TMI Blog2001 (2) TMI 266X X X X Extracts X X X X X X X X Extracts X X X X ..... e Hon'ble Supreme Court and various High Courts are on record. 3. All these appeals were heard together and therefore, they are disposed by this consolidated order for the sake of convenience. In all these cases the CIT(A) has followed his own order in IT Appeal Nos. 43 44/DC. SR. 4, for the assessment year 1990-91 in the case of National Textiles Corpn. The Tribunal reversed that order by its order dated 30-6-2000. The Tribunal's order is also on record. The Tribunal took two different views regarding the levy of additional tax under section 143(1A) of the Act and that was another reason to hear all these appeals at one time and to dispose them of by this consolidated order. In a good number of cases the Tribunal consistently held that the additional tax could be levied in such cases. Particularly the Tribunal in ITA NO. 568/Bang./93 in the case of Unique Creations vide its order dated 15-9-1999 held that the additional tax is leviable, by citing several decisions. In this case the decision of the Hon'ble Karnataka High Court in the case of Bidar Sahakari Sakkare Kharkhane Niyamat v. Union of India [1999] 237 ITR 445. However, the Tribunal took a different view in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of section 143(1A)(a)(i)(A). (e) Fifthly, the Court was dealing with retrospective amendment of section 28 by Finance Act, 1990 vis-a-vis section 143(1A) and not retrospectively made amendment by the Finance Act, 1993 to section 143(1A). 4. According to him, the facts of the case before the Supreme Court are distinguishable from the facts of the present cases. 5. The learned Departmental Representative submitted that there is distinct and clear difference between the facts of the case decided by the Supreme Court and the case before us. According to him the Supreme Court itself in the case Hindustan Electro Graphites Ltd has held as follows: "What is to be seen is the law on the date of filing of the return. To attract penalty provisions there has to be some element of lack of bona fides unless the law specifically provides otherwise.... No additional tax would have been leviable on the cash compensatory support if the Finance Act, 1990 had not so provided even though retrospectively. Assessee could not have suffered additional tax but for the Finance Act, 1990. After he had filed his return of income which was correct as per law on the date of filing of return, it was t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on would also in our opinion being doing violence to the plain reading of the judgment. 8. The Hon'ble Supreme Court itself in the case of CIT v. Sun Engg. Works P. Ltd [1992] 198 ITR 297 at page 319 has held as follows:-- "It is neither desirable nor permissible to pick out a word or a sentence from the judgment of this Court, divorced from the context of the question under consideration and treat it to be the complete 'law' declared by this Court. The judgment must be read as a whole and the judgment have to be considered in the light of the question which were before this Court. Decision takes its colour from the questions involved. Court must carefully try to ascertain the true principle." 9. In view of this decision of the Supreme Court, the decision in the case of Hindustan Electro Graphites will not apply to the facts of the instant appeals as the circumstances under which the Supreme Court observed that additional tax has the character of penalty, are wholly absent in this case. 10. So far as the decision of Gauhati High Court in the case of Sati Oil Udyog Ltd. v. CIT [1998] 232 ITR 502 is concerned, the Gauhati High Court has held that retrospective operation of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 97." Para. 9 "The Madhya Pradesh High Court in the case' of Sanctus Drugs Pharmaceuticals (P.) Ltd. v. Union of India [1997] 137 CTR (MP) 207; [1997] 225 ITR 252 (MP) observed thus: Penal provision means imposition of penalty or any criminal prosecution. That is not the case here. It is only the device to check evasion of tax by the clever taxpayers. Hence, it is more of a compensatory nature. Parliament is competent to enact the law prospectively and this power also denotes the competence of Parliament to make the law retrospective also. In this connection, reference can be made to a decision in the case of Rai Ramakrishna v. State of Bihar [1963] 50 ITR 171 (SC); AIR 1963 SC 1667, wherein their Lordships have held as under: 'The legislative power conferred on the appropriate Legislature to enact law in respect of topics covered by the several entries in the three lists can be exercised both prospectively and retrospectively. Where the Legislature can make a valid law, it may provide not only for the prospective operation of the material provisions of the said law, but it can also provide for the retrospective operation of the said provisions'. The Madras High Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment of tax and particulars in the return dispensing with hearing at pre-decisional stage and providing such hearing under the provisions of the Act subsequently under different provisions cannot be considered as unreasonable." 13. The Karnataka High Court in para 12 of its judgment has specifically stated to have considered the various observations and has upheld the constitutional validity of the provisions of section 143(1A). 14. The situation arising now is that the Gauhati High Court has struck down the retrospective amendment but whereas the jurisdictional High Court has upheld the constitutional validity of this section considering the cases of losses also. In addition to this, the Kerala, Madras and Madhya Pradesh High Courts have also upheld the constitutional validity. 15. The learned Departmental Representative submitted that the situation arising now is that the Gauhati High Court's decision was more relied ignoring the jurisdictional High Court's decision especially when the Karnataka High Court was exactly on the point of levy of additional tax, when the loss was reduced to another figure of loss. It is the argument of the learned Departmental Representative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... person. 