Skip to content


Banwarilal Chowkhani Vs. Commissioner of Wealth-tax - Court Judgment

LegalCrystal Citation
Subject;Direct Taxation
CourtGuwahati High Court
Decided On
Case NumberWealth-tax Reference No. 3 of 1974
Judge
ActsWealth Tax Act, 1957 - Sections 18(1) and 18(4); Wealth Tax (Amendment) Act, 1964
AppellantBanwarilal Chowkhani
RespondentCommissioner of Wealth-tax
Appellant AdvocateJ.P. Bhattacharjee and S.N. Medhi, Advs.
Respondent AdvocateG.K. Talukdar and D.K. Talukdar, Advs.
Excerpt:
- - accordingly, the aac held that the imposition of penalty by the wto was bad in law. in view of the aforesaid finding, the tribunal has held that the aac was not correct in cancelling the orders of the wto on the ground that he had failed to take the prior approval of the iac of wealth-tax before imposition of penalty under section 18(1)(a) of the act. 6. before we proceed to consider the rival contentions raised on behalf of the parties, we think it apposite to state the position of law as it stood prior to april 1, 1965, and the provision of law that stood thereafter by the amending act of 1964. the relevant portion of section 18(1)(a) of the act as it stood originally reads as follows :18. (1) if the wealth-tax officer, appellate assistant commissioner, commissioner or appellate..... pathak, actg. c.j. 1. this reference under section 27(1) of the wealth-tax act, 1957 (hereinafter referred to as 'the act'), at the instance of the assessee, had been referred to this court for decision on the following question; 'whether, on the facts and in the circumstances of the case, the tribunal was correct in holding that section 18(4) of the wealth-tax act, 1957, was procedural in nature and so the previous approval of the inspecting assistant commissioner of wealth-tax was not necessary for levying penalty under section 18(1)(a) of the wealth-tax act, 1957, for the assessment years 1960-61 to 1964-65 after its amendment by the wealth-tax (amendment) act, 1964 ?' 2. this reference relates to assessment years 1960-61 to 1964-65. the following chart shows the details relating to.....
Judgment:

Pathak, Actg. C.J.

1. This reference under Section 27(1) of the Wealth-tax Act, 1957 (hereinafter referred to as 'the Act'), at the instance of the assessee, had been referred to this court for decision on the following question;

'Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that Section 18(4) of the Wealth-tax Act, 1957, was procedural in nature and so the previous approval of the Inspecting Assistant Commissioner of Wealth-tax was not necessary for levying penalty under Section 18(1)(a) of the Wealth-tax Act, 1957, for the assessment years 1960-61 to 1964-65 after its amendment by the Wealth-tax (Amendment) Act, 1964 ?'

2. This reference relates to assessment years 1960-61 to 1964-65. The following chart shows the details relating to the various assessment years :

Assessment year

The due date for filing the return

The date on which the return was filed

Delay in complete months

The date on which the penalty was levied

The amount of penalty leviedRs.

1960-61

30-6-60

29-1-64

42

15-12-71

4.738

1961-62

30-6-61

29-1-64

30

15-12-71

4,506

1962-63

30-6-62

14-12-64

29

15-12-71

4,648

1963-64

30-6-63

2-6-66

31

15-12-71

6,944

1964-65

30-6-64

19-2-68

43

15-12-71

7,085

3. In all the five assessment years, the WTO initiated penalty proceedings under Section 18(1)(a) of the Act. The assessee appeared before the WTO and some explanation was given before him but the WTO has not pointed out what explanation was given. The WTO has pointed out that no written explanation was filed by the assessee. The WTO held in all the five assessment years that the assessee could not give any satisfactory explanation. He, therefore, imposed penalty under Section 18(1)(a) of the Act in all the five assessment years in question.

4. The assessee, being aggrieved, preferred appeals before the AAC and the AAC disposed of all the five appeals by his consolidated order dated February 24, 1972. The AAC found that the WTO passed the penalty orders in all the five assessment years on December 15, 1971. But the proceedings relate to the assessment years earlier to the W.T. (Amend.) Act, 1964, by which substituted Section 18 came into effect from April 1, 1965. The AAC has pointed out that prior to this amendment, the WTO could impose penalty under Section 18(1)(a) of the said Act with the prior approval of the IAC of Wealth-tax. After this amendment under Section 18, the prior approval of the IAC of Wealth-tax is not necessary for an imposition of penalty under Section 18(1)(a) of the Act. Therefore, the AAC took the view that for the imposition of penalty under Section 18(1)(a) up to the assessment year 1964-65, the WTO had to take the prior approval of the IAC of Wealth-tax and unless that is done, the WTO had no jurisdiction for imposing penalty under the said Section. It is a finding that the WTO did not take any prior approval of the IAC before imposition of the penalty under Section 18(1)(a) of the Act. Accordingly, the AAC held that the imposition of penalty by the WTO was bad in law. He, therefore, cancelled the penalty orders of the WTO for all the five assessment years

5. The Department, being aggrieved by the order of the AAC, preferred appeals before the Tribunal on the ground that the AAC was not correct in holding that the prior approval of the IAC was necessary for the imposition of penalty under Section 18(1)(a) of the said Act in respect of the assessment years in question though the assessment was made after the date on which the W.T. (Amend,) Act, 1964, came into force and though the returns were filed after the date on which the W.T. (Amend.) Act, 1964, came into force relating to the assessment years 1963-64 and 1964-65. The Tribunal, on a consideration of the arguments placed by both the parties, had come to the conclusion that the obtaining of the previous approval of the IAC of Wealth-tax was a procedural matter and when it was omitted by the W.T. (Amend.) Act, 1964, from April 1, 1965, the amendment will be applicable to all the proceedings which were pending. The Tribunal found that the WTO imposed the penalty on December 15, 1971, and so the Tribunal held that it was not necessary for the WTO to take the previous approval of the IAC of Wealth-tax as no provision was there at the time he was levying the penalty and the Tribunal also held that obtaining the prior approval of the IAC of Wealth-tax was only a procedural matter and when the provision was omitted no approval was necessary. In view of the aforesaid finding, the Tribunal has held that the AAC was not correct in cancelling the orders of the WTO on the ground that he had failed to take the prior approval of the IAC of Wealth-tax before imposition of penalty under Section 18(1)(a) of the Act. It further held that as the AAC had not given any finding on the other pleas' which were taken by the assessee before the AAC the Tribunal set aside the order of the AAC and directed him to decide the other grounds taken by

the assessee according to law after giving opportunity to both the parties of being heard.

6. Before we proceed to consider the rival contentions raised on behalf of the parties, we think it apposite to state the position of law as it stood prior to April 1, 1965, and the provision of law that stood thereafter by the Amending Act of 1964. The relevant portion of Section 18(1)(a) of the Act as it stood originally reads as follows :

'18. (1) If the Wealth-tax Officer, Appellate Assistant Commissioner, Commissioner or Appellate Tribunal 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 his net wealth which he is required to furnish under Sub-section (1) or Sub-section (2) of Section 14 or Section 17 or has without reasonable cause failed to furnish it within the time allowed and in the manner required; or......

he or it may, by order in writing direct that such person shall pay by way of penalty-

(i) in the case referred to in Clause (a), in addition to the amount of wealth-tax payable by him, a sum not exceeding one-and-a half times the amount of such tax, and.......

(2) No order shall be made under Sub-section (1) unless the person concerned has been given a reasonable opportunity of being heard......

(4) The Wealth-tax Officer shall not impose any penalty under this Section without the previous approval of the Inspecting Assistant Commissioner of Wealth-tax.'

7. The relevant portion of Section 18(1)(a) substituted by the Amending Act of 1964 reads as under :

'18. (1) If the Wealth-tax Officer, Appellate Assistant Commissioner, Commissioner or Appellate Tribunal in the course of any proceedings under this Act is satisfied that any person-

(a) has without reasonable cause failed to furnish the return which he is required to furnish under Sub-section (1) of Section 14 or by notice given under Sub-section (2) of Section 14 or Section 17, or has without reasonable cause failed to furnish it within the time allowed and in the manner requited by Sub-section (1) of Section 14 or by such notice, as the case may be or......

he or it may, by order in writing, 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 wealth-tax, if any, payable by him, a sum equal to two per cent. of the tax for every month during which the default continued, but not exceeding in the aggregate fifty per cent. of the tax;,....

