Lawyers Directory Listing
Chat with us free on WhatsApp — tell us your city and legal matter and our team connects you with the right lawyer. No form, no fee.
Miscellaneous Income‑tax Reference No. 249 of 1963, decided on 15th November 1966.
Defaults under Ss. 22 (2), 22(4) & 18‑A(9) of Indian Income‑tax Act, 1922‑Imposition of consolidated penalty -Validity ‑ Applicability of provisions of Criminal Procedure Cod, an: Evidence Act‑Indian Income‑tax Act, 1922, Ss. 18‑A(9), 22(2), (4) & 28.
In view of the difference of opinion between the various High Courts as to whether penalty proceedings are quasi criminal in nature, even assuming that to be so, the provisions of the Criminal Procedure Code requiring separate offences to be tried separately in certain circumstances is not applicable to proceedings under the Income‑tax Act, which is a Code by itself. Income‑tax proceedings have to be conducted in accordance therewith subject only to the rules of natural justice Similarly, provisions of the Evidence Act are also not applicable. Penalty proceedings cannot be equated to formal charges under the Penal Code or the Criminal Procedure Code.
For defaults under section 22(2) and section 22(4) of the Income‑tax Act, 1922, the assessee was liable for penalty. He was also liable for penalty under section 18‑A(9). For both these counts, the officer levied a consolidated penalty which was far below the maximum impos3ble under the statute. This was slightly reduced by the Appellate Assistant Commissioner. The contention of the assessee that the levy of a composite penalty for two offences is not permissible under law was negatived. On a reference, the High Court;
Held, (i) though it may be advisable to take separate proceeding, it cannot be laid down as a matter of law that proceedings for two or more defaults must invariably be taken separately and cannot be disposed of by a common order; and
(ii) the levy of composite penalty in the instant case was not prejudicial to the assessee, and was not illegal.
Abraham (C. A.) v. Income‑tax Officer, Kottnyam (1961) 41 I T R 425; Lal Chand Gopal Das v. Commissioner of Income‑tax (1963) 48 I T R 324; Mareddi Krishna Reddy v. Income‑tax Officer, Tenali (1957) 31 I T R 678 and Thomas (A. V ) & Co. (India) Ltd. v. Commissioner of Income tax (1966) 59 I T R 49,31 ref.
By this application, the assessee has required the Tribunal to refer certain questions of law stated to arise out of their order in I. T. A. No. 7674 of 1961‑62 to the Hon'bla High Court of Judicature at Allahabad. As, in our opinion, a question of law does arise out of the aforesaid order of the Tribunal, we hereby draw up a statement of the case and refer the following question of law under section 66 (1) of the Income‑tax Act;
"Whether it is legal to levy a composite penalty for more than one offence under section 23 of the Act "
2. The facts of the case are that the assessee is a Hindu undivided family and the assessment year involved is 1959‑60. The assessee did not comply with the notices under sections 22(2) and 23(4) assessment was completed under section 2 (4) in the sum of Rs. 45,560, resulting in a demand of Rs. 13,778 For the default under section 22(2) and section 22(4), the assessee became liable for penalty under section 28 (1)(a), up to a maximum limit of Rs. 20,667, being 1 times the amount of tax assessed, Rs. 13,778.
3. In the financial year 1958‑59, the assessee had been served with a notice for advance payment of tax under section 18‑A(1) on May 30, 1958, the amount being Rs.6,097 on the basis of the latest completed assessment at the time of that notice. The assessee, exercising his option under section 18‑A(1), filed his own estimate on December 17, 1958, showing his income at Rs. 15,000 with a tax liability of Rs. 1,042. Meanwhile, he had already deposited a sum of Rs. 3,046 under section 18‑A, and no further payments were made towards advance tax. As the tax finally determined in the regular assessment was Rs. 13,778 the assessee also became liable for penalty under section l8‑A(9) for filing an incorrect estimate of his income for purposes of paying advance tax. The maximum penalty leviable was Rs. 4,576, being 1 times the difference between 80 % of the tax actually levied and the tax already ‑paid by the assessee.
