of Income Tax, Surat Vs. Saheli Leasing & Industries Ltd.  INSC 369
(7 May 2010)
SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO.4278 OF
2010 [Arising out of SLP(C) No.5241 of 2007] Joint Commissioner of Income Tax,
Surat ....Appellant Versus Saheli Leasing & Industries Ltd. ....Respondent
CIVIL APPEAL NO.4279 OF 2010 [Arising out of SLP(C)No.5242 of 2007]
facts of both the appeals being identical, the facts of civil appeal arising
out of S.L.P.(C) No.5241 of 2007 are being referred to in this judgment.
3. On a
first flush, after bare perusal of the impugned order passed in Revenue Tax
Appeal No. 1904 of 2005, decided on 8.8.2006 by Division Bench of the High
Court of Gujarat at Ahmedabad, we thought of remanding the matter for a fresh
decision on merits, C.As. @ SLP (C) No. 5241 of 2007 etc.... (contd.) 2 in
accordance with law but, on a deeper and studied scrutiny, we thought it apt
instead of directing to remit, it would be just and proper to consider the
matter on merits ourselves and to set at rest the legal controversy involved in
the appeal. It is further so that Division Bench in the impugned order has
decided the question of law as projected before it in the appeal preferred
under Section 260 (A) of the Income Tax Act, 1961, (hereinafter referred to as
'the Act') in a most casual manner. The order is not only cryptic but does not
even remotely deal with the arguments which were sought to be projected by the
Revenue before it.
Court, time and again, reminded the courts performing judicial functions, the
manner in which judgments/orders are to be written but, it is, indeed,
unfortunate that those guidelines issued from time to time are not being
doubt, it is true that brevity is an art but brevity without clarity likely to
enter into the realm of absurdity, which is impermissible. This is what has
been reflected in the impugned order which we would reproduce hereinafter.
therefore, before proceeding to decide the C.As. @ SLP (C) No. 5241 of 2007
etc.... (contd.) 3 matter on merits, once again would like to reiterate few
guidelines for the Courts, while writing orders and judgments to follow the
guidelines are only illustrative in nature, not exhaustive and can further be
elaborated looking to the need and requirement of a given case:- a) It should
always be kept in mind that nothing should be written in the judgment/order,
which may not be germane to the facts of the case; It should have a co-relation
with the applicable law and facts. The ratio decidendi should be clearly spelt
out from the judgment / order.
preparing the draft, it is necessary to go through the same to find out, if
anything, essential to be mentioned, has escaped discussion.
ultimate finished judgment/order should have sustained chronology, regard being
had to the concept that it has readable, continued interest and one does not
feel like parting or leaving it in the midway. To elaborate, it should have
flow and perfect sequence of events, which would continue to generate interest
in the reader.
Appropriate care should be taken not to load it with all legal knowledge on the
subject as citation of too many judgments creates more confusion rather than
clarity. The foremost requirement is that leading judgments should be mentioned
and the evolution that has taken place ever since the same were pronounced and
thereafter, latest judgment, in which all previous judgments have been
considered, should be mentioned. While writing judgment, psychology of the
reader has also to be borne in mind, for the perception on that score is
Language should not be rhetoric and should C.As. @ SLP (C) No. 5241 of 2007
etc.... (contd.) 4 not reflect a contrived effort on the part of the author.
arguments are concluded, an endeavour should be made to pronounce the judgment
at the earliest and in any case not beyond a period of three months. Keeping it
pending for long time, sends a wrong signal to the litigants and the society.
should be avoided to give instances,which are likely to cause public agitation
or to a particular society. Nothing should be reflected in the same which may
hurt the feelings or emotions of any individual or society.
