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Smt. Indu Barua Vs. Commissioner of Wealth-tax, North Eastern Region - Court Judgment

LegalCrystal Citation
Subject;Direct Taxation
CourtGuwahati High Court
Decided On
Case NumberWealth-tax Reference No. 2 of 1976
Judge
ActsWealth Tax Act, 1957 - Sections 14(1), 14(2), 17, 18 and 18(1); Code of Civil Procedure (CPC) , 1908 - Sections 41 - Order 5, Rule 15
AppellantSmt. Indu Barua
RespondentCommissioner of Wealth-tax, North Eastern Region
Appellant AdvocateJ.P. Bhattacharjee, B.P. Saraf, Prasanta Kr. Goswami and Usha Barua, Advs.
Respondent AdvocateG.K. Talukdar and D.K. Talukdar, Advs.
Excerpt:
- - in her explanation, she gave three reasons as forming reasonable cause, which are common for all the years, for the failure to file returns within time ;first, the net wealth of the assessee was below and/or at marginal level of the taxable wealth; 3. 5. the tribunal considered failure on the part of the assessee to furnish returns for the assessment years 1964-65 to 1968-69, despite service of notices upon the assessee's husband, under section 17 of the act, issued in the name of the assessee as one of the circumstances showing contumacious conduct that she acted deliberately in defiance of law and/or consciously disregarded the provisions of law. 39(a) and 40 of the consolidated order of the tribunal it took the view that as the factum of service on the assessee's husband had not..... n. ibotombi singh, j. 1. the income-tax appellate tribunal has, at theinstance of the assessee, referred under section 27 of the w,t. act, 1957 (hereinafter called ' the act '), the following questions to this court: '(1) whether, on the facts and circumstances of the case, the tribunal was right in holding that in the case of the assessee, the calculation of the penalty should be in accordance with section 18(1)(i) of the wealth-tax act, 1957, as it stood up to march 31, 1965, and then as substituted with effect from april 1, 1965, by section 18 of the wealth-tax (amendment) act, 1964, and with effect from april 1, 1969, by section 24 of the finance act, 1969, in the view that the default was a continuing one (2) whether, on the facts and in the circumstances of the case, the tribunal.....
Judgment:

N. Ibotombi Singh, J.

1. The Income-tax Appellate Tribunal has, at the

instance of the assessee, referred under Section 27 of the W,T. Act, 1957 (hereinafter called ' the Act '), the following questions to this court:

'(1) Whether, on the facts and circumstances of the case, the Tribunal was right in holding that in the case of the assessee, the calculation of the penalty should be in accordance with Section 18(1)(i) of the Wealth-tax Act, 1957, as it stood up to March 31, 1965, and then as substituted with effect from April 1, 1965, by Section 18 of the Wealth-tax (Amendment) Act, 1964, and with effect from April 1, 1969, by Section 24 of the Finance Act, 1969, in the view that the default was a continuing one

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in upholding the order of penalty under Section 18(1)(a) passed by the Wealth-tax Officer

(3) Whether, on the facts and in the circumstances of the case, and on the basis of the findings recorded, the Tribunal was justified in law in holding that there was valid and legal service of the notice on the assessee in accordance with the provisions of Section 41 of the Wealth-tax Act, 1957, read with Order 5, Rule 15 of the Code of Civil Procedure, as amended for the State of Assam

(4) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in computing the period of default from the date fixed for submission of return under Section 14(1) of the Act, and not from the date fixed under the notice under Section 14(2) and/or 17 of the Act?

(5) Whether, on the facts and circumstances of the case, the Tribunal was correct in law in upholding the penalty for the assessment year 1964-65, in the absence of any previous approval of the Inspecting Assistant Commissioner of Wealth-tax, as required under Section 18(4) of the Wealth-tax Act, 1957, as it stood prior to its amendment by Act 46 of 1964, with effect from April 1, 1965?'

