Supreme Court of India
COMMISSIONER OF INCOME TAX, GAUHATI & ORS.versusM/S. SATI OIL UDYOG LTD. & ANR.
- Citation
- 2015 INSC 265
- Decided
- 24 March 2015
- Disposal
- Appeal(s) allowed
- Bench
- A K SIKRI
Holding
Section 143(1A) can be invoked only where the lesser amount stated in the return is due to tax evasion, and the retrospective amendment to that provision is constitutionally valid.
Summary
The case concerned the constitutional validity of the retrospective amendment to Section 143(1A) of the Income Tax Act, 1961, which imposes a 20% additional tax when adjustments increase declared income or reduce loss. The appellant‑Commissioner had levied additional tax on M/s. Sati Oil Udyog Ltd. for assessment years 1989‑90 and 1991‑92 where the company had reported losses. The company challenged the provision as arbitrary, unreasonable and violative of constitutional rights. The Supreme Court held that the object of Section 143(1A) is to deter tax evasion and therefore it applies only where the lower amount declared in the return is a result of evasion. The burden of proving evasion lies on the revenue. The retrospective clarificatory amendment was upheld as constitutionally valid. Consequently, the appeals were allowed and the High Court judgments were set aside.
Issues considered
- The constitutional validity of the retrospective amendment to Section 143(1A) of the Income Tax Act, 1961.
- Whether Section 143(1A) applies to cases where the return shows a loss.
- Whether the burden of proving tax evasion under Section 143(1A) lies on the revenue.
- Whether the amendment violates Articles 19 and 20 of the Constitution.
Legislation cited
- Income Tax Act, 1961s. 143(1), s. 143(1A), s. 143(2), s. 143(3), s. 152, s. 156, s. 2(15), s. 2(24)
Subjects
Income TaxSection 143(1A)Retrospective amendmentTax evasionAdditional taxConstitutional validityPenaltyLosses
Judgment
[2015] 2 S.C.R. 1099
COMMISSIONER OF INCOME TAX, A
GAUHATI & ORS.
v.
M/S. SATI OIL UDYOG LTD. & ANR.
B
(Civil Appeal Nos.9133-9134 of 2003)
MARCH 24, 2015
[A.K. SIKRI AND ROHINTON FALl NARIMAN, JJ.] c
Income Tax Act, 1961: s.143(1A) (as amended in
1993)- Levy of 20% additional tax where total income as
a result of adjustments made under first proviso to
s.143(1)(a) exceeds the total income declared in the return
0
-Retrospective effecf.Jto s.143(1A)- Constitutional validity
of- Held: The amended s.14J(1A) has the deterrent effect
of preventing tax evasion and, therefore, is applicable only
to tax evaders and not honest assessee- s.143(1A) can
be invoked only where it is found that lesser amount stated E
in the return filed by assessee was the result of tax evasion
- The retrospective clarificatory amendment is
constitutionally valid.
Allowing the appeals, the Court
F
HELD: The object of Section 143(1A) is prevention
of evasion of tax. By the introduction of this provision,
persons who have filed returns in which they have
sought to evade the tax properly payable by them is
meant to have a deterrent effect and a hefty amount of G
20% as additional income tax is payable on the
difference between what is declared in the return and
what is assessed to tax. The expression "income"
1099
H
1100 SUPREME COURT REPORTS [2015] 2 S.C.R.
A contained in Section 143 (1A) is wide enough to
include losses also. Section 143 (1A) can only be
invoked where it is found on facts that the lesser
amount stated in the return filed by the assessee is a
result of an attempt to evade tax lawfully payable by
B the assessee. The burden of proving that the assessee
has so attempted to evade tax is on the revenue which
may be discharged by the revenue by establishing
facts and circumstances from which a reasonable
inference can be drawn that the assessee has, in fact,
C attempted to evade tax lawfully payable by it. Subject
to the said construction of Section 143 (1A), the
retrospective clarificatory amendment of the said
Section is upheld. [Paras 8, 17, 22] [1107-G-H; 1115-B,
1021-G-H; 1122-A]
D
Commissioner of Income Tax Central, Delhi v.
Harprasad & Company Pvt. Ltd. (1975) 3 SCC 868; CIT
Joint Commissioner of Income Tax, Surat v. Saheli Leasing
& Industries Ltd. 2010 (6) SCR 747 = (2010) 6 SCC 384
E - relied on.
Kerala State Coir Corpn Ltd. v. Union of India (1994)
210 ITR 121 (Ker); Sanctus Drugs Pharmaceuticals Pvt.
Ltd. v. Union of India (1997) 225 ITR 252 (MP); DCIT v.