4. After going through the necessary proceedings, the Income‑tax Officer levied a penalty of Rs. 6,889 for defaults under sections 28 (1) (a) and 18‑A (9) read with section 28(1)(c) as under;
"The maximum penalties leviable in this case amount to Rs. 20,667 under section 28 (1) (a) and to Rs. 910 under section 18‑A (9) but I impose a composite penalty of Rs. 6,889 under these sections with the prior approval of the Inspecting Assistant Commissioner, Varanasi."
We may clarify that the maximum penalty of Rs. 910 under section 18‑A (9) read with section 28 (1) (c) represents not the statutory maximum but 20% of the maximum which is usually levied by the department in such cases under executive instructions. A copy of the Income‑tax Officer's order imposing the penalty is Annexure "A" and forms part of the statement.
5. The assessee filed an appeal before the Appellate Assistant Commissioner against the levy of the above penalty of Rs. 6,889. The Appellate Assistant Commissioner observed;
"By a notice under section 18‑A(1) served on May 30, 1958, he was required to pay an advance tax of Rs. 6,047 on the basis of his last completed assessment. However, he filed his own estimate on December 17, 1958, estimating his income at Rs. 15,000 and a tax liability at Rs. 1,042. He was ultimately assessed on a total income of Rs. 45,560 under section 23 (4). This assessment has been confirmed in appeal also, as the assessee withdrew the appeal in writing. He has, therefore, accepted the assessment which has been rightly made under section 23 (4) on a total income of Rs. 45, 560 on which he was required to pay a demand of Rs. 13,778. Thus, it is evident that the assessee filed deliberately an inaccurate estimate under section 18‑A (2) and action under section 18‑A(9)(a) of the Income‑tax Act has been rightly taken."
Regarding default for not filing the return, the Appellate Assistant Commissioner observed that there was some truth in the contention of the assessee that he had not committed a deliberate default. He held;
"At the same time the history of the case shows that the assessee is a habitual defaulter. For the last several years books of account also do not seem to have been maintained in the proper form. Whether by allowing time for one day more the appellant would have been in a position to file the return, is slightly debatable matter. Even so, though the default under section 22 (2) exists, I would think some consideration should be given to the fact that after having applied for any number of adjournments he asked for time on October 22, 1959, for only one day more.
Keeping the above things in mind, I would think it reasonable to reduce the over‑all quantum by Rs. 1,000 only."
A copy of the Appellate Assistant Commissioner's order dated September 15, 1961, is Annexure "B" and forms part of the statement.
6. Before the Tribunal, the assessee contended, inter alia, that the levy of a composite penalty for more than one offence was not permissible under the law. The Tribunal dealt with this contention as under
"No authority has been cited for the proposition that the levy of a composite penalty for two offences is not permissible under law. In fact, a composite penalty has in this case worked out to the benefit and advantage of the assessee. If separate penalties were imposed upon the assessee, for different offences, the quantums of penalties would have been much more and would have been prejudicial to the assessee. We, therefore, find no force in this contention and reject it."
A copy of the Tribunal's order dated July 4, 1962, forms part of the statement and is Annexure "C".
7. On the above facts, the question of law set out in paragraph 1 above is referred under section 66(1) of the Act.
8. The statement of the case was placed before the parties for suggestions, if any. The departmental representative has proposed certain verbal corrections which have been carried out. There is no suggestion received from the assessee and he also did not put in appearance on the day fixed. The statement of the case is accordingly finalised.
