TMI Blog1981 (9) TMI 87X X X X Extracts X X X X X X X X Extracts X X X X ..... , 1967. The assessee made an application for extension of time up to September 30, 1967, for furnishing the return. The return was actually filed on July 4, 1968. Meanwhile, on October 30, 1967, a notice under s. 139(2) was served on the assessee. Since the assessee failed to furnish the return of income within the time limited by law, a notice under s. 274 was issued calling upon the assessee to show cause why penalty should not be levied under s. 271(1)(a) of the Act, In response to the notice, the assessee furnished an explanation pleading, inter alia, that: (1) accounts were not finalised due to irregular attendance of the accountant, (2) the extension of time for furnishing the return was twice applied for on Jane 25, 1967, and September 29, 1967, (3) notice under s. 139(2) was served on October 30, 1967, and (4) the decision in CIT v. Kulu Valley Transport Co. P. Ltd. [1970] 77 ITR 518 (SC) was applicable in the instant case. The ITO, however, rejected the explanation and a penalty in the sum of Rs. 8,385 was, therefore, levied on the basis that the return of income was late by seven months. The order of the ITO was confirmed in appeal by the AAC. The Tribunal, however, rever ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the other provisions of this Act, the penalty imposable under sub-section (1) shall be the same amount as would be imposable on that firm if that firm were an unregistered firm." Now, the provisions of s. 271(i)(a)(i) fell for construction before the Supreme Court in CIT v. Vegetable Products Ltd. [1973] 88 ITR 192. In that case, the assessee was a limited company and it had made a default in furnishing its return of income for the assessment year 1960-61. After issuing a show-cause notice, penalty was levied upon the assessee. Be it noted that before the assessment was completed, a provisional assessment was made under s. 23B of the Indian I.T. Act, 1922. The assessee had deposited a certain sum pursuant to such provisional assessment. In determining the penalty due from the assessee, the ITO took into consideration not the amount of tax which remained payable but the amount of tax assessed upon the completion of the assessment. In other words, the penalty was determined on the basis of the amount assessed under s. 143 and not on the basis of the amount demanded under s. 156. The question which ultimately fell for consideration before the Supreme Court was whether on a true in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... material change in the law applicable to the case. By the Direct Taxes (Amendment) Act, 1974, which received the assent of the President on August 18, 1974, s. 27l(1)(a)(i) was substituted by a new clause with retrospective effect from April 1, 1962, i.e., the date from which the Act came into force. As amended, s. 271(1)(a)(i) read 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 percent. of the assessed tax. Explanation.-In this clause 'assessed tax' means tax as reduced by the sum, if any, deducted at source under Chapter XVII-B or paid in advance under Chapter XVII-C." The effect of the amendment was to substitute the words " the assessed tax " for the words " the tax " and to insert the Explanation. The consequence was that the penalty for the failure, without reasonable cause, to furnish the return of income or to furnish it within the time allowed in the manner required, was required to be calculated with reference to the amount of tax assessed as reduced by any sum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribunal on the said application, no reference is to be found to the material change brought about in the legal position by the retrospective amendment. It would not be unreasonable to assume, therefore, that even at the hearing of the application under s. 256(1) reference was not sought on the ground that the decision of the Tribunal was not wholly consistent with the retrospective amended provision of s. 271(1)(a)(i). At the hearing of the reference, the following two submissions were made on behalf of the revenue : (1) Having regard to the retrospective amendment of s. 271(1)(a)(i), which this court was required to take into consideration in view of the decision in CIT v. Straw Products Ltd.[1966] 60 ITR 156 (SC), the decision of the Tribunal cancelling the penalty by taking into consideration the tax paid under s. 140A was not correct in law, and (2) In any case, the Tribunal was not right in law in cancelling the penalty inasmuch as it failed to give effect to s. 27l(1)(a)(i) and s. 271(2) by reading those two provisions together. If both those provisions had been read together, the Tribunal could not have come to the conclusion that the assessee was not liable to pay any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ude: " Whether, on the facts and in the circumstances of the case, and in view of section 271(1)(a) read with section 271(2) of the Act, the Tribunal was right in law in cancelling the order levying penalty on the ground that the assessee was not liable to pay any tax on account of the advance tax and tax having been paid under section 140A of the Act?" A bare reading of the question clearly manifests that the revenue intended to bring in question before this court the decision of the Tribunal cancelling the penalty on the ground only that s. 271(1)(a)(i) was read in isolation and not along with s. 271(2). The words " and in view of section 271 (1)(a) read with section 271(2) of the Act " and " on the ground that the assessee was not liable to pay any tax on account of the advance tax and tax having been Paid under section 140A of the Act ", in parenthesis clearly bring out the content of the controversy which was sought to be brought before this court. If the revenue intended to question the decision on the ground that even if s. 271(1)(a)(i) was applied in isolation and standing by itself, the Tribunal still could not have validly cancelled the penalty in view of the retrospe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the stage the Tribunal was seized of the reference application, no attempt appears to have been made to invoke the amended provisions of s. 271(1)(a)(i) and to-seek a reference on that basis. It is true that in the application under s. 256(2) made to this court, a reference was made for the first time to the altered legal situation on account of the retrospective amendment. However, taking a comprehensive view of the matter, the conclusion is inescapable that the revenue either knowingly or unwittingly accepted the decision of the Tribunal, in so far as it was rested on s. 271(1)(a)(i) and that what was sought to be brought in question before this court was only a limited controversy as to whether