Commissioner Of Wealth-Tax vs Amolak Singh Jain
1986 Latest Caselaw 172 Del

JUDGMENT

Yogeshwar Dayal, J.

1. This order will dispose of Wealth-tax References Nos. 6 to 11 of 1976, relating to the assessment years 1959-60 to 1964-65. The question referred by the Income-tax Appellate Tribunal for opinion of this court is mentioned in para 5 of the statement of the case which reads as under :

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the penalty amount could not exceed 50% of the tax ?"

2. This question arises for opinion in the following circumstances as narrated in paragraph 3 of the statement of the case which is as under :

"The background of the facts is that in each of these years, the assessed's wealth was assessable to wealth-tax. He should have, therefore, filed his wealth-tax returns by 30th June, after the close of each accounting year. This he did not do. For the assessment year 1958-59, a return was originally filed on November 4, 1963. A revised return was subsequently submitted on March 30, 1970. For the other years, the returns were submitted for the first time on March 30, 1970.

Because of the inordinate delay in the submission of the returns, the wealth-tax Officer commenced penalty proceedings under section 18(1)(a) of the Wealth-tax Act. Show cause notices were issued to the assessed to explain why penalties for the delays be not levied. The assessed did not care to reply. Further letters were issued to the assessed providing him another opportunity to explain. There was again no response. The Wealth-tax Officer, therefore, assuming that the assessed had nothing to explain, levied different amounts of penalties for these years.

Feeling aggrieved, the assessed moved appeals before the Appellate Assistant Commissioner and pleaded there that the Wealth-tax Officer had not established that the assessed was not prevented by sufficient cause from filing the returns within the prescribed time-limit. It was also claimed that the assessed was entertaining a belief in good faith that his status was that of the Hindu undivided family and, therefore, he was under no legal obligation to file the returns, as the net wealth in the hands of the family was not assessable to tax. He relied upon two decisions of the Kerala High Court and Supreme Court reported as Dawn & Co. v. CIT [1973] 87 ITR 71 and Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26. The Appellate Assistant Commissioner after taking note of these pleas and reproducing some portions of the said judgments, made a cryptic order to the effect that the Wealth-tax Officer had not given sufficient opportunity to the assessed to explain the delay in the filing of the returns. It was further observed that the basis on which the penalties had been worked out was not clear from the orders. The penalties were, therefore, set aside and the Wealth-tax Officer was directed to proceed de novo.

The Revenue has now before us assailed the finding of the Appellate Assistant Commissioner that no sufficient opportunity had been provided to the assessed. It has also been pointed out that the assessed had no misgivings as to his proper status as he had himself filed the returns in the "status of individual", and the assessments also followed accordingly. It was never disputed by him in those assessments or in the appeals, that the status could be otherwise. Moreover, for the assessment year 1968-69, the assessed had as early as November 4, 1963, filed the original return in the status of individual and thus he knew very well what his status was. Furthermore, for the assessment year 1964-65, his wealth was assessable even if the status was assumed to be of Hindu undivided family.

The assessed has, on the other hand, pleaded that the orders of the Wealth-tax Officer suffered from various infirmities inasmuch as he had not given any clear finding that the returns were not filed belatedly without any sufficient cause. Prior approval of the Inspecting Assistant Commissioner was further pleaded to be necessary before the imposition of penalties. Again, the computation of penalties was pointed out to be under the amended law as brought into vogue from April 1, 1969, although the offences, if any, towards delay had been committed long time earlier. Again it was claimed that the assessed indeed laboured under a bona fide belief that his status could be, that of Hindu undivided family. This status, it was pointed out, had been accepted by the wealth-tax authorities for assessment years 1965-66 onward."

3. The Tribunal next proceeded to give its decision as under :

We have given our due consideration to all the circumstances. In our opinion, the reason given by the Appellate Assistant Commissioner for setting aside the penalty orders cannot be sustained. As the narration of facts above shows, the Wealth-tax Officer had in each of these years issued two notices to the assessed requiring him to explain why penalties be not imposed for the delays in the submission of returns. He did not care to reply but instead chose to sit tight on the fence. To still hold that the Wealth-tax Officer had not provided sufficient opportunity to the assessed to explain the delays would be entirely erroneous.