Aforesaid are some of the guidelines which are required to be kept in mind
while writing judgments.
we are only reiterating what has already been said in several judgments of this
Aforesaid background has been given after going through the impugned judgment
of Division Bench of the High Court. Following substantial question of law, as
contemplated under Section 260 A of the Act, was formulated to be answered by
on the facts and in the circumstances of the case, and in law, the Income Tax
Appellate Tribunal is right in coming to the conclusion that where assessed
income is loss, penalty cannot be levied under section 271 (1) (c) of the
Income Tax Act in spite of the fact that Explanation 4 (a) was added in the
Income Tax Act with effect from 1.4.1976 and subsequently, further clause (a)
was replaced by another clause (a) which is in clarificatory nature, with
effect from 1.4.2003?"
SLP (C) No. 5241 of 2007 etc.... (contd.) 5
However, the Division Bench in its wisdom thought it fit to dispose of the
appeal as under:- "Admitted facts are that the appellant has filed return
showing loss and the income is also assessed as "NIL income". When
the return was shown as loss as well as assessment of income is also NIL, no
penalty under Section 271 (1) (c) of the Income Tax Act is attracted. No case
is made out for admission of the appeal. The appeal stands dismissed at
Judge Sd/- Judge"
Considering the important question of law and its wide repercussions, it was
least expected from the Division Bench of the High Court to have dealt with the
issue more seriously, keeping in mind the question of law that was being
answered by it.
Feeling aggrieved, this appeal has been preferred by Revenue before us.
matrix is as under:-
return being filed by the Respondent/Assessee, an order under Section 143 (3)
of the Act was passed on 27.2.1998, showing total income of Rs. NIL for
assessment year 1995-1996.
During the course of assessment proceedings, it was noticed that Assessee had
claimed depreciation, which was viewed to be incorrect. Thus, an amount of Rs.
24,22,531/- C.As. @ SLP (C) No. 5241 of 2007 etc.... (contd.) 6 was disallowed
out of depreciation. Penalty proceedings under Section 271 (1) (c) of the Act
were initiated. In response to the show cause notice issued by the Revenue,
Assessee filed its reply denying the allegations and contending that no penalty
can be imposed on it, when returned income was NIL.
Penalty was sought to be imposed in respect of an item having an effect in
reducing the loss. No appeal was filed against the item, added to the income on
account of which the loss was reduced. Admittedly, Assessee, a leasing company
had claimed depreciation on plant and machinery @ 100% on various items. The
statement of depreciation filed along with the computation of income showed the
claim at Rs.1,05,08,824/-. On enquiries being made it was revealed that 100%
depreciation was claimed along with Lease Agreements entered into with
different parties. Even though, terms and conditions of the Lease Agreements
entered into with different parties were the same, except the names of the
parties had been changed. Even after dis-allowance of the said depreciation,
the taxable income of the Assessee was NIL and hence, there was no tax
liability. According to Assessee, in such a case no penalty under Section 271
(1) (c) could have been levied.
Deputy Commissioner of Income tax, Special Range-2, C.As. @ SLP (C) No. 5241 of
2007 etc.... (contd.) 7 Surat, on the basis of the discussion in the order held
that Assessee was liable to pay penalty, with reference to such additions to
income to be treated as its total income, with reference to explanation 4 (a)
to Section 271 (1) (c) of the Act. Accordingly, the penalty was levied on
concealed income of Rs. 24,22,531/- at minimum rate of 100% of tax sought to be
evaded. Thus, a penalty of Rs. 11,14,364/- was imposed on the Assessee.
Feeling aggrieved thereof, Assessee preferred an appeal before the Commissioner
of Income Tax (Appeals-II).
various judgments of the Tribunal and the High Courts, the appeal of the
Assessee came to be dismissed and penalty levied on it stood confirmed.
Assessee preferred further appeal before the Income-Tax Appellate Tribunal,
Ahmedabad. Tribunal, on the strength of an earlier order passed by Special
Bench of Ahmedabad Tribunal in the case of Apsara Processors (P) Ltd. and Ors.
No. 284/Ahd./2004 dated 17.12.2004 came to the conclusion that no penalty can
be levied, if the returned income and the assessed income is loss. Accordingly,
the orders passed by the Assessing Officer as well as Commissioner (Appeals)
were set aside and quashed and the penalty imposed on the Assessee was deleted.
