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Shakuntla Mehra Vs. Commissioner of Wealth-tax and ors. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtDelhi High Court
Decided On
Case NumberCivil Writ Petition No. 189 of 1974
Judge
Reported in[1976]102ITR301(Delhi)
ActsWealth Tax Act, 1957 - Sections 18(1) and 18(2A)
AppellantShakuntla Mehra
RespondentCommissioner of Wealth-tax and ors.
Appellant Advocate O.P. Vaish and; S.R. Gupta, Advs
Respondent Advocate B.N. Kirpal, Adv.
Cases ReferredHindustan Steel Ltd. v. State of Orissa
Excerpt:
.....taxation - waiver of penalty - section 18 (2a) of wealth tax act, 1957 - commissioner to see if returns filed voluntarily prior to issue of notice and other conditions of section 18 (2a) fulfillled - reasonable cause for failure to furnish returns - returns filed in good faith by making full disclosure - in case these conditions fulfillled - commissioner bound to reduce penalty. - - consequently, no returns were filed after the death of mohan lal mehra till may, 1971. moti lal mehra, son of the petitioner, did attend to the routine assessments after the death of his father and the petitioner was assessed to income-tax for the assessment year 1965-66 for the first time on may 10, 1968. it is contended that in or about april/may, 1971, a well-wisher of the family advised the..........was liable to wealth-tax for the assessment year 1965-66. accordingly, the petitioner voluntarily filed wealth-tax returns for the assessment years 1965-66 to 1970-71 on may 25, 1971. she filed revised wealth-tax returns for these years, again voluntarily, on june 28, 1971, and paid a sum of rs. 9,329 being full wealth-tax due on self-assessment. the assessments on these returns were completed on october 23, 1971, and returns filed by the petitioner were accepted. earlier, on august 24, 1971, the petitioner moved the commissioner under section 18(2a) praying for waiving of the penalty. the commissioner on this application passed the impugned order dated november 8, 1971, directing imposing of 5 per cent. of the penalty livable which on the basis of the assessment comes to rs. 10,578. on.....
Judgment:

Prakash Narain, J.

1. By this petition under Article 226 of the Constitution of India, the petitioner, Smt. Shakuntla Mehra, challenges the order dated November 8, 1971, passed by the Commissioner of Wealth-tax, Haryana, Himachal Pradesh and Delhi, under Section 18(2A) of the Wealth-tax Act, 1957. She further prays that along with the quashing of the said order all proceedings that may arise as a consequence of it may also be quashed and the Wealth-tax Officer, District III, Ward VII, New Delhi, be restrained from imposing any penalty. It is also prayed by the petitioner that a direction be issued to the Commissioner of Wealth-tax to reconsider the petitioner's application under Section 18(2A) of the Wealth-tax Act and pass a considered order on it in accordance with law.

