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TMI Blog1974 (9) TMI 18X X X X Extracts X X X X X X X X Extracts X X X X ..... on is raised regarding the penalty for the year 1968. These references relate to the years 1965-66 and 1966-67 and the questions referred are : " (i) Whether, on the facts and in the circumstances of the case, the Tribunal is justified in law in entertaining the additional ground of appeal after the assessee had conceded before the Appellate Assistant Commissioner that there was delay in filing the return of income for which penalty was leviable ? (ii) Whether, on the facts and in the circumstances of the case, the Tribunal is justified in law in cancelling the penalties levied under section 271(1)(a) of the Income-tax Act, 1961, for the assessment years 1965-66 and 1966-67 ?" The assessee had not filed returns for the two years 1965-66 and 1966-67. For the year 1965-66 it appears from a foot-note appended to the Tribunal's order as well as the statement of the case that the assessee had applied for time to file the return. Time was granted upto August 31, 1966. No return was filed. Thereafter a notice under sub-section of section 139 was served on the assessee on September 22, 1967. The return was thereafter filed on September 23, 1967. For the year 1966-67 no return w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cancelled as bad in law." We do not find any error of law in the order of the Appellate Tribunal in allowing the additional ground being raised. The ground involved was a question of law which had been taken at the earliest time by the assessee. In fact, for a determination of the question of penalty the question of mens rea involved in the ground had to be determined. There is a discretion vested in an appellate authority in allowing or disallowing such a ground. Discretion has been exercised by the Tribunal in favour of the assessee. In the circumstances we have mentioned we see nothing wrong in it. Accordingly, we answer the first question referred to us in the affirmative, that is, in favour of the assessee and against the department. Now, we have to deal with the second question. As we understand the order of the Tribunal, the relevant part of which we have extracted the Tribunal has clearly cast the burden of proof on the department. In other words, the view of the Tribunal is that the omission to file a return within the time stipulated either by section l39(1) or by the notice under sub-section (2) of section 139 must be proved by the department to be without reasonab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of the Full Bench ". Question (II) referred by the Tribunal is alone thus before us and we shall proceed to discuss the same. Section 271 of the Income-tax Act, 1961, occurs in Chapter XXI, entitled : "Penalties imposable". The material part of the section reads : " 271. Failure to furnish returns, comply with notices, concealment of income, etc.--(1) If the Income-tax Officer or the Appellate Assistant Commissioner in the course of any proceedings under this Act, is satisfied that any person-- (a) has without reasonable cause failed to furnish the return of total income which he' was required to furnish under sub-section (1) of section 139 or by notice given under sub-section (2) of section 139 or section 148 or has without reasonable cause failed to furnish it within the time allowed and in the manner required by sub-section (1) of section 139 or by such notice, as the case may be, or .......... (c) has concealed the particulars of his income or furnished inaccurate particulars of such income, he may direct, that such person shall pay by way of penalty,-- (i) in the cases referred to in clause (a), in addition to the amount of the tax, if any, payable by hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s returned by such person had been accepted as the correct income." Section 51 of the Act in so far as it is relevant provided : " 51. Failure to make payments or deliver returns or statements or allow Inspection.--If a person fails without reasonable cause or excuse--...... (c) to furnish in due time any of the returns mentioned in section 19A, section 20A, section 21, sub-section (2) of section 22, or section 38 ;............ he shall, on conviction before a Magistrate, be punishable with fine which may extend to ten rupees for every day during which the default continues." Section 28 is in Chapter IV--" Deductions and Assessment "--and section 5l in Chapter VIII--" Offences and Penalties ". On the language used in the sections in the two Acts, certain things strike us. The provisions for imposition of penalty are independent of the provisions for prosecution and punishment, in the sense that the proceedings under the one will not bar action under the other. Turning to 1922 Act, section 28(1)(c) requires, as a fact, a concealment of particulars or a deliberate furnishing of inaccurate particulars of such income. From its very nature, the element of deliberation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uirements, for imposition of a penalty and punishment for an offence, it appears to us that we would not be justified in reading into the earlier section, the requirements of any mens rea expressly provided for in the later one. This aspect, which strikes us, on a perusal of the sections stands reinforced by the difference between the two proceedings, namely, penalty proceedings and proceedings by way of a criminal prosecution, which have been stressed in the judicial decisions and in certain treatises of the subjects. We may perhaps begin with what appears to us to be an apt quotation from Corpus Juris Secundum, volume 85, page 580, paragraph 1023 : "A penalty imposed for a tax delinquency is a civil obligation, remedial and coercive in its nature, and is far different from the penalty for a crime or a fine or forfeiture provided as punishment for the violation of criminal or penal laws." This view is reflected in the decision of a Division Bench of the Madras High Court in Sivagaminatha Moopanar Sons v. Income-tax Officer, II Circle, Madurai, where the relevant American decisions have been elaborately surveyed. The learned judges recorded complete agreement with the ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so made an offence under section 277 of the Act, I cannot say that the penalty imposed under section 28 of the repealed Act or under section 271 of the Act was or is imposed on the basis that it was or is an offence. For the, offence punishment was or is prescribed such as imprisonment fine or both. The imposition of penalty on the basis of an act or omission by an assessee is not because the act or omission constitutes an offence, but because that act or omission would constitute an attempt at evasion. Therefore, penalty is exacted not because an act or omission is an offence but because it is an attempt at evasion of tax on the part of the assessee. Article 20(1) of the Constitution can have no application to a case where a penalty, is imposed not as punishment for an offence but for some other collateral purpose." The decision of the Supreme Court in Thomas Dana v. State of Punjab appears also in point. Section 167, clause (8) of the Sea Customs Act, read with section 5 of the Imports and Exports Control Act, 1947, and section 7 of the Land Customs Act authorised confiscation of goods and imposition of a personal