It was this order of the Tribunal which was carried further by filing C.As. @
SLP (C) No. 5241 of 2007 etc.... (contd.) 8 Appeal under Section 260A of the
Act in the High Court, which met the fate of dismissal by the Division Bench.
V. Shekhar, learned senior counsel appearing for the appellant at the outset
contended that the point projected in this appeal stands answered in favour of
the Revenue by a judgment of Bench of three learned Judges of this Court
reported in (2008) 304 ITR 308 (SC) titled CIT
Gold Coin (supra) an earlier judgment of this Court, reported in (2007) 289 ITR
83 SC titled Virtual Soft been over-ruled.
21. It is
pertinent to point out here that in Gold Coin (supra), what was being
challenged by the Revenue, was the order passed by same Bench of the High Court
of Gujarat at Ahmedabad, which finds place at page 309, wherein before
proceeding to decide the matter, the three learned judges of this Court thought
it fit to reproduce the same. The question of law as projected in Gold Coin
(supra) before the High Court and the question of law as projected in this
appeal is identical but what is being deciphered by us is the manner in which
the impugned judgment has been written and pronounced. After all, at the High
Court level, when a matter is considered on merits by a Division Bench, not
only C.As. @ SLP (C) No. 5241 of 2007 etc.... (contd.) 9 factual but even legal
aspect of the matters is required to be considered at some length.
matter of Gold Coin (supra) was placed before three learned judges of this
Court, as correctness and propriety of the order passed by two learned judges
of this Court in Virtual Soft Systems (supra) was doubted. Thus, to clear the
doubts, on the correct exposition of law, a three Judge Bench was constituted
which decided the matter in Gold Coin (supra).
23. It is
to be seen that purpose behind Section 271 (1)(c) of the Act is to penalise the
Assessee for - a)concealing particulars of income and / or b)furnishing
inadequate particulars of such income.
Whether income returned was a profit or loss, was really of no consequence.
Therefore, even if no tax was payable, the penalty was still leviable. It is in
that context, to be noted that even prior to the amendment it could not be read
to mean that if no tax was payable by the Assessee, due to filing of return,
disclosing loss, the Assessee was not liable to pay penalty even if the
Assessee had concealed and/or furnished inadequate particulars.
of the High Courts had taken a contrary view, thus, Parliament in its wisdom
thought it fit to clarify the position by changing the expression
"any" by "if any".
SLP (C) No. 5241 of 2007 etc.... (contd.) 10 Thus, this was not a substantive
amendment which created imposition of penalty for the first time. The amendment
by the Finance Act of the relevant year as specifically noted in the notes on
clauses shows that proposed amendment was clarificatory in nature and would
apply to all assessments even prior to the assessment year 2003-2004.
in Gold Coin (supra), after combined reading of the recommendations of Wanchoo
Committee, and Circular No. 204 dated 24.7.1976, it was clarified that points
had been made clear with regard to Explanation 4 (a) to Section 271 (1) (c)
(iii) to intend to levy penalty not only in a case where after addition of
concealed income, a loss returned, after assessment becomes positive income,
but also in a case where addition of concealed income reduces the returned loss
and finally the assessed income is also a loss or minus figure. Therefore, even
during the period between 1.4.1976 and 1.4.2003, the position was that penalty
was still leviable in a case where addition of concealed income reduces the
the aforesaid case, the expression "income" in the statute appearing
in Section 2 (24) of the Act has been clarified to mean that it is an inclusive
definition and includes losses, that is, negative profit. This has been held so
on the strength of earlier judgments of this Court C.As. @ SLP (C) No. 5241 of
2007 etc.... (contd.) 11 120 ITR 921. After elaborate and detailed discussion,
this Court held with reference to the charging provisions of statute that the
expression "income" should be understood to include losses. The
expression "profits and gains" refers to positive income whereas
"losses" represent negative profit or in other words minus income.
