Judgment:
In this appeal filed by revenue, the order of the learned Commissioner (Appeals) deleting the penalty of Rs. 1,00,000 levied by the assessing officer under section 271B has been challenged.
This appeal relates to the interpretation and applicability of the provisions of section 44AB. Otherwise, there is no dispute about the facts of the case. These undisputed facts, in brief, are that the assessee was in the business of securities and stocks and being a mutual fund, its income was not chargeable to tax under the provisions of section 10(23D). The assessee, however, filed return of income under section 237 with a view to claim refund of tax deducted at source. The assessing officer noticed that the assessee's annual turnover had far exceeded the sum of Rs. 20 lakhs laid down under the provisions of section 44AB of the Act. He, therefore, initiated penalty proceedings under section 271B of the Act. The assessee argued that by virtue of provisions of section 10(23D), its income was not taxable. Hence, the assessee was not liable for tax audit envisaged under section 44AB of the Act. For this purpose, the assessee relied upon the opinion of Shri N.A. Palkhivala that "total sales, turnover or gross receipts" referred to in section 44AB should be those which have in them embedded income taxable or loss allowable under the Act. The assessee also relied upon the speech of Hon'ble Finance Minister while introducing Finance Bill, 1984, and argued that the objective of the provisions of section 44AB was to discourage tax avoidance and tax evasion. As there was no such case, penalty under section 271B was not leviable on the assessee. The learned assessing officer, however, did not accept these contentions of the assessee. He argued that a taxing statute is required to be construed literally. Nowhere in section 44AB there was any mention of taxable income or tax liability even the levy of penalty under section 271B was linked to the turnover of the assessee and not to any tax liability. Provisions of section 44AB applied to business turnover and it was not in dispute that the assessee was trading in securities and stocks and but for the assessee being a mutual fund, its income should have been taxable. As charging provisions of the Act come first and the provisions of exemption later on, the assessee was clearly required to file the tax audit report, as it had considerable business turnover.
The learned assessing officer also did not accept the contention of the assessee that the assessee had a reasonable cause for having been under a bona fide belief that it was not required to have its accounts audited under section 44AB of the Act. He held that if the provisions of law are misinterpreted, the same cannot be considered as reasonable cause. He referred to the judgment of Hon'ble Delhi High Court in the case of Escorts Ltd. v. Union of India (1991) 189 ITR 81 (Del) that when the provisions of statute are clear and unambiguous, there is no need to resort to the aims and objects of the provisions or Finance Minister's speech. The learned assessing officer also referred to the judgment of Hon'ble Bombay High Court in the case of CIT v. Mirza Ataulla Beg (1993) 202 ITR 291 (Bom) that principle of construction beneficial to the assessee is not applicable when the law is clear. In this view of the matter, the learned assessing officer held that the assessee was liable to be visited by penalty under section 271B and he imposed minimum penalty of Rs. 1 lakh.
The assessee preferred appeal before the learned Commissioner (Appeals) and reiterated the same arguments as were made before the assessing officer. The learned Commissioner (Appeals) held the view that language of section 44AB was very clear and it was well-settled that literal construction is one of the pillars of principles of interpretation of statutes. He, therefore, held that technically section 44AB did apply to the assessee. However, the learned Commissioner (Appeals) further held that there was reasonable cause for the assessee not having had its accounts audited under section 44AB. He, therefore, cancelled the penalty levied by the assessing officer. Aggrieved by the impugned order of the learned Commissioner (Appeals), revenue is in appeal before us.
During the course of hearing before us, the learned Departmental Representative projected the case of the revenue which has been elaborately made out by the assessing officer in the order of penalty under section 271B. He argued that it has not been said anywhere in the Act or in the provisions of section 44AB that where income is exempt under section 10, there would be no application of provisions of section 44AB. On the contrary, it was equally necessary to have audit under section 44AB in the cases, where complete exemption is claimed so as to verify whether provisions of exemption have been rightly claimed or not. There would, therefore, be equal justification to apply the provisions of section 44AB in the cases where exemption under section 10 is claimed as in the cases where income is chargeable to tax. The learned authorised representative, on the contrary, reiterated the assessee's contentions which have already been enumerated in the foregoing paragraphs.
We have carefully considered the rival submissions. In our opinion, penalty under section 271B has been levied by the learned assessing officer and revenue has come in appeal before us defending that order as the basic scheme of Income Tax Act, 1961, and the fundamentals underlying the same have not been fully appreciated. It is well settled that there has to be legal basis for any levy of taxes in India. AS per article 265 of the Constitution of India, "no tax shall be levied or collected except by authority of law". The legal basis for levy of income-tax is given in section 4 of Income Tax Act, 1961. It provides for charge of income-tax 'in respect of the total income of the previous year of every person" (Emphasis, italicised in print, supplied). It is, therefore, clear that charge of income-tax under the Income Tax Act, 1961, is in respect of the "total income". Now, "total income" has been defined under the provisions of section 2(45) in the following words : 'total income' means the total amount of income referred to in section 5, "computed in the manner laid down in this Act;" It is also, therefore, clear that the total income is only that amount of income which is computed under the provisions of the Act. Chapter IV of Income Tax Act provide for "computation of total income". Section 44AB is only one of the sections enacted under Chapter IV-D dealing with computation of profits and gains of business or profession. In other words, section 44AB becomes operative when there is computation of profits and gains of business or profession as a part of total income. If there is no computation of total income or, for that matter, no computation of profits and gains of business or profession as a part of computation of total income, the provisions of section 44AB would simply not take off. The income of the assessee before us is admittedly wholly exempt under section 10(23D) of the Act. Section 10(23D) is part of Chapter III of the Act. The heading of Chapter III is "incomes which do not form part of total income". It is therefore, plain to us that provisions of section 44AB cannot and do not have any application in relation to incomes which are enumerated under Chapter III and are expressly excluded from total income. To reiterate, section 44AB is operational only when profits and gains of business or profession are to be computed for the purpose of computation of total income to meet the requirements of the provisions of section 4. That being so, any income which is designated as "incomes which do not form part of total income" have nothing to do and cannot be subjected to the provisions of section 44AB.In view of the discussion in the foregoing paragraphs, we hold that the assessee before us was not liable to obtain any audit report within the meaning of section 44AB of the Act. For this reason, we further hold that the impugned order of the learned Commissioner (Appeals) cancelling penalty under section 271B cannot be interfered with.