4. The Wealth-tax Officer could not have done anything more. It was at that stage that the assessed should have come out with sufficient cause. He could not have reserved it to be agitated for the first time in the appeals. The Wealth-tax Officer was in the circumstances right in assuming that the assessed had nothing to explain, and therefore, proceeded to levy the penalties. We would like to quote here the observations of the Kerala High Court in the case of Dawn & Co. v. CIT [1973] 87 ITR 71 to which the Appellate Assistant Commissioner has referred, at page 75, as follows :

At the same time, we do not interpret Anwar Ali's case or the case of Hindustan Steel Ltd. to mean that even in cases where an assessed does not offer any explanation to a notice to show cause against the imposition of penalty for default in filing the return in time under section 139(2), it is not open to the Income-tax Officer to infer dishonest disregard of law on the part of the assessed for the imposition of the penalty.

5. The Kerala High Court has further in a Full Bench decision in the case of CIT v. Gujarat Travancore Agency, short notes of which are reproduced in [1976] 103 ITR 149 (Ker) held in clear terms that means read is not a necessary ingredient for the levy of penalty in the case of belated filing of the return under section 271(1)(a).

6. As regards the plea of the assessed that prior approval of the Inspecting Assistant Commissioner should have been obtained by the Wealth-tax Officer before the levy of penalty, we find that the law which required such approval ceased to be operative from April 1, 1965. Thereafter, the Wealth-tax Officer could himself take cognizance of penalty proceedings. In the present cases, he had recourse to the penal action long after 1970 when the returns were filed. We have to see whether on those dates, there was any requirement of law necessitating the approval of the Inspecting Assistant Commissioner. Admittedly, there was no such incumbrance on the Wealth-tax Officer. The old law had long back been amended. Neither could the Wealth-tax Officer move the Inspecting Assistant Commissioner under that repealed law nor could the latter grant any approval. We are, therefore, of the opinion that where on the dates when penalty proceedings were commenced, the law did not enjoin the obtaining of prior approval, the same need not and could not have been obtained on the basis of a law repealed long back.

7. However, we are unable to sustain the approach of the Wealth-tax Officer in computing penalties at the enhanced rates as per the amended law brought into force with effect from April 1, 1969. We find that the offence of default in the filing of the returns was a continuous one. The same started to operate from the due dates when returns should have been filed. Under the law as it then existed, the maximum penalty that could be imposed was 50% of the tax payable. This was computed at the rate of 2% for each month's default. In other words, the maximum period for which penalty could be attracted was 25 months. Thereafter, though the default in a technical sense continued, it lost the sting of penal consequence. In other words, the offence exhausted itself. This happened long before the amending law was incorporated on April 1, 1969. The offences thus exhausted themselves long before that date. The amended law could not revive offences which were already completed long time earlier. The levy of penalties, therefore, could not exceed 50% of the tax in each year."

8. Learned counsel for the Commissioner is really aggrieved by the observations in sub-paragraph 10 of para 3 of the statement which reads as under :

"In other words, the offence exhausted itself. This happened long before the amending law was incorporated on April 1, 1969. The offences thus exhausted themselves long before that date. The amended law could not revive offences which were already completed long time earlier. The levy of penalties, therefore, could not exceed 50% of the tax in each year."

9. The submission put forward for the Commissioner is that the Supreme Court in the case reported as Maya Rani Punj v. CIT [1986] 157 ITR 330, has taken a view contrary to that of the Tribunal.

10. In the case of Maya Rani Punj , the question referred to was under the Income-tax Act and it was as follows (at p. 332) :

"Whether, on the facts and in the circumstances of the case, the Tribunal was in law competent to reduce the penalty levied under section 271(1)(a) to a figure lower than the sum equal to 2% of the tax for every month during which the default continued but not exceeding in the aggregate 50% of the tax ?"

