Jeevan Reddy, J.
1. In both these writ petitions, a common question is raised, namely, the constitutional validity of Sub-section (3) of Section 140A of the Income-tax Act, 1961, and, therefore, can be disposed of by a common order. It would be sufficient to state the facts in writ petition No. 7974 of 1973.
2. The petitioner is a partner in the firm of M/s. Sreeram and Company, Jambah Road, Hyderabad, and is an income-tax assessee. For the assessment year 1968-69, he filed a return on October 3, 1968, declaring an income of Rs. 25,285. Since the tax payable on the said income is more than Rs. 500, the assessee had to pay the tax due according to his return within 30 days of the filing of the return, as required by Sub-section (1) of Section 140A of the Act. The petitioner, admittedly, did not pay the same and hence proceedings for levying penalty under Sub-section (3) were commenced by issuing a show-cause notice, to which the petitioner replied on March 22, 1971, contending that inasmuch as on the assessment being completed he has paid the entire tax due, no penalty can be levied under Section 140A(3). However, the Income-tax Officer levied a penalty of Rs. 800 against which the petitioner filed an appeal before the Appellate Assistant Commissioner which was dismissed. His appeal to the Tribunal also failed. Before the Tribunal, the petitioner appears to have raised a contention regarding the validity of the said Sub-section (3) on the basis of the decision of the Madras High Court in A. M. Sali Maricar v. Income-tax Officer : 90ITR116(Mad) . However, the Tribunal observed that they cannot go into the questions of constitutional validity of an enactment and overruled the petitioner's contention. Hence the present writ petition.
3. The learned counsel for the petitioners mainly relied upon and adopted the reasoning contained in the decision of the Madras High Court in A. M. Sail Maricar v. Income-tax Officer : 90ITR116(Mad) , wherein Sub-section (3) was held to be confiscatory and violative of Article 19(1)(f) of the Constitution of India and was accordingly struck down. However, the attack upon the said provision on the basis of Article 14 of the Constitution and the legislative competence was negatived. No other decision of any other High Court has been brought to our notice taking a similar or contrary view on the question.
4. Before we examine the correctness of the reasoning of the Madras High Court, it would be appropriate to briefly note the relevant provisions of law. Under Section 139 every person whose total income during the previous year exceeded the maximum amount not chargeable to income-tax shall furnish a return in the prescribed manner within the prescribed period. Sections 207 and 208 provide for payment of advance tax by an assessee whose annual income exceeds the prescribed limit. The liability to pay advance tax is based upon the theory 'pay as you earn'. The said advance tax is payable in three instalments at the choice of the assessee and the assessee is required to prepare and file an estimate of his income for the current year for the purpose of the said advance tax and sections 214 and 215 provide for interest payable by the Government and the assessee respectively in case of excess or deficit payment of advance tax. Ifan assessee required to pay advance tax, does not do so, he is treated to be in default in respect of such instalment or instalments, as the case may be, of the advance tax payable under Section 218. Section 140A was introduced by the Taxation Laws (Amendment) Act, 1970, with effect from April 1, 1971. It would be appropriate to set out the said section in its entirety.
'140A. Self-assessment.--(1) Where a return has been furnished under Section 139 and the tax payable on the basis of that return as reduced by any tax already paid under any provision of this Act exceeds five hundred rupees, the assessee shall pay the tax so payable within thirty days of furnishing the return.
(2) After a regular assessment under Section 143 or Section 144 has been made, any amount paid under Sub-section (1) shall be deemed to have been paid towards such regular assessment.
(3) If any assessee fails to pay the tax or any part thereof in accordance with the provisions of Sub-section (1), he shall, unless a regular assessment under Section 143 or Section 144 has been made before the expiry of the thirty days referred to in that sub-section, be liable, by way of penalty, to pay such amount as the Income-tax Officer may direct, and in the case of a continuing failure, such further amount or amounts as the Income-tax Officer may, from time to time, direct, so, however, that the total amount penalty does not exceed fifty per cent of the amount of such tax or part, as the case may be :
Provided that before levying any such penalty, the assessee shall be given a reasonable opportunity of being heard.' Sections 142 - 144 provide for assessment.