(2) No order shall be made under Section (1) unless the person concerned has been given a reasonable opportunity of being heard.

(3) Notwithstanding anything contained in Clause (iii) of subsection (1), if in a case falling under Clause (c) of that sub-section, the minimum penalty imposable exceeds a sum of rupees one thousand, the Wealth-tax Officer shall refer the case to the Inspecting Assistant Commissioner who shall, for the purpose, have all the powers conferred under this section for the imposition of penalty.........

(5) No order imposing a penalty under this section shall be passed after the expiration of two years from the date of the completion of the proceedings in the course of which the proceedings for the imposition of penalty have been commenced...'

8. Mr. J.P. Bhattacharjee, the learned counsel for the assessee, submits that it is settled law that a penalty proceeding can be held according to the law in existence at the time of the default in furnishing the return in accordance with the provision of Section 14 of the Act. As in this case the WTO has not taken the prior approval of the IAC, which was necessary according to law in existence prior to the amendment, the entire proceeding is vitiated. The learned counsel submits that at the relevant time, in view of the provision of Sub-section (4) of Section 18, the prior approval of the IAC was a must. This provision goes to the very root of the jurisdiction in imposing a penalty. The learned counsel submits that unless the prior approval of the IAC is taken, the WTO would not have jurisdiction to impose penalty under Section 18 of the Act. The learned counsel submits that Sub-section (4) of Section 18 is the heart and soul of the matter and by no stretch of imagination, it can be suggested that this is a matter of procedure only. The precise question involved in this reference is whether penalty could be imposed by the WTO without taking the prior approval of the IAC. It is not disputed that the WTO passed the penalty order after the amendment of 1964 on which date the provision for taking approval of the IAC by the WTO is omitted. The learned counsel in support of his submission refers to a decision of this court in T.K. Roy v. CWT , where the question that came up for consideration was whether the penalty proceeding would be according to the provision of the amended Act of 1964 and subsequent amendment Act of 1969 although the default by the assessee in filing the return was before those amendments. On these facts it was held that when the default was made by the assessee the infringement was complete once and for all as and when there is a failure on the part of the assessee to file a return as required under Section 14 of the Act. It was further held that such infringement was complete and it could not be stopped by the filing of any subsequent return. If any return is filed subsequently that would not be

a return under Section 14 but it may be a return under Section 15 which may reduce the period of default, but would not absolve the assessee of the offence committed by him by not filing the return on the crucial date, namely, on 30th June of each corresponding year. It has been held that the penalty imposable under Section 18 would be on the basis of the law as it stood on the date of the failure of the assessee to file the return on the crucial date as aforesaid. In other words, if there is default for a particular assessment year, before the 1964 Amendment Act, the penalty that can be imposed would be according to the provision of the law prior to April 1, 1965.

9. Ultimately this court has held that the penalty can be imposed on the assessee only on the basis of the law as it stood on that date.

10. Similar view has been taken by the Supreme Court in CWT v. Suresh Seth : [1981]129ITR328(SC) , where it was held that non-performance of any of the acts mentioned in Section 18(1)(a) gives rise to a single default and to a single penalty, the measure of which, however, is geared up to the time lag between the last date on which the return has to be filed and the date on which it is filed. The default, if any, committed, is committed on the last date allowed to file the return. The default cannot be one committed every month thereafter. The words 'for every month during which the default continued' indicate only the multiplier to be adopted in determining the quantum of penalty and do not have the effect of making the default in question a continuing one. Nor do they make the amended provisions modifying the penalty applicable to earlier defaults in the absence of necessary provisions in the amending Acts.

11. The distinctive nature of a continuing wrong is that the law that is violated makes the wrongdoer continuously liable for penalty. A wrong or default which is complete but whose effect may continue to be felt even after its completion is, however, not a continuing wrong or default.

12. The learned counsel for the assessee submits that Sub-section (4) of Section 18 was a law in existence at the relevant time. Therefore, the prior approval of the IAC was necessary in order to endow the WTO with jurisdiction to impose penalty. Now, the core question is whether Sub-section (4) goes to the root of the matter for the imposition of penalty. In the cases discussed above, it has been held that the penalty that may be imposed would be on the basis of the law that was in existence at the relevant time. In other words, the imposition of penalty must be in accordance with the law in existence at the relevant time.

13. Now, the point is whether the taking of the prior approval of the IAC by the WTO is only a procedural matter or a substantive one. Sub-section (4), in our opinion, is only a provision for imposing the penalty by an officer. He is only a machinery or authority for the imposition of

penalty. In the above cases the question that was decided was the impact of the incidence of penalty, viz., whether the penalty should be on the basis of the law when the default occurred or on the basis of the amended provision. In the amended law, Sub-section (4), as it stood prior to 1964 amendment, has been deleted and now the sole authority for the imposition of penalty has been conferred on the WTO.

14. The precise question is whether Sub-section (4) of Section 18 of the Act, as it stood prior to the amendment of 1964, was procedural in nature in which the assessee would not have any right. Whether a particular provision is procedural or substantive depends upon the nature, content and sweep of the provision. It is the settled principle of law that the right of appeal is a substantive right. In Garikapati Veeraya v. N. Subbiah Choudhry : [1957]1SCR488 , the question that came up for consideration is whether an increase in the pecuniary jurisdiction by a subsequent amendment would prejudicially affect the right of a person whose suit was filed prior to the amendment. In that context the Supreme Court, by a majority, held that the legal pursuit of a remedy, suit, appeal and second appeal are really but steps in a series of proceedings, all connected by an intrinsic unity, and are to be regarded as one legal proceeding. The right of appeal is not a mere matter of procedure but is a substantive right. The institution of the suit carries with it the implication that all rights of appeal then in force are preserved to the parties thereto till the rest of the career of the suit. There the suit was instituted on April 22, 1949, the right of appeal vested in the parties thereto at the date and is to be governed by the law as it prevailed on that date, that is to say, on that date the parties acquired the right, if unsuccessful, to go up in appeal from the sub-court to the High Court and from the High Court to the Federal Court under the Federal Court (Enlargement of Jurisdiction) Act, 1947, read with Clause 39 of the Letters Patent (Mad) and Sections 109 and 110 of the CPC provided the conditions thereof were satisfied, unless that right had been taken away expressly or by necessary intendment by any subsequent enactment.

15. The Constitution by Article 395 repealed the Govt. of India Act and thereby abolished the Federal Court. It, however, continued the abolition of Privy Council Jurisdiction Act, 1949, which directed that the Federal Court, in addition to the powers conferred on it by the Federal Court (Enlargement of Jurisdiction) Act 1947, would have all the appellate powers exercised by the Privy Council. Though the Federal Court (Enlargement of Jurisdiction) Act, 1947, being an Act amending or supplementing the Govt. of India Act, 1935, was repealed, yet notwithstanding such repeal the provisions of the Act were continued in force under Article 372(1) subject to the other provisions of the Constitution. The

Adaptation of Laws Order, 1950, modified Sections 109 and 110 of the CPC, inter alia, by raising the valuation from Rs. 10,000 to Rs. 20,000 but that provision did not, by virtue of Clause 20 of the Order, affect any right, privilege, obligation or liability already acquired, accrued or incurred under any existing law. The true implication of the above provisions is that the pre-existing right of appeal to the Federal Court continues to exist and the old law, which created that right of appeal, also continues to exist to support the continuation of that right and the Federal Court having, been abolished, the Supreme Court is substituted for the Federal Court as the machinery for the purpose of giving effect to the exercise of that right of appeal. As the old law continues to exist for the purpose of supporting the pre-existing right of appeal, the old law must govern the exercise and enforcement of that right of appeal.

