(Per : HONOURABLE MS.JUSTICE HARSHA DEVANI) These appeals under section 260A of the Income Tax Act, 1961 (the Act) arise out of common order dated 2.11.1999 passed by the Income Tax Appellate Tribunal (hereinafter referred to as "the Tribunal") in ITA No.5262/Ahd/1994, ITA No.4586/Ahd/1995 and ITA No.3592/Ahd/1997 and the issues involved are also common, hence, the same were taken up for hearing together and are disposed of by this common judgment.
While admitting Tax Appeals No.64 and 65 of 2000, this Court had vide order dated 18.9.2000 formulated the following two questions:
"[1] Whether, the Appellate Tribunal is right in law and on facts in holding that no penalty u/s.272A(2)(f) can be levied up to 01/06/1992 because there was no statutory obligation to file the prescribed form u/s. 197A?
[2] Whether, the Appellate Tribunal is right in law and on facts in directing that the penalty should be calculated in accordance with the proviso to section 272A (wherein it is stipulated that the penalty levied should not exceed the tax deductible) by giving retrospective effect to this proviso?"
While admitting Tax Appeal No.61 of 2000 on 18.9.2000, the following question came to be formulated :
"Whether, the Appellate Tribunal is right in law and on facts in directing that the penalty should be calculated in accordance with the proviso to section 272A (wherein it is stipulated that the penalty levied should not exceed the tax deductible) giving retrospective effect to this proviso?"
The assessment years are 1991-92, 1992-93 and 1994-95. The assessee, who is deriving income from its business of cold storage, was required to deduct tax at source from interest payable/paid to certain creditors and in case the creditors were not liable to pay any income tax, the assessee was required to obtain declarations in Form No.15H which were to be filed with the Commissioner of Income Tax (CIT) under section 197A of the Act. The said declarations were required to be submitted within the time limit mentioned in section 197A(2) of the Act. The assessee, however, failed to furnish the declarations in the prescribed form in time in the office of the CIT. Accordingly, penalty proceedings were initiated by the Assessing Officer having jurisdiction over the assessment of the assessee. Subsequently, show cause notices came to be issued by the competent authority, i.e., the CIT as to why penalty should not be levied for failure of the assessee to deliver the Forms No.15H obtained from the creditors intimating the assessee that their income was not taxable, thereby authorizing the assessee not to deduct any TDS in the office of the Commissioner of Income Tax.
In response to the show cause notices, the assessee explained that the provisions of section 272A(2)(f) of the Act were not applicable to its case because the obligation to file copy of the statement in Form No.15H was introduced by the Finance Act, 1992 with effect from 1.6.1992 by amending section 197A of the Act and accordingly, till 1.6.1992, the Income Tax Act did not require Form No.15H to be filed in the office of the CIT. It was pleaded that the assessee was not aware of the said provision and in any case, there was no loss of revenue to the respondent and that the default, if any, was only a technical default for which no penalty should be levied. The Commissioner, however, did not find the explanation to be acceptable and found that this was a fit case for imposition of penalty under section 272A(2)(f) of the Act for the assessee's default of not furnishing declarations in Form No.15H before the Commissioner of Income Tax within the time allowed as provided under sub-section (2) of section 197A of the Act. He, accordingly, levied penalties of Rs.1,23,000/- and Rs.1,20,900/- for delay of 1230 days and 1209 days respectively in relation to Tax Appeals No.64 of 2000 and 65 of 2000.
Insofar as Tax Appeal No.61 of 2000 is concerned, there was a default on the part of the assessee in relation to 28 declarations in Form No.15H. The default was of 845 days in respect of each of 13 forms and of 480 days in respect of each of the remaining 8 forms. The Commissioner (Appeals), accordingly, levied minimum penalty for the aforesaid default amounting to Rs.20,37,500/-.
