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Commissioner of Income-tax Vs. Gujarat Travancore Agency - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKerala High Court
Decided On
Case NumberIncome-tax Reference Nos. 85 and 86 of 1972 and O.P. No. 4614 of 1971
Judge
Reported in[1976]103ITR149(Ker)
ActsIncome Tax Act, 1961 - Sections 139(1), 139(2), 271, 271(1) and 276C; Wealth Tax Act, 1957 - Sections 10; Income Tax Act, 1922 - Sections 28(1)
AppellantCommissioner of Income-tax;shah Harilal Santidas
RespondentGujarat Travancore Agency;union of India (Uoi) and ors.
Appellant Advocate P.A. Francis and; P.K. Ravindranatha Menon, Advs in I.T.R Nos. 85 and 86 of 1972 and;
Respondent Advocate P.A. Francis and; P.K. Ravindranatha Menon, Advs. in O.P. No. 4614 of 1971 and;
Cases ReferredState of Mysore v. S.S. Umandi
Excerpt:
(i) direct taxation - additional ground - sections 139, 271 and 276 c of income tax act, 1961 and section 28 of income tax act, 1922 - appellate tribunal allowed additional ground raised - for determination of question of penalty question of mens rea involved in ground had to be determined - ground involved question of law taken at earliest time by assessee - discretion vested in appellate authority in allowing or disallowing such ground - tribunal exercised discretion in favour of assessee - no error in order of appellate tribunal in allowing additional grounds being raised. (ii) penalty - section 271 of income tax act, 1961 - whether tribunal justified in cancelling penalties levied under section 271 (1) (a) for concerned assessment years - mens rea need not be established before.....gopalan nambiyar, j.1. the order of reference to the full bench made by the chief, justice and george vadakkel j. in the above i.t.rs., which we shall set out in full, is as follows :these referred cases arise from a composite order of the income-tax appellate tribunal, cochin bench, which dealt with i.t.as. nos. 387 and 388 (cochin) of 1970-71. the assessee is the same. the question that was considered by the tribunal was whether the imposition of penalty under section 271(1)(a) of the income-tax act, 1961, on the assessee in relation to the assessment for the three years 1965-66, 1966-67 and 1967-68 was justified or not. the tribunal held that there was no justification for imposing penalty for the two years 1965-66 and 1966-67. but, it upheld the imposition of penalty for the year.....
Judgment:

Gopalan Nambiyar, J.

1. The order of reference to the Full Bench made by the Chief, Justice and George Vadakkel J. in the above I.T.Rs., which we shall set out in full, is as follows :

These referred cases arise from a composite order of the Income-tax Appellate Tribunal, Cochin Bench, which dealt with I.T.As. Nos. 387 and 388 (Cochin) of 1970-71. The assessee is the same. The question that was considered by the Tribunal was whether the imposition of penalty under Section 271(1)(a) of the Income-tax Act, 1961, on the assessee in relation to the assessment for the three years 1965-66, 1966-67 and 1967-68 was justified or not. The Tribunal held that there was no justification for imposing penalty for the two years 1965-66 and 1966-67. But, it upheld the imposition of penalty for the year 1967-68. No question is raised regarding the penalty for the year 1968.

2. These references relate to the years 1965-66 and 1966-67 and the questions referred are:

'(i) Whether, on the facts and in the circumstances of the case, the Tribunal is justified in law in entertaining the additional ground of appeal after the assessee had conceded before the Appellate Assistant Commissioner that there was delay in filing the return of income for which penalty was leviable ?

(ii) Whether, on the facts and in the circumstances of the case, the Tribunal is justified in law in cancelling the penalties levied under Section 271(1)(a) of the Income-tax Act, 1961, for the assessment years1965-66 and 1966-67?'.