11. The High Court in the aforesaid case also answered the reference in favor of the Revenue and against the assessed and the same decision was upheld by the Supreme Court.

12. The facts of Maya Rani Pubnj's case were that for the assessment year 1961-62, the assessed's return of income had to be filed by September 28, 1961, but neither was the return filed by that date nor was any extension asked for. The return was filed after a delay of seven months on May 31, 1962, i.e., after the Income-tax Act of 1961, had come into force. The Income-tax Officer initiated proceedings under section 271(1)(a) of the 1961 Act and held that the assessed had not been prevented by any reasonable cause from filing the return within time and imposed a penalty of Rs. 4,060. The Appellate Tribunal on appeal by the assessed held that though the penalty was leviable under section 271(1)(a) of 1961 Act, the amount of penalty had to be quantified according to the provision of section 28 of the Indian Income-tax Act, 1922, and reduced the penalty to Rs. 400. On the reference, the Delhi High Court held that the Tribunal was not competent in reducing the penalty levied under section 271(l)(a) of the 1961 Act to a figure lower than the sum equal to 2% of the assessed tax every month during which the default continued but not exceeding in the aggregate 50% of the tax. On appeal to the Supreme Court, while affirming the decision of the High Court, the Supreme Court held that though the default occurred in September, 1961, the date relevant for the purpose of initiating proceedings for imposition of penalty is when, following the assessment made, the Income-tax Officer decided to initiate penalty proceedings and that the proper provision to apply for dealing with the situation relating to penalty is as provided in section 271(1)(a) of the 1961 Act and not one under section 28 of the 1922 Act. The Supreme Court further held that in view of the language used in section 271(1)(a) of the 1961 Act, the position was beyond dispute that the Legislature intended to deem the non-filing of the return to be a continuing default - the wrong for which penalty was to be visited commenced from the date of default and continued month after month until compliance was made and the default came to an end. It was also held that the imposition of penalty not confined to the first default but with reference to the continued default was obviously on the footing that non-compliance with the obligation of making a return was an infraction as long as the default continued. If a default is continued from day to day. the non-filing of the return from day to day would become a continuing default. The legislative scheme under section 271(1)(a) of the 1961 Act, in making provision for a penalty conterminous with the default, provided for a situation of continuing wrong.

13. In the present case, the revised return was subsequently submitted on March 30, 1970, and thus the default continued for years. The relevant provisions for imposition of penalty when the revised return was filed was as under :

"18. Penalty for failure to furnish returns, to comply with notices and concealment of assets, etc. - (1) If the Wealth-tax Officer, Appellate Assistant Commissioner, Commissioner or Appellate Tribunal in the course of any proceedings under this Act is satisfied that any person -

(a) has without reasonable cause failed to furnish the return which he is required to furnish under sub-section (1) of section 14 or by notice given under sub-section (2) of section 14 or section 17, or has without reasonable cause failed to furnish it within the time allowed and in the manner required by sub-section (1) of section 14 or by such notice, as the case may be; or.....

he or it may, by order in writing, direct that such person shall pay by way of penalty -

(i) in the cases referred to in clause (a), in addition to the amount of wealth-tax, if any, payable by him, a sum equal to two per cent. of the assessed tax for every month during which the default continued.

Explanation. - In this clause, 'assessed tax', means the wealth-tax chargeable under the provisions of this Act."

14. The question involved is, whether the provisions of section 18(1)(a) of the Wealth-tax Act which was in force at the time the default commenced should apply or whether the provisions of penalty when the revised return was filed should apply.

15. In view of the Supreme Court decision in Maya Rani Punj's case [1986] 157 ITR 330, the provision applicable for imposing penalty for late filing of returns would be the provision at the time of filing of the revised return. The legislative scheme is similar in this regard to the Income-tax Act, 1961. Therefore, the question is answered in the negative and against the assessed and in favor of the Revenue and it is held that the penalty will have to be imposed in accordance with the amended provisions which came into force on 1st April, 1969.

16. Since the respondents are not represented, the parties are left to bear their own costs.