16. It hay been further observed by their Lordships (Headnote at AIR 1957 SC 541):

'Where the suit has been instituted before the date of the Constitution the parties thereto has from the date of the institution of the suit, a vested right of appeal upon terms and conditions then in force and where the judgment sought to be appealed from is a judgment of a reversal and the value of the subject-matter is above Rs. 10,000 the aggrieved party has a vested right of appeal to the Federal Court under the provisions of the old Civil Procedure Code read with the Government of India Act, 1935, and the Federal Court (Enlargement of Jurisdiction) Act, 1947. Such a vested right of appeal is a matter which does not fall within article 133 and jurisdiction and powers with respect to such right of appeal was exercisable by the Federal Court immediately before the commencement of the Constitution and consequently the aggrieved party has a right of appeal under Article 135. The aggrieved party is entitled under Article 135 to come up on appeal to the Supreme Court as of right and where such right has been wrongly denied to him the Supreme Court would be prepared to grant him special leave to appeal under Article 136 of the Constitution.'

17. Discussing a catena of decisions, their Lordships have laid down the following principles (p. 553) :

'(i) That the legal pursuit of a remedy, suit, appeal and second appeal are really, but steps in a series of proceedings all connected by an intrinsic unity and are to be regarded as one legal proceeding.

(ii) The right of appeal is not a mere matter of procedure but is a substantive right.

(iii) The institution of the suit carries with it the implication that all rights of appeal then in force are preserved to the parties thereto till the rest of the career of the suit.

(iv) The right of appeal is a vested right and such a right to enter the superior court accrues to the litigant and exists as on and from the date the lis commences and although it may be actually exercised when the adverse judgment is pronounced such right is to be governed by the law prevailing at the date of the institution of the suit or proceeding and not by the law that prevails at the date of its decision or at the date of the filing of the appeal.

(v) This vested right of appeal can be taken away only by a subsequent enactment, if it so provides expressly or by necessary intendment and not otherwise.'

18. Relying on the aforesaid ruling the learned counsel for the assessee submits that Sub-section (4) of Section 18, as it stood at the relevant time, was a right of the assessee where the jurisdiction could be exercised by the WTO with the prior approval of the IAC of Wealth-tax. The counsel submits that the jurisdiction of the WTO was hedged in by the provision of taking prior approval of the IAC under Section 18(4), The assessee had the right to have his case scrutinised by the IAC, a superior and higher authority, at the time of according approval. If the Department wants now to impose penalty that could only be done in accordance with the provision of Sub-section (4) of Section 18 of the unamended Act.

19. The learned counsel submits that the amended Act has not made any express provision for dealing with the pending matters. If the Act has not provided for such a case either by express provision or necessary intendment, the learned counsel submits, the Department must thank its stars.

20. The learned counsel for the assessee refers to Bharat Barrel And Drum Mfg. Co. Private Ltd. v. Employees' State Insurance Corporation : (1971)IILLJ647SC , in order to show the difference between a procedural right and a substantive right. There the Supreme Court had to deal with the provision of a rule made under Section 96(1)(b) of the Employees' State Insurance Act by the Bombay Government under which Rule 17 prescribed the limitation for filing application under Section 75 of the Employees' State Insurance Act, 1948. Dealing with this question the court held that the omission to provide a period of limitation under Sections 68 and 75 while providing for a limitation of claim by an employee for the payment of any benefit under the regulations shows clearly that the Legislature did not intend to fetter the claim under Section 75(2)(d) of the said Act. The court proceeded to say that where the Legislature clearly intends to provide specifically the period of limitation in respect of claims arising thereunder it cannot be considered to have left such matters in respect of claims under some similar provisions to be provided for by the rules to be made by the Government under its delegated powers to prescribe the procedure to be followed in proceedings before such court. What is sought to be conferred under Section 96(1)(b) is the power to make rules for regulating the procedure before the insurance court after an application has been filed and when it is seized of the matter. That apart, Rule 17 bars the claim itself and extinguishes the right which is not within the pale of procedure. It has been observed (p. 350 of 40 FJR) :

'There is no gainsaying the fact that if an employee does not file an application before the insurance court within 12 months after the claim has become due or he is unable to satisfy the insurance court that there was a reasonable excuse for him in not doing so, his right to receive payment of any benefit conferred by the Act is lost. Such a provision affects substantive rights and must therefore be dealt with by the Legislature itself and is not to be inferred from the rule-making power conferred for regulating the procedure unless that is specifically provided for.'

21. Dealing with the concept of substantive right and procedural right, the court has said : (p. 1936 of AIR 1972 SC--See also pp. 341, 342, 343 & 344 of 40 FJR) :

'The question which directly confronts us is whether the power to prescribe periods of limitation for initiating proceedings before the court is a part of and is included in the power to prescribe ' the procedure to be followed in proceedings before such courts'. The answer to this question would involve the determination of the further question whether the law relating to limitation is procedural or substantive or partly procedural and partly substantive. If it is procedural law does it make any difference whether it relates to the time of filing application for initiation of proceedings before the court or whether it relates to interlocutory applications or other statements filed before it after the initiation of such proceedings. The contention on behalf of the appellant is that the law relating to limitation is merely procedural as such it makes no difference whether it relates to the time of filing an application or it deals with the time for filing interlocutory applications or other statements. There is also, it is submitted, no indication in the scheme of the Act that it is otherwise or that there is any impediment for the Government to prescribe under the rule making authority the period of limitation for applications under Section 75(2). Before we consider the scheme of the Act it may be necessary to examine the scope and ambit of the term ' procedure ' as used in Section 96(1)(b).

The topic of procedure has been the subject of academic debate and scrutiny as well as of judicial decisions over a long period but in spite of it, it has defied the formulation of a logical test or definition which enables us to determine and demarcate the bounds where procedural law ends and substantive law begins, or in other words it hardly facilitates us in distinguishing in a given case whether the subject of controversy concerns procedural law or substantive law. The reason for this appears to be obvious, because substantive law deals with right and is fundamental while procedure is concerned with legal process involving actions and remedies which Salmond defines 'as that branch of law which governs the process of litigation or to put it in another way, substantive law is that which we enforce while procedure deals with rules by which we enforce it. We are tempted in this regard to cite a picturesqure aphorism of Therman Arnold when he says substantive law is canonised procedure. Procedure is unfrocked substantive law' (XLV Harvard Law Journal, 617 at p. 645) (underscored by us).

The manner of this approach may be open to the criticism of having over-simplified the distinction, but none the less this will enable us to grasp the essential requisites of each of the concepts which at any rate has been found to be a workable concept to point out the real and valid difference between the rules in which stability is of prime importance and those in which flexibility is a more important value. (American Jurisprudence, vol. 51, second edn., p. 695). Keeping these basic assumptions in view it will be appropriate to examine whether the topic of limitation belongs to the branch of procedural law or is outside it. If it is a part of the procedure whether the entire topic is covered by it or only a part of it and if so what part of it and the tests for ascertaining them. The law of limitation appertains to remedies because the rule is that claims in respect of rights cannot be entertained if not commenced within the time prescribed by the statute in respect of that right. Apart from Legislative action prescribing the time, there is no period of limitation, recognised under the general law and, therefore, any time fixed by the statute is necessarily to be arbitrary. A statute prescribing limitation however does not confer a right of action nor speaking generally does it confer on a person a right to relief which has been barred by efflux of time prescribed by the law. The necessity for enacting periods of limitation is to ensure that actions are commenced within a particular period, firstly, to assure the availability of evidence, documentary as well as oral, to enable the defendant to contest the claim against him ; secondly, to give effect to the principle that law does not assist a person who is inactive and sleeps over his rights by allowing them when challenged or disputed to remain dormant without asserting them in a court of law. The principle which forms the basis of this rule is expressed in the maxim vigilantibus non dermientibus, jura subveniunt (the laws give help to those who are watchful and hot to those who sleep). Therefore, the object of the statutes of limitations is to compel a person to exercise his right of action within a reasonable time as also to discourage and suppress stale, fake or fraudulent claims. While this is so there are two aspects of the statutes of limitation, the one concerns the extinguishment of the right if a claim or action is not commenced within a particular time and the other merely bars the claim without affecting the right which either remains merely as a moral obligation or can be availed of to furnish the consideration for a fresh enforceable obligation. Where a statute prescribing the limitation extinguishes the right it affects substantive rights while that which purely pertains to the commencement of action without touching the right is said to be procedural. According to Salmond, the law, of procedure is that branch of the law of actions which governs the process of litigation, both civil and criminal. 'All the residue' he says 'is substantive law, and relates, not to the process of litigation but to its purposes and subject-matter'. It may be stated that much water has flown under the bridges since the original English theory justifying a statute of limitation on the ground that a debt long overdue was presumed to have been paid and discharged or that such statutes are merely procedural. Historically there was a period when substantive law was inextricably intermixed with procedure ; at a later period procedural law seems to have reigned supreme when forms of action ruled. In the words of Maine so great is the ascendancy of the Law of Actions in the infancy of courts of justice that substantive law has at first the look of being gradually secreted in the interstices of procedure'. Maine, Early Law and Custom, p. 399. Even alter the forms of action were abolished Maitland in his Equity was still able to say : 'The forms of action we have buried but they still rule us from their graves' to which Salmond added : 'In their life they were powers of evil and even in death they have not wholly ceased from troubling': 21 LQR 43. Oliver Wendel Holmes had, however, observed in The Common Law, 'wherever we trace a leading doctrine of substantive law far enough back we are likely to find some forgotten circumstances of procedure at its source'. It does not therefore appear that the statement that substantive law determines rights, and procedural law deals with remedies is wholly valid, for neither the entire law of remedies belongs to procedure nor are rights merely confined to substantive law, because as already noticed, rights are hidden even 'in the interstices of procedure'. There is, therefore, no clear-cut division between the two.'