3. The assessee had not filed returns for the two years 1965-66 and1966-67. For the year 1965-66 it appears from a foot-note appended to theTribunal's order as well as the statement of the case that the assessee had applied for time to file the return. Time was granted upto August 31, 1966. No return was filed. Thereafter a notice under Sub-section (2) of Section 139 was served on the assessee on September 22, 1967. The return was thereafter filed on September 23, 1967. For the year 1966-67 no return was filed under Sub-section (1) of Section 139 and no application was moved before the Income-tax Officer for extension of time. The notice under Sub-section (2) of Section 139 was served on the assessee on June 21, 1966. The return was filed only on September 23, 1967. The penalty, proceedings were, therefore, taken against the assessee under, Section 271(1)(a) for the two years. The Income-tax Officer imposed the penalty. The assessee contended that he was under the bona fide belief that he had no assessable income and that was the reason for his delay in filing the returns. This explanation was found unsatisfactory by the Income-tax Officer and notwithstanding the plea penalty was imposed by the Income-tax Officer. In appeal before the Appellate Assistant Commissioner by the assessee it appeal's that though a ground had been taken that there was no deliberate omission on his part to file the returns which he contended was an essential ingredient of the penal Section 271(1)(a), the point was not argued before him. In further appeal before the Tribunal, however, the representative of the assessee sought permission to raise the ground that there was no deliberate omission on his part and without a deliberate omission it was not possible to find that the ingredients of Section 271(1)(a) had been satisfied. The departmental representative opposed the request for raising this ground. But the Tribunal allowed this ground to be raised as it was a point that had been taken by the assessee at the earliest time and did involve a question of law. The first question referred to us arises in these circumstances. As to the second question whether the imposition of penalty was justified or not the Tribunal observed as follows:

'Sri Kamath points out that in the assessee's letters dated July 17, 1969, and July 28, 1969, it was explained that the delay was only due to unavoidable circumstances as the assessee was under the bona fide impression that there would not be any taxable income for the assessment years in question. The Income-tax Officer, has, however, not brought on record any material to show that the assessee could not have had any such bona fide impression and that the delay was due to a deliberate default. Mens rea which was required to be proved has not been proved by the department for these two years. The penalties levied for these two years after, therefore, cancelled as bad in law.'

4. We do not find any error of law in the order of the Appellate Tribunal in allowing the additional ground being raised. The ground involved was a question of law which had been taken at the earliest timeby the assessee. In fact, for a determination of the question of penalty the question of mens rea involved in the ground had to be determined. There is a discretion vested in an appellate authority in allowing or disallowing such a ground. Discretion has been exercised by the Tribunal in favour of the assessee. In the circumstances we have mentioned we see nothing wrong in it. Accordingly, we answer the first question referred to us in the affirmative, that is, in favour of the assessee and against the department.

5. Now, we have to deal with the second question. As we understand the order of the Tribunal, the relevant part of which we have extracted the Tribunal has clearly cast the burden of proof on the department. In other words, the view of the Tribunal is that the omission to file a return within the time stipulated either, by Section 139(1) or by the notice under Sub-section (2) of Section 139 must be proved by the department to be without reasonable cause. If the assessee gives an explanation such as the one that was, put forward by the assessee that he bona fide believed that there was no income, then it is for the department to establish that the assessee could not have had any such bona fide belief. In this view the Tribunal said that 'the Income-tax Officer has, however, not brought on record any material to show that the assessee could not have had any such bona fide impression and that the delay was due to a deliberate default.'

6. Sri P. A. Francis, counsel on behalf of the revenue, has contended before us that this view of the Tribunal is erroneous. According to him, it is for the assessee to establish the reasonable cause for the failure. It was contended that the matters that could be pleaded by an assessee were peculiarly within his knowledge and that it was the assessee and the assessee alone who will be able to show cause for the failure to file a return on time. It was also submitted that 'without reasonable cause' mentioned in Section 271(1)(a) is in the nature of the general exceptions in Chapter 4 of the Indian Penal Code and that it is an established principle that a person relying on those exceptions must plead and prove the existence of circumstances which would justify the application of the exemption. He referred to a recent ruling of this court in O.P. No. 2702 of 1969 (Marikar (Motors) Ltd. v. Sales Tax Officer, ILR [1973] 2 Ker 204.) wherein a similar question was considered by this court arising under Section 10(d) of the Central Sales Tax Act.

7. On the other hand, counsel for the assessee has invited our attention to two Division Bench rulings of this court in P.V. Devassy v. Commissioner of Income-tax, : [1972]84ITR502(Ker) . and Dawn & Co. v. Commissioner of Income-tax, : [1973]87ITR71(Ker) . In both these cases, the question turned on the interpretation of Section 271(1)(a) and in both the judgments there are clear statements that the burden of establishing the fact that the failure to file a return was without reasonable excuse was on the department. It is evident that there is a conflict of opinion on this matter. We, therefore, consider that the question must be determined by a Full Bench of this court. We, accordingly, refer the matter covered by question No. 2 in these references by the Income-tax Appellate Tribunal, Cochin Bench, to a Full Bench.

