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TMI Blog2013 (12) TMI 542X X X X Extracts X X X X X X X X Extracts X X X X ..... h September, 1998 Tax Demand and penalty 7,99,430 Plus penaltY 1991-92 Wealth Tax Act - Section 18(1)(c) 25th March, 1998 Penalty 1,12,875 1992-93 Wealth Tax Act - Section 18(1)(c) 25th March, 1998 Penalty 1,79,950 3. Revenue claim that they are entitled to recover said dues under I.T. Act and W.T. Act, payable by S.C. Mangal from the petitioner as the successor who has taken over the assets and liabilities of S.C. Mangal. 4. Contention of the petitioner is to the contrary and it is submitted that the petitioner had only taken over and acquired rights as a stock broker of Delhi Stock Exchange Association Limited pursuant to transfer of share certificates by S.C. Mangal in favour of the petitioner. 5. In order to decide the said contentions, necessary facts in brief may be noticed. One Sanjay Jain had filed civil suit No. 1950/1992 against S.C. Mangal and his wife. In the said civil suit, an application under Section 151 read with Order XXIII, Rule 3 of the Code of Civil Procedure, 1908, was filed. The compromise application records that without prejudice to the contentions, the defendants therein S.C. Mangal and his wife had agreed to transfer the brokerage business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed proforma. Upon completion of formalities, on 6th February, 1995, the application was allowed and the shares originally belonging to S.C. Mangal and his wife were transferred in the name of the petitioner. 8. Contentions raised on behalf of the petitioner are required to be stated in seriatim: (1) The Assessing Officer had not passed any order under Section 170(3) of the IT Act and without first adjudicating and passing an order under the said section, no recoveries could be made. An order under Section 170(3) of the IT Act was a pre-requisite and was also an appealable order under Section 246 of the IT Act before the Commissioner of Income Tax (Appeals). The Assessing Officer had, therefore, erred in initiating or pressing for recoveries of the dues of S.C. Mangal from the petitioner and even rejecting the objections, without first passing an order under Section 170(3) of the IT Act. (2) The petitioner was not a successor and the tax liabilities payable by S.C. Mangal cannot be recovered from them for the following reasons: (a) The petitioner had taken over and bought the trade and had agreed to pay the liabilities relating to trade and not personal liabilities of S.C. Manga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1) and (2) to Section 170. For convenience, we reproduce sub-section (3) to Section 170 along with explanation to the said Section which is applicable and the same reads:- "Succession to business otherwise than on death. 170. .......... (3) When any sum payable under this section in respect of the income of such business or profession for the previous year in which the succession took place up to the date of succession or for the previous year preceding that year, assessed on the predecessor, cannot be recovered from him, the [Assessing] Officer shall record a finding to that effect and the sum payable by the predecessor shall thereafter be payable by and recoverable from the successor, and the successor shall be entitled to recover from the predecessor any sum so paid. ............. Explanation.-For the purposes of this section, "income" includes any gain accruing from the transfer, in any manner whatsoever, of the business or profession as a result of the succession.‖ The contention has to be noted and rejected, as it is clearly self-contradictory to contention No. 1 raised by the petitioner above. Sub-section (3) to Section 170 mandates and stipulates a specific ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... holding that the liability was on account of business of S.C. Mangal. The said letter is not in the form of an order and on reading the said letter no one can assume that this was an order under Section 170(3) of the IT Act. 12. We would not like comment in detail on the contention of the petitioner that they are not successor of S.C. Mangal. Prima facie on reading of the documents of transfer i.e. the compromise application, agreement etc., the said contention does not appear to be correct. But we leave this issue open to be decided by the authorities i.e. the assessing officer when he passes an order under Section 170(3) of the Act. 13. In view of the aforesaid position, it is clear that recovery proceedings cannot be initiated against the petitioner for recovery of the dues under the IT Act without the Assessing Officer first passing an order under Section 170(3) of the IT Act. If and when any adverse order is passed by the Assessing Officer, the petitioner herein would be entitled to file an appeal as provided under Section 246 of the IT Act. We refrain from delving into the legal issues and contentions of the petitioner on the question of applicability of Section 170(3) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were passed after/post 12th May,1995 thus the liability was created after the date of transfer. Similar is the position in respect of penalty order under Section 271(1)(c) of the IT Act, but the question of recovery has to be decided in terms of Section 170(3) of the IT Act. 15. It has been observed that penalty under Section 271(1)(c) or 18(1)(c) is additional tax and partake character of tax but the said principle cannot be expanded beyond reasonable limits and has its limitations. Liability to penalty does not arise merely upon proof of default. Penalty is imposed on failure to carry out the statutory obligation and is normally considered to be quasi criminal in nature though mens rea or contumacious conduct may not be required. There is always an element of discretion as the authorities concerned have to act judiciously and on consideration of all relevant circumstances, decide whether or not to impose penalty. Penalty under the two provisions is not imposed automatically and is not mandatory. To this extent penalty proceedings are distinct from statutory liability of payment of tax which arises or accrues under the charging section and the adjudication proceedings only quanti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t come under the ambit of Section 19 of the WT Act. It was further held that Section 159 of the IT Act had a clear prescription for continuation of proceedings for imposing penalty against the legal heirs but Section 19 of the WT Act was contextually different from sub-section (2) to Section 159 of the IT Act. 18. Jurisprudentially, the person is actionable and responsible for himself, for what he does and not for what others do or for events or acts of others. Family per se or a spouse is not actionable or responsible for other family members and for the spouse. Doctrine of vicarious liability is not of general application and is applied in cases of statutory crimes. (For detailed elucidation refer Central Excise Act. Reference 1/2011 Freezeair India (P) Ltd v. Commissioner of Central Excise Delhi-1). Normally, there are specific provisions in the statute which imposes an obligation which are invoked to fasten vicarious liability [see P. N. P. Thulkarunai & Co. Vs. Director, Enforcement Directorate, Finance Ministry (1969) 71 ITR 149 (Mad.)]. 19. Bombay High court in Controller of Estate Duty (Central), Bombay vs. N.H. Kotak (1982) 134 ITR 256, had the occasion to consider the q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment year 1995-96. We are not inclined to accept the said submission as the petitioner has filed this writ petition which has been pending since 1998. By order dated 11th November, 1999, the respondents 1 and 2 were restrained from making recovery from the petitioner of the demand raised against S.C. Mangal in respect of assessment years 1991-92, 1992-93 and 1995-96, subject to the petitioner furnishing security for the amounts in question to the satisfaction of the Assessing Officer. It was also directed that the order will not preclude the appellate authorities from proceedings with the appeal stated to be pending. 22. The writ petition is accordingly partly allowed. It is directed that the penalty amounts under Section 18(1)(c) of the WT Act relating to assessment years 1991-92 and 1992-93 cannot be recovered from the petitioner. With regard to the income tax demand including penalty for the assessment year 1995-96, relating to S.C. Mangal, it is open to the respondents to initiate recovery proceedings after deciding the dispute by passing an order under Section 170(3) of the Act. While passing an order under Section 170(3), the assessing officer will decide whether penalty ..... X X X X Extracts X X X X X X X X Extracts X X X X
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