F Rajasthan State Electricity Board (2008) 299 ITR 253 (Raj);
Bidar Sahakari Sakkare Karkhane Niyamat v Union of India
(1999) 237 ITR 445 (Kar); Aluminium Industries Ltd. v.
DCIT (Asst) (1998) 234 ITR 165 (Ker); Sukra Diamond
Tools Pvt. Ltd. v. DCIT (1998) 229 ITR 682 (Mad); Modi
Cement Limited v. Union of India (1992) 193 ITR 91; JK
G Synthetics Limited v. Asstt. Commissioner of Income-Tax
(1993) 2000 ITR 594; Indo Gulf Fertilizers & Chemicals
Corpn. Ltd. v. Union of India (1992) 1951TR 485; Shiv Dutt
Rai Fateh Chand v. Union of India 1983 (3) SCR 198 :
H (1983) 3 SCC 529; Commissioner of Income Tax, Bhopal
COMMISSIONER OF INCOME TAX, GAUHATI v. SATI1101
OIL UDYOG LTD.
v. Hindustan Electro Graphites, Indore 2000 (2) SCR 506 A
: (2000) 3 SCC 595; K.P. Varghese v. ITO (1982) 1 SCR
629 - referred to.
Case Law Reference
B
(1994) 210 ITR 121 (Ker) Referred to. Para 2
(1997) 225 ITR 252 (MP) Referred to. Para 2
(2008) 299 ITR 253 (Raj) Referred to. Para 2
(1999) 237 ITR 445 (Kar) Referred to. Para 2 c
(1998) 234 ITR 165 (Ker) Referred to. Para 2
(1998) 229 ITR 682 (Mad) Referred to. Para 2
(1975) 3 sec 868 Relied on. Para 10 D
2010 (6) SCR 747 Relied on. Para 11
(1992) 193 ITR 91 Referred to. Para 14
(1993) 2000 ITR 594 Referred to. Para 14 E
(1992) 195 ITR 485 Referred to. Para 14
1983 (3) SCR 198 · Referred to. Para 16
2000 (2) SCR 506 Referred to. Para 18
F
(1982) 1 SCR 629 Referred to. Para 20
CIVIL APPELLATE JURISDICTION: Civil Appeal No.
. 9133-9134 of 2003
From the Judgment and Order dated 12.4.2002 of the G
Division Bench of the Gauhati High Court in W.A. No. 345
and 365 of 1998.
With
H
1102 SUPREME COURT REPORTS [2015) 2 S.C.R.
A C.A. No. 9135 of 2003
N.K. Kaul, ASG, Arijit Prasad, Parvesh Thakur,
Akansha Kaul, Anil Katiyar for the Appellants.
Abhijit Sengupta for the Respondents.
B
The Judgment of the Court was delivered by
R.F.NARIMAN, J. 1. The question which arises for
consideration in the present appeals is the constitutional
C validity of the retrospective amendment to Section 143(1A)
of the Income Tax Act, 1961. Both the Single Judge and
the Division Bench of the Gauhati High Court have held
that the retrospective effect given to the amendment would
be arbitrary and unreasonable inasmuch as the provision,
D being a penal provision, would operate harshly on
assessees who have made a loss instead of a profit, the
difference between the loss showed in the return filed by
the assessee and the loss assessed to income tax having
to bear an additional income tax at the rate of 20%.
E
2. It may be mentioned at the outset that the same
provision in its retrospective operation has been upheld by
the Kerala, Madhya Pradesh, Rajasthan, Karnataka and
Madras High Courts. (Kerala State Coir Corpn Ltd. v.
F Union of India, (1994) 210 ITR 121 (Ker); Sanctus Drugs
Pharmaceuticals Pvt. Ltd. v. Union of India, (1997) 225
ITR 252 (MP); DCIT v. Rajasthan State Electricity Board,
(2008) 299 ITR 253 (Raj); Bidar Sahakari Sakkare
Karkhane Niyamat v Union of India, (1999) 237 ITR 445
G (Kar); Aluminium Industries Ltd. v. DCIT (Asst), (1998)
234 ITR 165 (Ker); Sukra Diamond Tools Pvt. Ltd. v.
DCIT, (1998) 229 ITR 682 (Mad)).
3. The facts necessary to decide these appeals are as
H follows.
COMMIS~IONER OF INCOME TAX, GAUHATI v. SATI1103
OIL UDYOG LTD. [R.F.NARIMAN, J.]
. The respondent-herein in its annual return for A
assessment years 1989-1990 and 1991-1992 showed a
loss of Rs.1,94,13,440/- and Rs.1,80,22,480/- respectively.
By an assessment order dated 14.12.1992, the Assessing
Officer levied an additional tax under Section 143 (1A) of
Rs.5,62,490/- and Rs.8,09,290/- respectively for the two B
assessment years in question calculated in the manner
provided in the Section.