8. The costs herein will be the costs of the cause and will be provided for in the judgment of the Full Bench.

9. Question (II) referred by the Tribunal is alone thus before us and we shall proceed to discuss the same.

10. Section 271 of the Income-tax Act, 1961, occurs in Chapter XXI, entitled : 'Penalties imposable', The material part of the section reads :

'271. Failure to furnish returns, comply with notices, concealment of income, etc.--(1) If the Income-tax Officer or the Appellate Assistant Commissioner 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 total income which he was required to furnish under Sub-section (1) of Section 139 or by notice given under Sub-section (2) of Section 139 or Section 148 or has without reasonable cause failed to furnish it within the time allowed and in the manner required by Sub-section (1) of Section 139 or by such notice, as the case may be, or..................

(c) has concealed the particulars of his income or furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty,--

(i) in the cases referred to in Clause (a), in addition to the amount of the tax, if any, payable by him, a sum equal to two per cent. of the tax for every month during which the default continued, but not exceeding in the aggregate fifty per cent. of the tax ;..................

(iii) in the cases referred to in Clause (c), in addition to any tax payable by him, a sum which shall not be less than, but which shall not exceed twice, the amount of the income in respect of which the particulars have been concealed or inaccurate particulars have been furnished......'

11. Section 276C, which occurs in Chapter XXII entitled : 'Offences and Prosecutions', in so far as it is material, reads :

'276C. If a person wilfully fails to furnish in due time the return of income which he is required under Sub-section (1) of Section 139 or by notice given under Sub-section (2) of Section 139 or Section 148, he shall be punishable with rigorous imprisonment for a term which may extend to one year or with fine equal to a sum calculated at a rate which shall not be less than four rupees or more than ten rupees for every day during which the default continues, or with both.'

12. The corresponding provisions in the previous Act, the Indian Income-tax Act, 1922, in so far as they are material, read as follows:

'28. Penally for concealment of income or improper distribution of profits.--(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 has without reasonable cause failed to furnish it within the time allowed and in the manner required by such notice; 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 film, a sum not exceeding one and a half times that amount, and in the cases referred to in Clauses (b) and (c), in addition to any tax payable by him, a sum not exceeding one and a 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.'

13. Section 51 of the Act in so far as it is relevant provided :

'51. Failure to make payments or deliver returns or statements or allow Inspection.--If a person fails without reasonable cause or excuse--......

(c) to furnish in due time any of the returns mentioned in section 19A, section 20A, section 21, Sub-section (2) of section 22, or Section 38;........... he shall, on conviction before a Magistrate, be punishable with fine which may extend to ten rupees for every day during which the, default continues.'