40.2 The Act, therefore amends section 143(1A) of the Income-tax Act. 40.3 This amendment takes effect from 1st April, 1989 and, accordingly, applies in relation to the assessment year 1989-90 and subsequent years." 17. The learned Departmental Representative, Shri Bhat submitted that according to the decision of the Supreme Court in CIT v. Bijli Cotton Mills [1954] 15 STC 656-665 decided on 20-3-1964 (refer page 8036 of Chaturvedi and Pithisaria Income-tax Law, Fifth edition, volume 5) the Tribunal called upon to decide a taxing statute must apply the relevant law applicable to a particular transaction to which the problem relates, and that law normally is the law as on the date on which the transaction in dispute has taken place. If the law which the Tribunal seeks to apply to the dispute is amended, so as to make the law applicable to the transaction in dispute, it would be bound to decide the question in the light of the laws so amended. Similarly, when the question has been referred to the High Court and in the meanwhile the law has been amended with retrospective operation, it would be the duty of the High Court to apply the law so amended if it applies, accordi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... According to the learned Departmental Representative, when a question is referred to the High Court for its opinion under sub-section (1) or sub-section (2) of section 256 and subsequently, the relevant provisions of the Act are amended retrospectively, it has to answer the question on the basis of the law as it exists after the amendment or deemed to have existed in view of the amendment but not on the basis of law as it existed when the Tribunal passed the order out of which the reference arose. In this case the High Court was considering the question whether the income from sale of agricultural lands has to be treated as; agricultural income. But due to the insertion of Explanation to section 2(1A), retrospectively, the income was held as taxable under section 45--CIT v. Smt. Kaziamunnisa Begum [1995] 213 ITR 172, 176 (AP). 20. He has further pointed out to the judgment of the Bombay High Court CIT v. May Baker (India) (P.) Ltd. [1991] 192 ITR 239 to the effect that where the relevant provisions are amended retrospectively, the Tribunal will have to consider, in disposing the case conformably to the decision of the Court, the claim in the light of such retrospectively amende ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contended by the other representatives that the decision of the Karnataka High Court in Sahakari Sakkare Karkhane Niyamat's case is impliedly overruled by the Hon'ble Supreme Court. According to them, the amendment is valid prospectively but not retrospectively. Further, their contention is that the decision of the Hon'ble Supreme Court in the case of Sun Engg. Works (P.) Ltd. is de horse the context. 24. We thought it fit to discuss the facts of the cases before us also. In the case of Verifone Software Systems (P.) Ltd., the assessee claimed preoperative expenses of the business. As these were not allowable, the Assessing Officer capitalised the expenses and allowed depreciation also. Because of this action, the loss admitted by the assessee was reduced to another figure of loss and on the difference of these losses additional tax was levied. In the case of Eastern Radiators (P.) Ltd., Bangalore, the Assessing Officer made prima facie adjustment of excess investment allowance and reduced the loss admitted into another figure of loss. In the case of S.G.R. Balaji Silks (P.) Ltd., the Assessing Officer disallowed the excess depreciation claimed by the assessee by ways of Prima fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... This was only with a view to keep the assessee under check and not to take liberty of filing rash and irresponsible return." 28. In the case before the MP High Court, there were peculiar circumstances. The assessee could not have thought of adding the compensation received from the Government of India, which would be taxed with retrospective effect. At the time when the return was filed under section 139 of the Act on December 29, 1989, the aforesaid provision of section 28(iiib) was not in existence. It was only when the Assessing Officer was finalising the return filed by the assessee that the law came into force with effect from April 1, 1967. In this context, the MP High Court observed as under: "The question is whether the assessee in the present case is liable to be levied with additional tax as contemplated under section 143(1A) of the Act. In our opinion, it would be unfair and unjust to levy additional tax on the assessee because the assessee has not mislead the Assessing Officer while filing the return harder section 139 of the Act and the Assessing Officer had already intimated the assessee under section 143(1)(a) of the Act. 29. The MP High Court felt that becau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h retrospective effect from April 1, 1967. But in the cases before us, the provisions of section 143(1A) was very much in existence with effect from 1-4-1989. Because of certain judicial pronouncements it was made clear in the Finance Act, 1993 that loss cases converted into another loss also come under the purview of section 143(1A). That is the reason why the provisions were amended retrospectively, which is evident from the Board's Circular pointed out by the learned Departmental Representative and reproduced by us in the preceding paras. 32. The decision of the Calcutta High Court in the case of Modern Fibotex India Ltd. is exactly again on the point of cash compensatory support. While referring to the decision of the Calcutta High Court tile Hon'ble Supreme Court in the case of Hindustan Electro Graphites Ltd. held as under: "The High Court was further of the view that there was limitation on the power under section 143(1)(a) and that the Assessing Officer must determine the question of assessment thereunder by applying law prevailing when the return was filed. One has to see the nature of the obligation to which an assessee is subjected in filing his return and the object ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... though retrospective effect was given to the amendment. 