Being aggrieved, the assessee carried the matters in appeal before the Tribunal. Before the Tribunal, it was contended on behalf of the assessee that for assessment years 1991-92 and 1992-93, no penalty can be levied under section 272A(2)(f) of the Act as there was no such obligation to file the prescribed form under section 197A(1) read with section 197A(2) of the Act up till 1.6.1992. It was further submitted that in any case, the assessee was ignorant of the provisions and that for ignorance of law, no penalty is leviable. It was also contended that in any case, there was no loss to the revenue for the assessee's failure to file Form No.15H with the CIT and as such, no penalty should have been levied. In relation to assessment year 1994-95, apart from relying upon the aforesaid arguments, it was submitted that in view of the amendment in the Income Tax Act, the assessee was under an obligation to file the prescribed form under section 197A after 1.6.1992. In case the same was not filed and penalty were to be levied, then the same should not exceed the amount of tax deductible because of the proviso to section 272A(2) of the Act which had been held to be retrospective in operation as per the decision of the Tribunal in Motisagar Estate (P) Ltd. v. Dy. Commissioner of Income Tax, Pune, 47 ITD 72 (Surat) and in Superintending Engineer v. Income Tax Officer, 54 TTJ 608.
The Tribunal in the impugned order has found that the assessee is a habitual defaulter; that though the assessee had obtained Form No.15H from the depositor, yet he never bothered to furnish the same before the CIT within the time allowed as provided in sub-section (2) of section 197A. The Tribunal took note of the fact that rule 29C(5) of the Income Tax Rules, 1961 (hereinafter referred to as "the Rules") did make a provision for filing of Form No.15H even prior to 1.6.1992, but the breach of the said rule would not be liable for penalty. The Tribunal, accordingly, held that for assessment years 1991-92 and 1992-93 no penalty under section 272A(2)(f) can be levied for delay till 1.6.1992 because there was no statutory obligation to file the prescribed form under section 197A in view of the above referred decision of the Pune Bench of the Tribunal. However as far as assessment year 1994-95 is concerned, the Tribunal was of the opinion that penalty should be levied because ignorance of law is certainly no excuse for a default committed. In the aforesaid factual background, the Tribunal upheld the action of the Commissioner of Income-tax in levying penalty for assessment years 1991-91 and 1992-93 for delay beyond 1.6.1992 and also for assessment year 1994-95 but directed that the penalty should be calculated in accordance with the proviso to section 272A of the Act wherein it is stipulated that the penalty levied should not exceed the tax deductible as the said proviso was held to be retrospective in operation by the Pune and Jaipur Benches of the Tribunal in the above referred decisions rendered by them. Being aggrieved, the revenue is in appeal.
Mr.
M. R. Bhatt learned senior advocate submitted that the proviso to section 272A of the Act has been inserted by the Finance Act, 1991 with effect from 1.10.1991. At the relevant time the benefit of the proviso was given only to defaults under section 206 and 206C of the Act. It was pointed out that when the proviso was introduced, section 197A was very much on the statute book. However, the legislature had consciously limited the benefit of the proviso to the returns under section 206 and 206C only. Thus, the legislature despite being aware of the nature of the default under section 197A of the Act did not extend the benefit of the proviso to section 197A of the Act and when the same was in fact made applicable to the provisions of section 197A of the Act by the Finance Act, 1998, it was made effective from 1.4.1999. Hence, it is apparent that the legislature never intended to make it retrospectively applicable. It was submitted that Parliament has taken care to categorically mention that the proviso was to come into effect insofar as section 197A is concerned, with effect from 1st April 1999. Therefore, there is no question of giving retrospective effect, as the date is specified by the Legislature consciously. Whenever Parliament intended to give retrospective effect, it has done so. It was further submitted that the normal rule of construction is that the substantive provision in a statute would have prospective effect and not retrospective effect. It was contended that section 272A of the Act is a substantive provision and when the legislature has given a particular benefit from a particular date the same has to be taken as it is unless provided expressly or by necessary implication. In the circumstances, the law as it existed on the date of default would be applicable. The Tribunal was, therefore, not justified in granting the benefit of the proviso to section 272A of the Act in the present case wherein the defaults relate to the periods prior to 01.04.1999. The decision of the Supreme Court in the case of Commissioner of Income-tax I, Ahmedabad v. Gold Coin Health Food Private Limited, (2008) 304 ITR 308, was cited for the proposition that it is a cardinal principle of construction that every statute is prima facie prospective unless it is expressly or by necessary implication made to have retrospective effect. If a statute is declaratory or curative of the previous law, retrospective operation is generally intended. It was submitted that the proviso to section 272A of the Act being substantive in nature and having been made expressly applicable with effect from 01.04.1999 is neither expressly nor by implication retrospective in effect.