14. Section 28 is in Chapter IV--'Deductions and Assessment'--and Section 51 in Chapter VIII--'Offences and Penalties'.

15. On the language used in the sections in the two Acts, certain things strike us. The provisions for imposition of penalty are independent of the provisions for prosecution and punishment, in the sense that the proceedings under the one will not bar action under the other. Turning to 1922 Act, Section 28(1)(c) requires, as a fact, a concealment of particulars or a deliberate furnishing of inaccurate particulars of such income. From its very nature, the element of deliberation and design is evident in Section 28(1)(c). But as far as Clause (a) of Section 28(1) is concerned, we think that the clause itself on its express language, does not postulate this requirement. We are of the opinion for reasons which we shall discuss more fully in the course of the judgment that a mere use of the expression 'without reasonable cause' cannot import a mental element or mensrea. This expression occurs in different ways in many statutory provisions and also in certain civil actions. See for instance, Section 5 of the Limitation Act; see again, the requirements for a civil suit for damages for malicious prosecution, where, in addition to the requirement of absence of reasonable and probable cause, malice has to be affirmatively established, to entitle the plaintiff to succeed. Under Section 51(c) of the 1922 Act, failure, without reasonable cause, inter alia, to furnish in due time, the returns mentioned in certain sections of the Act, is made a punishable offence. Being a punishable offence, consistent with the well-recognised principle, that except where the statute clearly dispenses with mens rea that element must be present, it appears easy enough to posit the requirement of mens rea for the offence under Section 51. But whatever be the position under the 1922 Act, we cannot help noticing the significant change in the phraseology and language employed by the 1961 Act. Before imposition of a penalty under Section 271 of the new Act, what is required is that the officer must be satisfied--not arbitrarily but judicially--that any person has, without reasonable cause, failed to furnish the return (Clause (a)); or has concealed particulars of the income or furnished inaccurate particulars (clause (c)). We would stress the important change made by the 1961 Act, namely, that the element of deliberation required by Section 28(1)(c) of the 1922 Act, has been deleted in Section 271(1)(c). If we now, compare the language of Section 276C, we see that a wilful failure to furnish the return of income is made a punishable offence--punishable with imprisonment for a term which may extend to one year, and with fine. The mental element is here expressly provided; and from the gravity of the offence, even in the absence of express provision, it has to be inferred. Where the two sections (271 and 276C) themselves seem to draw a difference between the requirements for imposition of a penalty and punishment for an offence; it appears to us that we would not be justified in reading into the earlier section, the requirements of any mens rea expressly provided for in the later one.

16. This aspect, which strikes us, on a perusal of the sections, stands reinforced by the difference between the two proceedings, namely, penalty proceedings and proceedings by way of a criminal prosecution, which have been stressed in the judicial decisions and in certain treatises of the subjects. We may perhaps begin with what appears to us to be an apt quotation from Corpus Juris Secundum, volume 85, page 580, paragraph 1023 :

'A penalty imposed for a tax delinquency is a civil obligation, remedial and coercive in its nature, and is far different from the penalty for a crime or a fine or forfeiture provided as punishment for the violation of criminal or penal laws.'

17. This view is reflected in the decision of a Division Bench of the Madras High Court in Sivagaminatha Moopanar & Sons v. Income-tax Officer, II Circle, Madwai, : [1955]28ITR601(Mad) . where the relevant American decisions have been elaborately Surveyed. The learned Judges recorded complete agreement with the argument advanced before them by the learned Advocate-General in that case, to the effect that the object and purpose of Section 28 of the 1922 Act is wholly different from that under sections 51 and 52, and that it would not be correct to regard the ingredients of the misconduct under the two provisions as identical. The falsity of a declaration wilfully made is enough to satisfy the requirements of Section 52 : whether that declaration results in concealment is not material for the purpose of that section. On the other hand, Section 28(1)(c) is concerned with the inaccurate particulars deliberately furnished, i.e., concealment, and unless this has been made out, no penalty can be imposed. It was pointed out that while there may be over-lapping, the spheres of operation were not necessarily concurrent. Reference was made to Helvering v. Mitchell, 303 US 390 ; 88 LEd 917. where the argument that the penalty demanded was, in truth and substance, a criminal penalty intended as a punishment, and, therefore, it violated the rule of, double jeopardy, was repelled by Brandis J. It was pointed out by the American Supreme Court that the remedial character of sanctions imposing additions to a tax had been stressed earlier, that they are meant primarily as safeguards for the protection of revenue and to reimburse the Government for a heavy expense of investigation and the loss resulting from the taxpayers' fraud; that the sanction of fine and imprisonment for wilful attempts being made for defeating income-tax is a criminal one, whereas the sanction of 50% addition under the penalty sections was intended as a civil one. In a later decision, Spies v. United States, 317 US 492; 87 LEd 418. following the earlier American case, it was observed that the penalties to enforce the tax laws embrace both civil and criminal sanctions, that the former consists of additions to the tax on determinations of fact made by the administrative agency and with no burden on the Government to prove its case beyond reasonable doubt, and the latter consists of penal offences enforced by the criminal process in the familiar manner. The same view is reflected in the decision of Mathew J. of this court (as he then was) in P. Ummali Umma v. Inspecting Assistant Commissioner of Income-tax, : [1967]64ITR669(Ker) .Observed the learned judge :

