Leila Seth, J.
1. These are two income-tax reference pertaining to two individual partners of the firm known as M/s. Kundan Lal Madan La. The said firm was doing business in coal. The assessment year with which we are concerned is 1966-67, the accounting period ending on 24th October 1965. Kundan Lal filed his return for this year on 26th February, 1971, and indicated therein an income of Rs,. 6,318. Madan Lal also filed his return on 26th February, 1971, and showed an income of Rs,. 5,818.
2. On 20th March, 1971, the ITO completed the assessments of both the partners and computed a total income of Rs. 17,601 for Kundan Lal and Rs. 16,101 for Madan Lal. In these sums he included a capital gain of Rs. 5,190 in the case of each partner. This was as result of an enquiry made by the ITO. This enquiry had revealed that a property at Chandigarth, which stood in the joint names of the partners of the firm, M/s/. Kundan Lal Madan Lal, has been sold for a sum of Rs,. 30,000. This property has been originally purchased for Rs. 7,700 and the taxable capital gains after deductions was Rs. 10,380.
3. As neither of the assesseds has declared their proportionate capital gain in their respective returns, the ITo initiated patently proceedings under s. 271(1)(c) of the I. T. ACt, 1961 (in short, 'the ACt'). The cases were referred to teh IAC on 1sat March, 1973, by the IYTo was as in hi view the d penalty imposable exceeded RS. 1,000.
4. Show cause notices were issued to teh two assesseds by the IAC under s. 274(2) of the ACt. In reply, the assesses submitted that the patently proceedings were invalid as notices has not been received by them from the ITo under s. 271(1)(c). The IAC rejected this contention as the relevant assessments orders unequivocally mentioned the initiation of proceedings under. 271(1) (c). further the show case notices were to be issued by the IAC's office and this has been done and duly served in March, 1973. On merits, the IAC held that as the assesses has omitted to indicate the capital gains anywhere in their respective returns, it was clearly established that they has furnished inaccurate particulars of their income. In the circumstance, he imposed a patently of Rs. 3,500 on each of the assesseds.
5. The assesses being aggrieved appealed to the Income-tax Appellate Tribunal. the mains point urged before the Tribunal was that the IAC has no jurisdiction to impose penalties in these cases in view of the amendment to s. 274(2) of the ACt by the Amending ACt 42 of 1970. By the said amendment, which came into force on 1st April 1971, the matter has to be referred by the IYTO to the IAC only if the income concealed exceeded Rs. 25,000. As this was not the case herein, the IAC could not assume jurisdiction which he did not have, the relevant date being the date of the reference. Further, on merits, it was urged that there was no concealment of income and the capital gains was not shown in the returns under a 'misapprehension of law'.
6. The Tribunal allowed the assesses, appeal and cancelled the patently. If held that the IAC has no jurisdiction to impose any patently in view of the amendment to s. 274(2).
7. The Commissioner of Income-tax being aggrieved prayed for a reference and as a result the following questions of law has been referred for our opinion :
Whether, in the facts and in the circumstances of the case, the Tribunal was right in holding that the Inspecting Assistant Commission of Income-Tax did nt. have the jurisdiction to impose the patently in this case nd thus canceling the penalty of Rs. 3,500 levied by the Inspecting Asst. Commissions under section 271(1)(c) of the Income-tax Act, 1961?'
8. Mr. Wazir Singh appearing for the Revenue has argued that 6the jurisdiction which has already been vested in the IAC by virtue of the assessment order dated 20th March, 1971, could not be divested by the amendment which came into force thereafter on 1st April, 1971. He contends that it is the date of the initiation of the penalty proceedings which is relevant and not the date of the reference.
9. Ms. Meera Bhatia appearing for the assessed, contends to the country. She submits that the show-case notice was admitted only issued in March, 1973, under s. 271(1)(c) and on that date the IAC has no jurisdiction. According to her it is the date of the reference, which is relevant for the determination of the IAC's jurisdiction. She contends that if a reference is not validly made then the IAC cannot proceed with the matter.
10. In order to appreciate the contention of the parties and ascertain the correct position, it is necessary to examine the relevant provisions of the ACt.