Reliance was also placed upon the decision of the Supreme Court in Commissioner of Income-tax v. Varas International P. Ltd., (2006) 283 ITR 484, wherein it has been observed that it has been consistently held by the Supreme Court that for an amendment of a statute to be construed as being retrospective, the amended provision should itself indicate, either in terms or by necessary implication, that it is to operate retrospectively. Reference was also made to the decision of the Rajasthan High Court in Commissioner of Income-tax v. New Rajasthan Trading Co., (2004) 271 ITR 511, wherein the court in the context of the proviso to section 272A of the Act has held that in the absence of any retrospective effect to such provisions, the proviso cannot have any impact with regard to any default relating to assessment year 1989-90. No law can have retrospective effect unless it is so provided specifically by the law itself.
Supporting the view taken by the Tribunal, Mr. S. N. Soparkar learned senior advocate appearing on behalf of the respondent assessee, invited attention to the facts of the case to submit that default committed by the assessee is of not submitting Form No.15-H submitted by persons in whose case no tax was required to be deducted under section 194 or 194EE of the Act within the prescribed period. By not submitting the declarations within the prescribed time limit there is no loss of revenue to the Government. Under section 272A of the Act, the penalty for failure to deliver or cause to be delivered in due time a copy of the declaration mentioned in section 197A is a sum which shall not be less than one hundred rupees, but which may extend to two hundred rupees, for every day during which such failure continues. The learned counsel submitted that at the relevant time under the proviso to sub-section (2) of section 272A of the Act, it was provided that for failures in relation to returns under section 206 and 206C shall not exceed the amount of tax deductible or collectible, as the case may be. However, subsequently by the Finance (No.2) Act, 1998, with effect from 1.4.1999, the words "a declaration mentioned in section 197A, a certificate as required by section 203 and" came to be inserted in the proviso to sub-section (2) of section 272A, thereby making the same applicable to declarations under section 197A of the Act also. It was submitted that the proviso to section 272A is a remedial one as for a default of a few thousand rupees penalty under section 272A runs into lakhs of rupees which could never be the intention of the legislature. It was submitted that when the measure of penalty is found by the legislature to be excessive at a future date there is no reason why the same should not be applicable right from the inception. It was submitted that the insertion of section 197A in the proviso to section 272A makes it clear that the intention of the legislature was to levy penalty but not beyond a point. Hence, as a remedial and curative measure, the proviso was amended to obviate the hardship caused by reason of levy of excessive penalty. It was urged that by accepting the aforesaid view the revenue is not going to suffer any loss nor is the tax liability of the assessee in any way going to be less. As against this, by accepting the contention raised by the revenue, it would put the assessee to great difficulty. It was urged that though section 197A relates to a case where no tax is payable by the person concerned, for default on the part of the person responsible for paying the income in the nature referred to in sub-section (1), he is visited with penalty under section 272A which is excessive in nature. Reliance was placed upon the decision of the Supreme Court in Allied Motors (P) Ltd. v. Commissioner of Income-tax, 224 ITR 677 , for the proposition that a proviso which is inserted to remedy unintended consequences and to make the provision workable, a proviso which supplies an obvious omission in the section and is required to be read into the section to give the section a reasonable interpretation, requires to be treated as retrospective in operation, so that a reasonable interpretation can be given to the section as a whole. The decision of this court in Commissioner of Income-tax v. Chandulal Venichand, (1994) 209 ITR 7, was cited for the proposition that it is a well recognised rule of construction that a statutory provision must be so construed as to avoid absurdity and mischief and that a clarificatory and explanatory provision should normally be interpreted to have retrospective effect. Reliance was placed upon the decision of the Supreme Court in Commissioner of Income-tax v. Alom Extrusions Ltd., (2009) 319 ITR 306, for the proposition that when a proviso in a section is inserted to remedy unintended consequences and to make the section workable, the proviso which supplies an obvious omission therein is required to be read retrospectively in operation, particularly to give effect to the section as a whole. Reliance was further placed upon the decision of the Supreme Court in Commissioner of Income-tax, Banglore v. J. H. Gotla, (1985) 156 ITR 323, wherein it has been held that if a strict and literal construction of the statute leads to an absurd result, i.e., a result not intended to be subserved by the object of the legislation ascertained from the scheme of the legislation, then, if another construction is possible apart from the strict literal construction, then, that construction should be preferred to the strict literal construction. Reliance was also placed upon the decision of this High Court in Commissioner of Income-tax v. Harsiddh Construction Pvt. Ltd., 244 ITR
417. From the questions formulated by the court at the time of admission of the appeal, the two questions that arise for consideration are: (i) whether penalty would be leviable under section 272A(2)(f) prior to 01.06.1992 in the absence of any statutory obligation to file the prescribed form under section 197A; and (ii) whether the insertion of section 197A in the proviso to section 272A of the Act with effect from 1.4.1999 is retrospective in effect so as to cover the assessment years under consideration.