'Although the concealment of the particulars of the income was made an offence under Section 52 of the repealed Act and is also made an offence under Section 277 of the Act, I cannot say that the penalty imposed under Section 28 of the repealed Act or under Section 271 of the Act was or is imposed on the basis that it was or is an offence. For the offence punishment was or is prescribed such as imprisonment, fine or both. The imposition of penalty on the basis of an act or omission by an assessee is not because the act or omission constitutes an offence, but because that act or omission would constitute an attempt at evasion. Therefore, penalty is exacted not because an act or omission is an offence but because it is an attempt at evasion of tax on the part of the assessee. Article 20(1) of the Constitution can have no application to a case where a penalty is imposed not as punishment for an offence but for some other collateral purpose.' The decision of the Supreme Court in Thomas Dana v. State of Punjab, : 1959CriLJ392 appears also in point. Section 167, Clause (8) of the Sea Customs Act, read with Section 5 of the Imports and Exports Control Act, 1947, and Section 7 of the Land Customs Act authorised confiscation of goods and imposition of a personal penalty in certain circumstances. The provision of the Sea Customs Act was challenged as violative of Article 20(2) of the Constitution. It was pointed out that the proceedings before the Sea Customs authority under Section 167(8) were not 'prosecution' within the meaning of Article 20(2) of the Constitution. In that view it was considered unnecessary to pronounce on the question whether there was 'punishment' by the imposition of the penalty, and whether the same offence was involved in proceedings before the revenue authorities and before the criminal court. The principle of the decision was reaffirmed by the Supreme Court in Assistant Collector of Customs, Bombay v. L.R. Melwani, : 1970CriLJ885 and also in Hira H. Advani v. State of Maharashtra, : 1971CriLJ5 . In addition to these, the decision of the Supreme Court in Abraham's case expounded the true nature of a penalty as additional tax. This was repeated in Commissioner of Income-tax v. Bhikaji Dadabhai & Co., : [1961]42ITR123(SC) . The above decisions appear to us to place the legal position regarding the imposition of a penalty in its proper perspective and to reinforce our impression that the penalty provisions under the Act are not provisions of a criminal nature which warrant the requirement of mens rea in the sense in which the same is required for an offence by the criminal law.

18. But we are strongly pressed with certain rulings, which, it is contended, had concluded the position that mens rea is an essential requirement for imposition of penalty under the Income-tax Act. It was strongly contended that two decisions of the Supreme Court, in particular, have laid down this proposition and that the law in regard to this matter has been well settled by these decisions. The argument deserves very careful consideration. The earlier of these decisions of the Supreme Court, is HindustanSteel Ltd. v. State of Orissa, : [1972]83ITR26(SC) . Although the decision was in August, 1969, it was reported in the I.T.R. series only later than the next decision to notice. But it had been reported earlier in 25 S.T.C. 211. In Hindustan Steel Ltd.'s case penalty was levied under Section 12(5) of the Orissa Sales Tax Act, 1947. Under Section 9 of the Act, no dealer liable to pay tax shall carry on business as a dealer, unless he has been registered under the Act, and possesses a certificate of registration. Under Section 25, whoever carries on business in contravention of Sub-section (1) of Section 9 shall be punishable with imprisonment which may extend up to six months, or with fine not exceeding Rs. 1,000 or with both. Under Section 12, Sub-section (5) of the Act, if the Collector is satisfied that any dealer liable to pay tax has without sufficient cause failed to apply for registration, the Collector has authority to levy a penalty not exceeding one and a half times the amount of tax. A penalty was imposed at the maximum rate mentioned in Section 12(5). This was challenged eventually in a reference made by the Tribunal to the Orissa High Court, and from the decision of that court, the matter came up before the Supreme Court. The Supreme Court observed:

'Under the Act penalty may be imposed for failure to register as a dealer : Section 9(1), read with Section 24(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.'

19. Giving the matter our careful attention, we feel, with respect, that the Supreme Court, in the above passage, was only stressing the fact that on mere proof of default, a case for imposition of a penalty does not automaticallyFollow, and that there was an obligation on the part of the assessing authority to bring to bear a judicial mind before deciding whether the imposition of a penalty is called for, and if so, at what rate, and, in particular, whether imposition at the maximum rate was called for and necessary in the case. We do not understand these observations of the Supreme Court as laying, down that penalty proceedings attract the entire body of principles generally associated with criminal proceedings.