2. The petitioner is the widow of one late Shri Mohan Lal Mehra, who died on April 4, 1964. The said Mohan Lal Mehra was an assessed under the Income-tax Act, 1961. The petitioner was not an assessed during the lifetime of her husband. She also claims that she is an uneducated lady and knew nothing about tax laws nor dealt with any financial matters during the lifetime of her husband. Her eldest son had died in 1968 and heryoungest son is mentally undeveloped from birth. She has one other son, Moti Lal Mehra, who was also inexperienced and unaware of taxation and financial matters. During the lifetime of her husband there was no tax consultant or lawyer engaged to look after the tax and financial matters of the family. Consequently, no returns were filed after the death of Mohan Lal Mehra till May, 1971. Moti Lal Mehra, son of the petitioner, did attend to the routine assessments after the death of his father and the petitioner was assessed to income-tax for the assessment year 1965-66 for the first time on May 10, 1968. It is contended that in or about April/May, 1971, a well-wisher of the family advised the petitioner to examine the liability to file wealth-tax returns as a consequence of the devolution of the estate of Mohan Lal Mehra on the petitioner and her two sons. It was then discovered by the petitioner that she was liable to wealth-tax for the assessment year 1965-66. Accordingly, the petitioner voluntarily filed wealth-tax returns for the assessment years 1965-66 to 1970-71 on May 25, 1971. She filed revised wealth-tax returns for these years, again voluntarily, on June 28, 1971, and paid a sum of Rs. 9,329 being full wealth-tax due on self-assessment. The assessments on these returns were completed on October 23, 1971, and returns filed by the petitioner were accepted. Earlier, on August 24, 1971, the petitioner moved the Commissioner under Section 18(2A) praying for waiving of the penalty. The Commissioner on this application passed the impugned order dated November 8, 1971, directing imposing of 5 per cent. of the penalty livable which on the basis of the assessment comes to Rs. 10,578. On February 23, 1972, the petitioner moved the Central Board of Direct Taxes that she be heard before her application under Section 18(2A) was disposed of as according to her the order of November 8, 1971, was passed without giving her any hearing. The Commissioner gave the petitioner hearing on December 14, 1972, when written submissions were filed on her behalf. On January 9, 1974, the petitioner was informed that the Commissioner did not find any ground to interfere with his earlier order. The Wealth-tax Officer thereupon issued notices to the petitioner to show cause against the levy of penalty under Section 18(1)(a). The petitioner thereupon filed the present petition and also moved an application for interim stay (C.M. 251-W/74). Interim stay was granted by this court and the Wealth-tax Officer was restrained from passing any penalty orders. These orders were passed ex parte on February 18, 1974, and were served on the Wealth-tax Officer. Despite notice, no one appeared to oppose the application and so the ex parte interim stay was made absolute on March 20, 1974.

3. The impugned order of the Commissioner passed under Section 18(2A) is challenged on the grounds that the said orders were passed without the Commissioner having applied his mind to the facts of the case and thepetitioner was entitled to waiver of penalty as all the conditions were satisfied, that the discretion exercisable by the Commissioner has not been exercised in accordance with law, that the order of the Commissioner was treated by respondent No. 2 as a directive which is against all judicial principles and that the order is arbitrary and amounts to failure to exercise of jurisdiction or amounts to an incorrect exercise of jurisdiction. Regarding the proceedings taken by the Wealth-tax Officer it is submitted that the penalty proceedings are independent of the proceedings under Section 18(2A) but the Wealth-tax Officer is considering the levy of penalty as if he had received a directive from the Commissioner.

4. The issue of writ is opposed on the ground that the Commissioner has exercised his discretion under the statute which cannot be interfered with. Penalty has since been imposed and inasmuch as those orders are not challenged, they have become final. It is contended that once the Commissioner has passed orders under Section 18(2A) he becomes functus officio. It is further submitted that the Central Board of Direct Taxes could issue no directions to the Commissioner to give a fresh hearing to the petitioner and so the second order passed by the Commissioner as communicated to the petitioner on January 9, 1974, is no order in the eye of law. Adverting to the penalty orders having been passed it is contended that even if the Commissioner's orders are now set aside the writ would be infructuous.

5. Penalty vis-a-vis wealth-tax is livable under Section 18 of the Wealth-tax Act if during the course of the assessment proceedings it is discovered that a person liable to pay wealth-tax has concealed the particulars of his assets or deliberately furnished inaccurate particulars of his assets or debts. Under Section 18(2A) the Commissioner has the discretion to reduce or waive the amount of minimum penalty imposable on a person under Clause (i) of Sub-section (1) for failure, without reasonable cause, to furnish the return of net wealth which such person was required to furnish under Sub-section (1) of Section 14 of the Act or reduce or waive the amount of minimum penalty imposable on a person if he is satisfied that such person has prior to the issue of notice to him under Sub-section (2) of Section 14 voluntarily and in good faith made full disclosure of his net wealth and in cases referred to in Clause (ii) of Sub-section (1) of Section 18 has prior to the detection by the Wealth-tax Officer of the concealment of particulars of assets or of the inaccuracy of particulars furnished in respect of the assets or debts in respect of which the penalty is imposable, voluntarily and in good faith, made full and true disclosure of such particulars; that such person has co-operated in any enquiry relating to the assessment of the wealth represented by such assets; and has either paid or made satisfactory arrangements for payment of any tax or interest payable in consequence of an order passed under this Act in respect of the relevant assessmentyear. According to the Commissioner's order of November 8, 1971, the petitioner had not given any reasons for late filing of the returns but only prayed that since all the conditions mentioned in Section 18(2A) of the Wealth-tax Act are satisfied, the penalty should be waived. The order goes on to say that the contentions of the assessed did not carry conviction. It was not understood why the assessed had to wait for almost five years before filing the returns, particularly when she was an old income-tax assessed and was fully aware of her liabilities to wealth-tax. In these circumstances, the Commissioner was of the view that the case did not call for complete waiver of penalty. He, however, took a lenient view because the returns had been filed before the issue of notices by the department and the other conditions laid down by Section 18(2A) being fulfillled. Accordingly, a direction was given to the Wealth-tax Officer to levy a penalty of 5 per cent. of the penalty livable under the provisions of Section 18(1)(a) of the Act for each of the six years.