4. Being aggrieved by the order dated 14.12.1992, the
respondent filed two separate writ petitions to declare the· C
provisions of Section 143 ( 1A) as ultra vires and
consequentially prayed for the quashing of the order dated
14.12.1992. The learned Single Judge who heard the two
petitions upheld Section 143 (1A) as amended in 1993
prospectively but held that insofar as it operated with effect D
from 1989 on losses made by companies, the section is
arbitrary and unreasonable and would, therefore, have to
be struck down. The Division Bench agreed with the Single
. Judge and dismissed the two writ appeals beforE~ it.
E
5. Shri Neeraj Kaul, learned Additional Solicitor
General of India appearing on behalf of the appellants
stated that the amendment made to Section 143 (1A) with
retrospective effect was merely clarificatory and that even
without such amendment, the same position would obtain F
qua losses as would obtain qua profits inasmuch as the
expression "income" would comprehend both profits as well
as losses. He cited a number of judgments before us which
we will refer to presently. On being questioned by the
Bench about the true construction of Section 143 (1A), he G
very fairly submitted that ·since the object of Section
· 143(1A) is to prevent tax evasion, the said Section would
have to be read in the light of the aforesaid object. Despite
·being served, no one appears for the respondents.
H
1104 SUPREME COURT REPORTS [2015]2 S.C.R.
A Section 143 (1A) as it stood in 1989 is as follows:-
"(a) Where, in the case of any person, the total income,
as a result of the adjustments made under the first
proviso to clause (a) of sub-section (1), exceeds the
B total income declared in the return by any amount,
the Assessing Officer shall, -
(i) further increase the amount of tax payable under
sub-section (1) by an additional income-tax
c calculated at the rate of twenty per cent of the tax
payable on such excess amount and specify the
additional income-tax in the intimation to be sent
under sub-clause (i) of clause (a) of sub-section (1);
(ii) where any refund is due under sub-section (1),
D
reduce the amount of such refund by an amount
equivalent to the additional income-tax calculated
under sub-clause (i).
(b) Where as a result of an order under (sub-section
E (3) of this section or) section 154 or section 250 or
section 254 or section 260 or section 262 or section
263 or section 264, the amount on which additional
income-tax is payable under clause (a) has been
increased or reduced, s the case may be, the
F
additional income-tax shall be increased or reduced
accordingly, and, -
(i) in a case where the additional income-tax is
increased, the Assessing Officer shall serve on the
G assessee a notice of demand under Section 156;
(ii) in a case where the additional income-tax is reduced,
the excess amount paid, if any, shall be refunded.
H ·Explanation. - For the purposes of this sub-section, "tax
COMMISSIONER OF INCOME TAX, GAUHATI v. SATI1105
OIL UDYOG LTD. [R.F.NARIMAN, J.]
payable on such excess amount" means:- A
(i) in any case where the amount of adjustments made
under the first proviso to claus~ (a) of sub-section
(1) exceed the·total income, the tax that would have
been chargeable had the amount of the adjustments B
been the total income;
(ii) in any other case, the difference between the tax on
the total income and the tax that would have been
chargeable had such total income been reduced by c
the amount of adjustments."
6. By the Finance Act of 1993, Section 143 (1A)(a)
was substituted with retrospective effect from 1.4.1989 as
follows:-
D
"(a) Where as a result of the adjustments made under
the first proviso to clause (a) of sub-section (1),-
(t) the income declared by any person in the return ·is
increased; or E
(il) the loss declared by such person in the return is
reduced or is converted into income,
the Assessing Officer shaii,-
F
(A) in a case where the increase in income under sub-
clause (1) of this clause has increased the total income
of such person, further increase the amount of tax
payable under sub-section (1) by an additional income
tax calculated at the rate of twenty per cent on the G
difference between the tax on the total income so
increased and the tax that would have been
chargeable had such total income been red_uced by the
amount of adjustments and specify the additional H
1106 SUPREME COURT REPORTS [2015] 2 S.C.R.
A income tax in the intimation to be sent under sub-
clause (1) of clause (a) of sub-section (1 );
(8) in a case where the loss so declared is reduced
under sub-clause (it) of this clause or the aforesaid
8 adjustments have the effect of converting that loss into
income, calculate a sum (hereinafter referred to as
additional income tax) equal to twenty per cent of the
tax that would have been chargeable on the amount
of the adjustments as if it had been the total income
c of such person and specify the additional income tax
so calculated in the intimation to be sent under sub-
clause (t) of clause (a) of sub-section (1 );
(C) where any refund is due under sub-section (1 ),
D reduce the amount of such refund by an amount
equivalent to the additional income tax calculated
under sub-clause (A) or sub-clause (8}, as the case
may be."