20. Next, in sequence, (although reported earlier in the Income-tax Reports), is the decision in Commissioner of Income-tax v. Anwar Ali, : [1970]76ITR696(SC) . The question there arose with respect to Section 28(1)(c) of the Indian Income-tax Act, 1922, which, as we already pointed out, seems to expressly require a mental element in the sense of deliberation. The Supreme Court 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, 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 : Hindustan Steel Ltd. v. State of Orissa. In England also it has never been doubted that such proceedings are penal in character: Fattorini (Thomas) (Lancashire) Ltd. v. Inland Revenue Commissioners, [1942] AC 643; [1943] 11 ITR (Supp) 50'

21. Here again, reading the passage as a whole, and giving the matter our most careful attention, we are unable to read the observations as deciding that penalty proceedings are criminal proceedings in every sense of the term. The decision has taken care to explain the limited sense in which the proceedings are meant or intended to be penal. In any event, we are not prepared to read from these observations, the proposition, that irrespective of the statutory provisions, penalty proceedings require proof of a mens rea as a criminal offence does. We may quote one more passage from the above decision.

'The next question is that when proceedings under Section 28 are penal in character what would be the nature of the burden upon the department for establishing that the assessee is liable to payment of penalty. As has been rightly observed by Chagla C. J. in Commissioner of Income-tax v. Gokuldas Harivallabhdas, : [1958]34ITR98(Bom) the gist of the offence under Section 28(1)(c) is that the assessee has concealed the particulars of his income or deliberately furnished inaccurate particulars of such income and, therefore, the department must establish that the receipt of the amount in dispute constitutes income of the assessee.'

22. We shall have occasion to revert to this passage a little later. Counsel for the assessee drew our attention also to Commissioner of Income-tax v. Distributors (Baroda) P. Ltd., : [1972]83ITR377(SC) where the observations in Anwar Ali's case that penalty proceedings are penal in nature and that the entire circumstances must reasonably point to the conclusion necessary to impose penalty, were emphasized. The observations of the Supreme Court regarding the nature of penalty proceedings were repeated in two Division Bench rulings of this court, namely, Devassy v. Commissioner of Income-tax, : [1972]84ITR502(Ker) and Dawn & Co. v. Commissioner of Income-tax. The earlier of these cases was under Section 271(1)(a) of the Income-tax Act, 1961. The learned judges noticed the decision of the Supreme Court in Hindustan Steel Ltd.'s case and on the strength of the observations made therein, that penalty proceedings are quasi-criminal, and that penalty will not ordinarily be imposed unless a party had acted deliberately in defiance of the law or was guilty of contumacious conduct or wilful default of his obligation, held that the imposition of penalty was unjustified. We would stress the fact that the Tribunal was satisfied that the assessee's explanation that the time for submission of return had not arrived, was acceptable, and the Division Bench accepted that finding. If so, there could be no case for levyof a penalty. We wish, with respect, to observe, that the language of Section 271(1)(a) of the 1961 Act does not warrant the wholesale transplantation of elements of deliberation and design stressed by the Supreme Courtin Hindustan Steel Ltd.'s case with respect to Section 28(1)(c) of the1922 Act. We would offer the same comment on the next Division Benchruling of this court in Dawn & Co.'s case which was again with respect to Section 271(1)(a) of the Act. But in that case, although the difference between Section 28(1) of the 1922 Act and Section 271(1) of the 1961, Act washighlighted, the learned judges felt that they were bound by the decisionof the Supreme Court in Anwar Ali's case. This is what the DivisionBench stated:

'Counsel for the department contended that Anwar Ali's case was concerned with Section 28(1)(c) of the Indian Income-tax Act, 1922, corresponding to Section 271(1)(c) of the Income-tax Act, 1961, and it has no application to Section 271(1)(a) of the Act. It was also argued that on account of the Explanation to Section 271(1) of the Income-tax Act, 1961, the statute itself gives rise to a presumption of mens rea or knowledge of the wrongful act against the assessee even for purposes of Section 271(1)(c) in cases covered by the Explanation and that is an indication to show that the very omission to file the return will give rise to a presumption of conscious violation of Section 139(2) by the assessee. It was also pointed out that if the burden is cast on the department to prove want of reasonable cause for failure of the assessee to furnish the return of total income in effect it will be placing an onus on the department which it will be impossible for them to discharge. According to counsel for the department, a reasonable interpretation of the provision will be to hold that the duty is on the assessee to explain his default and convince the department that it was occasioned by reasonable cause. It is not necessary for us to examine the merits of these contentions, however interesting and plausible they may be, in view of the categorical statement of law by the Supreme Court.'

