JAGANMOHAN REDDY, J. - The Income-tax Appellate Tribunal at Bombay has stated as case on the following questions :
'Whether on the facts and in the circumstances of the case and on a proper construction of the provisions of section 28(1) (c) of Indian Income-tax Act, the penalty of Rs. 4,760 is leviable ?'
The assessee is the managing director of Sitaramanjaneya Transport Co. Ltd. which company declared an inter in dividend on December 31, 1946, out of the profits of the account year 1946. The assessee as a shareholder of that company received Rs. 29,865 in January, 1947. The final dividend of the company in respect of the profits of 1946 was declared on June 30, 1947. On the 11th of September, 1947, the assessee filed a return of his income for the assessment year 1947-48 declaring a total income of Rs. 455 only consisting of income from property and some business, but did not disclose the amount of Rs. 29,865 received in January, 1947, and which properly ought to be included in the assessment for the year 1947-48, for which the account year ended on March 31, 1947. The Income-tax Officer assessed him on a total income of Rs. 7,078, made up of Rs. 120 from property, and Rs. 6,958 from business, in which the undisclosed dividend was not included. Even for the assessment year 1948-49 in the return filed by him on August 16, 1949, he did not disclose the dividend income of Rs. 35,520, assessable in that year, not did he disclose the dividend income declared in the previous year. In the course of the assessment proceedings for the assessment year 1948-49, the assessee filed two dividend warrants in regard to the said interim dividend and final dividend out of its profits of 1946. The Income-tax Officer completed the assessment of that year on January 31, 1950, by including the final dividend of Rs. 35,520, and expressed his intention to take action under section 34 for the assessment year 1947-48 with a view to bringing to tax the interim dividend of Rs. 29,865. It may be sated that on March 4, 1949, the assessee filed refund application for the year 1947-48 accompanied by a return wherein he showed the income from property and business as assessed by the Income-tax Officer and the net dividend income of Rs. 29,865. This action of the assessee is somewhat startling, having regard to the fact that in no circumstances he would be entitled to a refund as his income exceeded Rs. 25,000. As a consequence of this application, the Income-tax Officer took action by giving the assessee a notice under section 34 on November 8, 1950, for re-assessing the escaped income for the assessment year 1947-48. In response to this notice a return was filed on December 21, 1950, declaring income from property and business as originally assessed plus the net dividend income of Rs. 29,865 grossed up to Rs. 43,440. During the course of the re-assessment he also issued a notice under section 28(3) on January 11, 1951. The assessment was completed on January 15, 1951, whereunder the assessee had to pay Rs. 4,759-8-0. In response to this notice under section 28(3), the assessee urged both in writing and orally that on account of his illness and the non-receipt of the dividend warrants from the company, he did not disclose that income. He explained that the dividend warrants were credited to his account in the company and that is why he did not know about it, which explanation was properly rejected by the Tribunal, because the assessee himself was the managing director of the company and was fully aware of the declaration of the dividend. A further legal contention was also urged, namely, that penal action cannot be taken in supplementary assessment proceedings under section 34, when the assessee admits that the income as originally returned was incorrect and files a correct return which is accepted by the income-tax authorities. The Income-tax Officer rejected this contention and levied a penalty as aforesaid. The Appellate Assistant Commissioner on appeal canceled the penalty holding that there was no deliberate attempt to evade tax; but with this view the Tribunal disagreed. It observed that, as far as the facts of the case were concerned, they had obsolutely no doubt in their minds that the assessee deserved, and richly deserved to be punished under section 28(1) (c), that his past record was not good and that for the assessment year 1946-47 he was similarly punished by the income-tax authorities which was confirmed by the Tribunal. While so holding the Tribunal dismissed the appeal of the Department applying the principle in the case of Mayaram Durga Prasad v. Commissioner of Income-tax. It distinguished the case of Govindarajulu Iyer v. Commissioner of Income-tax, on the ground that it was a case of imposition of penalty for default under section 34 and the income as accepted by the Income-tax Officer. It rejected the contention of the Department that the income returned by the assessee must be taken to be the return made by him originally before the notice under section 34(1) was given.