the Tribunal's decision was erroneous in law since s. 271(1)(a)(i) was not read along with s. 271(2) The mere mention in the question of s. 271(1)(a)(i), in the context, would not lead to a reasonable inference that the decision solely based on the said provision was also sought to be brought into question. In view of the foregoing discussion, we are of the view that on the frame of the question as it is, it is not open to the revenue to rely upon the amendment and to bring into qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e it for examination of the question from that angle, it would not be open to the revenue to call upon us to consider the controversy and answer the question in that light, since the question cannot be said to arise out of the order of the Tribunal. Before we proceed to examine this question in the light of the facts of the present case in greater detail, it might be mentioned that in view of the decisions of the Supreme Court in CIT v. Smt. Anusuya Devi [1968] 68 ITR 750 and Lakshmiratan Cotton Mills Co. Ltd. v. CIT [1969] 73 ITR 634, merely because this court has directed the Tribunal to state a case and refer the question, we are not bound to advise the Tribunal on that question even if the question does not arise out of the order of the Tribunal. It is settled law, in the light of those two decisions, that if by an erroneous order the High Court has directed the Tribunal to state case on a question which did not arise out of the order of the Tribunal, the High Court is not bound to answer the question, without considering at the hearing of the reference, whether the question arises out of the order of the Tribunal or whether it is a question of law or Whether it is academic, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore the Tribunal, but no factual foundation was also laid to show that if the tax payable by the assessee were worked out on the basis that it was an unregistered firm, no refund would have been payable and, in fact, tax would still have been payable by the assessee even after giving credit for the advance tax and tax under s. 140A, paid by it before the completion of the assessment. Under such circumstances, it is difficult to hold that the question referred for our opinion arises out of the order of the Tribunal. The question was neither raised before the Tribunal nor dealt with by the Tribunal and the material findings of fact are not made by the Tribunal. Merely because the Tribunal has given a finding that the penalty was not leviable on the facts and in the circumstances of the case, the question cannot be said to have arisen out of its order, although it was not raised nor considered by the Tribunal. It would not be out of place to mention that on behalf of the revenue, it was fairly stated that on the record as it stands, it would not be possible to urge that the Tribunal was called upon to consider and decide the question of the validity of the levy of penalty in the lig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the second proviso to s. 34(3). The revenue's submission was that in answering the question the effect of the Income-tax (Amendment) Act, 1959, which, inter alia, inserted a new sub-s. (4) in s. 34, was required to be taken into consideration. The Supreme Court held that though the impact of the amendment was not raised before the Appellate Tribunal or before the High Court, it was not a separate question by itself and that it was only an aspect of the question of limitation which had already been referred by the Appellate Tribunal to the High Court. Under those circumstances, since the question of limitation was itself under issue, there was no further limitation imposed that the reference should be limited to those aspects of the question which had been argued before the Tribunal. It would be an over-refinement of the position to hold that each aspect of a question is itself a distinct question for the purpose of reference. Both these decisions, though apparently relevant are not applicable on the facts and in the circumstances of the case. In the present case, right from the inception, that is to say, from the issue of the show-cause notice under s. 274 till the final t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the shares but not to the extent claimed by the assessee. Both the revenue and the assessee felt unhappy with the decision of the AAC and the same resulted in appeals by the revenue before the Tribunal and cross objections by the assessee in such appeals. The only controversy before the Tribunal between, the parties was as to which method should be followed for valuing the shares of the company. The revenue contended that the proper method of valuation would be to take the mean of the two valuations, one arrived at by applying the profit-earning method and the other by applying the break-up method, while the assessee pleaded for adopting only the profit-earning method. The Tribunal accepted the contention of the assessee with the result that the revenue's appeals were dismissed and the assessee's cross-objections were allowed. The revenue applied to the Tribunal to state a case for the opinion of the High Court on the question of law said to arise out of its order namely, whether the Tribunal was right in holding that the shares of the investment company had to be valued only on the basis of the yield without taking into account the assets owned and reflected in the balance-sheet. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal only if it is dealt with by the Tribunal or is raised before though not decided by the Tribunal and question of law not raised before the Tribunal and not dealt with by it in its order cannot be said to arise out of its order, even if on the facts of the case stated in the order the question fairly arises. It is obvious that this question sought to be raised on behalf of the revenue was neither raised before the Tribunal nor decided by it and the only argument advanced before the Tribunal was that the mean of the values arrived at on an application of the profit-earning method and the break-up method should be taken to be the value of the shares. There was no argument addressed to the Tribunal that the break-up method should be adopted because that was the primary method prescribed by r. 10, sub-r. (2), and the Tribunal had, therefore, no occasion to deal with such argument. This question obviously, therefore, does not arise out of the orders of the Tribunal and it cannot be required to be referred to the High Court. " The extracted observations go a long way in supporting the view which we have taken above, namely, that since, in the instance case, the Tribunal was not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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