23. With great respect, we are unable to agree. We venture to think that the pronouncement of the Supreme Court with respect to Section 28(1)(c) of the 1922 Act cannot straightaway be applied to the provisions of the 1961 Act.

24. Counsel for the assessee invited our attention to the decision of the Mysore High Court in All India Sewing Machine Co. v. Commissioner of Income-tax, : [1974]96ITR206(KAR) of the Orissa High Court in Commissioner of Income-tax v. Alimohamad & Co, : [1974]97ITR133(Orissa) and of the Punjab High Court in Additional Commissioner of Income-tax v. Karnail Singh V. Kaleran, [1974] 94 ITR (Punj). These decisions, between them, refer to the Supreme Court decisions and the Kerala decisions we have noticed; but, with respect, do not notice what we regard as the significant change in language and set up between Sections 28(1) of the 1922 Act and 271(1) of the 1961 Act, and the indication afforded by Section 276C.

25. In Dawn & Co.'s case, noticed earlier, the Division Bench of this court observed:

'The words 'has without reasonable cause failed to furnish it within the time allowed' in Section 271(1)(a) of the Income-tax Act, 1961, show that mens rea is an ingredient to be proved by the department before the imposition of penalty. In Commissioner of. Income-tax v. Anwar Ali, : [1970]76ITR696(SC) their Lordships of the Supreme Court in considering the nature of the proceedings under Section 28 Of the Indian Income-tax Act, 1922, which corresponds to Section 271 of the Income-tax Act, 1961 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.........It is true that penalty proceedings underSection 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 appears to have been taken as settledby now in the sales tax law that an order imposing penalty is the result of quasi-criminal proceedings (Hindustan Steel Ltd. v. State of Orissa). In England also it has never been doubted that such proceedings are penal in character: Fattorini (Thomas) (Lancashire) Ltd. v. Inland Revenue Commissioners'.'

and then proceeded to quote from Anwar Ali's case and Hindustan Steel Ltd.'s case. We feel that the observations of the Division Bench that the expression 'without reasonable cause' would import the requirement of mens rea is art overstatement of the principle, and we cannot accept it as correct. The same comment falls to be made on the observations of the Division Bench in Marikar (Motors) Ltd. v. Sales Tax Officer, which has also expressed the same view. Observed the Division Bench :

'We consider that the introduction of the words 'without reasonable excuse' widens the range of defence available to an assessee and also clearly implies that a guilty mind must be established and not excluded. (Mens rea is essential for making out an offence under Section 10(d) of the Act). With great respect we are unable, to agree with the observations of Isaac J. in (1971) Tax L.R. 1241 and with the observations of the Mysore High Court in the State of Mysore v. S.S. Umandi, [1969] 24 STC 11(Mys) that mens rea is not one of the ingredients of the offence under Section 10(d) of the Act.'

26. This latter ruling was with respect to the penalty imposed under Section 10A of the Central Sales Tax Act for contravention of Section 10(d) thereof. The latter section made punishable with imprisonment up to six months and with fine, a failure 'without reasonable excuse' to use the goods for the purpose for which they were purchased under section 10(b). Section 10A authorised the levy of a penalty if a person is guilty of an offence under Clause (b) or (c) or (d) of Section 10; and the proviso barred a prosecution on the same facts.

