The penalty provision was made harsher after my assessment year but before I filed the return. Which version applies to my concealment penalty?
The one in force when you filed. The Supreme Court held that a penalty is imposed for the commission of a wrongful act, so it is the law operating on the date the wrongful act is committed that determines the penalty. Where the penalty is for concealment of particulars of income, the concealment occurs when the return is filed, and the law ruling on that date applies. It is wholly immaterial that the concealed income falls to be assessed for an earlier year. The substituted clause brought in by the Finance Act, 1968 therefore governed a return filed in April 1968.
Decided by the Supreme Court (Supreme Court of India - P.N. Bhagwati and R.S. Pathak, JJ (judgment by Pathak, J)) on 1979-08-03, reported as AIR 1979 SC 1897; (1979) 4 SCC 118; (1979) 120 ITR 1; (1979) 2 Taxman 209; 1980 SCR (1) 199. It bears on section 271(1)(c), section 271(1)(iii), section 139 of the Income Tax Act 1961, in Penalty matters.
This is the settled answer to which version of a penalty provision applies, and it separates two things practitioners often run together. Assessment and computation of tax are governed by the law of the assessment year, with the rate fixed by the relevant Finance Act. Penalty is not: it attaches to conduct, and conduct is judged by the law in force when it occurs. The consequence is uncomfortable for a late filer, because delay can bring him under a harsher provision enacted after the year to which the income relates. The Court also disposed of the argument that a return accepted after the due date is deemed filed in time, pointing to the interest provision as showing the statute treats it as late.
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For assessment year 1964-65 the measure of penalty for concealment was a sum, in addition to the tax payable, of not less than 20 per cent and not more than one and a half times the tax which would have been avoided had the returned income been accepted. The Finance Act, 1968, with effect from 1 April 1968, substituted a clause measuring the penalty by reference to the amount of income concealed, with a maximum of twice that amount, which could produce a larger figure. The assessee filed his return of total income for assessment year 1964-65 on 24 April 1968 - long after the date by which section 139 as it then stood required it, the end of September 1964. In the course of the assessment the Income-tax Officer found that the assessee had concealed the income earned from one of his two firms. Having regard to the minimum penalty he considered leviable, he referred the case to the Inspecting Assistant Commissioner, who imposed penalty in accordance with the substituted clause. The question whether that clause, as amended with effect from 1 April 1968, applied came before the Supreme Court on a reference.
The question was answered in the affirmative, in favour of the Revenue and against the assessee, with costs of the reference to the Revenue. The clause substituted in section 271(1) by the Finance Act, 1968 governed the case, so the penalty imposed was covered by that provision. The assessment of total income and the computation of tax liability is a proceeding governed, for that purpose, by entirely different considerations from a proceeding for penalty for concealment, notwithstanding that the income concealed is the income assessed to tax. For assessment, the relevant law is that ruling during the assessment year and the rate is fixed by the relevant Finance Act. A penalty, by contrast, is imposed on account of the commission of a wrongful act, and it is the law operating on the date the wrongful act is committed that determines the penalty; where the penalty is for concealment of particulars of income it is the law ruling on the date the concealment takes place that is relevant, and it is wholly immaterial that the income concealed was to be assessed for a past assessment year. The concealment here was effected when the return was filed on 24 April 1968.
The Court's reasoning rests on identifying what each provision operates upon. A charging and computing provision operates on income of a year, so the law of that year, with the rate supplied by the Finance Act for it, governs. A penalty provision operates on conduct. It is imposed because a wrongful act has been committed, and the natural rule for such a provision is that the law in force when the act is done fixes its consequence. The Court applied that to concealment by asking when the concealment occurs, and answered that it occurs when the return containing it is furnished. On those two propositions the case decided itself: the return was filed on 24 April 1968, after the substituted clause came into force on 1 April 1968, and the fact that the concealed income belonged to 1964-65 was beside the point. The Court then dealt with the assessee's fallback, that because his belated return had been accepted it should be deemed filed by 30 September 1964, when the old clause was in force. Section 139 empowers the Income-tax Officer to extend the date for furnishing a return, and a return filed within the extended period is a good return that he is bound to consider; but nothing in the section declares that such a return is deemed filed within the period originally prescribed. On the contrary the section provides for interest where a return is filed beyond the prescribed date even though within the extended period, which shows that the statute does not regard it as filed in time.
A penalty is imposed on account of the commission of a wrongful act, and plainly it is the law operating on the date on which the wrongful act is committed which determines the penalty.
