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Counsel’s Responsibility - Court or Coat?

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  • 2017-04-26

Vignettes of the recent judgment of the Hon’ble Supreme Court in the case of Classic Industries Ltd:

In the light of recent developments it is observed that the Hon’ble Supreme Court, in the case Classic Industries Ltd [TS-5082-SC-2017-O] (dated 9th March 2017) has affirmed the decision of High Court of Gujarat in the appellant’s own case by concluding that ‘…where income disclosed by assessee in return and income assessed was nil, no penalty was leviable under section 271(1)(c)’.

The above judgment was manifested by taking into consideration the Decision of Apex Court in the case of Virtual Soft Systems Ltd [TS-36-SC-2007-O] (dated 6th February 2007) wherein it was held that ‘in absence of any positive income and no tax being levied, penalty for concealment of income could not be levied under section 271(1)(c) prior to its amendment by Finance Act, 2002, which amendment was consciously made applicable with effect from 1-4-2003 and not with retrospective date to include even cases where assessment has been completed at loss.’

Backdrop of the decision of Supreme Court:

In the case of Classic Industries Limited, the High Court of Gujarat has recoiled the decision of Apex Court in the case of CIT vs. Prithpalsingh, [TS-5037-SC-2000-O] dated 21-07-2000, which was relied upon by the appellant. The case of CIT vs Prithpalsingh was originally decided by the High Court of Punjab & Haryana [TS-5520-HC-1988(Punjab & Haryana)-O] dated 03-11-1988,wherein it was held that – ‘Penalty u/s 271(1)(c)- Word ‘income in clause (c) and (iii) of Section 271(1) refers to positive income only and not to the loss’. This judgment was subsequently re-affirmed by the Apex Court.

Autopsy of the decision of the Supreme Court in the case of Classic Industries Ltd:

On analyzing the above, it is observed that the decision by Apex Court in the case of Classic Industries Ltd was passed by taking colour from the decision of Virtual Soft Systems Ltd. However, it is pertinent to note that on that the decision of Virtual Soft Systems Ltd is overruled on 18th August 2008 by the decision of a Larger Bench of the Supreme Court in the case of Gold Coin Health Food (P.) Ltd [TS-50-SC-2008-O] wherein it was held that –‘amendment made in Explanation 4 to section 271(1)(c)(iii) with effect from 1-4-2003 is clarificatory and, therefore, will have retrospective effect’

This apparently shows that the decision in the case of Classic Industries Ltd was plagued by omitting to consider the decision of a larger bench of the Supreme Court in the case of Gold Coin Health Food (P.) Ltd which came to be rendered subsequent to the case of Virtual Soft Systems Ltd, thereby constituting the law of land.

Evaluating the Standing Counsels responsibility in light of the supra decision:

We believe that it is of paramount importance that the standing counsel shall make it a recurring theme to place the law accurately before court, after court. As a general matter, the counsel shall choose the duty to his court over the duty of client in case of a dilemma.

The Court which underpins the duty to the Court disregarding the instructions of the client is not the code of law, but a code of honor. If he breaks it, he is offending against the rules of the profession and is subject to its discipline. Rhetoric arguments cannot constitute the sine qua non for persuasive arguments.

To corroborate on the above, it is germane to note the decision of Bombay High Court in the case of Heena Nikhil Dharia vs Kokilaben Kirtikumar Nayak & Ors in [TS-6500-HC-2016(Bombay)-O] dated 13th December 2016 wherein it was held that ‘With the proliferation of online databases and access to past orders on the High Court website, there is no excuse at all for not cross-checking the status of a judgment. I have had no other or greater access in conducting this research; all of it was easily available to counsel at my Bar. Merely because a judgment is found in an online database does not make it a binding precedent without checking whether it has been confirmed or set aside in appeal. Frequently, appellate orders reversing reported decisions of the lower court are not themselves reported. The task of an advocate is perhaps more onerous as a result; but his duty to the court, that duty of fidelity to the law, is not in any lessened. If anything, it is higher now.’

Hence, we believe that it is the duty of the standing counsel to appraise the court with the most recent developments on the case quoted by him during the proceedings.

 

 

Sections referred:

Explanation 4 for the purpose of clause (iii):

‘Explanation 4.—For the purposes of clause (iii) of this sub-section, the expression "the amount of tax sought to be evaded",—

              (a)   in any case where the amount of income in respect of which particulars have been concealed or inaccurate particulars have been furnished exceeds the total income assessed, means the tax that would have been chargeable on the income in respect of which particulars have been concealed or inaccurate particulars have been furnished had such income been the total income ;

                      The following clause (a) shall be substituted for the existing clause (a) in Explanation 4 to section 271 by the Finance Act, 2002 ,w.e.f. 1-4-2003 :

             (a) in any case where the amount of income in respect of which particulars have been  concealed or inaccurate particulars have been furnished has the effect of reducing the loss declared in the return or converting that loss into income, means the tax that would have been chargeable on the income in respect of which particulars have been concealed or inaccurate particulars have been furnished had such income been the total income;

            (b) in any case to which Explanation 3 applies, means the tax on the total income assessed ;

          (c) in any other case, means the difference between the tax on the total income assessed and the tax that would have been chargeable had such total income been reduced by the amount of income in respect of which particulars have been concealed or inaccurate particulars have been furnished.]’

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