penalty in certain circumstances. The provision of the Sea Customs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... up to six months, or with fine not exceeding Rs. l,000 or with both. Under section 12, sub-section (5) of the Act, if the Collector is satisfied that any dealer liable to pay tax has without sufficient cause failed to apply registration, the Collector has authority to levy a penalty not exceeding one and a half times the amount of tax. A penalty was imposed at the maximum rate mentioned in section 12(5). This was challenged eventually in a reference made by the Tribunal to the Orissa High Court, and from the decision of that court, the matter came up before the Supreme Court. The Supreme Court observed : " Under the Act penalty may be imposed for failure to register as a dealer : section 9(1), read with section 24(1)(a) of the Act. But the liability to pay penalty does not arise merely upon proof of default in registering as a dealer. An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding, and penalty will not ordinarily be imposed unless the party obliged, either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Chand Gopal Das's case is that there was no essential difference between tax and penalty because the liability for payment of both was imposed as a part of the machinery of assessment and the penalty was merely an additional tax imposed in certain circumstances on account of the assessee's conduct. The justification of this view was founded on certain observations in C. A. Abraham v. Income-tax Officer, Kottayam. It is true that penalty proceedings under section 28 are included in the expression 'assessment' and the true nature of penalty has been held to be additional tax. But one of the principal objects in enacting section 28 is to provide a deterrent against recurrence of default on the part of the assessee. The section is penal in the sense that its consequences are intended to be an effective deterrent which will put a stop to practices which the legislature considers to be against the public interest. It is significant that in C. A. Abraham's case this court was not called upon to determine whether penalty proceedings were penal or of quasi-penal nature and the observations made with regard to penalty being an additional tax were made in a different context and for a diffe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the observations made therein, that penalty proceedings are quasi-criminal and that penalty will not ordinarily be imposed unless a party had acted deliberately in defiance of the law or was guilty of contumacious conduct or wilful default of his obligation, held that the imposition of penalty was unjustified. We would stress the fact that the Tribunal was satisfied that the assessee's explanation that the time for submission of return had not arrived, was acceptable, and the Division Bench accepted that finding. If so, there could be no case for levy of a penalty. We wish, with respect, to observe, that the language of section 271(1)(a) of the 1961 Act does not warrant the wholesale transplantation of elements of deliberation and design stressed by the Supreme Court in Hindustan Steel Ltd.'s case with respect to section 28(1)(c) of the 1922 Act. We would offer the same comment on the next Division Bench ruling of this court in Dawn Co.'s case which was again with respect to section 271(1)(a) of the Act. But in that case, although the difference between section 28(1) of the 1922 Act and section 271(1) of the 1961 Act was highlighted, the learned judges felt that they were bou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase, noticed earlier, the Division Bench of this court observed : " The words 'has without reasonable cause failed to furnish it within the time allowed' in section 271(1)(a) of the Income-tax Act, 1961, show that mens rea is an ingredient to be proved by the department before the imposition of penalty. In Commissioner of Income-tax v. Anwar Ali, their Lordships of the Supreme Court in considering the nature of the proceedings under section 28 of the Indian Income-tax Act, 1922, which corresponds to section 271 of the Income-tax Act, 1961 observed : 'The first point which falls for determination is whether the imposition of penalty is in the nature of a penal provision. The determination of the question of burden of proof will depend largely on the penalty proceedings being penal in nature or being merely meant for imposition of an additional tax, the liability to pay such tax having been designated as penalty under section 28.........It is true that penalty proceedings under section 28 are included in the expression "assessment" and the true nature of penalty has been held to be additional tax. But, one of the principal objects in enacting section 28 is to provide a deterren ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he punishment provided for the offences we are not satisfied that it is one of those cases for which mens rea can be regarded as having been dispensed with. On this ground, we would sustain the conclusion of the Division Bench that mens rea should be proved before action can be taken under section 10A ; but, for reasons noticed, we cannot accept as correct the reasoning in the observations quoted above. The same case considered the question whether " without reasonable excuse " is an ingredient to be established for taking action under section 10A, and on whom the burden lay of establishing the same. It held that this was an essential ingredient and that the burden of proving the same was on the persons charged. The department having first shown that the contravention was according to it, without reasonable excuse, it is for the person proceeded against, to show that he in fact had reasonable excuse. In this sense, we think the Division Bench was right. But on this point again, a number of decisions were cited. Most prominent among these was the decision of Chagla C.J. and Desai J. in Commissioner of Income-tax v. Gokuldas Harivallabhdas. The decision was regarding the imposition o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce. A copy of the order of reference of the Division Bench containing answer to question No. (1), and of the Full Bench containing answer to question No.(2), will be forwarded to the Tribunal under the seal of this court and the signature of the Registrar, as required by law. O. P. No. 4614 of 1971 This writ petition was heard along with I.T.Rs. Nos. 85 and 86 of 1972, as the question raised therein was the same, with respect to the similar, if not identical, provisions of the Wealth-tax Act. Section 18(1)(a) of the Wealth-tax Act corresponds to section 271(a) of the Income-tax Act, 1961 ; and section 18(1)(c) to section 271(1)(c). Section 36 deals with prosecutions. The petitioner is the owner of a tile factory. For the year 1969-70 his return of wealth should have been filed on or before June 30, 1969. It was filed only on September 18, 1970. Assessment was completed, and wealth-tax of Rs. 358 was imposed. Then penalty proceedings for failure to file the return in time, without reasonable excuse, were started on exhibit P-2 notice, and after the petitioner's explanation (exhibit P-3), by exhibit P-4 order, a penalty was imposed as provided by section 18 which was affirme ..... X X X X Extracts X X X X X X X X Extracts X X X X
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