22. From a perusal of the aforesaid decision it is seen that the question is resolved itself on the contents of the provision of a statute to find out as to whether such provision confers substantive right or it is merely a procedural one.

23. The learned counsel for the assessee refers to a decision of the Madras High Court in Continental Commercial Corporation v. ITO : [1975]100ITR170(Mad) , in order to show that the ITO was not competent to levy the penalty on the facts of the case although Section 274(2) of the I.T. Act as amended by Act 42 of 1970 would have given him jurisdiction to levy the penalty. According to the unamended provision of Section 274 in a case falling under Clause (c) of Section 271(1) of the I.T. Act where the minimum penalty imposable exceeds the sum of Rs. 1,000, the ITO shall have to refer the case to the IAC. It was held that the ITO could not himself levy the penalty. In that case in the assessment of the petitioner for 1970-71, the return for which was filed on December 22, 1970, the ITO included a sum of Rs, 4,000 as income from undisclosed sources by his order dated January 25, 1973. Thereafter, he initiated penalty proceedings under Section 271(1)(c) of the I.T, Act and by his order dated October 9, 1973, levied a penalty of Rs. 4,000. This order was confirmed by the Commissioner. The assessee filed a writ petition in the High Court where the petitioner contended that by reason of the provision of Section 274(2) prior to this amendment with effect from 1st April, 1971, by Act 42 of 1970, the officer did not have any jurisdiction to levy the penalty. The High Court held that it was the law in force on December 22, 1970, when the return was filed that would be applicable, Section 274(2) as it stood prior to the amendment of April 1, 1970, was the relevant provision that was to be applied in the instant case. Hence, the ITO had no jurisdiction to levy the penalty.

24. On going through the facts and position of law in this case, it is found that tinder the unamended provisions of Sub-section (2) of Section 274, in such a case the ITO had no jurisdiction at all to levy the penalty as it was specifically provided that it was the IAC who would only have the jurisdiction for the imposition of penalty.

25. In our present case the WTO was the authority to levy the penalty. But before the amendment he could impose the penalty only after taking the prior approval of the IAC under the unamended provision of Section 18(4). Under the Act the IAC was not at all an authority to impose a penalty. We do not think that the decision cited above in any way comes to the assistance of the assessee. That apart, with respect, we like to observe that the reason given in that case does not commend itself to our mind so as to follow and apply it to the case in hand.

26. Mr. G.K. Talukdar, the learned counsel appearing on behalf of the Department, submits that Sub-section (4) of Section 18 of the Act has been rightly held to be a procedural one by the Tribunal. By the amendment of Section 18 in 1964 the provision for taking the prior approval by the WTO has been expressly deleted and now the WTO has got untrammelled jurisdiction to impose the penalty. Where it is found necessary by the Legislature that in some cases the IAC shall have jurisdiction to impose a penalty it has been done so as can be seen from the provision of Sub-section (3) of Section 18 of the amended Act.

27. The learned counsel for the Department submits that nobody has got any right in the change of forum or authority for levying the tax. It has been further submitted that the decision in T.K. Roy and Suresh Seth : [1981]129ITR328(SC) , do not come to the assistance of the assessee. These decisions merely laid down the law about the incidence of penal liability. They have laid down that a penalty is leviable on the date of the default according to the relevant provision of the law. In this context the learned counsel refers to a Constitution Bench decision of the Supreme Court in Union of India v. Sukumar Pyne : 1966CriLJ946 . That was a case under the Foreign Exchange Regulation Act of 1947. There it was held that a person accused of the commission of an offence has no vested right to be tried by a particular court or a particular procedure except in so far as there is any constitutional objection by way of discrimination or the violation of any other fundamental right is involved. It was further held that there is no principle underlying Article 20 of the Constitution which makes a right to any course of procedure a vested right. The Foreign Exchange Regulation Act, 1947, was amended by Act 39 of 1957, where Section 23(1)was substituted and Section 23D was added in the Act. The effect of these provisions is that after the amendment of 1957, adjudication proceedings or criminal proceedings can be taken up in respect of a contravention mentioned in Section 23(1) while before the amendment only criminal proceedings before a court could be instituted to punish the offender. It was contended on behalf of the respondent that the Amending Act had prejudicially affected his right to be tried by an ordinary criminal court. That contention was repelled and it was held that the view that the new amendment did not apply to contraventions, which took place before the Amending Act came into force, was not correct. Further, the contention that there was no indication in the Amending Act that the new procedure would be retrospective could not be accepted. For, in a matter of procedure, it is not necessary that there should be a special provision to indicate that the new procedural law is retrospective.

28. The facts that emerge from the decision in the case are to the following effect:

In 1954, following the recovery of some foreign currency and travellers cheques at No. 311, Bow Bazar Street, Calcutta, where the respondent along with his mother and brother carried on the business of jewellers, the Director of Enforcement issued a notice on April 23, 1958, to the petitioner

calling upon him to show cause within 10 days of the receipt of the notice why adjudication proceedings should not be held against him for contravention of Section 23(1) of the Act. On May 10, 1958, the respondent replied to the above memorandum giving his version as to how he came into possession of the foreign currency, but he denied having sold any travellers cheques. He prayed that the proceedings may be dropped and the currency seized returned to him. The Director of Enforcement, after considering the cause shown by the respondent, came to the conclusion that the adjudication proceedings should be held. He, therefore, requested the respondent to arrange to be present either personally or through his authorised representative before the Director on May 13, 1958, in the office of the Calcutta branch of the Directorate. On May 13, 1959, the respondent filed a petition under Article 226 of the Constitution challenging the adjudication proceedings on various grounds, the principal grounds being that Section 23(1)(a) and Section 23D of the Act were ultra vires Article 20(2) of the Constitution and that the offence having been committed in 1954, the proposed adjudication was illegal and entirely without jurisdiction. The Calcutta High Court held that Section 23(1)(a) violated Article 14 of the Constitution, and was accordingly ultra vires the Constitution, and that the relative provision of Section 23D must also be condemned. Regarding the second point, namely, whether Section 23(1)(a) having been substituted by the Amending Act XXXIX of 1957, would have retrospective operation in respect of the alleged offence, which took place in 1954, the High Court came to the conclusion that the petitioner 'had a vested right to be tried by an ordinary court of the land with such rights of appeal as were open to all', and although Section 23(1)(a) was procedural, where a vested right was affected, prima facie, it was not a question of procedure. Therefore, the High Court came to the conclusion that the provision as to adjudication by the Director of Enforcement could not have any retrospective operation. The court observed that 'the impairment of a right by putting a new restriction thereupon is not a matter of procedure only. It impairs a substantive right and an enactment which does so is not restrospective unless it says so expressly or by necessary intendment'. Accordingly, the adjudication proceedings were quashed as being without jurisdiction. The Department being aggrieved by the decision of the Calcutta High Court preferred an appeal in which the Supreme Court set aside the judgment of the Calcutta High Court and the writ petition stood dismissed. In the Supreme Court it was contended on behalf of the respondent that a substantive vested right to be tried by an ordinary court existed before the amendment and the counsel relied on Maxwell, 11th Edn., p. 217, where it is stated that 'the general principle, however, seems to be that alterations in procedure are retrospective unless there be some good reason against

