THE COMMISSIONER OF INCOME-TAX, WEST BENGAL I, CALCUTTA vs. M/S. VEGETABLES PRODUCTS LTD.

CIVIL APPEAL No. 497/1970Supreme Court[1973] 3 S.C.R. 44829 January 1973Bench: 3 JudgesAuthor: K.S. HEGDE, P. JAGANMOHAN REDDY, HANS RAJ KHANNA COMMISSIONER OF INCOME6 pages
AI SummaryDismissed

What were the facts?

The assessee, M/s. Vegetables Products Ltd., failed to furnish its income tax return within the stipulated time for the assessment year 1960-61. A notice under Section 28(3) of the Indian Income-tax Act, 1922, was served, after which the assessee filed its return. A provisional assessment was made under Section 23B of the 1922 Act, and the assessee deposited Rs. 92,294/55. The Income-tax Act, 1961, came into force, and the assessment was completed under its provisions. The Income-tax Officer determined the tax due as Rs. 1,25,512/10 and levied a penalty of Rs. 12,734/10. In calculating the penalty, the officer did not deduct the amount paid under the provisional assessment. The Appellate Assistant Commissioner upheld this order. The Tribunal, however, held that the penalty should be calculated on the tax assessed minus the amount paid under the provisional assessment, reducing the penalty to Rs. 2,737/44. The High Court agreed with the Tribunal.

What did the Supreme Court hold?

The Supreme Court held that Section 271(1)(a)(i) of the Income-tax Act, 1961, stipulates that the penalty is to be levied on 'the amount of the tax, if any, payable by him' and 'two per cent of the tax for every month'. The Court interpreted 'the amount of the tax, if any, payable by him' to refer to the tax payable under a demand notice issued under Section 156, not the tax assessed under Section 143. The definite article 'the' in 'the tax' in the latter part of the provision was held to refer back to 'the tax, if any, payable by the assessee' mentioned earlier. The Court acknowledged that accepting either interpretation could lead to inconvenient results, but emphasized that the duty is to read and give effect to the language. If the language is plain, absurd results are for the legislature to address. However, if two reasonable constructions are possible for a taxing or penalty provision, the one favouring the assessee must be adopted. The Court found the provision capable of more than one reasonable interpretation and, being a penalty provision, opted for the interpretation favouring the assessee, aligning with the views of the Calcutta and Mysore High Courts. The appeal was dismissed.

What were the issues?

1. Whether, in calculating the penalty leviable under Section 271(1)(a)(i) of the Income-tax Act, 1961, the amount paid by the assessee under a provisional assessment under Section 23B of the Indian Income-tax Act, 1922, should be deducted from the amount of tax determined to arrive at the base for penalty computation? The assessee argued that the penalty provision is capable of more than one reasonable interpretation and, being a penalty provision, the interpretation favouring the assessee should be adopted. The assessee also contended that the law should not be presumed to be harsh, suggesting that advance tax paid or tax deducted at source should be considered, as otherwise, even an assessee who overpaid tax could be penalized on the entire assessed amount if the return was delayed. The revenue contended that the penalty should be determined on the basis of the tax assessed under Section 143 of the Act, arguing that if the amount paid under provisional assessment were deducted, it could undermine the effectiveness of the section, as an assessee might pay the tax due just before a demand notice is served. The revenue relied on decisions from the Lahore High Court in Vir Bhan Bansi Lal v. Commissioner of Income-tax, Punjab, and the Delhi High Court in Commissioner of Income-tax, Delhi v. Hindustan Industrial Corporation.

Which sections of the Income-tax Act were involved?

Section 28(3),Section 23B,Section 143,Section 156,Section 271(1)(a)(i),Section 297(2)(g),Section 274(1),Section 139(2)

AI-generated summary — verify with the full judgment below

THE COMMISSIONER OF INCOME-TAX, WEST BENGAL I, CALCUTTA v. MIS. VEGETABLES PRODUCTS LTD. A January 29, 1973 B. [K. S. HEGDE, P. JAGANMOHAN REDDY AND H. R. KHANNA JJ.] Income Tax Act (43 of 1961), ss. 143, 156 and 21l(l)(a)(i)- Penc..-lty-Whether related to tax assessed or tax payable.

The assessee failed to furnish the return of its- income within the time allowed but submitted the return after a notice under s. 28(3) of the J;ncome·tax Act, 1922, was served on him.· A provisional assess· ment was made by the lncome·tax Officer under s. 23B of the 1922-Ac! and the assessee· deposited the amount. The Income-tax Act, 1961, having come into force thereafter. the Income-tax Officer completed the assessment under the provisions of that Act, determined the tax due and the penalty payable by. the asscssee.

In doilllg so, he did not take into consideration the amount deposited by the asses.see, that is, he took into consideration not the amount ·demanded under s. 156 of the 1961-Act but the amount assessed under s. 143. The Appellate Assis- ta:nt Commissioner confirmed the order; but the Tribunal held that the penalty under s. 271 (1 )(a)(i) is to be levied on th

The order continues below.

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