27. It is only if the person is guilty of the offences under any of the three Sub-clauses that a penalty under Section 10A can be imposed, and from the gravity of the punishment provided for the offences we are not satisfied that it is one of those cases for which mens rea can be regarded as having been dispensed with. On this ground, we would sustain the conclusion of the Division Bench that mens rea should be proved before action can be taken under Section 10A; but, for reasons noticed, we cannot accept as correct the reasoning in the observations quoted above. The same case considered the question whether 'without reasonable excuse' is an ingredient to be established for taking action under Section 10A, and on whom the burden lay of establishing the same. It held that this was an essential ingredient and that the burden of proving the same was on the persons charged. The department having first shown that the contravention was according to it, without reasonable excuse, it is for the person proceeded against, to show that he in fact had reasonable excuse. In this sense, we think the Division Bench was right. But on this point again, a number of decisions were cited. Most prominent among these was the decision of Chagla C.J. and Desai J. in Commissioner of Income-tax v. Gokuldas Harivallabhdas. The decision was regarding the imposition of penalty under Section 28(1)(c) of the 1922 Act. It was observed that penalty proceedings are penal proceedings in their very nature and that the elementary principles of criminal jurisprudence regarding the burden of proof will apply to those proceedings. A Division Bench of this Court in Kunhali Haji's case, : [1968]67ITR818(Ker) has noticed that a petition for leave to appeal against the Bombay decision was dismissed bythe Supreme Court. We also observe that the judgment of Chagla C.J. was approved by the Supreme Court in Anwar Ali's case. With respect, we think that, apart from the decision being in regard to Section 28(1)(c) of the 1922 Act, the observations, understood in the context in which they were made, were meant to emphasize the burden of proof of the requirements for the imposition of a penalty, and no more. We were next referred to the decision of a Division Bench of this court in Money & Co.'s case, : [1963]47ITR434(Ker) where it was observed with respect to proceedings under Section 28 of the 1922 Act that the onus of proof is upon the department and the degree of proof is that of a criminal prosecution; the mere preponderance of probability will not suffice, as in the case of a civil action. With the former part of the proposition, we are in agreement; with the latter part of it, no expression of opinion is called for, and we offer none in the instant case. We do not, therefore, think that these decisions in any way affect the question whether mens rea should be established before penalty is imposed.

28. Counsel for the assessee attacked the correctness of the ruling of the Division Bench in Marikar (Motors) Ltd.'s case, in so far as the same stated that the burden of proving reasonable excuse was on the assessee. As already stated, we think the decision on this aspect was correct.

29. Counsel for the department and for the assessee cited some decisions which have generally expounded the rule regarding the requirement of mens rea in criminal cases. We think it unnecessary, to refer to these decisions, and refrain from discussing the same.

30. In view of our conclusion that mens rea need not be established before imposition of penalty under Section 271(1)(a) of the 1961 Act, we answer question No. (2) of the reference, which alone is now before us, in the negative, i.e., in favour of the department and against the assessee. The assessee will pay the department the costs of this reference.

31. A copy of the order of reference of the Division Bench containing answer to question No. (1), and of the Full Bench containing answer to question No. (2), will be forwarded to the Tribunal under the seal of this court and the signature of the Registrar, as required by law. O. P. No. 4614 of 1971

32. This writ petition was heard along with I.T.Rs. Nos. 85 and 86 of 1972, as the question raised therein was the same, with respect to the similar, if not identical, provisions of the Wealth-tax Act. Section 18(1)(a) of the Wealth-tax Act corresponds to Section 271(a) of the Income-tax Act, 1961 ; and Section 18(1)(c) to Section 271(1)(c). Section 36 deals with prosecutions. The petitioner is the owner of a tile factory. For the year 1969-70 his return of wealth should have been filed on or before June 30, 1969. It was filed only on September 18, 1970. Assessment was completed, and wealth-tax of Rs. 358 was imposed. Then penalty proceedings for failure to file the return in time, without reasonable excuse, were started on exhibit P-2 notice, and after the petitioner's explanation (exhibit P-3), by exhibit P-4 order, a penalty was imposed as provided by Section 18 which was affirmed on appeal by the Appellate Assistant Commissioner (exhibit P-5). The petitioner seeks to quash exhibits P-4 and P-5 orders.

33. A contention was raised that the provision authorising the imposition of penalty at a certain multiple of the total wealth and not of the tax assessed was unconstitutional and invalid. But the petitioner's counsel stated at the hearing that he was not presssing this point.

34. The petitioner's counsel associated himself with the arguments of counsel for the assessee in I.T.Rs. Nos. 85 and 86 of 1972 that mens rea was an essential ingredient of penalty proceedings under the Wealth-tax Act also. We have held against this, in our judgment in I.T.Rs. Nos. 85 and 86 of 1972 heard along with this. As the relevant sections in the Wealth-tax Act are similar, if not identical, to the Income-tax Act, we hold that mens rea is not an essential ingredient before imposition of penalty under Section 18 of the Wealth-tax Act.

35. We dismiss this writ petition, but without costs.


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