it ',

29. It was further urged that there is a good reason if the principles of Article 20 are borne in mind.

30. The Solicitor-General, appearing on behalf of the appellant, contended that the High Court was in error in holding that the accused had a vested right to be tried by an ordinary criminal court. It was submitted that the amendment only changed the venue of trial from a Magistrate to the Director of Enforcement in some cases and no vested right was affected. On these submissions, their Lordships of the Supreme Court held (p. 1209); 'In our opinion, there is force in the contention of the learned Solicitor-General. As observed by this court in Rao Shiv Bahadur Singh v. State of Vindhya Pradesh : 1954CriLJ1480 , a person accused of the commission of an offence has no vested right to be tried by a particular court or a particular procedure except in so far as there is any constitutional objection by way of discrimination or the violation of any other fundamental right is involved. It is well recognized that 'no person has a vested light in any course of procedure' (vide Maxwell, 11th Edn., p. 216), and we see no reason why this ordinary rule should not prevail in the present case. There is no principle underlying Article 20 of the Constitution which makes a right to any course of procedure a vested right. Mr. Chatterjee complains that there is no indication in the Amending Act that the new procedure would be retrospective and he further says that this affects his right of appeal under the Criminal Procedure Code. But if this is a matter of procedure, then it is not necessary that there should be a special provision to indicate that the new procedural law is retrospective. No right of appeal under the Criminal Procedure Code is affected because no proceedings had ever been started under the Criminal Procedure Code.'

31. Relying on this decision, Mr. Talukdar submits that by the amendment in 1964 there is only a change of the venue of the jurisdiction which has given absolute power to the WTO for the imposition of penalty.

32. The learned counsel for the Department submits that in the change of forum nobody has got any vested right. In support of his submission, the learned counsel refers to Custodian of Evacuee Property v. Khan Saheb Abdul Shukoor : [1961]3SCR855 . That was a case dealing with the provision of Mysore Administration of Evacuee Property (Emergency) Act (XLVII of 1949), hereinafter referred to as the first Mysore Act. This Act was repealed by the second Mysore Act and thereafter the Administration of Evacuee Property Act (No. LXXIV of 1950) (hereinafter referred to as 'the 1950 Act'), came into force. According to the provision of Section 30 of the first Mysore Act, an appeal lay to the High Court where the original order under Section 8 of the Act has been passed by the Custodian, an Additional Custodian or an Authorised Deputy Custodian.

33. On September 21, 1949, the Custodian issued a notification by which he declared the properties of the two respondents as evacuee properties which had vested in him, as the respondents had become evacuees. Thereupon two claims were filed under Section 8 of the first Mysore Act separately by the two respondents. These claims were investigated by the Deputy Custodian, who dismissed the same on April 17, 1950, declaring that the properties were evacuee properties. In the meantime, the second Mysore Act was passed repealing the first Mysore Act. But Section 53(2) of the second Mysore Act provided that anything done or any action taken in the exercise of any power conferred by the first Mysore Act shall be deemed to have been done or taken in the exercise of the power conferred by the second Mysore Act. It was also provided that any penalty incurred or proceeding commenced under the first Mysore Act shall be deemed to be a penalty incurred or proceeding commenced under the second Mysore Act as if the latter Act were in force on the day on which such thing was done, action taken, penalty incurred or proceeding commenced. There was, however, one difference in the two Mysore Acts. The First Mysore Act had provided by Section 5 for the vesting of all evacuee property situate in Mysore ipso facto in the Custodian. Section 6 then provided for notification by the Custodian and Section 8 for preferring claims. The second Mysore Act, however, made a departure from this and Section 5 thereof provided that :

'Where the Custodian is of opinion that any property is evacuee property within the meaning of this Act he may, after causing notice thereof to be given in such manner as may be prescribed to the persons interested, and after holding such inquiry into the matter as the circumstances of the case permit, pass an order declaring any such property to be evacuee property.'

34. Section 6 then provided for the vesting of any property declared to be evacuee property, in the Custodian. Thus, while under the first Mysore Act the evacuee property vested in the Custodian and the person who claimed that it was not evacuee property had to make an application under Section 8 and to get it declared that it was not evacuee property, under the second Mysore Act there was no vesting in the Custodian and the Custodian had to give a notice in the manner prescribed and after hearing the persons interested to declare the property to be evacuee property; and it was only thereafter that the property vested in him as evacuee property. Further, the second Mysore Act also defined the 'Custodian General' as the Custodian-General of Evacuee Property in India so appointed by the Government of India under Section 3 of the Administration of Evacuee Property Ordinance (Central Ordinance No. XXVII of 1949), which had come (into force on October 18, 1949. Further, there was a change in the forum of appeals and instead of the High Court the appeal

lay to the Custodian-General from an order passed under Section 5 of the second Mysore Act where the original order had been passed by the Custodian, Additional Custodian or Authorised Deputy Custodian and in sorce cases to the District Judge designated in this behalf by the Government under Sections 22 and 23 of the Second Mysore Act. In addition, provision was made by Section 25 of the second Mysore Act for a revision by the Custodian-General of the orders passed by the District Judge or the Custodian on appeal. The Act of 1950 came into force on the day the Deputy Custodian passed the order dated April 17, 1950. The 1950 Act by necessary implication repealed the second Mysore Act, as the 1950 Act substantially enacted all that was contained in the second Mysore Act. However, be that as it may, appeals were filed by the respondents against the order of April 17, 1950, before the Custodian, These appeals were allowed on August 22, 1950. The Custodian held that there was no sufficient evidence to prove the respondents as evacuees and consequently the properties in question could not be treated as evacuee properties. On October 3, 1950, the Custodian-General gave notices to the respondents under Section 27 of the Act in respect of the order of the Custodian dated August 22, 1950, and asked them to show cause, why the said order of the Custodian be not revised. On December 7, 1950, the Administration of Evacuee Property (Amendment) Act, No. LXVI of 1950, was passed by which, inter alia, Section 58 of the Act was amended and it was provided that if immediately before the commencement of the Act there was in force in any State to which the Act extended any law which corresponded to the Act and which was not repealed by Sub-section (1) it shall stand repealed. This was made retrospective from the date from which the Act came into force (namely, April 17, 1950) and so the repeal of evacuee property laws which were in force in these States to which the Act applied which was implicit in it was made explicit from December 7, 1950, so that from April 17, 1950, only the Act held the field.

35. On February 11, 1952, the Custodian-General set aside the order of the Custodian dated August 22, 1950, and ordered that further proceedings in these cases should be taken before the Custodian as an original matter and he was directed to dispose of the cases afresh in the light of the evidence already recorded and such other evidence as might be produced before him by the two respondents. When the matter thus came back to the Custodian he ordered the Deputy Custodian on April 7, 1952, to record the evidence and then submit the record to him for final disposal. Eventually the matter came before the Custodian for final disposal on December 2, 1932. He held that the two respondents were evacuees and their properties were evacuee properties. This was followed by two appeals to the High Court on January 2, 1953. As, however, the respondents felt

some doubt whether any appeal lay to the High Court two writ petitions were also filed on September 7, 1953, against the order of the Custodian. The two appeals as well as the two writ petitions were disposed of by the High Court by a common judgment on February 4, 1954. The High Court held that the appeals before it were competent. It further seems to have held that the Custodian-General had no power under Section 27 of the Act to revise the order passed by the Custodian on August 22, 1950. Finally, as the High Court held that the appeals were competent it went into the matter as an appellate-court and came to the conclusion that the order of the Custodian dated December 2, 1952, was erroneous. It, therefore, allowed the appeals as well as the writ petitions and set aside the order of the Custodian dated December 2, 1952, and restored the earlier order of the Custodian dated August 22, 1950. The Custodian, being aggrieved, preferred an appeal before the Supreme Court on a certificate granted by the High Court. On behalf of the appellant, two-fold contentions were raised by the learned additional solicitor-general. He urged firstly that the High Court was in error when it held that the Custodian-General had no power to set aside the order of August 22, 1950, under Section 27 of the Act. In the second place, his contention was that the High Court was in error in holding that an appeal lay to it from the order of the Custodian dated December 2, 1952. On these facts their Lordships of the Supreme Court observed us follows (p. 1091) :