Considering this aspect of the matter in greater details, Gold Coin (supra)
over-ruled the view expressed by two learned judges in Virtual Soft Systems
Relevant paras 11 and 12 of Gold Coin (supra) dealing with income and losses
are reproduced herein below:- "11. When the word "income" is
read to include losses as held in Harprasad's case it becomes crystal clear
that even in a case where on account of addition of concealed income the
returned loss stands reduced and even if the final assessed income is a loss,
still penalty was leviable thereon even during the period April 1, 1976 to
April1, 2003. Even in the Circular dated July 24, 1976, referred to above, the
position was clarified by the Central Board of direct Taxes (in short "the
CBDT"). It is stated that in a case where on setting off the concealed
income against any loss incurred by the Assessee under any other head of income
or brought forward from earlier years, the total income is reduced to a figure
lower than the concealed income or even to a minus figure the penalty would be
imposable because in such a case 'the tax sought to be evaded" will be tax
chargeable on concealed income as if it is "total income".
SLP (C) No. 5241 of 2007 etc.... (contd.) 12
is well-settled that the applicable provision would be the law as it existed on
the date of the filing of the return. It is of relevance to note that when any
loss is returned in any return it need not necessarily be the loss of the
concerned previous year. It may also include carried forward loss which is
required to be set up against future income under Section 72 of the Act.
Therefore, the applicable law on the date of filing of the return cannot be
confined only to the losses of the previous accounting years."
necessary consequence thereof would be that even if Assessee has disclosed NIL
income and on verification of the record, it is found that certain income has
been concealed or has wrongly been shown, in that case, penalty can still be
levied. The aforesaid position is no more res integra and according to us, it
stands answered in favour of the Revenue and against the Assessee.
learned senior counsel appearing for the respondent Assessee, Mr. D.N Sawhney,
contended that the observations made in Gold Coin (supra) can at best be
treated as obiter but not as binding precedent. According to him, the
Elphinstone Spinning and Weaving Mills Co. Ltd. XL ITR 142, would still hold
the field and applies fully to the facts of the said case.
emphasis has been laid on the following observations in Elphinstone (supra)
reproduced hereinbelow :
SLP (C) No. 5241 of 2007 etc.... (contd.) 13 "There is no doubt that if
the words of a taxing statute fail, then so much the tax.
courts cannot, except rarely and in clear cases, help the draftsmen by a
favourable construction. Here, the difficulty is not one of inaccurate language
only. It is really this that a very large number of taxpayers are within the
words but some of them are not.
the enactment might fail in the former case on some other ground (as has
happened in another case decided today) is not a matter we are dealing with at
the moment. It is sufficient to say there that the words do not take in the
modifications which the learned counsel for the appellant suggests. The word
"additional" in the expression "additional income-tax" must
refer to a state of affairs in which there has been a tax before. The words
"charge on the total income" are not appropriate to describe a case
in which there is no income or there is loss. The same is the case with the
expression "profits liable to tax" The last expression
"dividends payable out of such profits" can only apply when there are
profits and not when there are no profits.
clear that the Legislature had in mind the case of persons paying dividends
beyond a reasonable portion of their income.
was intended to be given to those who kept within the limit and an enhanced
rate was to be imposed on those who exceeded it. The law was calculated to
reach those persons who did the latter even if they resorted to the device of
keeping profits back in one year to earn rebate to pay out the same profits in
the next. For this purpose, the profits of the earlier years were deemed to be
profits of the succeeding years. So far so good. But the Legislature failed to
fit in the law in the scheme of the Indian Income-tax Act under which and to
effectuate which the Finance Act is passed. The Legislature used language
appropriate to income, and applied the rate to the "total income".
Obviously, therefore, the law must fail in those cases where there is no C.As.
@ SLP (C) No. 5241 of 2007 etc.... (contd.) 14 total income at all, and the
courts cannot be invited to supply the omission made by the Legislature."