5. It is thus clear that Section 140A which provides for payment of tax due in accordance with the return of income filed by an assessee, within 30 days of the filing of the return is one of the modes/stages of collection of tax devised by Parliament in exercise of its power of taxation and the petitioners in fact do not question the competency of Parliament to so provide. The Madras High Court has also upheld the legislative competence of Parliament. The principle behind the said section is that if at the end of the year the assessee is liable to pay any tax according to his own estimate of his income, he shall pay the same within 30 days of the filing of the return. If an assessee is liable to pay advance tax, he would normally pay almost the entire tax in the shape of advance tax, and if he still finds any further tax due at the end of the year, he has to pay it under Sub-section (1) of Section 140A. In the case of an assessee or in the case of income not liable for payment of advance tax, the tax due has to be paid within the said 30 days. Obviously, the finalisation of the assessment may take some time and on that occasion, the excess or deficit can bepaid or refunded. It is reasonable to presume that every person earning taxable income knows approximately the tax due from him and is expected to and has to pay the same in accordance with law. In other words, the portion of his income due towards income-tax would not be deemed by a prudent and reasonable person to be his 'income', properly speaking. In the earlier days, the entire tax was payable, only after the assessment was completed. But when the theory of advance tax was introduced, he had to pay it in certain (now three) instalments as and when he is earning his income. Now, another step is introduced under Section 140A, namely, that he has to pay the admitted tax due (i.e., the tax due from him as per his own return) within 30 days of the filing of the return. All these payments towards advance tax and under section 140A(1) are liable to be adjusted at the time of the finalisation of the assessment. Now, there are provisions in the Income-tax Act providing for levy of penalties for non-compliance with the provisions relating to filing of return, non-furnishing of accounts or particulars, failure to pay advance tax, concealment or evasion of income-tax, etc. Criminal prosecution is also pro-provided for by Chapter 22 of the Act in certain cases which, inter alia, include failure to file a return of income, failure to produce accounts and documents, making of false statements and declaration, failure to deduct and pay tax when required to do so. These provisions relating to levy of penalties and criminal prosecutions are twin sanctions provided by law for ensuring compliance with law on the part of the assessees. The object of the two sets of provisions, namely, one levying penalties and the other providing for criminal prosecution, are entirely different.
6. 'The one entailing the prosecution and punishment is to vindicate public justice by punishing the offender, whereas the object of penalty proceedings is to render evasion unprofitable and to secure to the State the compensation for damages or attempted evasions.' Vide the decision in R. C. No. 64 of 1970, dated 24th November, 1971 (Commissioner of Income-tax v. Maduri Rajeswar : 107ITR832(AP) to which one of us (Chinnappa Reddy J.) was a party, A Bench of this court in the above decision and also Mathew J. in P. Ummali Umma v. Inspecting Assistant Commissioner of Income-tax : 64ITR669(Ker) repelled an attack on the basis of Article 20 of the Constitution of India holding that since the proceedings for penalty are distinct from criminal prosecution, there is no scope for applying the theory of double jeopardy. In fact, penalty is held to be in the nature of additional tax and, therefore, totally different in character, object and effect from a criminal prosecution. In C. A. Abraham v. Income-tax Officer : 41ITR425(SC) the Supreme Court affirmed the character of penalty as additional tax. Even the provision for arrest for non-payment of taxes was held to be intended only as a measure of compelling payment and not as a punishment for any offence committed or for defaulting in payment. It was held no more than to be a mode for recovery of the amount due : Vide Collector of Malabar v. Erimmal Ebrahim Hajee : 1957CriLJ1030 . Seen in this context, the provision contained in Sub-section (3) of Section 140A providing for levy of penalty up to 50% of the amount of tax payable under Sub-section (1) is no more than a mere provision ensuring compliance with Sub-section (1) and also making such non-compliance unprofitable. Now, we shall examine the reasoning and the principle behind the Madras High Court's decision in A. M. Soli Maricar v. Income-tax Officer : 90ITR116(Mad) , which held the said provision to be an unreasonable restriction on the right to hold property not saved by clause (5) thereof.
7. It was held by the learned judges that Parliament is competent to provide for payment of interest on taxes remaining unpaid from the time when they are due and payable, but that it is not competent to provide for levy of a penalty of the nature stated in section 140A(3) for failure to pay in time the tax due. It was held that tax payable under Sub-section (1) of Section 140A is also a tax due though a demand notice under Section 156 of the Act cannot be issued in that behalf. The learned judges then observed that Sub-section (3) 'deprives or takes away the owner of his retained income and thus it is confiscatory in nature'. It was held that the penalty provided is not compensatory nor is it an interest for delayed payment and that it has no relation to the duration of the delay or the wilful or other nature of the violation nor did it take into cognizance the inability to pay the tax.