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Handle my notice → Ask a CA on WhatsAppThe one in force when you filed. The Supreme Court held that a penalty is imposed for the commission of a wrongful act, so it is the law operating on the date the wrongful act is committed that determines the penalty. Where the penalty is for concealment of particulars of income, the concealment occurs when the return is filed, and the law ruling on that date applies. It is wholly immaterial that the concealed income falls to be assessed for an earlier year. The substituted clause brought in by the Finance Act, 1968 therefore governed a return filed in April 1968. This was decided by the Supreme Court (Supreme Court of India - P.N. Bhagwati and R.S. Pathak, JJ (judgment by Pathak, J)) and bears on section 271(1)(c), section 271(1)(iii), section 139 of the Income Tax Act 1961. It is reported as AIR 1979 SC 1897; (1979) 4 SCC 118; (1979) 120 ITR 1; (1979) 2 Taxman 209; 1980 SCR (1) 199. This is the settled answer to which version of a penalty provision applies, and it separates two things practitioners often run together. Assessment and computation of tax are governed by the law of the assessment year, with the rate fixed by the relevant Finance Act. Penalty is not: it attaches to conduct, and conduct is judged by the law in force when it occurs. The consequence is uncomfortable for a late filer, because delay can bring him under a harsher provision enacted after the year to which the income relates. The Court also disposed of the argument that a return accepted after the due date is deemed filed in time, pointing to the interest provision as showing the statute treats it as late. If it applies to you, the first step is this: Identify the date of the act penalised - for concealment, the date the return carrying the concealment was filed - and apply the provision in force on that date, not the one in force during the assessment year.
For assessment year 1964-65 the measure of penalty for concealment was a sum, in addition to the tax payable, of not less than 20 per cent and not more than one and a half times the tax which would have been avoided had the returned income been accepted. The Finance Act, 1968, with effect from 1 April 1968, substituted a clause measuring the penalty by reference to the amount of income concealed, with a maximum of twice that amount, which could produce a larger figure. The assessee filed his return of total income for assessment year 1964-65 on 24 April 1968 - long after the date by which section 139 as it then stood required it, the end of September 1964. In the course of the assessment the Income-tax Officer found that the assessee had concealed the income earned from one of his two firms. Having regard to the minimum penalty he considered leviable, he referred the case to the Inspecting Assistant Commissioner, who imposed penalty in accordance with the substituted clause. The question whether that clause, as amended with effect from 1 April 1968, applied came before the Supreme Court on a reference. The matter was decided on 1979-08-03 by the Supreme Court (Supreme Court of India - P.N. Bhagwati and R.S. Pathak, JJ (judgment by Pathak, J)). On those facts the Supreme Court held as follows. The question was answered in the affirmative, in favour of the Revenue and against the assessee, with costs of the reference to the Revenue. The clause substituted in section 271(1) by the Finance Act, 1968 governed the case, so the penalty imposed was covered by that provision. The assessment of total income and the computation of tax liability is a proceeding governed, for that purpose, by entirely different considerations from a proceeding for penalty for concealment, notwithstanding that the income concealed is the income assessed to tax. For assessment, the relevant law is that ruling during the assessment year and the rate is fixed by the relevant Finance Act. A penalty, by contrast, is imposed on account of the commission of a wrongful act, and it is the law operating on the date the wrongful act is committed that determines the penalty; where the penalty is for concealment of particulars of income it is the law ruling on the date the concealment takes place that is relevant, and it is wholly immaterial that the income concealed was to be assessed for a past assessment year. The concealment here was effected when the return was filed on 24 April 1968.
The Court's reasoning rests on identifying what each provision operates upon. A charging and computing provision operates on income of a year, so the law of that year, with the rate supplied by the Finance Act for it, governs. A penalty provision operates on conduct. It is imposed because a wrongful act has been committed, and the natural rule for such a provision is that the law in force when the act is done fixes its consequence. The Court applied that to concealment by asking when the concealment occurs, and answered that it occurs when the return containing it is furnished. On those two propositions the case decided itself: the return was filed on 24 April 1968, after the substituted clause came into force on 1 April 1968, and the fact that the concealed income belonged to 1964-65 was beside the point. The Court then dealt with the assessee's fallback, that because his belated return had been accepted it should be deemed filed by 30 September 1964, when the old clause was in force. Section 139 empowers the Income-tax Officer to extend the date for furnishing a return, and a return filed within the extended period is a good return that he is bound to consider; but nothing in the section declares that such a return is deemed filed within the period originally prescribed. On the contrary the section provides for interest where a return is filed beyond the prescribed date even though within the extended period, which shows that the statute does not regard it as filed in time. In the words reproduced by the source cited on this page: "A penalty is imposed on account of the commission of a wrongful act, and plainly it is the law operating on the date on which the wrongful act is committed which determines the penalty."