The contention of Mr. Srinivasan for the assessee, to state in his own words, is that 'in cases where in section 34 proceedings the return as filed by the assessee in the said proceedings is accepted by the Department, no penalty can be levied and even where the jurisdiction to levy is properly exercised, the amount leviable is only nil, as there is no avoidance of any income.'
Shri Kuppuswamy, who appears for the assessee in Reference Cases Nos. 47 and 48 of 1957 in which a similar point arises, further submits that the proceedings under sections 22 and 34 being separate and distinct, it became necessary for the Legislature to specify them as such in section 28(1) (a) and consequently the contumacious conduct must have some relation to the proceedings on hand. He argues that the terms 'has failed' occurring in clauses (a) and (b) of section 28(1) and 'has concealed' occurring in clause (c) being in the present perfect tense, refer only to those proceedings before him and not to those that have already been closed. These contentions are based on the reason that section 34 is a self-contained code of procedure for reopening assessments incorporating by reference not only the provisions of sub-section (2) of section 22 relating to notice, but also the other provisions of the Act so far as they are applicable, and that the Legislature in adopting this course recognised that the normal procedure for original assessments is not applicable to re-assessments and accordingly incorporated the provisions applicable to the original assessments only so far as they are applicable to proceedings under section 34. In these circumstances, Shri Kuppuswamy contends, it would be wrong to introduce or read into section 34 an overlapping jurisdiction so as to enable cognizance of matters which have occurred or might occur in other proceedings, outside its own proceedings and that the Madras High Court in Govindarajulu Iyer v. Commissioner of Income-tax, indeed recognised this incompatibility when it stated that if the Income-tax Officer in a first assessment was aware of the infraction or infringement entailing a penalty, but did not take steps to levy the penalty, the Income-tax Officer on the second occasion would have no jurisdiction.
To appropriate these arguments, it is necessary to examine the language of the relevant provisions of section 28, which are given below :
'28. (1) If the Income-tax Officer, the Appellate Assistant Commissioner or the 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 total income which he was required to furnish by notice given under sub-section (1) or sub-section (2) of section 22 or section 34 or his without reasonable cause failed to furnish it within the time allowed and in the manner required by such notice, or
(b) has without reasonable cause failed to comply with a notice under sub-section (4) of section 22 or sub-section (2) of section 23, or
(c) has concealed the particulars of his income or deliberately furnished inaccurate particulars of such income, he or it may direct that such person shall pay by way of penalty, in the case referred to in clause (a), in addition to the amount of the income-tax and super-tax, if any, payable by him, a sum not exceeding one and a half time that amount, and in the case referred to in clauses (b) and (c), in addition to any tax payable by him, a sum not exceeding one and an half times the amount of the income-tax and super-tax, if any, which would have been avoided if the income as returned by such person had been accepted as the correct income :....'