8. That the section is not hedged in or circumscribed or limited by any condition and that, on the lapse of the 30 days, penalty is automatically attracted. It was further observed that the said provision 'has no rational or intelligent connection with the recovery of the tax itself'. It was then observed that in the case of a person unable to pay the tax, the said provision not only fails to effectuate the recovery but even frustrate the very object, namely, recovery of the tax due. Then the learned judges proceeded to make a distinction between a civil liability and a criminal liability under the Act and held that levy of penalties can be sustained only in the case of a criminal liability but not in the case of a civil liability. In the case of a civil liability, the learned judges were of the opinion that only compensatory provisions in the nature of interest can be made. We may reproduce their conclusions in their own words : 90ITR116(Mad) :
'To sum up : Tax due and payable under Section 140A(1) of the Act is a civil debt. Any provision in the Act for enforcing payment of that debt would be valid. This provision for enforcing payment and recoveryof the tax payable may include or impose anything compensatory for delayed payment or retention of the tax. It is not the nomenclature, which the legislature has used in the provision, that decides the issue as to whether the provision is compensatory or penal, but the substance of the provision. A power to levy penalty which is not compensatory is neither incidental nor ancillary to the power of recovery, and it is not inherent in the power to recover the tax payable. The levy of penalty could be sustained only in cases of concealment or evasion of taxes. Penalty for concealment or evasion is a punishment and intended as a deterrent against repetition of the same which is criminal or quasi-criminal in nature. Concealment of income or evasion of tax and non-payment of a tax ascertained or determined and payable are different in nature and character. Failure to pay tax due and payable, attracts only a civil liability.
Every citizen has a fundamental right to retain his income after payment of taxes. Any provision in the Act which authorises the taking away of this retained income would be confiscatory unless it is saved under Article 19(5). The penalty levied under Section 140A(3) of the Act is not compensatory for delayed payment or retention of tax. In the guise of a deterrent provision for enforcing payment of tax due and payable, Section 140A(3) authorises confiscation of property. Confiscation of property for non-payment in time of a tax ascertained and payable is an unreasonable restriction on the fundamental right to property of an assessee.'
9. With great respect, we find ourselves unable to agree with the reasoning or the principle of the said decision. In our opinion, the provision made in Sub-section (3) is only a measure enacted for ensuring compliance with Sub-section (1) of Section 140A. It is not true that the said sub-section does not provide for or take into account the various circumstances of the nature pointed out at page 126 of the said report. The said sub-section merely makes the assessee liable for a penalty which may go up to 50% of the tax payable under Sub-section (1). A discretion is conferred upon the Income-tax Officer in the matter of levying the penalty. In a proper case, he may decline to levy any penalty. We do not read the said provision as compelling the Income-tax Officer to levy such a penalty in each and every case and/or up to the maximum limit. An appeal and a second appeal are provided against his orders and a further reference to the High Court. Further, we cannot assume the case of an assessee 'who is not able to pay his taxes'. Every person earning taxable income has to provide for payment of taxes. However, certain situations may arise where the assessee may not be able to pay the taxes within 30 days as required by Section 140A. But in such cases, if he properly explains the circumstances to the satisfaction of the Income-tax Officer, he would not levy the penalty.
We further find ourselves unable to agree with the statement of the learned judges that 'the -levy of penalty could be sustained only in cases of concealment or evasion of taxes'. With respect we see no warrant for such a statement. As pointed out by us above, Chapter 22 provides for criminal prosecutions in case of several matters and not only for concealment and evasion of taxes. Penalties are also provided by Chapter 21 in the case of failure to furnish information regarding securities, etc., failure to furnish returns or to comply with notices, failure to give notice of discontinuance as required by Section 176(3), for filing a false estimate or failure to pay advance tax, etc. We equally fail to understand as to how the said provision could be held to be confiscatory. What is due towards tax cannot be said to be the 'property' of the assessee since it is a debt due to the State towards tax, even as per his own return. The mere fact that it is not quantified by the department on that date would not make it any the less the tax due under Section 140A(1). It is not necessary that every provision conceived in the interest of the revenue, i.e., made to ensure proper payment of taxes should be compensatory only and that no penalties can be provided therefor. In our opinion, therefore, Sub-section (3) of Section 140A does not in any manner infringe Article 19(1)(f) of the Constitution of India and that it is not an unreasonable restriction upon the said right.
10. No other contention is raised before us and accordingly these writ petitions are dismissed with costs. Advocate's fee Rs. 100 in each.