2. Question No. 1 was referred by the Appellate Tribunal under Section 27(1) of the Act, and questions Nos. 2 to 5 were referred by the Tribunal under Section 27(1) of the Act, pursuant to the order of this court, dated March 9, 1976, passed in Civil Rule 20(M) to 26(M) of 1976. The reference relates to the assessment years 1964-65, 1965-66, 1966-67, 1967-68, 1968-69, 1969-70 and 1970-71. The due date for filing a return under the Act for each of the assessment years was 30th June, except for the assessment year 1968-69; and for the assessment year 1968-69, the due date was August 31, 1968, according to Circular No. 4 (WT) of 1968, dated August 13, 1968, of the CBDT. The assessee, Smt. Indu Barua, had not been assessed to wealth-tax by way of regular assessment. The WTO, 'B' Ward, Jorhat, issued notices under Section 17 read with Section 14(2) of the Act on September 2, 1969, regarding wealth escaping assessment for each of the assessment years 1964-65 to 1969-70. Notice for each of the assessment years 1964-65 to 1968-69 was not personally served on the assessee but was served upon her husband on October 7, 1969. Notice was, however, served on the assessee herself for the assessment year 1969-70 on October 7, 1969. The assessee filed returns on July 6, 1971, for all the assessment years 1964-65 to 1970-71. The WTO, thereafter, initiated penalty proceedings for all the assessment years under Section 18(1)(a) of the Act for delay in filing returns. In her explanation, she gave three reasons as forming reasonable cause, which are common for all the years, for the failure to file returns within time ; first, the net wealth of the assessee was below and/or at marginal level of the taxable wealth; secondly, the assessment was completed at a higher figure which was disputed in appeal and the assessee expected substantial relief; and, thirdly, frequent changes in law as regards exemption limit and the includibility of various assets in the net total wealth were the reasons that prevented her from filing returns within time. The WTO rejected her explanation, and pointed out that the net wealth shown in the returns was more than Rs. 2,00,000 ; the movable property of the assessee, which did not involve any question of valuation, was itself in excess of the exemption limit, and in addition to the movable property, the assessee had substantial immovable property. The WTO further held that the exemption limit for individuals, which continued to be Rs. 2,00,000 up to the assessment year 1963-64, from the very inception of the wealth-tax, was lowered to Rs. 1,00,000 with effect from April 1, 1964, long before the returns were filed, and held, as such, that ignorance of law either as to exemption limit or to includibility of various assets could not be considered as an excuse in the eye of law, particularly in the case of a person of the assessee's status and affluence. The WTO imposed penalty of Rs. 16,486, Rs. 21,468, Rs. 20,693, Rs. 25,075, Rs. 27,347, Rs. 24,177 and Rs. 8,988, respectively, for the assessment years 1964-65 to 1970-71, under Section 18(1)(a) of the Act. The assessee's appeals before the AAC of Wealth-tax for all the years, which were heard together, were dismissed, and the penalties levied by the WTO were confirmed by his common order dated July 12, 1974. The assessee carried further appeals to the Income-tax Appellate Tribunal for all the assessment years. The Tribunal dismissed the appeals, by its consolidated order, dated February 28, 1976, and confirmed the penalties imposed on the assessee. Penalties were calculated for the assessment years 1964-65 to 1968-69, in accordance with law as amended from time to time, in the view that the default was a continuing one.

3. Question No. 1 is covered by the majority judgment of this court in T. K. Roy v. CWT (WTR Nos. 3, 4, 5 of 1975). This court held that infringement of law is complete on the date when the assessee fails to file a return under Section 14(1) of the Act; and it is not a continuing offence; and the quantum of penalty for default must be determined in relation to the law prevailing on the day when the default was committed; the default was committed on 30th June of each year and, as such, the law applicable on the aforesaid date in regard to the penalty will be applicable and not the law amended from time to time. We, accordingly, answer the question in the negative and against the department.

4. Next we answer question No. 3.

5. The Tribunal considered failure on the part of the assessee to furnish returns for the assessment years 1964-65 to 1968-69, despite service of notices upon the assessee's husband, under Section 17 of the Act, issued in the name of the assessee as one of the circumstances showing contumacious conduct that she acted deliberately in defiance of law and/or consciously disregarded the provisions of law. It held that service of notices under Section 17 of the Act on her husband who was residing with her was legal and valid as to bind the assessee. It was contended on behalf of the assessee that the service of notice was not in compliance with the provisions of Section 41 of the Act, read with Order 5, Rule 15 of the CPC, 1908, as amended for the State of Assam, and that there was no legal and valid service of notice on the assessee. Rejecting the contention, the Tribunal held the service legal and valid, relying on the decision of the Calcutta High Court in Rampiyari Khemka v. CIT : [1966]61ITR600(Cal) .