'This brings us to the next question whether any appeal lay to the High Court against the order of December 2, 1952. There is no doubt that the proceedings in the present case commenced under the first Mysore Act with a notification under Section 6 and claim applications under Section 8. If the original proceedings had finished when the first Mysore Act was in force and the order of December 2, 1952, had been passed during its operation there would undoubtedly have been an appeal to the High Court under Section 30 thereof. But the first Mysore Act was repealed by the second Mysore Act in November, 1949, and the second Mysore Act was in its turn repealed by the Act as from April, 1950. The question, therefore, that arises for consideration is whether after the repeal of the first Mysore Act an appeal would still lie to the High Court from the order of December 2, 1952. The main contention of Mr. Sastri in this behalf is that if the second Mysore Act or the Act contained provisions which were similar to the provisions contained in Section 8 of the first Mysore Act, it may have been possible to say that the remedy provided by the first Mysore Act under Section 30 had been superseded by the remedy provided in the Act, that remedy being an appeal to the Custodian-General under Section 24 of the Act. The argument further proceeds that neither the second Mysore Act nor the Act provides anything similar to what was

provided by Section 8 of the first Mysore Act. Therefore, even though the first Mysore Act was repealed by the second Mysore Act the proceedings in the present case must be deemed to be still under the first Mysore Act which must be deemed to be existing for this purpose and, therefore, the right of appeal being a vested one and arising when the proceedings commenced, there would still be a right of appeal under Section 30 of the first Mysore Act in spite of its being repealed. When the matter came before the Custodian in 1952 it was contended before him that the proceedings should be taken to be under the first Mysore Act, He accepted this contention though he added that it was immaterial for the purposes of the present case as the definition of 'evacuee' in Section 2(c) of the first Mysore Act was 'practically the same as in Section 2(d) of the Act. It is urged that in view of the manner in which the Custodian dealt with the case when he passed the order dated December 2, 1952, the proceedings before him must be taken to be under the first Mysore Act, and if so an appeal would lie to the High Court under Section 30 of the first Mysore Act. This view has been accepted by the High Court also and that is why it held that the appeals before it were competent; and it is the correctness of this view which has been challenged before us.'

36. On the above facts and contentions, their Lordships came to the conclusion as under (p. 1093) :

'The next question that arises is whether the second Mysore Act and the Act took away the right of appeal which lay to the High Court under the first Mysore Act and substituted for it another right of appeal by necessary intendment. As we have already pointed out, there is no ex* press provision either in the second Mysore Act or in the Act in this behalf. But once it is held that proceedings which commenced under Section 8 of the first Mysore Act must, when the second Mysore Act came into force, be deemed under Section 53(2) thereof to be a proceeding under Section 5(1) or when the Act came into force be deemed under Section 38(3) thereof to be a proceeding under Section 7(1) and must be continued under these provisions, it follows that the Legislature necessarily intended that all subsequent action following an order under Section 5(1) or Section 7(1) must be taken under the second Mysore Act or under the Act, as the case may be. It could not have been intended by the Legislature when it was expressly providing for appeal from an order under Section 5(1) of the second Mysore Act or under Section 7(1) of the Act that a proceeding commenced under the first Mysore Act (which was equivalent to a proceeding under Section 5(1) or Section 7(1) should continue to be governed in the matter of appeal by the first Mysore Act. This is therefore in our view a case where by necessary intendment (though not by express provision) the legislature intended that the provision as to appeals provided by subsequent legislation should supersede the provision as to appeals under the first Mysore Act, We may point out that this is not a case where the right of appeal disappears altogether ; all that happens is that where the order is passed by the Custodian the appeal lies to the Custodian-General instead of to the High. Court. The Legislature has provided another forum where the appeal will lie and in the circumstances it must be held that by necessary intendment the Legislature intended that forum alone to be the forum where the appeal will He and not the forum under the first Mysore Act. Reference in this connection may be made to G. Veeraya v. N. Subbiah Choudhry : [1957]1SCR488 , where this court held that the vested right of appeal was a substantive right and was governed by the law prevailing at the time of the commencement of the suit and comprised all successive rights of appeal from court to court which really constituted one proceeding but added that such right could be taken away expressly or by necessary intendment. In the present case we arc of opinion that once proceedings under Section 8(1) of the first Mysore Act are held to be similar to proceedings under Section 5(1) of the second Mysore Act or Section 7(1) of the Act, it must necessarily follow that the Legislature intended that all subsequent proceedings in the nature of appeal, after the first Mysore Act came to an end, must be in the forum provided by the subsequent legislation. We are, therefore, of opinion that the High Court was in error in holding that appeals to it lay from 1he order of December 2, 1952. '

37. In the result, it was held that the High Court was not justified in looking into the order of December 2, 1952, as an appellate court, though it would be justified in scrutinizing that order as if it was brought before it under Article 226 of the Constitution for the issue of a writ of certiorari.

38. The learned counsel for the Department submits that in the above case also the forum for the right of appeal had been changed. But still, then, the Constitution Bench of the Supreme Court came to the conclusion that in such change the forum of appeal cannot be challenged by the assessee.

39. The learned counsel for the Department contends that it is true that under the unamended provision of Section 18(4) of the Act, the WTO could impose penalty only with the prior approval of the IAC. But the provision having been amended by the 1964 Act, no such approval is necessary. The learned counsel submits that the change of law has not taken away any substantive right of the assessee. In support of the submission, the learned counsel refers to a Constitution Bench decision of the Supreme Court in Jain Brothers v. Union of India : [1970]77ITR107(SC) . There, on May 26, 1960, a notice under Section 22(2) of the Indian I.T. Act, 1922, was served on the appellant-firm calling upon it to submit a return of its income for the assessment year 1960-61 (accounting year ending October 31, 1959). The return had to be filed within 35 days of the service of the notice. It was not filed. Further notices were served on two occasions. It filed a return on November 18, 1961, showing income of Rs. 3,55,566. The ITO completed the assessment on November 23, 1964, computing the total income of the farm at Rs. 4,75,368. On November 23, 1964, the ITO issued a notice under Section 271 read with Section 274 of the IT. Act, 1961, calling upon the firm to show cause why an order imposing a penalty should not be passed on account of its failure to furnish the return within time. After considering the explanation submitted by the assessee the ITO made an order on November 19, 1966, under Clause (a) of Section 271(1) of the Act of 1961, imposing a penalty of Rs. 1,03,434 for non-compliance with the notice under Section 22(2) of the 1922 Act. The appellants took the matter in appeal before the AAC challenging the imposition of penalty. Although those proceedings were still pending a writ petition was filed on August 26, 1966, in the High Court challenging, inter alia, the validity and the constitutionality of Section 23(5) of the Act of 1922 and Section 297(2)(g) and Section 271(2) of the Act of 1961, respectively. The High Court did not accede to any of the contentions of the present appellants and the petition was dismissed.

