express order for condonation of such default, we cannot take it that the Income Tax Officer, merely because he

has issued a notice u/s 139(2) to a person who has not filed the return u/s 139(1), must be taken to have condoned his default in not furnishing the

return u/s 139(1).

With reference to the question of condonation of default u/s 139(1) of the Act, we may point out that no such question can arise under the

statutory provision because the ITO has not been clothed with any power to condone a default u/s 139(1). Being a creature of the statute, the

power of an ITO is traceable to the statute which had created him and there is no provision in the Act which enables the ITO to condone a default

committed by a person u/s 139(1). All that the proviso to Section 139(1) contemplates is a power conferred on an ITO to extend the time for

furnishing the return subject to the conditions prescribed therein, and even in such a case of extension, interest will be payable by the assessee for

the extended period, unless such interest is waived-under Section 139(8) read with the relevant prescription in the Rules. In Section 271(1)(a)

also, there is no power of condonation, but the authorities will have no power to impose a penalty if they are satisfied that the assessee concerned

had reasonable cause for not complying with the requirement.

The next decision is that of the Delhi High Court in The Commissioner of Income Tax, Delhi Vs. Hindustan Industrial Corporation, New Delhi,

, The Delhi High Court followed the decision of the Rajasthan High Court referred to already and observed at page 663 :

An assessee who has not filed a return voluntarily as required u/s 139(1) cannot be absolved of the default Committed by him on the ground that

he had filed the return of his income within 30 days of the service of notice u/s 139(2) of the Act by the Income Tax Officer calling upon him to

submit the return of his income and thereby say that as soon as he complied with the orders of the Income Tax Officer and filed the return within

30 days of the service of the notice, he has also complied with the provision of Section 139(1) of the Act.

The same High Court, in dealing with the analogous provisions of the G.T. Act, 1958, took the same view and followed the decision of the

Rajasthan High Court referred to above in SHIV SHANKAR LAL Vs. COMMISSIONER OF GIFT-TAX., . The Andhra Pradesh High Court

had to consider this question in Mullapudi Venkatarayudu Vs. Union of India (UOI), . In that decision a Bench of the Andhra Pradesh High Court

took the same view as indicated above and pointed out that the view they had taken was supported by the decision of the Rajasthan High Court,

to which we have already made a reference. The same is the view taken by the Gujarat High Court in 5. S. Balaram Vs. Commissioner of Income

Tax, Gujarat I, . As we have indicated sufficiently, the obligation imposed by Section 139(1) is the obligation to file a return of the income

voluntarily within the time prescribed therein while Section 139(2) enables the ITO to issue a notice before the end of the relevant assessment year,

requiring an assessee to furnish his return of income. Simply because the ITO has exercised the power conferred upon him u/s 139(2) and in

response to the notice issued by him and served on the assessee, the assessee has filed a return, the default committed by the assessee u/s 139(1)

of the Act is not wiped out. Nor is there any merger of the obligation imposed by Section 139(1) of the Act with the filing of the return pursuant to

the notice issued u/s 139(2). It may happen that if the ITO issues the notice contemplated by Section 139(2) of the Act and calls upon the

assessee to file the return before the time prescribed Section 139(1), the assessee may not be liable to pay any penalty for any alleged default u/s

139(1) because the time available to the assessee for filing a voluntary return u/s 139(1) had not expired by the time the obligation of the assessee

to file a return pursuant to the notice issued by the ITO u/s 139(2) came into existence and it is this situation that has been provided for by Sub-

section (7) of Section 139 when it states that no return need be furnished under Sub-section (1) of Section 139 by any person for any previous

year if he has already furnished a return of income for such year in accordance with the provisions of Sub-section (2) of Section 139. The word

already"" occurring in Sub-section (7) of Section 139 clearly contemplates that the ITO had required the assessee to file the return within a date

which is in advance of the last date for the filing of the voluntary return u/s 139(1). In such a case, the assessee could not be said to have

committed default u/s 139(1) of the Act at all, and, therefore, the question of the assessee being liable to penalty for any default alleged to have

been committed under that sub-section would not arise.

In this particular case, admittedly, the notice by the ITO was issued after the assessee had failed to furnish the return voluntarily within the time

prescribed u/s 139(1) and, therefore, a default has been committed by the assessee even before the ITO issued the notice u/s 139(2). In such a

case, simply because the assessee subsequently filed the return of income in response to the notice issued by the ITO u/s 139(2) of the Act, it will

not have the effect of wiping out the default committed or disabling or preventing the ITO from penalising that default u/s 139(1) read with Section

271(1)(a) of the Act. Hence, we answer the question referred to this court in the affirmative and against the assessee. There will be no order as to

costs.