11. Section 271 provides for imposition of penalty on an assessed e for failure to furnish returns and comply with certain notices without reasonable cause as also for concealment of income. Section 271(1)(c) as it stood at the relevant time reads :
'If the Income-tax Officer or the Appellate Assistant Commissioner, in the course of any proceedings under this ACt, is satisfied that any person-........
(c) has concealed the particulars of his income or furnished inaccurate particulars of such income,
he may direct that such person shall pay by way of patently,-.........
(iii) in the cases referred to in clause (c), in addition to any tax payable by him, a sum which shall not be less than but which shall not exceed twice, the amount of tax sought to be evaded by reason of the concealment of particulars o his income or the furnishing of inaccurate particulars of such income :.......'
12. The question whether an act or an omission is an offense has to be examined with relevance to the law as it stand on the date of commission or omission. This is the date when the default takes places namely, when an incorrect return is filed involving concealment to income, and not with regard to the year of assessment or the making of the assessment or the initiation of penalty proceedings. The quantum of the patently has to be arrived at with regard to the law as on that date i.e., the date of default.
13. In Brij Mohan v. CIT : [1979]120ITR1(SC) , the assessed a partner in tow firms, filed this returns of income for the assessment year 1964-65 on 24th April, 1968, and disclosed there only his share of profits in one of the two firms. As a result the ITo initiated patently proceedings under clause (iii) of s. 271(1) of the Act as amended by the Fiance ACt, 1968. Having regard to the minimum penalty livable the matter was referred to the IAC, who levied the patently livable the matter was referred to the IAC, who levied the patently to of a sum equal to the income concealed. The assessed appealed and argued that the amended provision could not be invoked and the operative law was as it stood in the assessment year 1964-65.
14. The Supreme Court set out the amended and amended clause (iii) and noted that the quantum of tax livable under the substituted clause (iii) was greater than that imp9sable in terms of the original clause (iii). Pathak J., speaking for the court, while dealing with s. 271(1)(c)(iii), opined (p. 4) :
In our opinion the assessment of the total income and the computation of tax liability is a proceeding which, for that purpose, m is governed by entirely different consideration from a proceedings for penalty imposed for concealment of income. And this is so notwithstanding that the income concealed is the income assessed to tax. In the case of the assessment of income and the determination of the consequent tax liability, the relevant law is the law which rules during the assessment year in respect of which the total income is assessed and the tax liability determined,. The rate of tax is determined by the relevant Finance Act. In the case of a patently, however, we must remember that a panatelas imposed on account of the commission of a wrongful act, and plainly it is the law rating on the date on which the original act is committed which determine the patently. Where penalty is imposed for concealment of particular of income, it is the ; law ruling on the date when the act of concealment takes place which is relevant. It is wholly immaterial that the income concealed was to be assessed in relation to an assessment year in the past.'
15. It is, thereforee, clear to us that an assessed ho has concealed the particulars of his income would be liable; e to penalty under clause (iii) of s. 271(1), as it stood on the date of concealment. In the present case, that was on 26th February, 1971, when the returns were filed.
16. But the query that immediately arises for consideration is who has the jurisdiction to impose the penalty, the ITO or the IAC?
17. Section 271 confers power on the ITO or the AAC to impose a pently. but this is subject to s. 274.
18. Section 274, confers power on the ITO or the AAC to impose a penalty. But this is subject to s. 274.
19. Section 274, before its amendment by the Taxation Laws (Amendment) ACt, 1970, read :
'274. Procedure-(1) No order imposing a patently under this Chapter shall be made unless that assessed has been hears, or has been given a reasonable opportunity of being hears.
(2) Notwithstanding anything contained in clause (iii) of sub-section (1) of section 271, if in a case falling under clause (c) of that sub0section, the minimum penalty imposable exceeds a sum of rupees one thousand, the Income-tax Officer shall refer the case to the Inspecting Assistant Commissioner who shall, for the purpose, have all the powers conferred under this Chapter for the imposition of penalty.
(3) An Appellate Assistant Commissioner on making an order under this Chapter imposing a patently shall forthwith send a copy of the same to the Income0-tax Officer.'