E 7. The Memorandum explaining the provisions of the
Finance Bill which introduced the said retrospective
amendment is as under:
"The provisions of section 143(1A) of the Income-tax
Act provide for levy of twenty per cent additional
F
income-tax where the total income, as a result of the
adjustments made under the first proviso to section
143{1)(a}, exceeds the total income declared in the
return. These provisions seek to cover cases of
G returned income as well as returned loss. Besides its
deterrent effect, the purpose of the levy of the
additional income-tax is to persuade all the assesses
to file their returns of income carefully to avoid
mistakes.
H In two recent judicial pronouncements, it has been
COMMISSIONER OF INCOME TAX, GAUHATI v. SATI1107
OIL UDYOG LTD. [R.F.NARIMAN, J.}
held that the provisions of section 143 (1A) of the A
Income-tax Act, as these are worded, are not
applicable in loss cases.
The Bill, therefore, seeks to amend section 143(1A}
of the Income-tax Act to provide that where as a result B
of the adjustments made under the ,first proviso to
section 143 (1)(a), the income declared by any person
in the return is increased, the Assessing Officer shall
charge additional income-fax at the rate· of twenty per
cent, on the difference between the tax on the C
increased total income and the tax that would have
been chargeable had such total income been reduced
by the amount of adjustments. In cases where the loss
declared in the return has been reduced as a result of
the aforesaid adjustments or the aforesaid adjustments · D
have the effect of converting that loss into income, the
Bill seeks to provide that the Assessing Officer shall
calculate a sum (referred to as additional income tax)
equal to twenty per cent of the tax that would have
been chargeable on the amount of the adjustments as E
if it had been the total income of such person.
The proposed amendment will take effect from 1-st
April, 1989 and will, accordingly, apply in relation to the
assessment year 1989-90 and subsequent years." F
8. On a cursory reading of the provision, it is clear that
the object of Section 143(1A) is the prevention of evasion
of tax. By the introduction of this provision, persons who
have filed returns in which they have sought to evade the G
tax properly payable by them is meant jo have a deterrent
effect and a hefty amount of 20% as additional income tax
is payable on the difference between what is declared in
the return and what is assessed to tax.
H
1108 SUPREME COURT REPORTS [2015] 2 S.C.R.
A 9. A plain reading of the provision as it' originally stood
refers to "the total income".
10. Mr. Kaul, learned Additional Solicitor General is
right in referring to the definition of "income" in Section
B 2(24) of the I nco me Tax Act, 1995 and drawing our
attention to the fact that the said definition is an inclusive
one. Further, it is settled law at least since 1975 that the
word "income" would include within it both profits as well
as losses. This is clear from Commissioner of Income
C Tax Central; Delhi v. Harprasad & Company Pvt Ltd.,
(1975) 3 sec 868, paragraph 17 of which Jays down the
law as follows:
"17. From the charging provisions of the Act. it is
D discernible that the words "income" or "profits and
gains" should be understood as including losses also,
so that, in one sense ~~profits and gains" represent
"plus income" whereas losses represent "minus
income" lCIT v. Karamchand Prem Chand, (1960) 3
E SCR 727 : 40 ITR 106 (SC) : CIT v. Elphinstone
Spinning and Weaving Mills, (1960) 3 SCR 953 : 40
ITR 143 (SC)) . In other words, loss is negative profit.
Both positive and negative profits are of a revenue
character. Both must enter into computation, wherever
F it becomes material, in the same mode of the taxable
income of the assessee. Although Section 6 classifies
income under six heads, the main charging provision
is Section 3 which levies income tax, as only one tax,
on the "total income" of the assessee as defined in
G Section 2(15). An income in order to come within the
purview of that definition must satisfy two conditions:
Firstly, it must comprise the "total amount of income,
profits and gains referred to in Section 4(1)". Secondly,
it must be "computed in the manner laid down in the
H
COMMISSIONER OF INCOME TAX, GAUHATI v. SATI1109
OIL UDYOG LTD. [R.F.NARIMAN, J.)
Act". If either of these conditions fails, the income will A
not be a part of the "total income" that can be brought
to charge."
11. This judgment has subsequently been followed in
several judgments. The fairly recent judgment of this Court 8
in CIT Joint Commissioner of Income Tax, Surat v.