Insofar as the first question is concerned, it is an undisputed position that the obligation to file copy of the statement in Form No.15-H before the Commissioner of Income-tax was introduced by the Finance Act, 1992 with effect from 1st June, 1992 by amending section 197A of the Act. Till 1st June, 1992 the Income Tax Act, 1961 did not require that Form No.15-H be filed in the office of the Commissioner of Income-tax. Earlier, prior to 1.6.1992, rule 29C (5) of the Rules did make a provision for filing Form No.15-H. However no penalty had been provided for breach if any, of the said rule. Penalty for failure to file declaration in Form No.15-H came to be levied under section 272A with effect from 1.6.1992. It is a cardinal principle of construction that every statute is prima facie prospective unless it is expressly or by necessary implication made to have a retrospective operation. But the rule in general is applicable where the object of the statute is to affect vested rights or to impose new burdens or to impair existing obligations. Unless there are words in the statute sufficient to show the intention of the legislature to affect existing rights, it is deemed to be prospective only. In the facts of the present case, as on the date of the default failure to file declarations in Form No.15-H was not exigible to penalty. Penalty came to be levied in respect of such failure only with effect from 1.6.1992. There is nothing in the language of section 272A of the Act to indicate that it was the intention of the legislature to affect existing rights. In the circumstances, when failure to file the declaration under rule 29C(5) of the Rules did not attract penalty, no penalty can be levied under section 272A of the Act till the time when failure to file declaration in Form No.15H became leviable to penalty thereunder. Failure to file the declaration in Form No.15H prior to 1.6.1992 not being a default under section 272A(2)(f) of the Act, the Tribunal was, therefore, justified in holding that for assessment years 1991-92 & 1992-93 no penalty can be levied under section 272A(2)(f) of the Act for delay upto 1.6.1992 because there was no statutory obligation to file the prescribed form under section 197A of the Act.
As regards the second question, at the outset it may be pertinent to refer to the decisions on which reliance has been placed by the respective parties in support of the rival submissions.
In Commissioner of Income Tax I, Ahmedabad v. Gold Coin Health Food Private Limited, (supra) on which reliance has been placed by the revenue, the Supreme Court was called upon to decide as to whether Explanation 4 to section 271(1)(c) of the Act is retrospective in effect. The court referred to the position regarding retrospective operation of statutes as stated in Justice G.P. Singh's Principles of Statutory Interpretation which inter alia are as follows:
"In determining, therefore, the nature of the Act, regard must be had to the substance rather than to the form. If a new Act is 'to explain' an earlier Act, it would be without object unless construed retrospective. An explanatory Act is generally passed to supply an obvious omission or to clear up doubts as to the meaning of the previous Act. It is well settled that if a statute is curative or merely declaratory of the previous law retrospective operation is generally intended. The language 'shall be deemed always to have meant' or 'shall be deemed never to have included' is declaratory, and is in plain terms retrospective. In the absence of clear words indicating that the amending Act is declaratory, it would not be so construed when the amended provision was clear and unambiguous. An amending Act may be purely clarificatory to clear a meaning of a provision of the principal Act which was already implicit. A clarificatory amendment of this nature will have retrospective effect and, therefore, if the principal Act was existing law when the Constitution came into force, the amending Act also will be part of the existing law."
After referring to its earlier decisions, including CIT v. Podar Cement (P) Ltd. (1997) 5 SCC 482 and Zile Singh v. State of Haryana, (2004) 8 SCC 1, the court held that Explanation 4 to section 271(1)(c) is clarificatory and not substantive.