40. The appellant, being aggrieved, preferred an appeal before the Supreme Court. Under Section 22(2) of the 1922 Act, the ITO could serve a notice requiring any person whose total income was of such amount as to render him liable to income-tax to furnish within a specified period a return in the prescribed form setting forth his total income during the previous year. Under Section 28, if the ITO, the AAC or the Appellate Tribunal, in the course of any proceedings, was satisfied that any person had, without reasonable cause failed to furnish the return of his total income which he was required to furnish by notice given under Section 22 it could be directed that such person shall pay by way of penalty, in addition to the amount of income-tax and super-tax payable by him, a sum not exceeding 11/2 times that amount. Sub-section (5) made it obligatory for the ITO to obtain the previous approval of the IAC before imposing any penalty. In the 1961 Act the provisions relating to the penalties are contained in Chap. XXI. Section 271(1)(a) deals with the failure to furnish a return. If the ITO or the AAC in the course of any proceedings under the Act is satisfied that such a default has been committed without reasonable cause, he may direct that such person shall pay by way of penalty, in addition to the amount of tax payable by him, a sum equal to 2% of the tax for every month during which the default continues, but not exceeding in the aggregate 50% of the tax. Section 274(1) provides that no order imposing a penalty shall be made unless the assessee has been heard or has been given a reasonable opportunity of being heard. Section 275 lays down the period of limitation for imposing a penalty. Such an order cannot be passed after the expiration of two years from the date of the completion of proceedings in the course of which the penalty proceedings for imposition of penalty have been commenced. It may be mentioned that in Chap. XXII dealing with offences and prosecutions a provision had been made in Section 276 for punishment with fine in case of failure without reasonable cause or excuse to furnish in due time a return under Section 139(2) which was equivalent to Section 22(2) of the 1922 Act. The case before the Supreme Court related only to a penalty having been imposed on account of the failure to furnish a return. Their Lordships noticed the main changes made in the 1961 Act in the matter of imposition of penalty for such a default in the following manner (p. 114) :

'The first departure from the Act of 1922 is that no prosecution could be instituted under the Act of 1922 in respect of the same facts on which a penalty had been imposed. Under the Act of 1961, a penalty can be imposed and a prosecution launched on the same facts. The second change is that under the Act of 1922, the Income-tax Officer could not impose any penalty without the previous approval of the Inspecting Assistant Commissioner. Under the 1961 Act, no such previous approval is necessary. Thirdly, the Act of 1922 did not prescribe any minimum amount of penalty. According to the Act of 1961, the penalty cannot be less than the minimum prescribed. This is, of course, subject to the Commissioner's power of reduction. Fourthly, the maximum penalty imposable in a case where there has been a failure to file a return in compliance with a notice issued by the Income-tax Officer has been reduced under the Act of 1961. Lastly, there was no time limit in the Act of 1922 for passing of a penalty order but under the Act of 1961 a period of two years has been prescribed by Section 275 as stated above. Thus, whereas under the Act of 1922, a defaulting assessee had certain protection in the matter of prosecution no such protection has been afforded under the Act of 1961 ; but the maximum amount of penalty which can be imposed has been reduced and a period of limitation has been prescribed for passing a penalty order which is of distinct advantage to a defaulting assessee.'

41. Their Lordships held that it was not possible to accept the suggestion on behalf of the appellants that the substantive and the procedural provisions relating to penalty contained in the Act of 1961 are altogether onerous. Ultimately, the Supreme Court held as under (p. 117) :

'We are further unable to agree that the language of Section 271 does not warrant the taking of proceedings under that section when a default has been committed by failure to comply with a notice issued under Section 22(2) of the Act of 1922. It is true that Clause (a) of Sub-section (1) of Section 271 mentions the corresponding provisions of the

Act of 1961, but that will not make the part relating to payment of penalty inapplicable once it is held that Section 297(2)(g) governs the case. Both Sections 271(1) and 297(2)(g) have to be read together and in harmony and so read the only conclusion possible is that for the imposition of a penalty in respect of any assessment for the year ending on March 31, 1962, or any earlier year which is completed after first day of April, 1962, the proceedings have to be initiated and the penalty imposed in accordance with the provisions of Section 271 of the Act of 1961. Thus the assessee would be liable to penalty as provided by Section 271(1) for the default mentioned in Section 28(1) of the Act of 1922, if his case falls within the terms of Section 297(2)(g). We may usefully refer to this court's decision in Third Income-tax Officer, Mangalore v. Damodar Bhat : [1969]71ITR806(SC) with reference to Section 297(2)(j) of the Act of 1961. According to it in a case falling within that section in a proceeding for recovery of tax and penalty imposed under the Act of 1922, it is not required that all the sections of the new Act relating to recovery or collection should be literally applied, but only such of the sections will apply as are appropriate in the particular case and subject, if necessary, to suitable modifications. In other words, the procedure of the new Act will apply to cases contemplated by Section 297(2)(j) of the new Act mutatis mutandis. Similarly, the provision of Section 271 of the Act of 1961 will apply mutatis mutandis to proceedings relating to penalty initiated in accordance with Section 297(2)(g) of that Act.'

42. The learned counsel for the Department submits that in the aforesaid case prior to the commencement of the 1961 Act, the ITO could exercise the jurisdiction of imposing penalty with the prior approval of the IAG in view of the provision contained in the 1922 Act as noticed above. But after the 1961 Act, no such approval is necessary but even then in the above case their Lordships held that there was no vested right in view of the change in law that the imposition of penalty on the assessee could be made only by the ITO with the prior approval of the IAC.

43. But we must observe that the aforesaid decision of the Supreme Court turns on the provision of Section 297(2)(g) of the I.T, Act, 1961, which can be gathered from the relevant portion of the judgment noticed above. Hence we find that the decision in Jain Bros. : [1970]77ITR107(SC) does not directly support the submission of the learned counsel for the Department.

44. The learned counsel for the Department refers to a decision of this court in Rajputana Stores v. IAC . This case was also relied upon by the Tribunal. There the petitioner challenged the authority of the order dated September 2, 1966, passed by the IAC, Dibrugarh Range, imposing on the petitioner a penalty of Rs. 10,000 under Section 271 of

the I.T. Act, 1961. For the year 1964-65 the petitioner submitted a return of its income on October 21, 1964, showing its total income at Rs. 28,270. The ITO, however, assessed the income of the petitioner at Rs. 47,273 for that year. After the first appeal of the petitioner had been dismissed, penalty proceedings were initiated against it by the ITO, Jorhat,, in terms of Clause (c) of Section 271(1) of the 1961 Act. The penalty proceedings had, however, to be referred by that ITO to the IAC, Dibrugarh, inasmuch as, he found that the penalty payable would exceed Rs. 1,000 which was beyond his jurisdiction. The IAC ultimately imposed a penalty of Rs. 10,000 on the petitioner by the impugned order. In the writ petition, two points were urged on behalf of the petitioner. They are, firstly, that the penalty having been imposed by the aid of the Explanation appended to Sub-section (1) of Section 271, which Explanation had come into force with effect from April 1, 1964, the Explanation did not apply as the return in question related to the year which had concluded on March 31, 1964, and, secondly, that the Explanation offends Article 14 of the Constitution. Considering the first point, this court held (p. 502) :

' On its plain wording, the Explanation applies to the income returned by an assessee after it came into force irrespective of the fact whether the income related to a period prior to April 1, 1964, or thereafter. The penalty Clause (c) can be invoked only if a false return is filed, and if the return is filed after the Explanation had become operative, surely such return, if it offends the Explanation, would attract its applicability. Therefore, we have no doubt on the point that the Explanation applies to the case in hand since the relevant return was admittedly filed after April 1, 1964. This interpretation does not tantamount to operation of the Explanation retrospectively as contended.'

45. In CIT v. Om Sons : [1979]116ITR215(All) , the Allahabad High Court had to consider the question of the penalty order passed by the IAC. There the ITO initiated proceedings for levy of penalty on the assessee for the assessment year 1969-70, and referred the matter to the IAC who imposed an order of penalty by his order dated November 29, 1971. Meanwhile as Section 274(2) of the Income-tax Act had been amended by the T.L. (Amend.) Act, 1970, with effect from April 1, 1971, under which the IAC did not have jurisdiction to impose penalty in such matters. On the question whether the IAC had jurisdiction to pass the order of penalty as on the date when the IAC passed a final order, it was held that his jurisdiction to do so had been taken away by the amendment of Section 274(2) and hence the order passed by him was without jurisdiction.