33. In a
first glance, after considering arguments of both sides, we thought that matter
required to be referred to a larger Bench for considering the issue involved in
this appeal but on deeper scanning of the judgments in Gold Coin (supra) and
Elphinstone (supra), we came to the conclusion that the ratio decidendi of Gold
Coin (supra) fully covers the issue and the case of Elphinstone (supra) has no
application to the facts of the said case.
cases are distinguishable on the following broad grounds, namely:
Coin Health (supra) arose under the Income Tax Act, 1961, whereas
Elphinstone(supra) arose under the repealed Income Tax Act of 1922.
this is only a distinguishing feature noticed in 2 decisions which is not of
question that fell for consideration in Gold Coin (supra) was what would be the
true interpretation of Section 271 (1) (c) in the context of amendments made
therein whereas, the question in Elphinstone (supra) was in relation to
chargeability C.As. @ SLP (C) No. 5241 of 2007 etc.... (contd.) 15 of
"additional tax" on "dividend income" earned by Assessee
under paragraph - B of First Schedule to the Income Tax Act, 1922.
Elphinstone (supra) interpreted five words occurring in para-B of First
"additional Income Tax", "charge on the total income",
"profits liable to tax" and lastly, "dividends payable out of
such profits", whereas, in Gold Coin's case, the question arose whether
word "income" includes loss for the purpose of imposition of penalty
u/s 271 (1) (c) and if Assessee incurs loss in any particular year then whether
penalty u/s 271 (1) (c) can still be imposed on him. This has been
categorically answered in Gold Coin (supra) in favour of Revenue and against
object of imposing penalty is different than that of determining Assessee's
liability to pay tax or additional tax under any charging section. The
interpretation applied to penalty provision thus, cannot be applied while
interpreting any charging section for payment of income tax or additional tax.
words, both provisions i.e. penalty and C.As. @ SLP (C) No. 5241 of 2007
etc.... (contd.) 16 charging have different objects and consequences.
operate in different fields qua Assessee.
liability to pay additional tax under First Schedule on the income earned out
of dividend implies that Assessee is first required to pay "tax" and
then additional tax on the specified income. It was basically this issue which
was examined in Elphinstone (supra) wherein Their Lordships considered the
object for enacting first para of schedule. This object has nothing to do with
particular word occurring in one Section of the Act, having a particular object
cannot carry the same meaning when used in different Section of the same Act,
which is enacted for different object.
words, one word occurring in different Sections of the Act can have different
meaning, if the object of the two Sections are different and when both operate
in different fields.
Question of law involved in this appeal is directly covered by the decision of
Gold Coin (supra) and is to be answered accordingly.
Elphinstone (supra), therefore, has no bearing over the view taken in Gold Coin
(supra) case and C.As. @ SLP (C) No. 5241 of 2007 etc.... (contd.) 17 even if
it had been taken note of, the decision taken therein would have been the same
due to aforementioned distinguishing feature.
issue involved in Gold Coin (supra) being entirely different than the one
involved in Elphinstone (supra), the view taken by this Court in both the
decisions are correct operating in the respective fields, requiring no
reconsideration of the matter.
order to enable the Court to refer any case to a larger Bench for
reconsideration, it is necessary to point out that particular provision of law
having a bearing over the issue involved was not taken note of or there is an
error apparent on its face or that a particular earlier decision was not
noticed, which has a direct bearing or has taken a contrary view. Such does not
appear to be a case herein. Thus, it does not need to be referred to a larger
Bench as in our considered opinion; it is squarely covered by the judgment of
this Court in Gold Coin (supra).
the light of the aforesaid discussion, we have no doubt in our mind that the
ratio of Elphinstone (supra) has C.As. @ SLP (C) No. 5241 of 2007 etc....
(contd.) 18 no application to the facts of the case and the question of law
projected stands squarely answered in favour of the Revenue and against the
Assessee in Gold Coin (supra) as a result thereof, appeal by Revenue stands
order passed by Income Tax Appellate Tribunal and confirmed by Division Bench
are hereby set aside and quashed. The Revenue, therefore, would be at liberty
to proceed further against the Assessee on merits in accordance with law.
Appeals stand allowed as mentioned hereinabove but with no order as to costs.
.......................CJI [K.G. Balakrishnan]
.......................J. [Deepak Verma]
.......................J. [B.S. Chauhan]