In Allied Motors (P) Ltd. v. Commissioner of Income-tax (supra) before the Supreme Court the contention raised on behalf of the assessees was that the proviso to section 43B of the Act should be given effect to retrospectively from the time when section 43B became a part of the Income Tax Act, 1961, as it intended to obviate unexpected hardships in the application of section 43B. The court held that when a proviso is inserted to remedy unintended consequences and to make a section workable, a proviso which supplies an obvious omission in the section and which proviso is required to be read into the section to give the section a reasonable interpretation, requires to be treated as retrospective in operation, so that a reasonable interpretation can be given to the section as a whole.
In Commissioner of Income-tax v. J.H. Gotla (supra) the Supreme Court held thus:
"46.
Where the plain literal interpretation of a statutory provision produces a manifestly unjust result which could never have been intended by the Legislature, the Court might modify the language used by the Legislature so as to achieve the intention of the Legislature and produce a rational construction. The task of interpretation of a statutory provision is an attempt to discover the intention of the Legislature from the language used. It is necessary to remember that language is at best an imperfect instrument for the expression of human intention. It is well to remember the warning administered by Judge Learned Hand that one should not make a fortress out of dictionary but remember that statutes always have some purpose or object to accomplish and sympathetic and imaginative discovery is the surest guide to their meaning.
47. We have noted the object of Section 16(3) of the Act which has to be read in conjunction with Section 24(2) in this case for the present purpose. If the purpose of a particular provision is easily discernible from the whole scheme of the Act which in this case is, to counteract the effect of the transfer of assets so far as computation of income of the assessee is concerned then bearing that purpose in mind, we should find out the intention from the language used by the Legislature and if strict literal construction leads to an absurd result i.e. result not intended to be subserved by the object of the legislation found in the manner indicated before, and if another construction is possible apart from strict literal construction then that construction should be preferred to the strict literal construction. Though equity and taxation are often strangers, attempts should be made that these do not remain always so and if a construction results in equity rather than in injustice, then such construction should be preferred to the literal construction. Furthermore, in the instant case we are dealing with an artificial liability created for counteracting the effect only of attempts by the assessee to reduce tax liability by transfer. It has also been noted how for various purposes the business from which profit is included or loss is set off is treated in various situations as assessee's income. The scheme of the Act as worked out has been noted before".
Thus, what is laid down in the aforesaid decisions is that any amendment of a substantive provision which is aimed at clarifying the existing position or removing any unintended consequences to make the provision workable has to be treated as retrospective, notwithstanding the fact that the amendment has been given effect prospectively. In aforesaid backdrop it would be necessary to first ascertain as to whether the proviso to section 272A of the Act is a substantive provision or a remedial/curative provision. If it is substantive it would be prospective in effect and if remedial/curative then it would be effective retrospectively.
In CIT v. Podar Cement (P) Ltd., (1997) 5 SCC 482 the Supreme Court held that the circumstances under which the amendment was brought in existence and the consequences of the amendment will have to be taken care of while deciding the issue as to whether the amendment was clarificatory or substantive in nature and, whether it will have retrospective effect or it was not so.
In Zile Singh v. State of Haryana (supra) the Supreme Court observed as follows:
"13.
It is a cardinal principle of construction that every statute is prima facie prospective unless it is expressly or by necessary implication made to have a retrospective operation. But the rule in general is applicable where the object of the statute is to affect vested rights or to impose new burdens or to impair existing obligations. Unless there are words in the statute sufficient to show the intention of the legislature to affect existing rights, it is deemed to be prospective only--'nova constitutio futuris formam imponere debet non praeteritis'--a new law ought to regulate what is to follow, not the past. It is not necessary that an express provision be made to make a statute retrospective and the presumption against retrospectivity may be rebutted by necessary implication especially in a case where the new law is made to cure an acknowledged evil for the benefit of the community as a whole.
14. The presumption against retrospective operation is not applicable to declaratory statutes ... In determining, therefore, the nature of the Act, regard must be had to the substance rather than to the form. If a new Act is 'to explain' an earlier Act, it would be without object unless construed retrospectively. An explanatory Act is generally passed to supply an obvious omission or to clear up doubts as to the meaning of the previous Act. It is well settled that if a statute is curative or merely declaratory of the previous law retrospective operation is generally intended ... An amending Act may be purely declaratory to clear a meaning of a provision of the principal Act which was already implicit. A clarificatory amendment of this nature will have retrospective effect.