6. Learned counsel for the assessee strenuously urged before us that the view of the Tribunal is erroneous in law, and submits that the validity of service of the notice was to be tested on the terms of Order 5, Rule 15 of the CPC, 1908, as amended for the State of Assam; and when tested on the terms of the amended rule, the notice was not legal and valid. In support of his contention, reliance was placed on two decisions of the Calcutta High Court. Tripura Modern Bank Ltd. v. Bansen and Co. : AIR1952Cal781 , and CIT v. Kiran Debi Singhee : [1967]65ITR501(Cal) .

7. Learned counsel for the department, while not disputing the proposition that the Tribunal was to consider the validity of the notice on the terms of the amended Order 5, Rule 15 of the CPC, 1908, submits that the question is purely academic, as the Tribunal had already come to the finding on other circumstances, that the assessee consciously disregarded the provisions of law by her delay in filing the returns for the assessment years in question.

8. We confine ourselves to the question as to whether the service of notice was valid or not. In our view, the question is not academic, which we shall presently show while discussing question No. 2.

9. As seen from para. 39(A) and 40 of the consolidated order of the Tribunal it took the view that as the factum of service on the assessee's husband had not been denied on behalf of the assessee, service on her husband as an adult member of the assessee's family who was intended to be served and who was residing with her, was a good service. The Tribunal also observed that it had every reason to believe that her husband acted in a responsible and reasonable manner and that the notices were conveyed to the assessee.

10. In our opinion, on the facts stated, service of notice on the husband of the assessee is not legal and valid as to bind the assessee. The decision in Ram Piyari Khemka v. CIT : [1966]61ITR600(Cal) , on which reliance was placed does not lend any assistance to the view taken by the Tribunal. In that case, the High Court had no occasion to consider the question on the terms of Order 5, Rule 15 of the Code, as amended by the Calcutta High Court.

11. Order 5, Rule 15 of the CPC, 1908, as substituted for Assam and Calcutta High Courts and which was in force at the relevant time, ran as follows:

' Where, in any suit the defendant is absent from his residence at the time when service is sought to be effected on him thereat and there is no likelihood of his being found thereat within a reasonable time, then unless he has an agent empowered to accept service of the summons on his behalf, service may be made on any adult male member of the family of the defendant, who is residing with him :... '

12. Section 41 of the Act prescribes the procedure of service of notice on the assessee, and Sub-section (1) thereof provides that:

' A notice or a requisition under this Act may be served on the person therein named either by post or as if it were a summons issued by a court under the Code of Civil Procedure, 1908 (5 of 1908).'

13. Sub-s. (1) of Section 41 of the Act is intended to apply the provisions of the Code of Civil Procedure, 1908, for service of summons on the defendant to service of notice on the assessee under the Act. Under Order 5, Rule 15, CPC, as amended, two essential conditions must be complied with in order to make service on the adult member who is residing with the defendant valid. The first condition is that the defendant must be absent from his residence. The second condition is that the mere absence of the defendant is not enough ; it must be shown from materials on record beyond doubt not only that the serving officer went to the place of his residence at a reasonable time, when the defendant would be expected to be present but also that the defendant was not found and reasonable attempts were made to find him at the residence. We are in respectful agreement with the views expressed in Tripura Modern Bank's case : AIR1952Cal781 , and Kiran Debi Singhee's case : [1967]65ITR501(Cal) , that these two conditions are to be satisfied for a valid service on the defendant.

14. The fact found by the Tribunal in this case was service on the assessee's husband, who was residing with her. But mere service on her husband is not enough. Both the conditions precedent, which we have pointed out, have not been satisfied. There is no evidence or proof of the circumstances to warrant the conclusion that service on the assessee's husband constituted a valid service on her. It is quite manifest that the Tribunal had not considered the validity of the notice on the anvil of the amended Order 5, Rule 15, of the CPC, 1908.

15. It is well settled that when a Tribunal has erred by applying a wrong legal test in determining a material question or has arrived at the conclusion wholly unsupported by evidence, the finding cannot be sustained in law. The Tribunal, in our opinion, has applied a wrong legal test as discussed above, and as such its view is untenable. We answer the question in the negative and against the department.