It was decided by the Supreme Court on 1979-08-03 and is reported as AIR 1979 SC 1897; (1979) 4 SCC 118; (1979) 120 ITR 1; (1979) 2 Taxman 209; 1980 SCR (1) 199. Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section 271(1)(c), section 271(1)(iii), section 139, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the department, and it appears in this library for that reason — you need to know what the Assessing Officer will cite against you. The question was answered in the affirmative, in favour of the Revenue and against the assessee, with costs of the reference to the Revenue. The clause substituted in section 271(1) by the Finance Act, 1968 governed the case, so the penalty imposed was covered by that provision. The assessment of total income and the computation of tax liability is a proceeding governed, for that purpose, by entirely different considerations from a proceeding for penalty for concealment, notwithstanding that the income concealed is the income assessed to tax. For assessment, the relevant law is that ruling during the assessment year and the rate is fixed by the relevant Finance Act. A penalty, by contrast, is imposed on account of the commission of a wrongful act, and it is the law operating on the date the wrongful act is committed that determines the penalty; where the penalty is for concealment of particulars of income it is the law ruling on the date the concealment takes place that is relevant, and it is wholly immaterial that the income concealed was to be assessed for a past assessment year. The concealment here was effected when the return was filed on 24 April 1968. It arises in Penalty matters, on section 271(1)(c), section 271(1)(iii), section 139 of the Income Tax Act 1961, and was decided by Supreme Court of India - P.N. Bhagwati and R.S. Pathak, JJ (judgment by Pathak, J). Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Do not argue that acceptance of a belated return makes it a timely one; the statute charges interest for the delay, which shows it is treated as late. Where a provision has been amended between the assessment year and the filing, check whether filing earlier would have attracted a lighter penalty, and factor that into advice on delayed returns. Keep the assessment argument and the penalty argument separate, since they are governed by different bodies of law even though the same income is involved.
Still good law. The judgment is good law and is followed constantly; nothing overruling or doubting it has been found. It was applied by the Rajasthan High Court in Nem Kumar Tholia v Addl. CIT (7 August 1991), which held on its authority 'that the law in relation to the quantum of penalty which can be imposed under Section 271(1)(c) is the law existing on the date of concealment of income, namely, the date of filing the return'. The Patna High Court decision in CIT v Bihar Cotton Mills Limited (23 April 1986) should not be cited as an unqualified application: the Bench divided on it. Nazir Ahmad J applied it, holding that 'as long as the decision of their Lordships of the Supreme Court in Brij Mohan v. CIT [1979] 120 ITR 1 is not overruled, it is binding', and that the law on the date of the original return governed. Uday Sinha J declined to follow it, on the ground that it had not taken into consideration the five-judge decision in Jain Brothers, and held Jain Brothers controlling and the date of satisfaction decisive. That divergence is the one live weakness in the line, and anyone relying on Brij Mohan against a Revenue argument built on Jain Brothers should be ready for it. Three further decisions bear on the point and have not been examined: the Kerala High Court in CIT v M. George and Brothers (13 November 1981) and in Hotel and Allied Trades (P.) Ltd v CIT (15 February 1996), and the Allahabad High Court in Balwant Rai and Company v CIT (27 July 2004). Nothing here should be read as a statement of what they hold. One caution about what the judgment still supplies. Section 271 has been amended many times, and for recent years the concealment penalty has been superseded by other provisions altogether. So the principle is what survives — that a penalty attaches to conduct and is measured by the law in force when the conduct occurred — and not the rate or the clause the Court was construing. Applied to a present-day penalty, the question is when the act penalised was committed, which for a misreported or underreported figure is not necessarily the date of the return. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The judgment sets out clause (iii) of section 271(1) as it stood before and after the Finance Act, 1968; both texts have long since been superseded, and this decision settles which version applies rather than anything about the present measure of penalty. It does not decide whether concealment could occur other than by filing a return, so a case where the concealment is said to lie in later conduct is not covered. One textual caution: the copy of the judgment this entry is written from garbles the figures in the substituted clause, and the filing date in one place, so the figures reproduced above should be checked against a clean report before they are quoted to a Bench. A reporter's headnote printed above the judgment has not been used and forms no part of this entry. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The question was answered in the affirmative, in favour of the Revenue and against the assessee, with costs of the reference to the Revenue. The clause substituted in section 271(1) by the Finance Act, 1968 governed the case, so the penalty imposed was covered by that provision. The assessment of total income and the computation of tax liability is a proceeding governed, for that purpose, by entirely different considerations from a proceeding for penalty for concealment, notwithstanding that the income concealed is the income assessed to tax. For assessment, the relevant law is that ruling during the assessment year and the rate is fixed by the relevant Finance Act. A penalty, by contrast, is imposed on account of the commission of a wrongful act, and it is the law operating on the date the wrongful act is committed that determines the penalty; where the penalty is for concealment of particulars of income it is the law ruling on the date the concealment takes place that is relevant, and it is wholly immaterial that the income concealed was to be assessed for a past assessment year. The concealment here was effected when the return was filed on 24 April 1968.
TaxSphere, “Brij Mohan v CIT”, https://taxnotice.vittsphere.com/caselaw/case/brij-mohan-v-cit/ (validity last checked 2026-08-29)
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