15. Though retrospectivity is not to be presumed and rather there is presumption against retrospectivity, according to Craies (Statute Law, 7th Edn.), it is open for the legislature to enact laws having retrospective operation. This can be achieved by express enactment or by necessary implication from the language employed. If it is a necessary implication from the language employed that the legislature intended a particular section to have a retrospective operation, the courts will give it such an operation. In the absence of a retrospective operation having been expressly given, the courts may be called upon to construe the provisions and answer the question whether the legislature had sufficiently expressed that intention giving the statute retrospectivity. Four factors are suggested as relevant: (i) general scope and purview of the statute;
(ii) the remedy sought to be applied; (iii) the former state of the law; and (iv) what it was the legislature contemplated. The rule against retrospectivity does not extend to protect from the effect of a repeal, a privilege which did not amount to accrued right"
It is in the light of the aforesaid principles, that the nature of the proviso to section 272A of the Act is required to be examined. For this purpose it may be germane to refer to the relevant statutory provisions.
Section 197A of the Act, which came to be inserted in the Income Tax Act, 1961 vide the Finance Act, 1982 with effect from 1st June, 1982, makes provision for cases in which no deduction of tax is to be made, and reads thus:
"197A.
(1) Notwithstanding anything contained in section 193 or section 194 or section 194A or section 194EE, no deduction of tax shall be made under any of the said sections in the case of an individual, who is resident in India, if such individual furnishes to the person responsible for paying any income of the nature referred to in section 193 or section 194 or section 194A or, as the case may be, section 194EE, a declaration in writing in duplicate in the prescribed form and verified in the prescribed manner to the effect that the tax on his estimated total income of the previous year in which such income is to be included in computing his total income will be nil.
The person responsible for paying any income of the nature referred to in sub-section (1) shall deliver or cause to be delivered to the Chief Commissioner or Commissioner one copy of the declaration referred to in sub-section (1) on or before the seventh day of the month next following the month in which the declaration is furnished to him."
With a view to enabling persons with income below the taxable limit to receive the categories of income mentioned therein, without deduction of income-tax at source, the Finance Act, 1982 has inserted a new section 197A in the Income Tax Act to provide that a person who is resident in India may receive such income without deduction of income-tax on his furnishing a declaration in writing in the prescribed form and verified in the prescribed manner to the person responsible for making the payment. On receipt of this declaration, the person responsible for making the payment is required to deliver or cause to be delivered to the Commissioner of Income-tax who exercises jurisdiction over him, one copy of the declaration on or before the 7th day of the month in which the declaration is furnished. Rule 29C and Form No. 15F, 15G and 15H came to be inserted in the Rules by the Income-tax (Fifth Amendment) Rules, 1982, prescribing the forms for the purpose of section 197A of the Act and laying down the procedure for furnishing the declaration form.
Section 272A of the Act makes provision for "Penalty for failure to answer questions, sign statements, furnish information, returns or statements, allow inspections, etc"., and as it stood at the relevant time insofar as the same is relevant for the present purpose, reads thus:
"272A.
(1) If any person, -
(a) being legally bound to state the truth of any matter touching the subject of his assessment, refuses to answer any question put to him by an income tax authority in the exercise of its powers under this Act; or
(b) refuses to sign any statement made by him in the course of any proceedings under this Act, which an income-tax authority may legally require him to sign; or
(c) to whom a summons is issued under sub-section (1) of section 131 either to attend to give evidence or produce books of account or other documents at a certain place and time omits to attend or produce books of account or documents at the place or time; or
(d) fails to comply with the provisions of section 139A, he shall pay, by way of penalty, a sum which shall not be less than five hundred rupees but which may extend to ten thousand rupees for each such default or failure.
(2) If any person fails -
(a) xxx ; or
(f) to deliver or cause to be delivered in due time a copy of the declaration mentioned in section 197A; or
(g) xxx xxx he shall pay, by way of penalty, a sum which shall not be less than one hundred rupees, but which may extend to two hundred rupees, for every day during which the failure continues:
Provided that the amount of penalty for failures in relation to returns under sections 206 and 206C shall not exceed the amount of tax deductible or collectible, as the case may be.
xxxx.