This section empowers the Income-tax Officer to levy penalty in three circumstances, viz., (1) where the assessee fails to make a return of income without any reasonable cause either under section 22(1) or 22(2) or under section 34, or (2) where he has failed to comply with a notice sections 22(4) and 23(2) to produce the accounts, documents etc., or fails to personally attend or produce or cause to be produced any evidence on which such person may rely in support of the return, or (3) has concealed the particulars of his income or has deliberately furnished inaccurate particulars of his income. The facts of the present case do not attract the first two conditions for the exercise of the power. The case is one where the assessee has concealed the particulars of his income or deliberately furnished inaccurate particulars of such income. In such circumstances, the penalty leviable is one and half times the income-tax or super-tax, if any, which would have been avoided if the income 'as returned' has been accepted. What then is the significance of the words 'as returned' Is the penalty leviable on the amount of the tax avoided by a reference to the income returned originally and which is being re-assessed on the basis of the concealed income or is it to be by reference to the income returned on notice under section 34 being served where the assessee does not suppress any income, though vis-a-vis the original return, this return clearly shows that he has suppressed the income originally In so far as any income suppressed even when filing a return in pursuance of a notice under section 34 is concerned, there is no doubt that it will attract the provisions of section 28(1) (c), because the assessee had deliberately suppressed the income, whether originally or subsequently at the state of re-assessment proceedings under section 34. It will be observed that section 28(1) (c) does not refer to the 'return' of any income in particular, but lays down the conditions for the exercise of the jurisdiction to levy penalty where the assessee has concealed the particulars of his income or deliberately furnished inaccurate particulars of such income. The concealment or the deliberate furnishing of inaccurate particulars can take place at the time of making the original return, as well as at the time of the return in compliance with the notice under section 34. If the discovery takes place during 'any proceedings under the Act', that income was concealed or inaccurate particulars of the income were deliberately furnished, that will vest jurisdiction to impose a penalty and to issue a notice under section 28(1) (c). The initial return and assessment under sections 22 and 23 of the Act as well as the proceedings for the assessment of escaped income under section 34 are proceedings under the Act referred to in sub-section (1) of section 28. If concealment or deliberate omission to furnish true particulars is made in either of the proceedings, it will certainly vest jurisdiction in the income-tax authorities to issue a notice under section 28. The jurisdiction to initiate penalty proceedings arises with respect to the default or contumacious conduct in the initial proceedings or in the subsequent proceedings for escaped income. On a careful examination of the provisions of section 28, in our view, there is no warrant for the contention that if in section 34 proceedings the assessee has returned the true income which has been accepted, the income-tax authorities have no jurisdiction to issue a notice for imposition of penalty with respect to the deliberate omission made at the time of the original assessment proceedings. The use of the words 'as returned' in reference to the quantum of penalty to be imposed for defaults mentioned in clauses (b) and (c) of sub-section (2) of section 28, without any further specific limitations on the power, does not confine it to the income returned under the section 34. If once the power is exercised and notice is issued with respect to the suppression and concealment of income or particulars thereof, the quantum must be assessed with reference to the return filed at the original proceedings or in the proceedings under section 34, as the case may be. The argument of the learned counsel for the assessee that the use of the present perfect tense in section 28(1) excludes the original proceedings which are reopened has, in our view, no force, and in substance follows the reasoning of the Allahabad High Court in Mayaram Durga Prasad v. Commissioner of Income-tax, with which we shall deal presently. But before we do so, it is necessary to examine the words 'in the course of any proceedings' used in sub-section (1) of section 28 which apply to the Income-tax Officer, the Appellate Assistant Commissioner or the Appellate Tribunal. If any of these authorities are satisfied that in any proceedings any person has made a default specified in clauses (a), (b) and (c) of section 28(1) penalty proceedings can be initiated. The words 'any proceedings' and 'any person' would at first sight appear to have wide amplitude. It so, the discovery made may relate to a different person than the assessee or for a different period than the period in which the assessee has committed default. This interpretation is beset with difficulties, because, if the assessment has been completed under section 22, unless the assessment is reopened, the Income-tax Officers satisfaction in some other proceedings, either with respect to some other assessee or some other period, does not empower any of the authorities specified in section 28 to take the penalty proceedings, for the simple reason that the previous assessment proceedings are conclusive. There is, apart from the clear language of the section, authority for the proposition that each one of the Officers can exercise jurisdiction under section 28(1) only when the proceedings are before them. Where the Income-tax Officer does not take any proceedings under section 28 before the completion of the assessment, he is functus officio. But in an appeal against his order, the Appellate Assistant Commissioner, or in appeal against the Appellate Assistant Commissioners order, the Appellate Tribunal, can each exercise the powers under section 28, if there is any omission on the part of the assessee with respect to that assessment. But where none of the authorities initiated any penalty proceedings and the assessment has become conclusive, no subsequent penalty proceedings can be taken unless the assessment is reopened. If it is reopened under section 