16. We consider question No. 4. The assessing authority calculated penalty by computing the period of default from the date fixed for submission of return under Section 14(1) of the Act, i.e., 1st day of July of each assessment year till the date of filing return. Relying on the decision of the Patna High Court in Addl. CIT v. Bihar Textiles : [1975]100ITR253(Patna) , learned counsel for the assessee submits that the calculation of penalty is to be made from the date of the default in filing the return given in the notice under Section 14(2) of the Act, and not from the date of default under Section 14(1) of the Act; and once a notice under Section 14(2) is issued and time is granted therein, that precludes penal provisions being attracted, in so far as the

failure to file return under Sub-section (1) of Section 14 of the Act is concerned. In other words, by the issuance of a notice under Section 14(2) of the Act, the prescribed period under Section 14(1) of the Act is duly extended, and no penalty can be levied for any default committed in respect of the provision under Section 14(1) of the Act.

17. Learned counsel for the department controverts the contention above and urges, on the authority of the decision of the Rajasthan High Court in CIT v. Indra & Co. , that penalty has been correctly calculated.

18. In our opinion, the submission of the learned counsel for the assessee is devoid of substance.

19. On a plain reading of Section 18(1)(a) of the Act, penalty under Section 18(1) of the Act becomes imposable immediately when default takes place. The default of not filing return under Sub-section (1) of Section 14 continues till the time when the return has been furnished, or if no return has been furnished, it continues till the assessment is made. An assessee is liable to payment of penalty if he fails to file a return voluntarily under Sub-section (1) of Section 14, even if he files a return subsequently, in pursuance of a notice under Sub-section (2) of Section 14. There is nothing in Section 14 of the Act to show that by the issuance of a notice under Sub-section (2) of Section 14, an assessee who is obliged to file a return under Sub-section (1) of Section 14 will be exonerated of his liability for the default in not filing the return under Sub-section (1) of Section 14.

20. If the contention of the learned counsel for the assessee is accepted, it would mean that any assessee, liable to furnish return under Section 14(1) of the Act and liable to payment of wealth-tax, may sit comfortably and wait till a notice is given to him under Section 14(2) of the Act and then file a return within the time mentioned in that notice. In our opinion, such a reasoning does not appeal to us. On a careful reading of the two sub-sections our conclusion is that if an assessee does not file voluntarily a return, as is required of him under Section 14(1), default will start from the date when the return ought to have been filed.

21. The second limb of argument of the learned counsel for the assessee is that as soon as the notice is issued under Sub-section (2) of Section 14 of the Act, it must be taken that the WTO had condoned the default for not having furnished the return under Section 14(1) of the Act. We are unable to accept the contention. It will be straining the language of Section 14(1) of the Act, if such an interpretation put by the learned counsel for the assessee is accepted. There is nothing in Section 14 which will throw any light to show that the WTO is given such a power of condonation. To accept such a contention would be really rendering Sub-section (1) of Section 14 otiose. In our considered view, default having taken place by not filing the return in compliance with the provisions of Section 14(1) of the Act, penalty shall be computed

from the date of default under Section 14(1) of the Act, and not from the date fixed under the notice under Section 14(1) of the Act.

22. We are in respectful agreement with the view expressed by the Rajasthan High Court in CIT v. Indra & Co. . We answer the question in the affirmative and against the assessee.

23. We shall consider question No. 5.

24. Learned counsel for the department submits that this question of law was neither raised before the Tribunal nor considered by it; it is not a question which arises out of the order of the Tribunal, and, as such, the court is not to answer the question. The contention, in our view, is well founded.

25. In an application under Section 66(2) of the Indian I.T. Act, 1922, for reference to the High Court, the Supreme Court in CIT v. Scindia Steam Navigation Co. Ltd. : [1961]42ITR589(SC) , observed at page 609 :

' The power of the court to direct a reference under Section 66(2) is subject to two limitations--the question must be one which the Tribunal was bound to refer under Section 66(1) and the applicant must have required the Tribunal to refer it...... It is, therefore, clear that under Section 66(2)

the court cannot direct the Tribunal to refer a question unless it is one which arises out of the order of the Tribunal and was specified by the applicant in his application under Section 66(1).'

26. It has been held by the Supreme Court in New Jehangir Vakil Mills Ltd. v. CIT : [1959]37ITR11(SC) , that the scope of the subject-matter of the reference under Section 66(2) of the Indian I.T. Act, 1922, is co-extensive with that of one under Section 66(1) of that Act, and that the High Court has no power or jurisdiction under Section 66(2) of the Indian I.T. Act to travel beyond the ambit of Section 66(1).