"
Sub-section (2) of section 272A came to be substituted vide Direct Tax Laws Amendment Act, 1987 with effect from 1.4.1989. Prior to its substitution, the said provision provided that if a person fails, -
(f) to deliver or cause to be delivered in due time a copy of the declaration mentioned in section 197A, he shall pay, by way of penalty, a sum which may extend to 10 rupees for every day during which the failure continues. Upon substitution, sub-section (2) of section 272A of the Act inter alia provided that if any person fails, - (f) to deliver or cause to be delivered in due time a copy of the declaration mentioned in section 197A, he shall pay, by way of penalty, a sum which shall not be less than 100 rupees, but which may extend to 200 rupees for every day during which the failure continues. Vide Finance (No.2) Act, 1991, a proviso came to be inserted in section 272A with effect from 1.10.1991, which reads as follows :
"Provided that the amount of penalty for failures in relation to returns under sections 206 or 206-C shall not exceed the amount of tax deductible or collectible, as the case may be, the scope and effect of."
The scope and effect of the amendments made with effect from 1.10.1991 in section 272A of the Act has been elaborated in the Departmental Circular No.621 dated 19.12.1991 as under:
"Modification of provisions for levy of penalties for certain defaults.- 67. Section 272A of the Income Tax Act, 1961, contains provisions for levy of penalty for various defaults of miscellaneous nature, including the failure to furnish returns or statement, etc. Under the existing provisions of this section, penalty is provided for failure to furnish in due time returns regarding tax deducted at source mentioned in section 206 and for failure to furnish certificate of tax deducted at source as required by section 203.
67.1 Section 206C of the Income Tax Act contains provisions for the collection of tax at source relating to profits and gains from the business of trading in alcoholic liquor, forest produce, etc. sub-section (5) thereof provides that the persons collecting such tax to furnish to the buyer of goods, i.e., the person on whose behalf the collection of tax is made, a certificate specifying particulars of tax collected within ten days of such collections. Further, sub-section (5A) of section 206C provides for furnishing of the half-yearly returns of the tax collected for the period ending 30th September and 31st March of the financial year, within one month from the said dates, to the prescribed income-tax authorities. However, no penalty has been provided in the Income Tax Act in the event of failure of a person to comply with the requirements of the aforesaid provisions of section 206C. Such a penalty is essential to enforce compliance with these provisions.
67.2 The quantum of penalty for cases in which default is of continuous nature is provided under sub-section (2) of section 272A. The minimum and maximum penalty is prescribed at the rate of Rs.100 and Rs.200 for every day during which the default continues. Representations have been received that the aforesaid provision creates hardship in cases where the amount of tax deductible for which the return under section 206 is furnished is very small and the return could not be furnished in time for various reasons.
67.3 Section 272A of the Income Tax Act has, therefore, been amended to-
(a) provide for levy of penalty for failure to furnish the certificate and the return required by section 206C, and
(b) to provide that the amount of penalty leviable for failure to furnish returns under section 206 and 206C shall not exceed the amount of tax deductible/collectible for which such returns are required to be furnished.
67.4 These amendments shall come into force with effect from 1st October, 1991."
Subsequently, vide Finance (No.2) Act, 1998, the proviso to section 272A(2) came to be amended so as to provide that the maximum limit of penalty imposable for failures in relation to a declaration mentioned in section 197A and in relation to a certificate required by section 203 shall not exceed the amount of tax deductible.
The Finance Minister in the Budget Speech for the year 1998-99 stated thus:
"109.
xxxxxx. I further propose that the penalty leviable at the maximum rate of Rs.100 per day for failure to furnish certificates of tax deduction or collection at source under section 203 or to deliver copies of declarations under section 197A, shall not exceed the amount of tax deductible or collectible, as the case may be. Presently, there is no such ceiling on the quantum of penalty leviable which causes hardship, particularly to small businessmen."
The scope and effect of such amendment have been elaborated in the following portion of the Departmental Circular No.772 dated 23.12.1998 as under:
"64.
Prescribing maximum penalty for defaults committed with reference to sections 197A and 203 of the Income Tax Act.- 64.1 Under the existing provisions, penalty under sub-section (2) of section 272A of the Income Tax Act is imposable for failure to deliver in due time a copy of the declaration under section 197A or for failure by the person deducting tax to furnish a certificate of deduction, to the person to whom such payment is made or credit is given within the prescribed period. These defaults are continuous in nature and attract penalty at the rate of Rs.100-200 per day without any maximum limit.