34, then certainly that would also be a proceeding which would entitle the income-tax authorities to exercise powers under section 28(1). The only proceedings under the Act for assessment are those contained in sections 22, 23, 34, 35 as also section 33A and 33B. The proceedings under section 34, 35, 33A or 33B, are proceedings for reopening a previous assessment and do not relate to a de novo assessment for the same period with respect to the same assessee. It is not good sense to interpret the words 'any proceedings' to correlate with the proceedings of some other assessee or with respect to a different period, because the omission or default for which penalty is sought to be levied, must pertain to assessment of the same assessee and with respect to the same period. The words 'in the course of any proceedings' in section 28(1), therefore, must be interpreted in a restricted manner to relate to the assessment or re-assessment proceedings with respect to the same assessee and the same period for which his conduct is called in question or for which the assessee is sought to be found fault with as having committed any of the defaults specified in clauses (a), (b) and (c). If the learned advocates contention that the words 'has failed' in clauses (a) and (b) and 'has concealed or deliberately furnished' in clause (c) are to be considered distributably as referring to only those proceedings of which the Income-tax Officer has seisin at the time when he issues the notice under section 28 and that if the return filed in such proceedings is accepted by him no penalty could be levied, is accepted, then in no circumstances can a penalty be levied where an assessee having firstly deliberately omitted or concealed to furnish full particulars, files a revised return either under section 22(3) or in response to a notice under section 34. The fact that he files a revised return in the same proceedings does not absolve him of the deliberate default committed by him at the time be filed the first return, because, as we have already stated, the words 'as returned' which is in the past tense, read with reference to clauses (b) and (c), can only mean a 'return' with respect to which the omission or default has been committed.
It has often been observed that where past and present has to be indicated, the present perfect tense is the one which is considered as an appropriate construction. The use of the past tense alone will not meet the requirements. The words 'has failed' in clauses (a) and (b) are clearly referable not only to original proceedings, but also to the re-assessment proceedings, that is, to past transactions and transactions immediately falling for consideration. This intention is made clear by the context where the words 'was required to furnish' are considered with specific references to sub-section (1) or (2) of section 22 or section 34 as indicating that the failure to furnish a return is with respect to both the original as well as the subsequent proceedings. If in reference to clauses (a) and (b) the present perfect tense has been used by the Legislature in its context to both the original as well as the re-assessment proceedings, there is no justification for concluding that it intended the present perfect tense in reference to clause (c) to indicate the subsequent proceedings alone. Applying the rules of grammar, the tense of a verb shows not only the time of action, but also the state of action referred to. The use of the present perfect tense, though it denotes an action that has just been completed, does not necessarily exclude its use in place of the past tense. The construction of the sentence, the context and the sequence of tenses have to be taken into consideration in order to determine whether the tenses refer cumulatively to past action or present action or to past action as continuing up to the present. Ordinarily, the past tense in the principal clause must be followed by past tense in the subordinate clause. But a past tense in the principal clause may be followed by a present tense in the subordinate clause where it states some universal truth. Present tense in the principal clause may be followed by any tense in the subordinate clause. The sequence of tense is the principal in accordance with which the tense in the subordinate clause follows or is adjusted to that of the principal clause. Wren & Martin in their book on English Grammar state that 'the present perfect is also used instead of the past tense to represent a past action as continuing to the present'. In this view, the argument based upon the use of the present perfect tense in section 28 is not warranted.
Furthermore, the return as originally filed cannot be said to have been accepted, because if accepted it would have avoided tax. If the acceptance of the revised return does not impose a liability on the assessee for the acts of default committed by him already, it would be tantamount to saying that the Legislature intended to condone all deliberate defaults specified in clauses (a), (b) and (c) of sub-section (1) of section 28. That could not have been the intention, because sub-section (2) of section 22 which provides for the furnishing of a revised return, does nothing more than to permit an assessee where he makes a genuine default, omission or wrong statement, to file a revised return in time before the assessment is made. This could only mean that the omission or wrong statement was inadvertent or accidental and not deliberate. See Commissioner of Income-tax v. Badridas Ramrai Shop. In Arunachalam Chettiar v. Commissioner of Income-tax, and also in Vadilal Ichhachand v. Commissioner of Income-tax, both the Madras and Bombay High Courts have held that the penalty may be imposed under section 28 in respect of the previous false return notwithstanding the filing of a revised return. Therefore, by the same parity of reasoning, once proceedings under section 34 are reopened by applying the procedure referred to therein, in the course of which it is discovered that the assessee had made a deliberate omission, either with respect to the original assessment or in the return filed under section 34, it cannot be said that the omission or default has been condoned merely because the subsequent return has been accepted by the income-tax authorities. We see no distinction between the two cases. The actual result of the assessment has nothing to do with the question whether a return as furnished by the assessee has concealed any particulars of the income of furnished inaccurate particulars thereof.