Saheli Leasing & Industries Ltd., (2010) 6 SCC 384
referred to the aforesaid judgment and held as follows:-
"23. In the aforesaid decision in Gold Coin case c
[(2008) 9 sec 622 : (2008) 304 ITR 308] , 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 o
of earlier judgments of this Court in CIT v. Harprasad
and Co. (P) Ltd. [(1975) 3 SCC 868: 1975 SCC (Tax)
158: (1975) 99 ITR 118] and followed in Reliance Jute
and Industries Ltd. v. CIT [(1980) 1 SCC 139 : 1980
SCC (Tax) 67 : (1979) 120 ITR 921] . After an E
elaborate and detailed discussion, this Court held with
reference to the charging provisions of the statute that
the expression "income" should be understood to
include losses. The expression "profits and gains"
refers to positive income whereas "losses" represents F
negative profit or in other words minus income.
Considering .this aspect of the matter in greater detail,
Gold Coin [(2008) 9 sec 622: (2008) 304 ITR 308]
overruled the view expressed by the two learned
Judges in Virtual Soft Systems [(2007) 9 SCC 665 : G
(2007) 289 ITR 83] .
24. Relevant ITR paras 11 and 12 of Gold Coin [(2008)
9 SCC 622 : (2008) 304 ITR 308] dealing with income
and losses are reproduced hereinbelow: (SCC p. 628, H
1110 SUPREME COURT REPORTS [2015] 2 S.C.R.
A paras 15-16)
"15. When the word 'income' is read to include
losses as held in Harprasad case [(1975) 3 SCC 868
: 1975 SCC (Tax) 158: (1975) 99 ITR 118] it becomes
8 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 1-4-1976 to 1-4-2003. Even in the Circular
c dated 24-7-1976, referred to above, the position was
clarified by the Central Board of Direct Taxes (in short
'CBDT'). It is stated that in a case where on setting of
the concealed income against any loss incurred by the
assessee under any other head of income or brought
D 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
E 'total income'.
16. The law 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
F when any loss is returned in any return it need not
necessarily be the loss of the previous year
concerned. 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
G law on the date of filing of the return cannot be
confined only to the losses of the previous accounting
years."
25. The necessary consequence thereof would be that
H
COMMISSIONER OF INCOME .TAX, GAUHATI v. SATI .1111
OIL UDYOG LTD. [R.F.NARIMAN, J.]
even if the assessee has disclosed nil income and on . A
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 B
the assessee."
12. Apart from the above, there is another indication
contained in Section 143 1(a) as it stood in 1989. The said
·Section reads as under: C
. "(1)(a) Where a return has been made under section
139, or in response to a notice under sub-section (1)
of section 142,-
0
(i) if any tax or interest is found due on the basis of
such return, after adjustment of any tax deducted at
source, any advance tax paid and any amount paid
otherwise by way of tax or interest, then, without
prejudice to the provisions of sub-section (2), an E
intimation shall be sent to the assessee specify-ing the
sum so payable, and such intimation shall be deemed
to be a notice of demand issued under section 156
and all the provi-sions of this Act shall apply
accordingly; and F
(ii) if any refund is due on the basis of such return, it
shall.be granted to the assessee :
Provided that in computing the tax or interest payable
by, or refundable to, the assessee, the following G
adjustments shall be made in the income or loss
declared in the return, namely:~
(i) any arithmetical errors in the return, accounts or
H
1112 SUPREME COURT REPORTS [2015] 2 S.C.R.
A documents accompanying it shall be rectified ;
(ii) any loss carried forward, deduction, allowance or
relief, which, on the basis of the information available
in such return, accounts or documents, is prima facie
B admissible but which is not claimed in the return, shall
be allowed ;
(iii) any loss carried forward' deduction' allowance or
relief claimed in the return, which, on the basis of the
c informa-tion available in such return, accounts or
documents, is prima facie inadmissible, shall be
disallowed :
Provided further that an intimation shall be sent to the
assessee whether or not any adjustment has been
D
made under the first proviso and notwithstanding that
no tax or interest is due from him:
Provided also that an intimation under this clause shall
not be sent after the expiry of two years from the end
E of the assessment year in which the income was first
assessable."
13. Even on a reading of Section 143 1(a) which is
referred to in Section 143 (1A), a loss is envisaged as
F being declared in a return made under Section 139. It is
clear, therefore, that the retrospective amendment made in
1993 would only be clarificatory of the position that existed
in 1989 itself.
G 14. It was pointed out to us that the reason for the
retrospective amendment made in 1993 was the judgments
of the Delhi High Court in Modi Cement Limited v. Union
of India, (1992) 193 ITR 91 and JK Synthetics Limited
v. Asstt. Commissioner of Income-Tax, (1993) 2000 ITR
H
COMMISSIONER OF INCOME TAX, GAUHATI v. SATI 1113
OIL UDYOG LTD. {R.F.NARIMAN, J.]
594, and the Allahabad High Court held in Indo Gulf A
Fertilizers & Chemicals Corpn. Ltd. v. Union of India,
(1992) 195 ITR 485, which held that losses were not within
the contemplation of Section 143(1A) prior to its
amendment.