46. In CIT v. Dhadi Sahu : [1976]105ITR56(Orissa) , for the assessment years 1968-69 and 1969-70, the assessee, an individual, deriving income

from his share in a partnership business filed returns of income disclosing only his share of income from the said firm. Assessments were completed for these two years on February 28, 1970, and the ITO included the income of the minor children of the assessee who were also partners in the same firm and the income from the house property standing in the name of the assessee's wife which actually belonged to the assessee. As a result of these additions, as against the returned income of Rs. 5,940 for the assessment year 1968-69 and Rs. 7,020 for the assessment year 1969-70, the assessee was assessed on an income of Rs, 30,840 and Rs. 19,472, respectively. The ITO initiated proceedings for imposition of penalty under Section 271(1)(c) of the I.T. Act, 1961, and as he was of the view that the cases were covered by Section 274 of the Act, referred them to the IAC. While the matter was pending before the IAC, Section 274(2) was amended by the T.L. (Amend.) Act, 1970, with effect from April 1, 1971. The IAC imposed penalties of Rs. 24,000 and Rs. 12,500, respectively, for these two years. On appeal, the Appellate Tribunal held that, in view of the amendment of Section 274(2), the IAC lost jurisdiction to impose the penalties since, before the amendment, he had jurisdiction in cases where the minimum penalty imposable exceeded Rs. 1,000, whereas, after the amendment, he had jurisdiction only in cases where the concealment by the assessee exceeded Rs. 25,000. On a reference, the Orissa High Court held that if the IAC had passed final orders before the Amending Act of 1970 came into force, there would have been no question of lack of jurisdiction but as the matter was still pending and by change of procedure the references became incompetent, the IAC no longer had jurisdiction to deal with the matter or to complete the proceedings.

47. Similar is the position in the case before us where there is a change of procedure giving unfettered jurisdiction to the WTO to impose penalty when the provision for taking any prior approval from the IAC was deleted in view of the amendment of 1964.

48. The Karnataka High Court also had to consider the impact of the amendment made to Section 274(2) of the I.T. Act, 1961, by the T.L. (Amend.) Act, 1970. Under Section 274(2) of the I.T. Act, 1961, as it stood before the amendment by the T.L. (Amend.) Act, 1970, with effect from April 1, 1971, the ITO had to refer all cases of penalties in which the minimum penalty imposable under Section 271(1)(c) was above Rs. 1,000 to the IAC. After the amendment the ITO was conferred jurisdiction to impose penalty in all cases where the concealment of income did not exceed Rs. 25,000 and he was required to refer to the IAC only such cases of concealment of income where the amount concealed exceeded Rs. 25,000.

49. In Addl. CIT v. M.Y. Chandragi : [1981]128ITR256(KAR) , for the assessment years 1968-69 and 1969-70, returns were filed by the assessee

on July 27, 1968, and July 24, 1969, respectively, and the assessments were finalised on that basis. Subsequently, the assessments were reopened and notices under Section 148 of the I.T. Act, 1961, were issued to the assessee on January 6, 1970. The revised returns were filed by the assessee on March 4, 1970. The reassessment orders were passed by the ITO on December 24, 1971, after the amendment of Sub-section (2) of Section 274 by the T.L. (Amend.) Act, 1970. The ITO imposed penalties of Rs. 10,880 for the assessment year 1968-69 and Rs. 15,457 for the assessment year 1969-70. On appeal, the AAC set aside the order of the ITO on the ground that the authority competent to impose penalty was the authority who was competent to impose penalty as on the date of concealment and it was the IAC who was competent to impose penalty and not the ITO. On further appeal, the Appellate Tribunal affirmed the order of the ITO. On a reference, the Karnataka High Court held that the question of determining the quantum of penalty payable by an assessee with reference to the date of concealment of income had no bearing on the question of competence of the authority to impose penalty and the latter had to be determined with reference to the date when the penalty was imposed. Therefore, it was held that the ITO had jurisdiction to impose penalty under Section 271(1)(c) for the assessment years 1968-69 and 1969-70, after the amendment of Section 274(2) by the T.L. (Amend.) Act, 1970, with effect from April 1, 1971. The court referred to the Madras decision in Continental Commercial Corporation v. ITO : [1975]100ITR170(Mad) , but did not follow it.

50. We may also notice another decision of the Karnataka High Court in R. Abdul Azeez v. CIT : [1981]128ITR547(KAR) , where the I.T. (Amend.) Act, 1975, came up for consideration. The Amendment Act, 1975, while omitting Section 274(2), made three consequent changes ;

(i) By Section 48 of the Amending Act, Clause (b) of Sub-section (1) of Section 154 of the I.T. Act, 1961, which conferred power on the IAC to rectify his orders made under Sub-section (2) of Section 274, was omitted.

(ii) By Section 60 of the Amending Act reference to Sub-section (2) of Section 274 in Clause (b) of Section 253(1), which provided for appeal, which an assessee could prefer against the order made by the IAC in exercise of his powers under Sub-section (2) of Section 274, was omitted.

(iii) By Section 61 of the Amending Act, a proviso was added to Section 271(1)(iii) according to which the ITO was required to seek the previous approval of the IAC in cases where the concealment exceeded a sum of Rs. 25,000.

51. On a consideration of the above amendment, the court held that these three consequential amendments made simultaneously with the omission of Sub-section (2) of Section 274 of the Act, clearly indicate the legislative intention to

destroy the continuance of the power of the IAC even in respect of matters which had already been referred to him by the ITO prior to April 1, 1976.

52. It has been further observed that a party who had already instituted a legal proceeding before a court or tribunal or forum which had jurisdiction to entertain the proceeding on the date of institution, had the vested right to pursue the matter to a finality before the very forum before whom he had instituted the proceeding as also before the appellate forum which was available to him as on the date of institution of the proceeding unless such right was taken away by an express provision contained in the subsequent legislation. As far as a proceeding for the imposition of penalty is concerned, neither the assessee nor the ITO nor the IAC are in the position of a party to a litigation who intends to pursue a legal proceeding, already instituted by him, to a finality.

53. The court has ultimately held that in a case of this nature it is a case of an exercise of the power conferred by a statute on a particular authority. Therefore, the only question which would be relevant in a case of this type is whether the authority, who has passed the order, had the requisite power or jurisdiction conferred by law when it passed the order. As a result of the amendments made by the I.T. (Amend.) Act of 1975, noticed above, the IAC had no authority to pass orders imposing penalty under Section 271(1)(c) of the Act on and after April 1, 1976.

54. Relying on Rayala Corporation (P.) Ltd. v. Director of Enforcement AIR 1970 SC 494, the court has also made the following significant observation [head note of : [1981]128ITR547(KAR) ]:

'Section 6 of the General Clauses Act, 1897, applies to repeals and not to omissions. After the omission of Section 274(2) of the Income-tax Act, 1961, with effect from 1-4-1976, the Inspecting Assistant Commissioner would have no jurisdiction to pass orders of penalty after that date in cases where concealment of income exceeded Rs. 25,000 and the proceedings were pending before him. Section 6 of the General Clauses Act cannot be invoked to save such proceedings.'

55. We have already noticed the decisions of the Supreme Court in Sukumar Pyne : 1966CriLJ946 . Khan Saheb Abdul Shukoor : [1961]3SCR855 , where it has been held that in the change of forum by law nobody has got any vested right nor can it be said to have taken away any substantive right of anybody.

56. In Rajputana Stores , Om Sons : [1979]116ITR215(All) , Dhadi Sahu : [1976]105ITR56(Orissa) , M.Y. Chandragi : [1981]128ITR256(KAR) and R. Abdul Azeez : [1981]128ITR547(KAR) , we have noticed that none has got any right in the change of law as to who would impose penalty. It has been held in the above cases that it is a

case of exercise of power conferred by a statute on a particular authority. The relevant enquiry is whether the authority who passed the order had the requisite power or jurisdiction conferred by law when it passed the order.

57. We are in respectful agreement with the above enunciation of law.

58. We have also noticed in the earlier part of the judgment the decision of Bharat Barrel : (1971)IILLJ647SC , where the Supreme Court has noted with approval the definition given by Salmond on substantive law and procedural law as 'substantive law is which we enforce while procedure deals with rules by which we enforce it'. In our opinion, the provision for penalty is a substantive provision and the authority to levy penalty is only procedural.

59. For the reasons stated above and in the premises, the question referred to this court is answered in the affirmative and in favour of the Department.

60. Each party will pay and bear their own costs.

T.C. Das, J.

61. I agree.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //