TMI Blog1996 (9) TMI 47X X X X Extracts X X X X X X X X Extracts X X X X ..... intimated to the petitioner that the loss was determined at Rs. 25,28,545. He proceeded to levy additional tax under section 143(1A) to the tune of Rs. 2,36,096. Similarly, for the assessment year 1992-93, the petitioner returned a loss of Rs. 48,47,744. The assessing authority disallowed under section 43B of the Act, a sum of Rs. 16,21,656 and determined the loss at Rs. 32,26,088. He proceeded to levy additional tax under section 143(1A) of the Act to the tune of Rs. 1,86,492. Mr. K. C. Rajappa, learned counsel for the petitioner has taken me through the provisions of the Income-tax Act and the various Chapters of the Act for the purpose of understanding the scope and purport of the charging provisions vis-a-vis the computation provisions. Sections 4 to 9 of the Act form the basis of the charge under the Act. Sections 10 to 13 relate to the source of incomes which do not form part of the "total income". Section 14 of the Act describes the various heads of income. In particular section 28 deals with the income from profits and gains of business. Section 29 provides for computation of the income under section 28, in accordance with sections 30 to 43D. Chapter VI relating to the ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is extracted : "143. (1A)(a) Where as a result of the adjustments made under the first proviso to clause (a) of sub-section (1), (i) the income declared by any person in the return is increased or (ii) the loss declared by such person in the return is reduced or is converted into income, the Assessing Officer shall, (A) in a case where the increase in income under sub-clause (i) of this clause has increased the total income of such person, further increase the amount of tax payable under sub-section (1) by an additional income-tax calculated at the rate of twenty per cent. on the difference between the tax on the total income so increased and the tax that would have been chargeable had such total income been reduced by the amount of adjustments and specify the additional income-tax in the intimation to be sent under sub-clause (i) of clause (a) of sub-section (1) ; (B) in a case where the loss so declared is reduced under sub-clause (ii) of this clause or the aforesaid adjustments have the effect of converting that loss into income, calculate a sum (hereinafter referred to as additional income-tax) equal to twenty per cent of the tax that would have been chargeable on the amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of the total income of the previous year of every person. According to him, the concept of accrual or arising of income under the Act is alone the main consideration for the charge to be attracted. Therefore, the concept of income-tax is unimaginable in a case where a person suffers loss. In CIT v. Bangalore Transport Co. Ltd. [1967] 66 ITR 373 (SC), an assessee submitted a return, claiming that it had earned no income from its business since it was taken over by the Government. But the Income-tax Officer brought to tax a certain sum, disclosed by the assessee's audited accounts during that part of the year before it closed its business. A close scrutiny of the said decision shows that it has no relevance to the facts of the present case. The Supreme Court only held that it is not necessary that a business should be carried on till the end of the previous year and if before the conclusion of that year the business is closed, it cannot be said that no profit at all may in law be deemed to accrue to the assessee, However, the Supreme Court observed that if at the end of the previous year, on making up accounts there is no overall income, the charge does not crystallize, beca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act'. If either of these conditions fails, the income will not be a part of the total income that can be brought to charge." One of the decisions which necessitated Parliament to amend section 143(1A)(a) is the decision in Modi Cement Ltd. v. Union of India [1992] 193 ITR 91 (Delhi). On the facts, that decision is identical to the present case in the sense that there was also a return declaring loss and after adjustment the loss was reduced to a lesser extent, but no income resulted or was disclosed after adjustment. The Delhi High Court held that there was no scope for payment of any additional amount. This is because at that time section 143(1A)(a) stood differently and that is precisely the reason why the amendment was made in the present shape, which I have already quoted above. The next argument of Mr. Rajappa is that machinery provisions are always subject to the charging section. Reliance is placed on Union of India v. Bombay Tyre International Ltd. [1986] 59 Comp Cas 460 (SC). That was the famous case relating to the post-manufacturing expenses being included in the value of the excisable goods. Accepting the contention of the Revenue, it was held as follows : "Viewed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on the cost of primary packing and the degree of secondary packing which is necessary for putting the excisable article in the condition in which it is generally sold in the wholesale market at the factory gate. The apex court indicated the extent of the cost which could be included in the value of the article for the purpose of excise duty. The entire endeavour of learned counsel for the petitioner is to show that the machinery provisions can be read down and limited in their application having regard to the charging section. Reliance is next placed on CIT v. B. C. Srinivasa Setty [1981] 128 ITR 294 (SC). That