20. As a result of s. 49 of the I. T. (Amend.) ACt, 1970, which came into force on 1st April, 1971, s,. 274(2) was amended to read as follows :
' (2) Notwithstanding anything contained in clause (iii) _ of sub-section (1) of section 271, if in a case falling under cause (c) of that sub section, the amount of income (as determined by the Income-tax Officer on assessment) in respect of which the particulars have been concealed or inaccurate particulars have been furnished exceeds a sum of twenty-five thousand rupees, the Income-tax Officer shall refer the case to the Inspecting Assistant Commissioner who shall, for the purpose, have all the power conferred under this chapter for the imposition of penalty.'
21. It is apparent from teh above that till 1st April, 1971, the ITO has no jurisdiction to impose the patently under s. 271(1)(c) if the minim patently was more than Rs,. 1,000. In such a case had no choice but to make a reference to the IAC who would exercise the power. However, after 1st April, 1971, the ITO has jurisdiction to impose a penalty, if the concealed income (or the which inaccurate particulars has been furnished was less than Rs. 25,000.
22. In the present case before 1st April, 1971, as the minimum penalty impossible exceeded Rs. 1,000, it was the IAC who had jurisdiction; but after 1st April, 1971, as the income concealed did not exceed Rs. 25,000 it would be the ITo who would have jurisdiction.
23. Section 274, as it wa before 1st April, 1971, required the ITO to refer the case to the IAC if the the minimum penalty imposable exceeded a sum of Rs., 1,000. On a reference being made by the IYTo the IAC got jurisdiction to impose the penalty.
24. But what happens to pending matters as on 1st April, 1971? Do they have to be transferred from one to the other? Is the amendment purely procedural affecting only the machinery for imposing and collecting the patently? Is the extension of the time-limit for imposition of penalty a procedural or a substantive matter? These and a host of connected question1s can arise for consideration.
25. There are two streams of though on these aspects as is apparent from the various decisions of the High Courts. With regard to pending matters in a recent decision in CIt v. A, N. Tiwari : [1980]124ITR680(MP) , the Madhya Pradesh High Court has held, following the decision of the Gujarat High court in CIT v. Royal Motor Car Co. : [1977]107ITR753(Guj) and CIt v. Manu Engineering Works : [1980]122ITR306(Guj) , as also the decision of the Andhra Pradesh High Court in Addl. CIt v. Dr. Khaja Khutabuddinkhan : [1978]114ITR905(AP) and dissenting from the decision in Cit v. Dhadi Sahu [1976] 106 ITR 56 and CIT v. Om Sons : [1979]116ITR215(All) , that the IAC continues to have jurisdiction to impose a penalty with regard to a valid reference pending before him on 1st April, 1971, even if the amount of income concealed does not exceed Rs. 25,000. The two views that emerge are : (i) that patently proceedings pending with the IAC since before 1st April, 1971, cannot be contained unless the conditions of the amended law with regard to jurisdiction have been fulfillled; and (ii) that the change of form brought about by the amended law does not affect pending matters; unless an intention to the contrary is clearly indicated; since there is no requirement or provision for transfer of the matters from one authority to the other and no other induction of any such intention, the matters validly pending before the IAC will not be invalidated by the amendment.
26. HOwever, we do not purpose to examine the correctness of these two views, as it is not necessary for the purpose of this case. Even assuming that a referees validly made by the ITO to the IAC before 1st April, 1971, would not be invalidated by virtue of the above mentioned amendment to s. 274(2) this would not held the Revenue as it is apparent to us that, in fact, no such reference has been made. A reference can only be said to have, been made on the date of the reference; and in the present case, that is, 1st March, 1973, being after the amendment. It is not possible to hold that the reference was made at an earlier date, e.g., when a patently notice was issued by the IYTO or the assessment order was passed. An example will clinch this matter. An ITO may issue a penalty notice thinking that several additions made by him attract penalty; but the assessed's reply to the show-cause notice may connives him that only some, and not all the additions warrant the patently. If such consideration is made by him and he finds, after 31st March, 1971, that the concealed income is less than Rs. 25,000 he cannot at all refer the case to the IAC even though when he sent the initial notice, the test was different. There is thereforee, logic in coinciding that the IAC is seized of the proceedings only which a reference is made to him by the ITO.