L. N. Pande for the Assessee.
R. L. Gulati for the Commissioner.
‑‑This is a case stated under section 66 (1) of the Indian Income‑tax Act, 1922 (hereinafter referred to as the Act). The question referred is ;
"Whether it is legal to levy a composite penalty for more than one offence under section 28 of the Act '
The material facts are these : The assessee is a Hindu undivided family. The relevant assessment year is 1959‑60. The assessee did not comply with the notices under sections 22 (2) and 22 (4) of the Act and the assessment was completed under section 23 (4) of the Act on an income of Rs. 45,560 resulting in an assessment and demand of Rs. 13,778. For the default under sections 22 (2) and 22 (4) of the Act, the assessee became liable for penalty under section 28(l)(a) up to the maximum limit of Rs. 20,667, being one and a half times of the amount of tax assessed (i.e., one and a half times of Rs. 13,778).
Apart from the above defaults, the assessee was required by a notice under section 19‑A(1) of the Act, dated 30th May 1958, to deposit advance tax in the sum of Rs. 6,097 on the basis of the last completed assessment when the notice was issued. The assessee, however, did not comply with the demand and instead exercised his option by filing his own estimate on the 17th of December 1958, showing his income at Rs. 15,000 with a tax liability of Rs. 1,042 only. As already noticed, the tax finally determined in the regular assessment was Rs. 13,778. The assessee, therefore, rendered himself liable for penalty under section 18‑A(9) of the Act for having filed an incorrect estimate of income for purposes of advance tax. The maximum penalty leviable was Rs. 4,576, being one and a half times of the difference between 80 % of the tax actually levied and the tax already paid by the assessee.
The Income‑tax Officer initiated proceedings under sections 28(1)(a) and 18‑A (9) of the Act for failure to comply with the notice under section 22 (2) of the Act and also for filing an incorrect estimate of its income under section 18‑A(2) of the Act, respectively. For this purpose a notice under section 28(3) read with section 18‑A(9) of the Act was served upon the assessee to show cause why penalties be not levied for defaults under sections 22(2) and 18‑A(9) of the Act read with section 28 of the Act. No explanation was submitted by the assessee. He merely brought to the notice of the Income‑tax Officer the fact that he had filed an appeal against the assessment order and, therefore, required the penalty proceedings to be stayed. The Income‑tax Officer rejected the prayer for stay and against the maximum penalties leviable of Rs. 20,661 under section 28(1)(a) and of Rs. 910 under section 18‑A(9) of the Act imposed a composite penalty of Rs. 6,889 under these two sections. On appeal to the Appellate Assistant Commissioner, no objection seems to have been taken as to the levy of a composite penalty but only on the merits. The Appellate Assistant Commissioner, in the circumstances of the case, reduced the penalty by Rs. 1,000. Therefore, the finally determined penalty stood at Rs. 5,889 for both the defaults under sections 22(2) and 18‑A(9) of the Act. The matter was carried in second appeal to the Tribunal and there, for the first time, inter alia, the objection to the levy of a composite penalty was taken. The Tribunal pointed out : "No authority had been cited for the proposition that the levy of a composite penalty for two offences is not permissible under the law. In fact a composite penalty has in this case worked out to the benefit and advantage of the assessee. If separate penalties were imposed upon the assessee for different offences, the quantum of penalties would have been much more and would have been prejudicial to the assessee. We, therefore, find no force in this contention and reject it." Hence, this reference at the instance of the assessee.