We are further fortified in this view by the provisions of sub-section (3) of section 34, which prescribed a period of limitation of eight years before the amendment in 1956 for reopening assessments in cases to which the provisions of section 28(1) (c) apply. Where, therefore, the assessee has concealed or deliberately furnished inaccurate particulars of his income at time of filing the original return, the penalty proceedings under section 28(1) (c) would become applicable. If they are applicable, proceedings for reassessment under section 34 can be initiated at any time. The period of limitation is thus made dependent on the provisions of section 28(1) (c) being applicable to the original proceedings. In other words, the provisions of section 28(1) (c) cannot be confined to the return filed in section 34 proceedings alone. That is, where a return is filed in section 34 proceedings, it cannot be said that it is only with reference to that return the question of concealment or deliberate furnishing of inaccurate particulars would be considered for the applicability of section 28(1) (c). The argument of the learned advocate that section 28(1) (c) is only applicable to the return filed in compliance with a notice under section 34 would leave the question of limitation for initiating section 34 proceedings in a state of suspended animation, dependent upon the fact whether the return filed in section 34 proceedings is accepted or not. If the income as returned is accepted, then the limitation would be four years; otherwise, it is either eight years or after 1956 at any time without any limitation. Such a result could not have been intended or contemplated by the Legislature.
The case of Govindarajulu Iyer v. Commissioner of Income-tax which was sought to be distinguished by the Tribunal, no doubt, was a case under section 22(2) was issued by the Department during the year of assessment. It was there held that the Income-tax Officer was competent, in the course of the proceedings taken by him under section 34, read with section 22(2), to assess such income to levy a penalty under section 28(1) (a) for failure without reasonable cause to furnish a return pursuant to the notice under section 22(1). The case is important for establishing the principle that so long as the proceeding under section 34 relate to the assessment for the same year as the original assessment, the Income-tax Officer is competent to levy penalty on any ground open to him under section 28(1) even though it relates to the prior proceedings. That principle would not be any the different in the cases of clauses (a), (b) and (c). The case of Mayaram Durga Prasad v. Commissioner of Income-tax though distinguished on the facts, was expressly dissented from when it held that the original assessment proceedings were no longer before the Income-tax Officer and the proceeding under section 34 were, therefore, proceedings for the escaped incomes, and that these two proceedings were distinct from one another. Rajamannar, C.J., observed at page 496 :
'But apart from this difference in the facts between the present case and the facts in the Allahabad case, we are inclined to the view, that so long as the proceedings under section 34 relate to the assessment for the same period as the original assessment the Income-tax Officer will be competent to levy a penalty on any ground open to him under section 28(1), even though it relates to the prior proceeding. There may be one possible qualification of his power, and that is when the default or the act which is the basis of the imposition of the penalty was within the knowledge of the officer who passed the final order in the prior proceeding and if that officer had failed to exercise his power under section 28 during the course of the proceeding before him. Possibly in that case he would have no power. But it appears to us that there is nothing in the language of section 28 which prevents an Income-tax Officer if he is satisfied in the course of a proceeding under section 34 relating to a particular period of assessment that a default has occurred under section 22(1), from levying a penalty. With due respect to the learned Judges of the Allahabad High Court we do not agree that for the purpose of section 28, the two proceedings are separate and distinct. It is true that it has been pointed out that once an assessment is made or an order is passed by the Income-tax Officer that no assessment can be levied, the proceedings are closed and these proceedings cannot be reopened and the result of these proceedings cannot be altered in any manner except in the manner provided by section 34 and section 35 of the Act... It is also clear that under section 34 of the Act there is no de novo assessment in the sense that it is open to the assessee also to show that he has been wrongly assessed in respect of matters which are not covered by the notice under section 34. Essentially, the proceedings under section 34, whether partially or totally, relate to the same proceeding which must be deemed to have commenced with the publication of the general notice under section 22(1). In some respects and in some cases it may lead to a supplemental assessment. In other cases it may result in assessment for the first time, as in this case where there has not been any assessment before. We do not find any justification for the artificial separation of a proceeding under section 34 from a proceeding relating to the original assessment or to proceedings which started before a notice under section 34, so long as they all relate to the same assessee and the same period. In any event, such an artificial distinction cannot be imported into a construction of section 28 of the Act. The language is very wide, because it says that if the Income-tax Officer....... in the course of any proceedings under the Act is satisfied. Of course, the expression any proceedings must mean proceedings relating to a particular period of assessment in respect of a particular assessee.'