64.2 The Finance (No.2) Act, 1998, has amended section 272A of the Income Tax Act to provide that the maximum limit of penalty imposable in such cases shall not exceed the amount of tax deductible or collectible, as the case may be.
64.3 This amendment will take effect from 1st April, 1999, and will, accordingly, apply in relation to the assessment year 1999-2000 and subsequent years."
Chapter XVII of the Act deals with "Collection and Recovery of Tax". Part A thereof makes general provisions. Part B thereof makes provision for deduction at source. Section 193 makes provision for deduction at source in relation to interest on securities and section 194 in relation to Dividends, section 194A in relation to interest other than "Interest on securities" and section 194EE in relation to payments in respect of deposits under National Savings Scheme, etc. Thus essentially section 197A relates to cases where no tax is payable by an individual in whose case tax would otherwise be liable to be deducted under sections 193, 194, 194EE and 194A. In such cases the individual is required to furnish to the person responsible for deducting tax at source, a declaration in writing in the prescribed form and manner to the effect that his estimated total income in the previous year in which such income is to be included in computing his total income is nil. Thus, where the income of an individual for a previous year is nil, no tax is required to be deducted at source under the aforesaid provisions. Therefore, no income being payable in cases falling under section 197A of the Act, there is no loss of revenue.
While clarifying the amendment whereby the proviso to section 272A of the Act was inserted for the first time, the Board has stated that representations have been received that the aforesaid provision creates hardship in cases where the amount of tax deductible for which the return under section 206 is furnished is very small and the return could not be furnished in time for various reasons. Thus, it is clear that in view of the representations received by the Board and in view of the hardship caused to assessees as well as in view of the fact that the penalty levied is exorbitant as compared to the tax deducted at source, that the proviso came to be introduced providing for a maximum limit not exceeding the tax deductible at source. In the circumstances, the proviso appears to be remedial in nature inasmuch as it could never be the intention of the legislature to levy a penalty so highly disproportionate to the default committed. It cannot be gainsaid that penalty should be commensurate with the default committed. Section 272A of the Act, prior to the introduction of the proviso provided for a penalty of Rs.100 to Rs.200 for each days default. As noted hereinabove, section 197A of the Act has been inserted with a view to enabling persons with income below the taxable limit to received incomes of the categories mentioned therein without deduction of tax at source. Such persons are required to furnish declarations on Form No.15H to the effect that the estimated income of the declarant under the relevant previous year will be nil. Thus, it is evident that there is no loss of revenue in case of failure to file declarations under section 197A of the Act as the provision relates to cases where no tax is deductible. In the circumstances, as rightly contended on behalf of the assessee, the intention of the legislature was to levy some penalty but not beyond a point. It could never have been the intention of the Legislature in a case where no loss of revenue is caused, to penalize the assessee to an extent exceeding the amount in respect of which there is a default. Thus, a strict literal construction leads to an absurd result not intended to be subserved by the object of the legislation, viz. in a case where no loss is caused to the revenue and the amount involved may be a small one, the penalty imposed may run into lakhs of rupees depending upon the length of delay in forwarding the declarations. The fact that the legislature has subsequently thought it fit to limit the penalty to the amount involved makes it apparent that it could not be the intention of the legislature to impose such a hefty penalty in the case of a default of this nature. To bring into effect the said intention the proviso has been introduced to obviate the unintended consequences of section 272A of the Act by scaling down the quantum of penalty to the amount of tax deductible or collectible at source. The circumstances, under which the amendment is brought about is in view of the hardships faced by the assessees. The consequence of the amendment will be that the revenue does not suffer any loss and the assessee will be liable to penalty not exceeding the amount in respect of which the default has been committed. The proviso is, therefore, clearly remedial in nature.
Once it is held that the proviso is remedial in nature, in the light of the law laid down by the Supreme Court in the decisions cited hereinabove, the proviso is required to be treated as retrospective in operation. The Tribunal was, therefore, right in law and on facts in directing that the penalty should be calculated in accordance with the proviso to section 272A (wherein it is stipulated that the penalty should not exceed the tax deductible) by giving retrospective effect to the proviso.
In the light of the above discussion, both the questions stand answered in the affirmative, that is, in favour of the assessee and against the revenue. The appeal, therefore, fails and is accordingly dismissed.
[HARSHA DEVANI, J.] [R.
M. CHHAYA, J.] parmar* Top