27. In Lakshmiratan Cotton Mills Co. Ltd. v. CIT : [1969]73ITR634(SC) , the Supreme Court held that the correctness of an order of the High Court calling for a statement of case may be challenged at the hearing of the reference and the court may decline to answer the question referred pursuant to the direction of the High Court, if it did not arise out of the order of the Tribunal or is a question of fact or is academic or could not have been raised, because it was not incorporated in the application of the assessee under Section 66(1) of the Act of 1922.

28. In our opinion, the principles of law discussed above would apply with equal force to the application under Section 27(3) of the Act; the correctness of the order of this court calling for a statement of a case can undoubtedly be questioned in this reference. We also consider, if question No. 2, as framed, is comprehensive enough to cover this question of law about the legality of the penalty in the absence of the previous approval of the IAC, as required under Section 18(4) of the Act, but it is not so. Nor can it be considered to be another aspect of the question No. 2 raised before the Tribunal, within the principle of law laid down by the Supreme Court in Scindia Company Ltd. : [1961]42ITR589(SC) and affirmed in CIT v. Indian Molasses Co. P. Ltd. : [1970]78ITR474(SC) . Question No. 2, though widely framed, was about the legality of penalty, arising out of considerations of reasonable cause, on the facts and circumstances of the case. We are satisfied that the question was neither raised before the Tribunal nor considered by it. We therefore, decline to answer the question.

29. We consider question No. 2. The Tribunal agreed with the WTO and the AAC that the assessee has failed to show reasonable cause for her default in filing returns within time for all the assessment years in question. Rejecting the explanation of the assessee as unacceptable, the Tribunal reached the conclusion that the assessee had consciously disregarded the provisions of law in making the defaults.

30. Learned counsel for the assessee submits before us that in arriving at that finding, the Tribunal allowed itself to be influenced by the consideration of the service of notice under Section 17 of the Act on the assessee's husband, which was invalid ; inadmissible material was used ; and as it is not possible to say to what extent the finding of the Tribunal was affected by the inadmissible material used in arriving at the finding, the entire finding is vitiated. In support of his contention, reliance was placed on (i) Dhirajlal Girdharilal v. CIT : [1954]26ITR736(SC) and (ii) CIT v. Daulat Ram Rawat-mull : [1973]87ITR349(SC) .

31. Learned counsel for the department contends that the finding of the Tribunal that the assessee had failed to show reasonable cause is purely a finding of fact, and no question of law arises out of it. He further urges that after having arrived at the finding that the order of imposition of penalty by the WTO is correct, it proceeded to consider the validity of the notice, a point which was purely academic and not necessary to be decided, and as such the finding is not vitiated,

32. We proceed to examine the contentions above. In Dhirajlal Girdharilal : [1954]26ITR736(SC) , the Supreme Court has laid down the principles of law about the jurisdiction of the High Court in dealing with such reference and the limitation imposed on the High Court in interfering with a finding of fact arrived at by the Tribunal. It has been laid down that if the court of fact, whose decision on the question of fact is final, arrives at its decision by considering material which is irrelevant to the enquiry, or by considering material which is partly relevant and partly irrelevant, or bases its decision partly on conjectures, surmises and suspicions, and partly on evidence, then in such a situation clearly an issue of law arises. It further held that when a court of fact acts on material, partly relevant and partly irrelevant, it is

impossible to say to what extent the mind of the court was affected by an irrelevant material used by it in arriving at its finding; such a finding is vitiated, because of the use of an inadmissible material and thereby an issue of law arises.

33. The Supreme Court in Daulat Ram Rawatmull : [1973]87ITR349(SC) , while approving the observations in Dhirajlal Girdharilal : [1954]26ITR736(SC) , further pointed out that, when a conclusion has been reached by the Tribunal on an appreciation of a number of facts, whether it is sound or not, must be determined not by considering the weight to be attached to each single fact in isolation, but by assessing the cumulative effect of all the facts in their setting as a whole. In Mehta Parikh and Co. v. CIT [1956] 30 ITR 181, the Supreme Court also observed that the court would be entitled to intervene, if it appears that the fact-finding authority acted without any evidence which cannot reasonably be entertained or the facts found are such that no person acting judicially and properly instructed as to the relevant law would have come to the determination in question. The principles of law above have also been reiterated in the following cases. CIT v. S.P. Jain : [1973]87ITR370(SC) and CIT v. Manna Ramji and Co. : [1972]86ITR29(SC) .