6. The order on the very face of it is contradictory. On the one hand, the Commissioner says that the contentions of the assessed do not carry conviction. On the other hand, he says that the conditions laid down in Section 18(2A) are fulfillled and notices that the returns were filed before the department issued any notices under Section 14(2) of the Act. Furthermore, the order presumes that the petitioner was aware of her liabilities to pay wealth-tax merely because she was an income-tax assessed. It is also worth noting that instead of reducing or waiving the amount of minimum penalty the order is a directive to the Wealth-tax Officer to levy a penalty of 5 per cent. of the penalty livable under the provisions of Section 18(1)(a) of the Act. This direction may well amount to interfering with the discretion of the Wealth-tax Officer who can levy penalty under Section 18(1) of the Act only if he is satisfied as to the existence of the conditions prescribed by Clauses (a), (b) and (c) of Sub-section (1) of Section 18 of the Act. The proceedings under Sections 18(1) and 18(2A) are entirely different proceedings. The prerequisites of orders being passed under the two Sections are also different. It follows, thereforee, that the Commissioner and the Wealth-tax Officer have to act on different criteria.

7. Apart from the above observations it may be noticed that the order of November 8, 1971, was passed without affording a hearing or at least an effective hearing to the petitioner. The Commissioner on a directive of the Central Board of Direct Taxes ultimately did afford a hearing to the petitioner but reiterated his first order. In my view the Commissioner completely misjudged the scope of the provisions of law as well as the jurisdiction exercisable by him. It is settled law that the power of the Commissioner under Section 18(2A) can be invoked either before or after theimposition of penalty (see Michael Fernamdes v. Commissioner of Wealth-tax : [1974]95ITR532(KAR) . Under Section 18(1)(a), (b) or (c) the Wealth-tax Officer or the department has to decide that the assessed has no reasonable cause for not filing the return within the time prescribed before imposing the penalty. Under Section 18(2A) of the Act what the Commissioner has to see is if the return is filed in pursuance of a notice either under Section 14(2) or Section 17(2) or has been filed voluntarily before issue of such notices. If the returns have been filed voluntarily prior to the issue of notice and other conditions of Section 18(2A) are fulfillled, the Commissioner can waive or reduce penalty. Indeed, the discretion has to be exercised judicially and not on mere whims. The purpose of investing the Commissioner with powers to waive or reduce penalty would be defeated if despite the existence of the circumstances enumerated in Section 18(2A) the Commissioner does not waive or reduce imposition of penalty. The satisfaction that is required under Sub-clause (i) of Section 18(2A) is whether there was reasonable cause for failure to furnish the returns. Under Sub-clause (ii) of Section 18(2A) satisfaction required is that the returns have been filed voluntarily and prior to issue of notice. Under Section 14(2), the same have been filed in good faith making full disclosure prior to any detection of concealment by the Wealth-tax Officer. The further satisfaction required under the Sub-clause is whether the assessed has co-operated in the enquiry and has either paid or made necessary arrangements for payment of the tax assessed. If these conditions are fulfillled then, in my view, the Commissioner is bound to waive or reduce penalty. The imposition of penalty is in the nature of quasi-criminal proceedings and unless the assessed has acted deliberately in defiance of law or is guilty of contumacious or dishonest conduct or has acted in conscious disregard of his obligation, no penalty can be imposed. The Supreme Court in Hindustan Steel Lid. v. State of Orissa, : [1972]83ITR26(SC) enunciated the above principles in a case under the Orissa Sales Tax Act. These principles were applied to penalty proceedings under Section 271(1)(a) of the Income-tax Act, 1961, by the Kerala High Court in P. V. Devassy v. Commissioner of Income-tax : [1972]84ITR502(Ker) . To quote the Supreme Court in the case of Hindustan Steel Ltd.:

' ......the liability to pay penalty does not arise merely upon proof ofdefault in registering as a dealer. An order imposing penalty for failure to carry nut 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, '

8. In this view of the law there can be no doubt that if the conditions postulated by Section 18(2A) exist the Commissioner had to waive or reduce the penalty. The Commissioner in his impugned order dated November 8, 1971, has stated : ' However, since the returns have been filed before the issue of notices by the department and the other conditions laid down in Section 18(2A) are also fulfillled, I take a lenient view and direct the Wealth-tax Officer to levy a penalty of 5 per cent. of the penalty livable under the provisions of Section 18(1)(a) of the Wealth-tax Act, 1957, for each of the six years.........' The Commissioner could not blow hot andcold on the one hand and say that the conditions of Section 18(2A) were fulfillled and yet direct, a levy of penalty. He could only waive or reduce it. The mere failure to file returns within the time allowed does not make the assessed liable to penalty. There must be contumacious or deliberate default. The onus to prove this is on the department which has to establish that the assessed had no reasonable cause for not filing it within time. The order imposing a penalty for failure, to carry out a statutory obligation is the result of 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 dishonest conduct or acted in conscious disregard of his obligation. The reasons, thereforee, for late filing of the returns have to be looked into and it has to be established by the department that there was contumacious default.

9. Shiv Shankar Lal v. Commissioner of Gift-tax : [1974]94ITR269(Delhi) relied upon on behalf of the respondent does not apply to the facts of this case. In the reported decision the return was filed subsequent to notice from the revenue authorities under the Gift-tax Act, 1958.

10. The principles applicable under Section 18(2A) would be similar to the principles applicable to petition under Section 271(4A) of the Income-tax Act, 1961. As was laid down by the Mysore High Court in S. Sannaiah v. Commissioner of Income-tax : [1974]95ITR435(KAR) if the conditions laid down in Clauses (a), (b) and (c) of Section 271(4A) of the Act are satisfied, the Commissioner has no discretion to refuse to reduce or waive the amount of minimum penalty imposable, but he is under a statutory duty to exercise his discretion of either reducing or waiving the penalty. As noticed earlier, the Commissioner has himself stated in the present case that the conditions of Section 18(2A) were satisfied. In this view of the matter, he acted wholly illegally and without jurisdiction in issuing a direction to the Wealth-tax Officer to levy penalty at the rate of 5 per cent. of the minimum penalty leviable.

11. Coming to the second order of the Commissioner when he refused to revise his earlier order, that has to be struck down on the ground that it is a non-speaking order, on the ratio of Hindustan Steel Ltd. v. State of Orissa, decided by the Supreme Court and referred to above.

12. This brings me to the question as to the effect of the penalty orders having been passed by the Wealth-tax Officer. Looking at the penalty orders it is obvious that the same have been passed as per the directive of the Commissioner. These penalty orders were not passed by the Wealth-tax Officer by application of his own mind and on the ground that the conditions mentioned in Section 18(1)(a) were not fulfillled. The orders are, indeed, non-speaking orders and suffer from the vice of such orders. Accordingly, I quash the said orders also.

13. The result is that the petition is accepted, the penalties imposed on the petitioner and the orders of the Commissioner passed on the petitioner's application under Section 18(2A) are set aside. A mandamus is hereby issued that the Commissioner should hear the petitioner and decide her petition under Section 18(2A) afresh according to law. Directions are also given to the Wealth-tax Officer to decide the question of levy of penalty afresh in accordance with law. Petitioner will also be entitled to her costs. Counsel's fee Rs. 300.


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