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TMI Blog1975 (9) TMI 61X X X X Extracts X X X X X X X X Extracts X X X X ..... t, 1957. For the asst. yr. 1972-73, the trustees of H.E.H. the Nizam s trust filed returns on behalf of the above beneficiaries on 18th Sept., 1972. The assessments for the asst. yrs. 1964-65 to 1971-72 were sought to be reopened by issue of notices under s. 17 of the act on the ground that it came to light that the assessee had absolute share of interest in the corpus of H.E.H., the Nizam s Housing Accommodation Trust w.ef. 2nd May, 1960 by virtue of cl. 5(b) of the deep pool of partial revocation and new appointment dt. 2nd May, 1957, as against the life interest evaluated and declared in the returns on the basis of which the assessments were completed and that the difference between the values of the share of corpus and the life interest had escaped assessment. The trustees filed returns on behalf of the beneficiaries on 29th Jan., 1973, in compliance with the said notices including, inter alia the difference between the values of the share of corpus and the life interest in the Housing Accommodation Trust. In the course of the said reassessment proceedings, it was noticed that the beneficiaries were entitled to 2/9th share in the corpus of 2 units allotted to their deceased fat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ough the WTO brought the correct legal position to their notice in December, 1972 itself. In this view of the matter, the IAC held that there was continuous failure on the part of the trustees right from the time the WT Act come into force to implement the provisions of the trust deed or at least to declare the assessees correct wealth from H.E.H., the Nizam s Family Trust. He came to the conclusion that the trustees had not proved that the failure to return the correct net wealth from H.E.H., the Nizam s Family Trust did not arise from any gross neglect on their part. He, therefore, held that the trustees should be deemed to have concealed the particulars of net wealth and consequently penalties under the Explanation to s. 18(1)(c) of the WT Act, 1957, were exigible. He accordingly imposed penalties. The particulars relating to the numbers of the Wealth-tax appeals, the names o the beneficiaries, the Wealth-tax assessment year, the difference between the life interest and the absolute corpus on account of the interest of the deceased father of the beneficiaries assessed in the reassessment and the penalties levied by the IAC are as under : WTA No. Name of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 227(HYD)/1975-76 " 1965-66 82,880 83,000 228(HYD)/1975-76 " 1966-67 82,584 83,000 229(HYD)/1975-76 " 1967-68 97,498 98,000 230(HYD)/1975-76 " 1968-69 1,41,306 1,42,000 231(HYD)/1975-76 " 1969-70 1,21,934 1,22,000 232(HYD)/1975-76 " 1970-71 1,18,454 1,19,000 233(HYD)/1975-76 " 1971-72 1,18,454 1,19,000 234(HYD)/1975-76 " 1972-73 1,03,106 1,04,000 Aggrieved by the said orders of the IAC the assessees have come on appeal before us. 4. The learned counsel, Shri Y.V. Anjaneyulu, raised the following contentions before us: (i) The assessee did not conceal any wealth nor did they furnish any inaccurate particulars of wealth. There was no gross neglect in returning the true wealth. Penalties are, therefore, not leviable. (ii) The orders levying penalties are illegal since there was no valid initiation or commencement of the penalty proceedings. (iii) The assessees are not the trustees of the beneficiaries in re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tees applied for time to consider the matter, by letters dt. 9th Jan., 1973, 2nd Feb., 1973 and 2nd March, 1973, and ultimately, by a letter dt. 21st March, 1975 it was explained that the trustees had agreed that, under cl. 5(b) of the Family Trust deed, the children of the deceased beneficiaries, who included the late Kazim Jah Bahadur, would be deemed to have acquired the absolute right in the share of the corpus of the deceased father or mother as the case may be. Since the assessment for the asst. yrs. 1964-65 to 1971-72, were already reopened under s. 17 of the WT Act, 1957, for the purpose of brining to assessment the difference in the values of the reversionary interest of the beneficiaries in the Housing Accommodation Trust and the life interest thereof by issue of notices on 8th Sept., 1972 and since returns were filed in compliance therewith even on 29th Jan., 1973, the trustees offered to file revised returns, if necessary. The WTO completed the reassessments on 31st march, 1973 in most of the cases and on 30th May, 1973, in the other cases. In the assessment orders, there is no whisper about the proposal to levy penalties under s. 18(1)(c) of the Act. To the notices iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ute corpus on and after the death of Nawab Kazim Jah Bahadur also supported the assessee s plea of bona fide. He further submitted that the assessee are not at all guilty of neglect or gross neglect. The IAC has erred in stating that there was no response to the WTO s letter dt. 22nd Dec., 1972. As pointed out earlier, the assessees had been applying for time in order to take legal opinion. They had co-operated with the Department in agreeing the have the shares of to corpus included in the net-wealth, in the letter addressed to the WTO dt. 31st March, 1973. On the facts and circumstances of this case, it will be clear that the assessees are not guilty of conscious concealment and they had acted bona fide throughout. The learned counsel referred us to the decisions in the following cases ; CIT vs. Anwar Ali, reported in (1970) 76 ITR 696 (SC); Art Press vs. CIT reported in (1973) 87 ITR 468 (All); R. Srinivasan Co. vs. CIT reported in (1974) 97 ITR 431 (Mad); and D.M. Dahmanukar vs. CIT reported in (1967) 65 ITR 280 (Bom). He further submitted that the charge against the assessee is that they did not include the difference in Wealth in question in the returns filed on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... WTO, A-Ward, Circular-I, Hyderabad (Writ petition Nos. 220, and 221 of 1973, judgment dt. 8th Aug., 1974). Winding up his arguments, Shri Anjaneyulu pointed out that mala fides and mens rea are absolutely ruled out on the facts of this case, more especially when it is seen that there could be no motive whatsoever for the assessees to omit the net wealth in question on which the Wealth-tax leviable was few hundreds of Rupees while they were exposing themselves to huge and oppressive penalties running to tens of thousands of Rupees in each case. 5. Shri P. Rama Rao, the learned standing counsel for the IT Department, supported the orders of the IAC. He pointed out that the assessees are clearly guilty of gross negligence. He submitted that the provisions of the explanation to s. 18(1)(c) of the WT Act, 1957, are attracted to these cases. Once the Explanation is attracted, there is no burden whatsoever on the Department to show that the assessees are guilty of concealment of wealth or furnishing inaccurate particulars of Wealth. On the other hand, the burden is squarely on the assessees to prove that the failure to return the correct net wealth did not arise from any fraud or any g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idently a typographical error, since the returns were filed on 29th Jan., 1973. Further, the same is evident by the fact that another letter preceding this endorsement of satisfaction was on 31st Jan., 1973 and the subsequent letter to this endorsement was dt. 2nd Feb., 1973. He further pointed out that, in any event, the satisfaction need not be linked to the filing of the returns, that it is enough if it is arrived at in the course of reassessment proceedings and that, further, the satisfaction can be arrived at the basis of the returns filed in the original assessments. In this connection, he replied upon the following decisions: K.C. Mukherjee Anr. vs. CIT, reported in (1959) 37 ITR 224 (Patna); CIT vs. Angara Satyam, reported in 1959 37 ITR 230 (AP); and Jain Brothers vs. Union of India, reported in (1970) 77 ITR 107 (SC). As regards the plea of Shri Anjaneyulu that the corpus should have been distributed on 4th Nov., 1950, that is, the date on which Kazim Jah Bahadur died, and, therefore, the trustees were not under an obligation to file the returns, Shri Rama Rao pointed out that the assessee should not be permitted to raise such a plea at this stage when admitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res of the beneficiaries. In H.E.H., the Nizam s Family. Just in respect of which the returns were filed only on 29th Jan., 1973. No satisfaction was recorded by the WTO after the filing of the returns by the assessees on 29th Jan., 1973 in regard to H.E.H., the Nizam s Family Trust. 7. We have carefully considered the rival submissions. Though the matter has been debated at great length on various aspects of law, we are of the view that these appeals can be disposed of on a consideration of the facts alone, and we preceed to do so. In those cases, penalties were levied by the IAC on the trustees in their representative capacity on the ground that they had not proved that the failure to return the correct net wealth of the beneficiaries under reference from H.E.H., the Nizam s Family Trust did not arise from any gross neglect on their part. In other words, the penalties were impesed under the Explanation to s. 18(1)(c) of the WT Act, 1957. Before we go into the facts of these cases, it would be necessary for us to consider the nature of the burden of proof referred to in the said Explanation. It is well settled that penalty proceedings are quasicriminal in nature, vide the follow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re and the burden is on the Department to prove that a particular amount is a revenue receipt. It would be perfectly legitimate to say that the mere fact that the explanation of the assessee is false does not necessarily give rise to the inference that the disputed amount represented income. It cannot be said that the finding given in the assessment proceedings for determining or computing to tax is conclusive. However, it is goods evidence. Before penalty can be imposed the entirety of circumstances must reasonable point to the conclusion that the disposed amount represented income and that the assessee had consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars." In the above case, the Supreme Court was dealing with s. 28(1)(c) of the Indian IT Act, 1922 which was more or less analogous to s. 271(1)(c) of the IT Act, 1961, and s. 18(1)(c) of the WT Act, 1957. Sec. 271(1)(c) of the IT Act, 1961, and s. 18(1)(c) of the WT Act, 1957, were amended by the Finance Act, 1964, and the WT (Amendment) Act, 1964, respectively introducing the Explanation. In the WT Act, 1957, the following Explanation was introduced to s. 18(1)(c) by the afo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to discharge the burden referred to in the Explanation. The Supreme Court, in the case of Harbhajan Singh vs. State of Punjab, reported in AIR 1966, Supreme Court 97, was dealing with an offence under s. 500 of the IPC relating to a charge of defamation. The accused person was penalty in defence goods faith and public good under the Ninth Exception to s. 499 of the IPC Examining the nature of the burden of proof under s. 105 of the Evidence Act in the context of that case, their Lordships observed as under at page 101-102 : "(14) It is true that under s. 105 of the Evidence Act, if an accused person claims the benefit of Exceptions, the burden of proving his plea that his case falls under the Exceptions is on the accused. But the question which often arises and has been frequently considered by judicial decisions is whether the nature and extent of the onus of proof placed on an accused person who claims the benefit of an Exception is exactly the same as the nature and extent of the onus placed on the prosecution in a criminal case; and there is consensus of judicial opinion in favour of the view that where the burden of an issue lies upon the accused, he is not required to dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proof placed upon an accused person against whom the presumption under the aforesaid s. 4(1) of the prevention of Corruption Act was drawn. This is what their Lordships observed at page 1764: "(4) The next question arising in this case is as to what is the burden of proof placed upon the accused person against whom the presumption is drawn under s. 4(1) of the Prevention of Corruption Act. It is well established that where the burden of an issue lies upon the accused, he is not required to discharge that burden by leading evidence to prove his case beyond a reasonable doubt. That is, of course, the test prescribed in deciding whether the persecution has discharged its onus to prove the guilt of the accused, but the same test cannot be applied to an accused person who seeks to discharge the burden placed upon him under s. 4(1) of the Prevention of Corruption Act. It is sufficient if the accused person succeeds in proving a preponderance of probability in favour of his case; It is not necessary for the accused person to prove his case beyond a reasonable doubt or in default to incur a verdict of guilty. The onus of proof lying upon the accused person is to prove his case by a pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roving the case beyond a reasonable doubt, and that this burden may be discharged by evidence satisfying the jury of the probability of that which the accused is called on to establish. The ratio of this case was referred to with approval by this Court in Harbhajan Singh vs. State of Punjab, Cri. Appeal No. 53 of 1961, dt. 2nd March, 1965; (Air 1966 SC 97).We are accordingly of the opinion that the burden of proof lying upon the accused under s. 49(1) of the Prevention of Corruption Act will be satisfied if the accused person establishes his case by a preponderance of probability and it is not necessary that he should establish his case by the test of proof beyond a reasonable doubt. In other words, the onus on an accused person may well be compared to the onus on a party in civil proceedings, and just as in civil proceedings, the Court trying an issue makes its decision by adopting the test of probabilities, so must the Criminal Court hold that the plea mad by the accused is proved if a preponderance of probability is established by the evidence led by him." The authoritative pronouncements of the Supreme Court in the above cases make it clear that the burden of proof cast on an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the prosecution in a criminal case where the prosecution has to establish the guilt of the accused beyond a reasonable doubt nor is it of the same nature as the burden which lies upon the revenue in establishing that the assessee has concealed the particulars of his income or furnished inaccurate particulars of such income. It is a burden akin to that in a civil case where the determination is made on preponderance of probabilities (emhasis is ours). It is also not necessary that any positive material should be produced by the assessee in order to discharge this burden which rests upon him. The assessee may claim to have discharged the burden by relying on the material which is on the record in the penalty proceedings, irrespective of whether it is produced by him or by the revenue. The only question to which the IT authority has to address itself is whether, on the material on record in the penalty proceedings, can it be said on a preponderance of probabilities that the failure to return the total assessed income ahs not arisen on account of any fraud or any gross or wilful neglect on the part of the assessee." The Kerala High Court, in the case of CIT vs. Sankarson Co., repo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lars unless he provides that failure to return the correct income did not arise from any fraud or gross or wilful neglect on his part. The deeming provision raises a presumption in law about the concealment of the income or about the inaccuracy of its particulars whenever the returned income is less than eighty per cent of the assessed income. But this is a rebuttable presumption and the assessee is entitled to show that there was no fraud or gross or wilful neglecting his part. It would, thus, be observed that sub-s. (1) of s. 271 is not only penalty or quasi-criminal in nature, but departs from the normal well-established rule which would throw the burden of proof on the revenue to establish that the assessee had consciously concealed the particulars of his income or deliberately furnished inaccurate particulars in respect thereof. The onus of proof, on the other hand, has been placed on the assessee, who is required to prove the negative, that is, the absence of fraud or gross or wilful neglect on his part. The assessee is to be afforded an opportunity to furnish this proof. He would, in these peculiar circumstances, be taken to have discharged the onus, if he, in the absence of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -58 in respect of wealth-tax assessments. It is also common ground that for nearly 14 years right from the commencement of the WT Act, 1957, that is, from the asst. yr. 1957-58 to the asst. yr. 1971-72, the trustees were assessed in their representative capacity in respect of the wealth of the beneficiaries under reference. As per part II of the Second Schedule to the trust deed, the father of the beneficiaries, Nawab Kazim Jah Bahadur, we allotted two units and the five daughters and two sons of Nawab Kazim Jah Bahadur were allotted one unit each. Under cl. 5 of the said, deed the trustees are required to hold and possess the said units of the corpus of the trust fund and pay the respective incomes of the respective units of the corpus of the trust fund to the beneficiaries during the terms of their natural lives. Nawab Kazim Jah Bahadur died on 4th Nov., 1950. It is common ground that in the original assessment made for the asst. yrs. 1964-65 to 1971-72, the beneficiaries who are the children of the late Nawab Kazim Jah Bahadur were assessed through the trustees in respect of their wealth which admittedly included the life interest of the beneficiaries in H.E.H. the Nizam s Famil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der the WT Act pursuant to notice issued under s. 17 Asst. yr. 1964-65 onwards (1) Nawab Imadad Jah and (2) all the 7 children of the late Nawab Kazim Jah Reg. You have been pleased to issue notices under s. 17 of the WT Act for the asst. yr. 1964-65 to 1972-73 requiring the trustees of H.E.H. the Nizam s Family Pocket Money. Trust to file Supplemental wealth-tax returns in a representative capacity of Nawab Imabad Jah, beneficiary of H.E.H. the Nizam s Family Pocket Money Trust. These returns were filed before you in January, 1973. 2. You have also been pleased to issue notices under s. 17 of the trustees of H.E.H. the Nizam s Family Trust to file supplemental wealth-tax returns in respect of the following 7 children of the late Nawab Kazim Jah: Mir Ahmed Ali Khan 1964-65 to 1972-73 Mir Baquer Ali Khan 1964-65 to 1971-72 Seleha Begum 1964-65 to 1971-72 Salma Begum 1964-65 to 1968-69 Hussainni Begum 1964-65 to 1972-73 Kazimunnisa Begum 1964-65 to 1972-73 Abbasi Begum 1964-65 to 1972-73 3. Supplemental returns relating to the above beneficiaries in response to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tioned cases were long overdue and directed us to take speedier steps to file the returns. In deference to your directions therefore we had filed the above returns but in the returns filed only life-interest was declared, as was done in the original returns, in respect of the corpus which devolved on Nawab Imdad Jah on the death of his mother Jani Begum in the Family Pocket Money Trust and in respect of the corpus which devolved on the seven children of the late Nawab Kazim Jah which devolved in definite shares under the terms of the Family Trust Deed. We are directed by the Trustees to inform you that they will further communicate to you in regard to the assessment of the interest of the deceased parents referred to above and we, therefore, request you to keep the assessments pending till we further communicate to you in this matter. Thanking you." The said two letters were acknowledged by the ITO in his letter C.R. 80/72-73 which reads as under : "Subject : Wealth-tax assts : of beneficiaries of HEH the Nizam s Family Trust Asst. of deceased s share for Wealth-tax purposes regarding. Reference : Your letter BFT/57/73/FSO/26-73/T/83 dt. 9th Jan., 73 2nd Feb., 1973. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Nizam s Family Trust deceased share in the corpus for wealth-tax purposes. We have been directed by the Secretary to inform you that the Trustees have agreed that under the provision of sub-cl. (b) of cl. 5 of the Deed of Family Trust "the child or children of the beneficiaries mentioned in your letter referred to above will be deemed to acquire the absolute right in the share of the corpus of the deceased s father or mother as the case may be". If you so desire, we have no objection to file revised wealth-tax return in respect of the concerned deceased, if necessary. Thanking you". It is not disputed by the Department that the assessees had sent the above letters to the WTO. It is surprising to see the IAC observing in his orders imposing the penalties that the assessees did not respond to the letter of the WTO dt. 22nd Dec., 1972 till the finalisation of the assessments on 31st March, 1973. It is thus obvious that the IAC has completely overlooked the several letters written by the assessees explaining their conduct. The finding of the IAC that the assessee are guilty of gross neglect is thus clearly vitiated. Shri Rama Rao, the learned counsel for the Revenue, contend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e manner as they were holding the units held by the heirs as per the terms of the Trust Deed. It may be mentioned that each grand-son and grand-daughter of H.E.H. were also allotted 1 unit each in which they have only life interest. The Trustees were of the opinion that the heirs had only life interest in the share derived by them from the units held by the deceased and so did not pay to the children of the Late Kazim Jah Bahadur, the value of the share of units inherited. The relevant clause of the Release Deed is quoted below : " The two units of the corpus of the Trust Fund allotted to the said Kazim Jah Bahadur under cl. 3(b) of the said Deed of Trust were thereupon divided and distributed among the children." The Trustees were of the opinion that the units have to be divided and that the corpus need not be paid to them in cash in the case of not only of the children of Kazim Jah but also in the case of children or heirs of other deceased beneficiaries who died and did not distribute cash. It may be mentioned that there are 10 more beneficiaries of the category of Kazim Jah. On receipt of the ITO s letters dt. 28th Feb., 1973 the Trustees examined the matter in detail a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the relevant clause, namely, cl. 5(b), of the trust deed was known to the Department, and, as claimed by the learned counsel for the Revenue, it is so plain and unambiguous, the Department had not chosen to include the shares of the corpus instead of the shares of the life interest in the impugned wealth in the assessment made right from the asst. yr. 1957-58 to the asst. yr. 1971-72. This circumstance alone is sufficient to show that cl. 5(b) of the deed of trust is not so clear and unambiguous as claimed by the learned counsel. Be that as it may, the fact remains that the trustees stand in a fiduciary capacity towards the beneficiaries and the beneficiaries had not laid any claim in respect of the shares of corpus of their deceased father who died as early as November, 1950. This circumstances also shows that there was clear mis-understanding of the correct legal position. It is also on record that as soon as the WTO brought to the notice of the trustees that the values of the shares of the corpus have to be included in the assessments instead of the values of the shares of life interest already assessed, the trustees moved in the matter and sought legal opinion. The resolution p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the show cause notices of the IAC that were served on the assessees. He had not stated therein that he proposed to apply the presumption of guilt under the Explanation to s. 18(1)(c) of the WT At, 1957. On the other hand, he was positive that the assessee, in his opinion, had concealed the wealth or deliberately furnished inaccurate particulars of wealth. Now, it is well settled as stated earlier, that penalty proceedings are quasi-criminal in nature and, therefore, it follows that, firstly, the charge levelled against the assessee must be specific and precise, and, secondly, the assessee should be provided with an opportunity to meet the charge by rebutting the statutory presumption raised under the Explanation to s. 18(1)(c) of the Act by showing that he is not guilty of fraud or gross or wilful neglect in his failure to return that correct wealth. The charge framed by the IAC is incorrect as stated above. When the IAC has not referred to the Explanation to s. 18(1)(c) of the Act in his notices and when the assessees have not been called upon to rebut the statutory presumption arising thereunder, we fail to see how the assessees can endeavour to meet a charge which they have not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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