8
15. The J.K. Synthetics judgment of the Delhi High
Court was expressly upset by this Court in (2003) 10 SCC
623. By the time· this Court delivered its judgment, the
retrospective amendment to Section 143 (1A) had already
been made, and this Court, therefore, set aside the Delhi C
High Court judgment.
16. Shri Kaul also cited before us the judgment of Shiv
Dutt Rai Fateh Chand v. Union of India, (1983) 3 SCC
529. In this judgment, the validity of the retrospective D
amendment of Section 9(2A) of the Central Sales Tax Act
was in question. This Court held that the imposition of
penalty by a tax authority is a civil liability, though penal in
character. For that reason alone, retrospective imposition
of a penalty would not be hit by Article 20(1) of the E
Constitution which concerns itself with penalties that are
levied by criminal statutes. In paragraph 34, the
retrospective imposition of a penalty under Section 9(2A)
was upheld in the following terms:
F
"34. In the instant case, the facts are one shade better.
There is no dispute in this case about the validity. of
the tax payable under the Act during the period
between January 1, 1957 and the date of
commencement of the Amending Act. It has to be G
presumed that all the tax has been collected by the
dealers from their customers. There is also no dispute
that the law required the dealers to pay the tax within
the specified time. The dealers had also the
H
1114 SUPREME COURT REPORTS [2015] 2" S.C.R.
A knowledge of the provisions relating to penalties in the
general sales tax laws of their respective States. It was
only owing to the deficien~y in the Act pointed out by
this court in Khemka case [AIR 1955 SC 765 : (1955)
2 SCR 483 : (1955) 6 STC 627] the penalties became
8 not payable. In this situation, where the dealers have
utilised the money which should have been paid to the
Government and have committed default in performing
their duty,· if Parliament calls upon. them to pay
penalties in accordance with the law as amended with
c retrospective effect it cannot be said that there has
been any unreasonable restriction imposed on the
rights guaranteed under Article 19(1)(1) and (g) of the
Constitution, even though the period of retrospectivity
is nearly 19 years. It is also pertinent to refer here to
D
sub-section (3) of Section 9 of the Amending Act which
provides that the provisions contained in sub-section
(2) thereof would not prevent a per_son from
questioning the imposition or collection of any penalty
E or any proceeding, act or thing in connection therewith
. or for claiming any refund in accordance with the Act
as amended by the Amending Act read with sub-
section (1) of Section 9 of the Amending Act.
Explanation to sub-section (3) of Section 9 of the
F Amending Act also provides for exclusion of the period
between February 27, 1975 i.e. the date on which the
judgment in Khemka case [AIR 1955 SC 765: (1955)
2 SCR 483 : (1955) 6 STC 627] was delivered up to
the date of the commencement of the Amending Act
G in computing the period of limitation for questioning
any order levying penalty. ·In those proceedings the
authorities concerned are sure to consider all aspects
of the case before passing orders levying penalties.
The contention that the impugned provision is violative
H of Article 19( 1)(f) and (g) of the Constitution has,
COMMISSIONER OF INCOME TAX, GAUHATI v. SATI1115
OIL UDYOG LTD. [R.F.NARIMAN, J.]
therefore, to be rejected." A
17. In the present case as well, all assessees were put
on. notice in 1989 itself that the expression "income"
contained in Section 143 (1A) would be wide enough to
include losses also. That being the case, on facts here
8
there is in fact no retrospective imposition of additional tax
- such tax was imposable on losses. as well from 1989
itself.
18. We have already stated in our judgm~nt that the
object of Section 143 (1A) is the prevention of tax evasion. C
Read literally, both honest asessees and tax evaders are
caught within its net. An interesting example of such a case
is contained in Commissioner of Income Tax,_Bhopal v.
Hindustan Electro Graphites, Indore, (2000) 3 SCC 595.
On facts, the assessee had filed its return of income in D
which it showed that it had received a certain sum by way
of cash compensatory support. Under the law as was then
in force, the said amount was not taxable and, therefore,
not included in the return . Subsequently, such cash
assistance was made taxable retrospectively. Section 143 E
(1A) was pressed into service by the Department, and this
Court ultimately held as follows:-
"12. The case before us does not represent even a
bona fide mistake. In fact it is not a case where under F
some mistaken belief the assessee did not disclose
the cash compensatory support received by it which he
could offer to tax. It is true that income by way of cash
compensatory support became taxable retrospectively G
with effeCt from 1-4-1967 but that was by amendment
of Section 28 by. the Finance Act of 1990 which
amendment could not have been known before the
Finance Act came into force. Levy ·of additional tax
bears all the characteristics of penalty. Additional tax H
·1116 SUPREME COURT REPORTS [2015] 2 S.C.R.
A was levied as the assessee did not in his return show
the income by way of cash compensatory support. The
Assessing Officer on that account levied additional
income tax. No additional tax would have been leviable
on the cash compensatory support if the Finance Act,
B 1990 had not so provided even though retrospectively.
The 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 the return, it was thereafter that the
c cash compensatory support also came within the sway
of Section 28. When additional tax has the imprint of
penalty the Revenue cannot be heard saying that levy
of additional tax is automatic under Section 143(1-A)
of the Act. If additional tax could be levied in such
D
circumstances it will be punishing the assessee for no
fault of his. That cannot ever be the legislative intent.
It shocks the very conscience if in the circumstances
Section 143(1-A) could be invoked to levy the
E additional tax. The following observations by the
Constitution Bench of this Court in Panna/a/ Binjraj v.
Union of/ndia ((1957) 31 ITR 565 :AIR 1957 SC 397]
are apt:
'A humane and considerate administration of the
F
relevant provisions of the Income Tax Act would go a
long way in allaying the apprehensions of the
assessees and if that is done in the true spirit, no
assessee will be in a position to charge the Revenue
G with administering the provisions of the Act with 'an evil
eye and unequal hand'."
19. This case was cited before this Court in the J.K.
Synthetics judgment which we have already dealt with,
H reported in (2003) 10 SCC 623. This Court first held that
COMMISSIONER OF INCOME TAX, GAUHATI v. SATI 1117
OIL UDYOG LTD. [R.F.NARIMAN, J.]
the judgment in Hindustan Electro Graphites had no A
application to the facts contained in the J.K. Synthetics
case and then added that they had reservations about the
correctness of the judgment in Hindustan Electro
Graphites Limited principally because the assessee in
that case had not challenged the provisions of Section 143 B
(1A).
20. In the present case, the question that arises before
us is also as to whether bonafide assessees are caught
within the net of Section 143 (1A). We hasten to add that C
unlike in J.K. Synthetics case, Section 143 (1A) has in
fact been challenged on Constitutional grounds before the
High Court on the facts of the present case. This being the
case, we feel that since the provision has the deterrent
effect of preventing tax evasion, it should be made to apply D
only to tax evaders. In support of this proposition, we refer
to the judgment in K.P. Varghese v. ITO, (1982) 1 SCR
629. The Court in that case was concerned with the correct
construction of Section 52 (2) of the Income Tax Act:
E
"without prejudice to the provisions of Sub-section (1),
if in the opinion of the Income-tax Officer the fair
market value of a capital asset transferred by an
assessee as on the date of the transfer exceeds the
full value of the consideration declared by the F
assessee in respect of the transfer of such capital
assets by an amount of not less than fifteen per cent
of the value declared. the full value of the
consideration for such capital asset shall, with the
previous approval of the Inspecting Assistant G
Commissioner, be taken to be its fair market value on
the date of its transfer."
21. On a strictly literal interpretation of Section 52 (2),
the moment the fair market value of a capital ·asset by an H
1118 SUPREME COURT REPORTS [2015] 2 S.C.R.
A assessee exceeds the full value of the consideration
declared by the assessee, in an amount of not less than
15% of the value declared, the full value for the
consideration for such capital asset shall be taken to be the
fair market value. A strictly literal reading would take into
B the tax net persons who have entered into bonafide
transactions where the full value of the consideration for
the transfer is correctly declared by the assessee. In such
a situation, this Court held:-
c "We must therefore eschew literalness in the
interpretation of Section 52 Sub-section (2) and try to
arrive at an interpretation which avoids this absurdity
and mischief and makes the provision rational and
sensible, unless of course, our hands are tied and we
D cannot find· any escape from the tyranny of the literal
interpretation . It is now a well settled rule of
construction that where the plain literal interpretation
of a statutory provision produces a manifestly absurd
and unjust result which could never have been
E intended by the legislature, the court may modify the
language used by the legislature or even 'do some
violence' to it, so as to achieve the obvious intention
of the legislature and produce a rational construction,
Vide: Luke v. Inland Revenue Cqmmissioner [1963] AC
F
557. The Court may also in such a case read into the
statutory provision a condition which, though not
expressed, is implicit as constituting the basic
assumption underlying the statutory provision. We
G think that, having regard to this well recognised rule of
interpretation, a fair and reasonable construction of
Section 52 sub:section (2) would be to read into it a
condition that it would apply only where the
consideration for the transfer is under-stated or in other
H
COMMISSIONER OF INCOME TAX, GAUHATI v. SAT11119
OIL UDYOG LTD. [R.F.NARIMAN, J.]
words, the assessee has actually received a larger A
consideration for the transfer than what is declared In
the instrument of transfer and it would have n·o
application in case of a bonafide transaction where the
full value of the consideration for the transfer is
correctly declared by the assessee." B
The Court further went on to hold:-
"Thus it is not enough to attract the applicability of .