We respectfully agree with this statement of law. The Bombay High Court also in Dayabhai Girdharbhai v. Commissioner of Income-tax held that where the omission to include an item of income in the original return is deliberate the results of such deliberate omission cannot be got rid of by merely filing a revised return. If the omission is deliberate then in respect of the original return the provisions of section 28(1) (c) of the Indian Income-tax Act apply, and the assessee may be subject to a penalty. The penalty is attracted notwithstanding the fact that the return has been subsequently correct. That was a case where the question was whether in view of the assessee having filed a revised return disclosing the item of Rs. 11,361 which it had deliberately concealed at the time of filing the first return and in view of the assessment having been made under the proviso to section 13 of the Indian Income-tax Act the assessee is not liable to be penalised under the provisions of section 28(1) (c) of the Indian Income-tax Act. It was argued that every assessee has a right to file a revised return under sub-section (3) of section 22, and if that return is in effect accepted, the earlier return must be treated as cancelled for all purposes and no penalty can be imposed in respect of any concealment in the earlier return. The argument follows much the same line as in this case, namely, the original proceedings having been closed, the Income-tax Officer becomes functus officio and the return filed under section 34 disclosing the correct income cannot furnish a ground for vesting jurisdiction under section 28(1) (c). Tendolkar, J., dealing with this argument, observed at page 680 :
'Now, it is perfectly true that every assessee has the right under section 22, sub-section (3), to submit a revised return if he discovers any omission or wrong statement in his original return before the assessment is made. But the omission or wrong statement may be accidental or deliberate. Where it is accidental, no result may ensure by reason of the omission; but where the omission is deliberate, the results of such deliberate omission cannot be got rid of merely be filing a revised return. If the omission is deliberate, then in respect of the original return the provisions of section 28(1) (c) apply, because that sub-section provides that the Income-tax Officer, if he is satisfied that the assessee has concealed the particulars of his income or deliberately furnished inaccurate particulars of his income he may be subjected to a penalty. Therefore, where the concealment is not an accidental omission, but is a deliberate concealment, the penalty is attracted notwithstanding the fact that the return has been subsequently corrected.'
A similar view was taken by a Special Bench of the Madras High Court in Arunachalam v. Commissioner of Income-tax. Of course, both these cases deal with revised returns filed under section 22(3). But they are authority for the proposition that when the assessee files a subsequent return (and in our view it makes no difference whether it is a revised return or a return filed in compliance with a notice under section 34) he cannot be said to have discovered his mistake on the day on which he files a correct return, because at the time when he made his previous return he knew it was incorrect and he could not at any subsequent time have discovered something which he knew at an earlier time. In our view, therefore, the notice for the levy of penalty and the imposition thereof by the Income-tax Officer were justified.
The reference is answered in the affirmative with costs to the Department.
Advocates fee Rs. 250.
Question answered in the affirmative.