27. Since there was no validly pending reference before the IAC on 1st April, 1971, would he still have been entitled to impose a patently with regard to a matter where the minimum penalty imposable is in excess of Rs. 1,000 by the concealment of income is less than Rs. 25,000? It would appear not. Though the assessment was made by the ITO as far back as 20th March, 1971, he made the reference only on 1st March, 1973. In the assessment order the indicates 'penalty notice u/s. 274 read with ss. 271(1) (a) and 271(1) (c) has already been issued.'
28. But it is only on 1st March, 1973, that the makes the orders of reference and informs the assessed that the case for levy of penalty under s. 271(1)(c) is being referred to the IAC, Range-II, New DElhi, under s. 274(2). But by that date the law has changed and it was really the ITO, who had the jurisdiction to impose the penalty, m as the income concealed was less than Rs. 25,000. On 1st March, 1973, the ITO could have made a valid reference to the IAC only if the concealed income or of which inaccurate particulars has been furnished, exceeded Rs. 25,0000. This not being the case no valid reference could be made. The source of the IAC'; sd jurisdiction is a reference validly made. it is the condition precedent for the assumption of jurisdiction by the IAC. If the IYTO fails to make a reference to teh IAC, he cannot proceed; similarly if the ITO makes and invalid reference, the IAC is not conferred with any jurisdiction. It would, thereforee, appear to us that the date of the reference is very material.
29. The language of s. 274(2) also seems to support this synthesis. The direction that the ITO 'shall refer the case to the IAC, if the condition indicated therein is satisfied, and the conferment on the IAC of the powers under Chap. XXI for the imposition of penalty are relevant. This is clearly indicative of the fact that the jurisdiction of the IAC, for the purpose of the imposition of a penalty, is derived on a reference made to him by the ITO. If the reference accords with the provisions of s,. 274(2) as on the date of the reference it will be valid.
30. thereforee, we are of the op[ion that the law that determines the question of jurisdiction of the authority concerned is the law prevalent on the date of conferment of power to that authority, in this case the date of reference. With respect we do not agree with the view expressed by the Madras High court in Continental Commercial Corporation9on v. ITo : [1975]100ITR170(Mad) , that the jurisdictions dependent on the date of concealment, that is the date of filling of the return. the Karnataka High Court in Addl. CIt v. M. Y. Chandraji : [1981]128ITR256(KAR) , has also not agreed with the view of the Madras High Court.
31. The decision of the Supreme Court in Brij Mohan : [1979]120ITR1(SC) , according to us, does not cover the point in issue, section 271(1)(c)(iii) was being examined. Section 273, 274 and 275 were not considered there. As such, it would perhaps not be proper to stretch the decision to bring s. 274(2) within its ambit. Though the Supreme Court holds that 'Plainly it is the law operating on the date on which the Wrongful act is committed which determines the penalty', it doe not suggest that the authority which shall impose the patently will be determined by the law as on the date of concealment. It would thereforee, appear to us that though the relevant date for determining the question of penalty is the date of concealment, the relevant date for determining the authority, who is entitled to impose the penalty, m is the date of reference. If the condition precedent for exercise of the power to confer jurisdiction on the IAC by referring the matter of this is lacking on the relevant date due to the enlargement of the power of the ITO, the IAC cannot be validly clothed with power. With respect, m we do not accept the view of there Punjab & Haryana High Court in CIT v. Mela Ram Jagdish Raj & Co. , that the act of reference is a ministerial act.
32. To sum up, the question whether an act or omission is an office is to be determined buy the law as on the date of the offence. The quantum of penalty must also be determined in accordance with the law a it stand on the date of infringement. But when an authority has to be empowered to impose the penalty, then the relevant date becomes the date of empowerment, i.e. the date of reference to the IAC.
33. In the result and for he reasons outlined above, the question is answered in the affirmative and in favor of the assesses. As the assesses have succeeded, they will be entitled to costs. Counsel's fee Rs. 350.