34. Before dealing with the facts of the case bearing in mind the principles of law above, it may be relevant to consider an ancillary question as to whether metis rea is an essential element to be read in the penalty proceeding in s. >18(1)(a) of the Act.

35. Learned counsel for the assessee submits that the Tribunal has accepted the principle of law that mens rea is an essential ingredient for imposition of penalty and that the onus is on the department to show that the assessee has consciously disregarded the provisions of law to justify imposition of penalty. On the facts and circumstances of the case, it is contended, that the onus has not been discharged by the department. In support of his contention, reliance was placed on the decision of the Supreme Court in Hindustan Steel Ltd. v. State of Orissa : [1972]83ITR26(SC) and CIT v. Anwar Ali : [1970]76ITR696(SC) . Learned counsel for the department, on the other hand, submits that the mean rea is not an essential element; and as the facts, which constitute reasonable cause, are within the special knowledge of the assessee, it is the assessee, who has to prove that there was reasonable cause in the delay for filing the returns. It is further urged that the Supreme Court did not hold in the cases relied on by the assessee that mens rea is an essential element for the imposition of penalty for default to file returns, In support of his contention, learned counsel cites three decisions of different High Courts in which the decisions of the Supreme Court are discussed: Addl. CIT v. Dargapandarinath Tuljayya &

Co. : [1977]107ITR850(AP) , CIT v. Gangaram Chapolia : [1976]103ITR613(Orissa) and CIT v. Gujarat Travancore Agency : [1976]103ITR149(Ker) .

36. In C.A. Abraham v. ITO : [1961]41ITR425(SC) , the Supreme Court observed that liability to pay additional tax which is designated penalty under the Indian I.T. Act, 1922, is imposed on the assessee in view of the contumacious conduct of the assessee. The observation above was explained by the Supreme Court in Anwar Ali : [1970]76ITR696(SC) , it 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. One line of argument which has prevailed particularly with the Allahabad High Court in Lal Chand Gopal Das's case : [1963]48ITR324(All) 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 : [1961]41ITR425(SC) . 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 : [1961]41ITR425(SC) , 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 different purpose. It appears to have been taken as settled by now in the sales tax law that an order imposing penalty is the result of quasi-criminal proceedings i (Hindustan Steel Ltd. v. State of Orissa : [1972]83ITR26(SC) ]. In England also it has never been doubted that such proceedings are penal in character : Fattorini (Thomas) (Lancashire) Ltd. v. Inland Revenue Commissioners [1943] 11 ITR 50. '

37. In Hinditstan Steel Ltd. : [1972]83ITR26(SC) , the Supreme Court had occasion to consider certain provisions of the Sales Tax

Act, 1947, providing for penalty on failure to register as a dealer. At page 29, it was observed :

' Under the Act penalty may be imposed for failure to register as a dealer : Section 9(1) read with Section 25(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 not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute. Those in charge of the affairs of the company in failing to register the company as a dealer acted in the honest and genuine belief that the company was not a dealer. Granting that they erred, no case for imposing penalty was made out. '

38. In our opinion, in view of the pronouncement of the Supreme Court in the cases above, penalty under Section 18(1)(a) of the Act cannot be imposed, unless the assessee obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest or acted in conscious disregard of his obligation. It means, to justify imposition of penalty, that mens rea is required to be established. By mens rea is meant some blameworthy state of mind.

39. It is a settled rule of construction of statutes that in deciding as to whether or not it is necessary to prove the existence of mens rea, the object of the particular statute, the words used, the nature of the duty, the person upon whom it is imposed, the person by whom it would in ordinary circumstances be performed, and the person upon whom the penalty is imposed must all be considered in (See Crates on Statute Law, 7th Edn., at p. 542.) One of the principal objects in enacting Section 18(1) of the Act 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 the practices which the Legislature considers to be against the public interest, viz., payment of wealth-tax.

40. Reading the words of Section 18(1) of the Act, the object of the statute, and considering the principles of law discussed above, we are of the opinion, that the element of mens rea has not been dispensed with, either expressly or impliedly, and is to be read into the penalty proceeding under Section 18(1)(a) of the Act.