Even before us, it is conceded that there is no decision of any Court bearing upon the question which has been referred. Therefore, the matter being res integra it will have to be approached and decided on first impressions. There cannot be much doubt that the levy of a penalty is a part of the assessment proceedings. The Supreme Court has pointed out in C. A. Abraham v. Income‑tax Officer, Kottoyam ((1961) 41I T R 425) though in a different context, that : "By section 28, the liability to pay additional tax which is designated penalty is imposed in view of the dishonest contumacious conduct of the assessee. It is true that this liability arises only if the Income‑tax Officer is satisfied about the existence of the conditions, which give him jurisdiction and the quantum thereof depends on the circum stances of the case. The penalty is not uniform and its imposition depends upon the exercise of discretion by the taxing authorities; but it is imposed as a part of the machinery for assessment of tax liability". Proceeding further, the view of the Chief Justice Subba Rao (as he then was), in Mareddy Krishna Reddi v. Income‑tax Officer, Tenali (2) at page 681‑682, was approved. That view was : "Section 28 is one of the sections in Chapter IV. It imposes a penalty for the conceal ment of income or the improper distribution of profits. The defaults made in furnishing a return of the total income, in complying with a notice under subsection (4) of section 22 or subsection ((1957) 31 I T R 678) of section 23 and in concealing the particulars of income or deliberately furnishing inadequate particulars of such income are penalised under that section. The defaults enumerated therein relate to the process of assessment. Section 28, therefore, is a provision enacted for facilitating the proper assessment of taxable income and can properly be said to apply to an assessment made under Chapter IV". The law laid down by the Supreme Court has been followed by this Court in Lal Chand Gopal Das v. Commissioner of Income‑tax ((1963) 48 I T R 324) where it was held; "From this it seems to follow that there is no essential difference between the tax and the penalty. The liability for payment of both is imposed as a part of the machinery of assessment and the penalty is merely an additional tax imposed in certain circum stances on account of the assessee's conduct".
After the aforesaid decision of the Supreme Court, the Madras High Court, in A. V. Thomas & Co. (India) Ltd. v. Commissioner of Income‑tax ((1966) 59 I T R 499) would appear to have agreed with the view taken by this Court in Lal Chand Gopal Das v. Commis sioner of Income‑tax and to have held that there was no essential difference between a tax and a penalty, that penalty was merely an additional tax imposed upon the assessee for his contumacious conduct, and that penalty proceedings were not criminal in nature, In support thereof the practice in England and the united States was cited where penalties are civil actions recoverable in a civil Court and the normal rules as to pleadings in civil actions apply and the taxpayer is required to furnish the particulars.
Undoubtedly, there still exists a sharp cleavage of opinion between various High Courts as to whether penalty proceedings are quasi‑judicial (sic) in nature and the standard of proof required for the levy of penalty. It is however, unnecessary in these proceedings to attempt to resolve that conflict. Even if it be assumed for the sake of argument that penalty proceedings are quasi‑criminal in nature that would not mean that the provisions of the Criminal Procedure Code which required that separate offences in certain circumstances should be separately tried and there should be no joinder of charges, would have application to proceedings under the Income‑tax Act. The Income‑tax Act is a code by itself and the proceedings have to be conducted in accordance therewith, subject always to the rules of natural justice. Similarly, the provisions of the Indian Evidence Act are also not applicable. The only question, therefore, which would require to be considered is whether penalty proceedings for a default under section 22 (2) and for furnishing incorrect estimate of income for the purpose of section 18‑A(2) could have been considered together and a composite penalty levied Penalty proceedings cannot possibly be equated to formal charges under the Penal or the Criminal Procedure Code. The tax file of the assessee is one continuing from year to year and at the time when the Income‑tax Officer comes to levy a penalty, it would be asking the impossible of him to treat the two defaults in separate water‑tight compartments and to forget what is contained in the file regarding the default under section 22 (2) or the previous history of the assessee when levying penalty under section 18‑A(9) read with section 28 of the Income‑tax and vice versa. In some cases it may be advisable to take separate proceedings but it cannot be laid down as a matter of law that proceedings for two or more defaults must invariably be taken separately and can never be disposed of by one penalty order. That apart, in the present case, as pointed out by the Income‑tax Tribunal, there has been no prejudice whatsoever to the assessee. The maximum penalty leviable for the .two defaults was well over Rs. 20,000 and the penalty that was levied was far below that amount. The levy of a composite penalty in these circumstances was not all prejudicial to the assessee, and, therefore, it is difficult, if not impossible, to say that any principle of natural justice has even been violated in the present case.
For the reasons given above, the question referred is answered in the affirmative and against the assessee. In the circumstances of the case parties are left to bear their own costs. Counsel's fee is assessed at Rs. 250. The reference is answered accordingly.
Dealing with a matter like this? Connect with a verified advocate in your city — free on SJP Lawyers Directory.
🔍 Find a Lawyer