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TMI Blog1968 (9) TMI 11X X X X Extracts X X X X X X X X Extracts X X X X ..... rned had been added in the assessment solely on ground of lack of evidence ? " The assessee is a firm dealing in hessian, twines, gunny bags, etc., on wholesale basis. For the assessment year 1948-49 the assessee had returned income amounting to Rs. 45,904. The Income-tax Officer, however, added two items of Rs. 24,000 and Rs. 90,000 as profits and income from undisclosed sources which had been concealed by the assessee. A penalty of Rs. 62,000 was imposed within the maximum limits provided by section 28(1)(c) of the Act. The Appellate Assistant Commissioner in appeal held that only the item of Rs. 24,000 be treated as concealed income and the other amount of Rs. 90,000 could not be treated as such for the purpose of imposing a penalty. In his opinion maximum penalty payable under section 28(1)(c) came to Rs. 30,000 and taking into consideration all the circumstances he imposed a penalty of Rs. 20,000 only on the assessee. In appeal the Appellate Tribunal agreed with the Appellate Assistant Commissioner that there was no concealment in the matter in respect of Rs. 90,000 but affirmed the finding of concealment of the amount of Rs. 24,000. It was held by the Tribunal that, as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le, in the present case, would be 1 1/2 times the amount of tax on the difference between the tax on Rs. 45,904 (returned income) and Rs. 1,62,135 (income as assessed by the Income-tax Officer). The High Court was of the view that the expression " income as returned " occurring in section 28(1)(c) means income disclosed by an assessee in the return and not income computed or assessed by the income-tax authorities minus the income added on the ground of concealment. The High Court found no legislative intent disclosed in the provisions of section 28(1)(c) which would link the avoidance of tax to the concealment of income or which would justify holding that the maximum penalty prescribed in the section had to be proportionate to the extent of the concealment. After considering certain decisions, the High Court, while appreciating that the penalty imposed appeared to be disproportionately heavy to the amount concealed, returned the answer against the assessee. Section 28(1), to the extent it is material, is reproduced below : " (1) If the Income-tax Officer, the Appellate Assistant Commissioner or the Appellate Tribunal, in the course of any proceedings under this Act, is satisf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Revenue Commissioners in which the assessee had transferred valuable assets to foreign companies. He did not dispute that the transactions were of the kind described in the preamble to section 18 of the Finance Act, 1936, namely, to avoid income-tax by transfer of income to persons abroad. The Court of Appeal affirmed the judgment of Macnaghten J. that the assessee was liable to be assessed to income-tax and surtax in respect of the whole income of the foreign companies. Dealing with the argument of counsel that the legislature could not have intended to produce a result according to which an entirely disproportionate penalty could be imposed on the taxpayer, Lord Greene, Master of the Rolls, observed at page 397 : " The section is a penal one, and its consequences, whatever they may be, are intended to be an effective deterrent which will put a stop to practices which the legislature considers to be against the public interest. For years a battle of manoeuvre has been waged between the legislature and those who are minded to throw the burden of taxation off their own shoulders on to those of their fellow subjects. In that battle the legislature has often been worsted by the ski ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issued a notice under section 34 and levied a second penalty of Rs. 68,501 for concealment of income in the original return. The contention of the assessee was that the second order imposing penalty was illegal. This contention did not find favour with this court and it was observed that the penalty under the section had to be co-related to the amount of tax which would have been evaded if the assessee had got away with the concealment. The Income-tax Officer had levied the penalty on the first occasion after making an assessment of income by an estimate. Later, when he ascertained the true facts and realised that a much higher penalty could be imposed, he was entitled to recall the earlier order and pass another order imposing a higher penalty. What has been stressed on behalf of the appellant, in the present case, is that the penalty has to be co-related to the amount of tax which would have been evaded if the assessee had got away with the concealment. It must be remembered that the question which has come up for consideration before us is altogether different from the one which was determined in the case of N. A. Malbary Bros., as is apparent from the facts which have been st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judgment of the Court of Appeal was that the penalty provisions produced minimum penalties wholly unrelated to the extent of the default, so extravagant as to be shocking in a penal provision, and at least one anomaly which might well be thought to run quite contrary to ordinary justice. Viscount Kilmuir, Lord Chancellor, said that he could not accept the argument that in the case of an incorrect return the amount of penalty to be levied was only a sum of pound 20 and treble the tax on the amount which would have escaped taxation if the incorrect return made by the assessee had formed the basis of assessment. In the opinion of the Lord Chancellor, " so to do would entail the making of an artificial assessment on the basis of the return, the making of the true assessment and the subtracting of the one from the other ". Lord Reid also examined the contention that the penalty must have been intended to have some relation to the offence and that the tax which the assessee ought to be charged must be additional tax which he ought to be charged by reason of the discovery of the true state of affairs; otherwise the penalty could be grossly and extravagantly disproportionate to the offence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount would be the maximum limit within which penalty can be imposed where it was discovered that income had been concealed. So far as the word " returned " is concerned, it is not possible to go beyond its plain meaning particularly when the expression " return " is well understood in income-tax law. Section 22 contains provisions relating to " return of income " and the words " income as returned " would clearly mean income as disclosed or shown in the return filed under section 22. Even in clause (a) of section 28(1) the word " return " has been used in the same sense and the submission of the counsel for the appellant that other meaning should be given to it cannot, by any stretch of reasoning, be accepted. In the above view of the matter it must be held that the penalties which have been provided by section 28(1) are meant for the acts of omission or commission which are set out therein and once an assessee is proved to have been guilty of them the penal provisions are attracted and with reference to clause (c) irrespective of the amount concealed. Thus the answer returned by the High Court to the question referred was correct. It has been strenuously urged before us that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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