41. Consequently, to justify imposition of penalty, onus is on the department to establish prima facie by producing some evidence that the assessee is liable to payment of penalty for default to file the return within time by conscious disregard of the provisions of law. If there is no evidence on the record except the explanation given by the assessee which has been found to be false, it does not follow that the default automatically attracted penalty. In our view, after the initial burden has been discharged by the department, it is for the assessee to show that he had reasonable cause for default to file the return within time.

42. With great respect, we are unable to agree with the contrary views expressed by the High Courts of Orissa, Andhra Pradesh and Kerala in the cases relied on on behalf of the department.

43. We revert to the contention whether the Tribunal allowed itself to be influenced by consideration of materials not admissible in law, and if so, whether the finding is vitiated.

44. We have no hesitation in holding that in arriving at the finding, the Tribunal has also taken into consideration the following materials, as showing contumacious conduct of the assessee that she consciously disregarded the provisions of law, viz., (a) she defaulted to file returns for the assessment years 1964-65 to 1968-69, despite valid service of notice on her husband, and (b) she has also defaulted to file the return for the subsequent year 1969-70, within 35 days of the service of notice on the assessee herself.

45. It is apparent from para. 39A of the Tribunal's order, wherein it was observed that what was more important was that she disregarded the notice served by the WTO under Section 17 of the W.T. Act in respect of the assessment years 19.64-65 to 1968-69 ; and after holding that the notice on her husband was valid, it proceeded to observe that the assessee did not care to comply with the notices which dealt with the wealth escaping assessment, and held that her conduct gave a lie to the submission of the assessee that she did not file returns, because there was confusion in her mind about filing of the wealth-tax returns in view of the varying exemption limit. In Para. 41, the Tribunal made a further observation that the conduct of the assessee became clear, because she filed a return for the assessment year 1969-70 also only on July 6, 1971, along with the other returns, though the return was due within 35 days with effect from October 7, 1969. After making the above observations, the Tribunal reached the conclusion that the assessee consciously disregarded the provisions of law and that too

when she was in a position to easily comply with the provisions of law. It is thus manifest that the Tribunal took into consideration her failure to file returns despite service of notice on her husband as one of the circumstances showing contumacious conduct on the part of the assessee.

46. We have held in answering question No. 3 that the notice on her husband is not valid. In arriving at this finding, the Tribunal has acted on material partly relevant and partly inadmissible, and it is impossible to say to what extent the mind of the Tribunal was affected by the inadmissible material, namely, her defaults despite service of notice on her husband in arriving at the finding. The finding in regard to the assessment years 1964-65 to 1968-69 is, therefore, vitiated.

47. In regard to the assessment year 1969-70, it is apparent from para. 41 of the order of the Tribunal, that it took into account not only the default to file return as showing her contumacious conduct, but also the default to file returns for the previous years 1964-65 to 1968-69, despite service of notice on the assessee's husband as her previous conduct. By assessing the cumulative effect of all the facts in their setting as a whole, the Tribunal held that the assessee consciously disregarded the provisions of law for this year also. On the same principle of law and for the same reason, the finding for the assessment year 1969-70 is vitiated.

48. Similar is the case for the assessment year 1970-71. It is also apparent from the observations in paras. 39A, 40 and 41 of the order that the Tribunal approached the question for this assessment year by assessing the cumulative effect of the defaults for previous years from 1964-65 to 1968-69. It has been held that mere failure to file return within time and the falsity of the explanation of the assessee do not ipso facto attract penalty under Section 18 of the Act. It is impossible to say to what extent the mind of the Tribunal was affected by the consideration of the material for the assessment years 1964-65 to 1968-69 in arriving at the finding for this assessment year. The finding for this assessment year is also vitiated.

49. We, accordingly, hold, on the facts and circumstances of the case, that the Tribunal was not right in law in upholding the order of penalty under Section 18(1)(a) passed by the WTO. We answer the question in the negative and against the department.

50. To sum up, questions Nos. 1, 2 and 3 are answered in the negative and against the department; question No. 4 is answered in the affirmative and against the assessee. We decline to answer question No. 5.

51. We regret our inability to announce the judgment earlier, as one of us (Lahiri J.) was at Agartala Bench from 17th March, 1979, till Saturday last, the 30th June, 1979.

K. Lahiri, J.

52. I agree.


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