case related to the assessment of the goodwill of a business. The Supreme Court observed : " The character of the computation provisions in each case bears a relationship to the nature of the charge. Thus, the charging section and the computation provisions together constitute an integrated code. When there is a case to which the computation provisions cannot apply at all, it is evident that such a case was not intended to fall within the charging section." In one sense that was a converse case where the apex court held that it was not possible to hold that where a cer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could have no defence to the levy. But in this case, by way of amending section 143(1A)(a) of the Income-tax Act, the levy is sought to be introduced and the same cannot be supported by any principle of interpretation. Mr. S. V. Subramanian, learned senior counsel for the respondents, takes me through the Finance Act, 1993, which introduced section 143(1A)(a) in the present form and the fact that the same has been given retrospective effect from April 1, 1989. With reference to clause 23 of the Bill which introduced the amendment, the Notes on Clauses in the Finance Bill, 1993, explains it clearly as follows : "In cases where the loss declared in the return has been reduced as a result of the aforesaid adjustments or the aforesaid adjustments have the effect of converting that loss into income, the Assessing Officer shall calculate a sum (referred to as additional income-tax) equal to twenty per cent. of the tax that would have been chargeable on the amount of the adjustments as if it had been the total income of such person, and specify the said additional income-tax in the intimation to be sent under sub-clause (i) of clause (a) of sub-section (1) of section 143. Where any r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iew to save a provision of law from being struck down, the courts normally adopt the principles of reading down, if that is possible. He also relies on a decision in Minerva Mills Ltd. v. Union of India, AIR 1980 SC 1789, for suggesting that on the ground of reading down a section, the court cannot read directly the opposite of what is indicated by the section. This is because the section is very clear that even in the case of a loss being reduced not to the extent of converting loss into income, the levy of twenty per cent. of the tax that would have been chargeable on the amount of the adjustments, as if it had been the total income of such person, is authorised. Unless the petitioner challenges the validity of the section, there is no scope at all for reading the provision of law in a different manner. I am of the opinion that the Revenue is fully justified in advancing the above argument. In reply Mr. K. C. Rajappa argues that a provision of law cannot be interpreted by referring to the objects and reasons of an enactment. Reliance is also placed on certain passages in Interpretation of Statutes, by Vepa P. Sarathi, to support the above proposition of law. Learned counsel the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned counsel for the respondents brings to my notice is that before section 234 was introduced in the present form even a "nil" return if filed beyond the prescribed period attracted a minimum penalty of Rs. 25. On the above arguments as supported by various decisions to which I have made a reference, it will now be convenient to take up the three points raised by learned counsel for the petitioner. The first and second points relate to the return being accepted with adjustments and the ultimate result showing the assessee as having suffered loss to a lesser extent, not being exigible to tax. This argument is based on a fallacy. Similarly, the necessity for the existence of a total income chargeable to tax, is also based on a misconception. This is because the stand of the respondent is that the levy under section 143(1A)(a) is not actually a levy of additional income-tax. Learned counsel for the respondents stresses the words in section 143(1A)(a) which relate to the levy of a sum where the loss declared by an assessee is reduced. The words used show that the assessing authority is directed to calculate a sum which is for convenience referred to as additional income-tax. The s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the adjustments were made purely on the basis of the return submitted by the petitioners. In other words, the default was committed by the petitioner in showing a higher loss for the subject assessment year, knowing fully well that certain amounts were not eligible for credit under section 43B of the Act. Therefore, that particular default on the part of the assessee incurs certain amount of penalty or punishment. It may be in the form of interest or it may be in the form of a levy based on certain calculations. The observation of the Supreme Court in' the said decision will certainly support the stand of the Revenue. Observed the Supreme Court : " Penalty is not merely sanction. It is not merely adjunct to assessment. It is not merely consequential to assessment. It is not merely machinery. Penalty is in addition to tax and is a liability under the Act. Reference may be made to section 28 of the Indian Income-tax Act, 1922, where penalty is provided for concealment of income. Penalty is in addition to the amount of income-tax. This court in Jain Brothers v. Union of India [1970] 77 ITR 107 said that penalty is not a continuation of assessment proceedings and that penalty pa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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