Sub-section (2) that the fair market value of the capital c.
asset transferred by the assessee as on the date of
the transfer exceeds the full value of the consideration
declared in respect of the transfer by not less than
15% of the value so declared, but it is furthermore
necessary that the full value of the consideration in D
respect of the transfer is under-stated or in· other
words, shown at a lesser figure than that actually
received by the assessee. Sub-section (2) has no
application in case of an honest and bonafide
transaction where the consideration in respect of the E
transfer has been correctly declared or disclosed by
the assessee, even if the condition of 15% difference
between the fair market value of the capital asset a~
on the date of the transfer and the full value of the.
consideration declared by the assessee is satisfied. If F
therefore the Revenue seeks to bring a case withiQ
sub-section (2), it must show not only that the fair-
market value of the capital asset as on the date of the
transfer exceeds the full value of the consideration
declared by the assessee by not less than 15% ·of the G
value so declared, but also that the consideration has
been under-stated and the assessee has actually
received more than what is declared by him. There are
twq distinct conditions which have to be satisfied H
1120 SUPREME COURT REPORTS [2015] 2 S.C.R.
A before sub-section (2) can be invoked by the Revenue
and the burden of showing that these two conditions
are satisfied rests on the Revenue. It is. for the
Revenue to show that each of these two conditions is
satisfied and the Revenue cannot claim to have
B discharged this burden which lies upon it, by merely
establishing that the fair market value of the capital
asset as on the date of the transfer exceeds by 15%
or more the full value of the consideration declared in
respect of the transfer and the first condition is
c therefore satisfied. The Revenue must go further and
prove that the second condition is also satisfied.
Merely by showing that the first condition is satisfied,
the Revenue cannot ask the Court to presume that the
second condition too is fulfilled, because even in a
D
case where the first condition of 15% difference is
satisfied, the transaction may be a perfectly honest
and bonafide transaction and there may be no under-
statement of the consideration. The fulfilment of the
E second condition has therefore to be established
independently of the first condition and merely
because the first condition is satisfied, no inference
can necessarily follow that the second condition is also
fulfilled. Each condition has got to be viewed and
F established independently before sub-section (2) can
be invoked and the burden of doing so is ·clearly on
the Revenue. It is a well settled rule of law that the
onus of establishing that the conditions of taxability are
fulfilled is always on the Revenue and the second
•
G condition being as much a condition of taxability as the
first, the burden lies on the Revenue to show that there
is understatement of the consideration and the second
condition is fulfilled. Moreover, to throw the burden of
showing that there is no understatement of the
H consideration, on the assessee would be to cast an
COMMISSIONER OF INCOME TAX, GAUHATI v. SAT11121
OIL UOYOG LTD. [RF.NARIMAN, J.]
almost impossible burden upon him to establish the A
negative, namely, that he did not receive any
consideration beyond that declared by him."
Finally, the Court held:
B
"We must therefore hold that Sub-section (2) of
Section 52 can be invoked only where the
consideration for the transfer has been understated by
the assessee or in other words, the consideration
actually received by the assessee is more than what c
is declared or disclosed by him and the burden of
proving such under-statement or concealment is on the
Revenue. This burden may be discharged by the
Revenue by establishing facts and circumstances from
which a reasonable inference can be drawn that the D
assessee has not correctly declared or disclosed the
consideration received by him and there is
understatement of concealment of the consideration in
respect of the transfer. Sub-section (2) has no
application in case of an honest and bonafide E
transaction where the consideration .received by the
assessee has been correctly declared or disclosed by
him, and there is no concealment or suppression of
the consideration."
F
22. Taking a cue from the Varghese case, we
therefore, hold that Section 143 (1A) can only be invoked
where it is found on facts that the ·lesser amount stated in
the return filed by the assessee is a result of an attempt
to evade tax lawfully payable by the assessee. The burden G
of proving that the assessee has so attempted to evade
tax is on the revenue which may be discharged by the
revenue by establishing facts and circumstances from
which a reasonable inference can be drawn that the
H
1122 SUPREME COURT REPORTS [2015] 2 S.C.R.
A assessee has, in fact, attempted to evade tax lawfully
payable by it. Subject to the aforesaid construction of
Section 143 (1A), we uphold the retrospective clarificatory
amendment of the said Section and allow the appeals. The
judgments of the Division Bench of the Gauhati High Court
B are 'set aside. There will be no order as to costs.
Devika Gujral Appeals allowed.
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