LexM/S. VIRTUAL SOFT SYSTEMS LTD. versus COMMISSIONER OF INCOME TAX, DELHI- I
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MIS VIRTUAL SOFT SYSTEMS LTD . A . "" v. COMMISSIONER OF INCOME TAX, DELHI- I FEBRUARY 6, 2007 [ASHOK BHAN AND DAL VEER BHANDARI, JJ.] B Income Tax Act, 196/_:_section 27/(/)(c) as amended by Finance Act, 1975 and Finance Act, 2002-Loss returned by Assessee-Quantum of loss reduced on assessment-Liability to penalty for concealment of income or c furnishing inaccurate particulars of income-Held, assessees are not liable to penalty for assessment years falling before the introduction of the amendment in the section by Finance Act, 2002-Amendment is not clarificatory as it is not specifically stated in the statute and hence it applies prospectively and not retrospectively. D The question involved in the appeals is whether an assessee is liable to \ penalty under section 271(1) (c) of the Income Tax Act, 1961 for concealing income or for furnishing inaccurate particulars of such income in a case 1 where a return declaring loss was filed and was assessed finally at a reduced amount of loss. E The appllants-assessees contended that if there is no positive income and no tax is chargeable, penalty cannot be levied for concealment or furnishing inaccurate particulars of income under section 27l(l)(c) of the Act; that the levy of penalty with the insertion of Explanation 4 to the Section w.e.f 1.4.1976 is contrary to the law laid down by this Court in C/Tv. Prithipal F Singh & Co., 249 ITR 670 SC; that where majority of the High Courts have taken a view in favour.ofassessees, then that view must be adopted; that the amendment in Section 271(1) (c) (iii) and Explanation 4 thereto by the Finance Act, 2002 is not clarificatory in nature and hence does not apply restrospectively; and that the retrospective effect could not be brought in a penal provision. G pi· Allowing the appeals, the Court. . .:_,. \ HELD:l.1. The Provisions :>fSection 271(1) (c) (iii) of the Income Tax Act before and after amendment by the Finance Act, 1975 are substantially 289 H 290 SUPREME COURT REPORTS (2007] 2 S.C.R. A the same. Absence of tax continued to exist changing only the measure or the scale as to the working of the penalty which earlier was with reference to the 'income' and after the amendment related to the 'tax sught to be evaded'. The sine qua non, which was there prior or after the amendment on l.4.1976 to the fact that there must be a positive income resulting in tax before any penalty B could be levied, continued to exist. The penalty imposed was in 'addition to any tax'. If there was no tax, no penalty could be levied. The return filed declaring loss and assessment made at a reduced loss did not warrant any levy of penalty within the meaning of Section 271(1) (c) (iii) with or without Explanation 4 to the Section. [Para 2811303-A-DI C C!Tv. Prithipa/ Singh & Co., 249 ITR 670 SC, relied on. C!Tv. Prithipa/ Singh & Co., 183 ITR 69 (P & H ); C!Tv. Virendra & Co., 171CTR51 (P & H ); C/Tv. N. Krishnan, 240 rrff 47 _(Ker); Ramnath Goenka v. CIT. 259 ITR 229 (Mad.); CIT v. Jaba/pur Co-operative Milk Producers Uni0t1 Ltd., 276 ITR 49 (MP); C!Tv. Zam Zam Tanners, 279 ITR D 197 (All) and CITv. R.G. Sales (P) Ltd., 278 rrR. 140 (Cal), referred to. 1.2. "Total income" under the Income Tax Act, 1961 can only connote a positive figure and prior to amendment made by Finance Act, 2002, Explanation 4(a) to Section 271(1) (c) of the Act required the computation to be done with reference to "total income". The computation in the case of a E loss making assesses cannot be made. The words "in addition to any tax payable" can only be understood as the words "additional income-tax" pre- suppose that tax was otherwise payable. Conversely, even if the words "in addition to any tax payable" are considered superfluous and must be ignored when considering the case of a loss return, the computation cannot be made .,.. I F because here there is no total income, and because the computation cannot be made the charge cannot be levied. [Para 481 [309-G-H; 310-A-BJ .r G CIT, Bombay v. Elphinstone Spinning & Weaving Mills Company Ltd., 40 ITR 142 (SC), relied on. CITv. S. V. Angidi Chettiar, 44 ITR 739 (SC), distinguished. Dooars Tea Co. Ltd. v. Commissioner of Agricultural Income Tax, West Bengal, 44 ITR 6 (SC); CIT (Central) Delhi v. Harparshad & Co. P. Ltd., 99 ...... ,- ITR 118 (SC); C!Tv . .J.H. Got/a, 156 ITR 323 (SC), referred to. H Modi Cement Ltd. v. Union of India & Ors., 193 ITR
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