36. The Hon'ble Supreme Court found that there was no element of lack of bona fides in the case before it, because the assessee does not know that cash compensatory support was taxable as on the date of filing of the return. In the fact as on the date of filing of the return by the assessee in the case before the Hon'ble Supreme Court, cash compensatory support was not taxable. But in the cases before us the facts are different. The adjustments made are very much according to law. Even the assessee did not dispute. But what is in dispute is whether addl. Tax was leviable when admitted loss was converted into another figure of loss. The assessees wanted to take shelter under the decision of the Hon'ble Supreme Court rendered on a different context. 37. The ld. Representative for the assessee relied on the decision of Gauhati High Court in the case of Sati Oil Udyog Ltd. 232 ITR 502 considered levy of addl. tax as penal in character and therefore prospective. This judgment is dated June 12, 1998. But the jurisdictional High Court in the case of Bidar Sahakari Sakkare Kharkhane Niyamat and other has taken note of the Gauhati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee. The Hon'ble Supreme Court also did not approve the judgment of the Gauhati High Court. As already mentioned the judgment of the Gauhati High Court is dated Junel2, 1998 and the judgment of Karnataka High Court is dated November 28,1998. Further the judgment of the Karnataka High Court is binding on this Tribunal and all over Karnataka. 39. For the aforementioned reasons the decision of the Karnataka High Court holds the field in the matter of levy of addl. tax even in cases where loss admitted was reduced to another figure of loss. In such circumstances, not following the decision of jurisdictional High Court, which is exactly on the point amounts to overlooking the judgment of Karnataka High Court which is binding in Karnataka. 40. As far as the decision of the Hon'ble Supreme Court in the case of Hindustan Electro Graphites Ltd., we would like to quote certain excerpts and discuss. In the second paragraph the Hon'ble Supreme Court has mentioned as under: "No additional tax would have been leviable on the cash compensatory support of the Finance Act, 1990, had not so provided even though retrospectively". 41. As already mentioned by us in the preceding para ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e by the Assessing Officer under section 143(1)(a) in view of the clear-cut provisions of sections 143(1)(a), 143(1A) and 234?". The question was answered in the affirmative, i.e. in favour of the assessee. In other words, the Hon'ble Supreme Court held that deletion of addition made by the Assessing Officer under section 143(1)(a) was justified. For coming to this conclusion, the Supreme Court examined whether levy of additional tax in the case before it bears all the characters of penalty. The intention of the Hon'ble Supreme Court for observing this, perhaps would be to say that the penalty should be imposed with reference to the law at the time of commission of the offence only while considering the provisions of the law as they stood without any further amendment brought about by the time of penalty was imposed. This view gets support from the decision of the Hon'ble Supreme Court in the case of Brij Mohan v. CIT [1979] 120 ITR 1. In the case before the Hon'ble Supreme Court in Hindustan Electro Graphites Ltd.'s case the levy of additional tax under section 143(1A) was treating as bearing all the characteristics of penalty and consequently the commissioning of the offence sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng decisions basing on the decision of the Karnataka High Court which is exactly on the point, leaving a jurisdictional High Court's binding decision aside and all of a sudden following the decisions of Other High Courts rendered much earlier to the decision of the Karnataka High Court leads to chaos. The observations of the Hon'ble Supreme Court cannot be taken as obiter dictum inasmuch as it was not held by the Supreme Court that levy of addl. tax itself is illegal. In this connection, we are in agreement with the learned DR that (i) Firstly, the Hon'ble Supreme Court did not deal with the levy of additional tax in the loss to loss cases; (ii) Secondly, in the case before the Hon'ble Supreme Court the assessee had questioned the propriety of adjustments made in the intimation under section 143(1)(a); (iii) Thirdly, in the case before the Hon'ble Supreme Court, the law as on the date of filing the return of income was different,inasmuch as the cash compensatory support was not taxable, but there was retrospective amendment to section 28 by which the cash compensatory support became taxable when the intimation was passed by the Assessing Officer; (iv) Fourthly, the Court wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as it is not reversed by the Apex Court, and not even obiter dictum was there as the Hon'ble Supreme Court in the case of Hindustan Electro Graphites Ltd has only referred to the retrospective amendment to section 28 in a different context. The issue before the Bidar Sahakari Sakkare Karkhana Niyamat is on the point of levy of additional tax when prima facie adjustments were made to the income/loss. It was answered in favour of the Revenue. The issue before the Karnataka High Court in the case cited supra and before the Hon'ble Supreme Court in the case of Hindustan Electro Graphites Ltd. is not "Whether levy of additional tax is in the nature of penalty". The issue is to be decided is whether addl. tax is leviable when prima facie adjustments are made. As long as the decision of the Hon'ble Supreme Court in the case of Hindustan Electro Graphites Ltd. is distinguishable on facts and the decision of the Karnataka High Court squarely applies to the facts of the case, it cannot be said that the decision of the Karnataka High Court is overruled by implication. It is also not material whether at the time of rendering the decision by the first appellate authority the decision of jurisd ..... X X X X Extracts X X X X X X X X Extracts X X X X
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