1960 (1) TMI 37 - HC - Income Tax

Summary

Issues Involved:
1. Construction of subsection (3) of section 25 of the Income Tax Act, 1952.
2. Interpretation of the phrase "treble the tax which he ought to be charged under this Act."
3. Determination of the point of time for ascertaining the tax liability.
4. Applicability of penalties for incorrect returns versus no returns.
5. Comparison of penalties under different sections of the Income Tax Act, 1952.

Detailed Analysis:

1. Construction of subsection (3) of section 25 of the Income Tax Act, 1952
The central issue was the interpretation of subsection (3) of section 25 of the Income Tax Act, 1952, which stipulates penalties for failing to deliver a true and correct return. The provision states: "A person who neglects or refuses to deliver...a true and correct list, declaration, statement or return...shall...forfeit the sum of lb20 and treble the tax which he ought to be charged under this Act."

2. Interpretation of the phrase "treble the tax which he ought to be charged under this Act"
The Crown argued that this phrase implies a fixed penalty of lb20 plus three times the total tax liability for the year. The appellants contended that the penalty should be limited to treble the tax avoided by the default. Diplock J. and the Court of Appeal interpreted the phrase to mean the tax appropriate to the undisclosed income, not the total tax liability.

3. Determination of the point of time for ascertaining the tax liability
Diplock J. held that the tax liability should be determined at the time the proceedings are brought. He concluded that if the correct assessment was made before the commencement of the action, the only recoverable amount would be the fixed penalty of lb20. The Court of Appeal disagreed, stating that the liability to the penalty arises when the offence is committed, i.e., when the incorrect return is received by the commissioners.

4. Applicability of penalties for incorrect returns versus no returns
The Court of Appeal and the House of Lords both emphasized that the penalty provisions apply equally to cases of incorrect returns and no returns. The House of Lords noted that the penalty must be determined based on the offence's commission date, not the subsequent assessment or payment.

5. Comparison of penalties under different sections of the Income Tax Act, 1952
The judgment compared section 25(3) with other penalty provisions, such as sections 48 and 49, and paragraph 4 of Schedule VI. It was noted that section 48 deals with penalties for fraud and imposes treble the amount of the difference between the correct and incorrect assessments. Section 49 allows treble the tax on the excess amount in cases of underreported income under Schedule D. Paragraph 4 of Schedule VI imposes treble the tax on all sources of income for fraudulent claims for relief.

Conclusion:
The House of Lords concluded that the phrase "treble the tax which he ought to be charged under this Act" must bear its ordinary meaning, which is treble the total tax liability for the year. The appeal was allowed, and it was determined that the penalty provisions under section 25(3) apply to the entire tax liability, not just the undisclosed income. The judgment emphasized that the liability to the penalty arises when the offence is committed, and subsequent assessments do not affect this liability. The appeal was allowed, and no order for costs was made at the request of the Revenue.