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Commissioner of Wealth-tax Vs. Maharaja Shri Devi Singhji of Jodhpur - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtRajasthan High Court
Decided On
Case NumberD.B. Civil Wealth-tax Reference No. 54 of 1972
Judge
Reported in[1985]155ITR333(Raj); 1983()WLN732
ActsWealth Tax Act, 1957 - Sections 17 and 18(1)
AppellantCommissioner of Wealth-tax
RespondentMaharaja Shri Devi Singhji of Jodhpur
Appellant Advocate J.P. Joshi, Adv.
Respondent Advocate M.R. Singhvi, Adv.
Cases ReferredMitra v. State of Bihar
Excerpt:
.....from doubt and in proceeding to give the benefit of that doubt to the assessee so as to cancel the penalty ?' 2. the assessee had failed to file the returns of his wealth for the years 1958-59, 1959-60, 1960-61 and 1961-62. the due date for filing the return for these years was 30th day of june of each one of the years 1958, 1959, 1960 and 1961. a notice under section 17 of the act was served upon the assessee's kamdar an january 20, 1962, for filing the return of the first three years and on february 10, 1962, for the year 1961-62. the due date of filing the returns in response to the notices was february 20, 1962, for the years 1958-59^ 1959-60, 1960-61 and march 10, 1962, for the year 1961-62. however, the assessee filed the returns for all the four years on october 26, 1962, wi 46 of..........rs. 9,290 and rs. 4,891, respectively, for the aforesaid four assessment years was imposed.4. the assessee preferred appeals before the appellate assistant commissioner (hereinafter to be referred as 'the aac') against the levy of penalties. the aac also was not convinced that there was any reasonable cause for not filing the returns in time and held that the penalties were validly levied. he, however, directed that for the assessment years 1958-59 and 1959-60, the quantum of penalty should be computed after giving the assessee credit for the tax already paid by way of provisional assessment. for the other two years, the amount of penalty levied by the wto was confirmed.5. the assessee then preferred further appeals before the income-tax appellate tribunal (for short 'the tribunal')......
Judgment:

Bhatnagar, J.

1. The Income-tax Appellate Tribunal at the request of the Commissioner of Wealth-tax, Rajasthan, has referred the following two questions to this court under Section 27(1) of the W.T. Act, 1957 (hereinafter to be referred as 'the Act') :

'1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee was not liable for penalties under Section 18(1)(a) of the Wealth-tax Act for the assessment years 1958-59, 1959-60, 1960-61 and 1961-62 ?

2. Whether the Tribunal was right in law in holding that, even after the amendment of Section 18(1)(a) of the Wealth-tax Act by Act No. 46 of 1964, the question, whether the Wealth-tax Officer should obtain the previous approval of the Inspecting Assistant Commissioner of Wealth-tax for levying a penalty under that section, was not free from doubt and in proceeding to give the benefit of that doubt to the assessee so as to cancel the penalty ?'

2. The assessee had failed to file the returns of his wealth for the years 1958-59, 1959-60, 1960-61 and 1961-62. The due date for filing the return for these years was 30th day of June of each one of the years 1958, 1959, 1960 and 1961. A notice under Section 17 of the Act was served upon the assessee's kamdar an January 20, 1962, for filing the return of the first three years and on February 10, 1962, for the year 1961-62. The due date of filing the returns in response to the notices was February 20, 1962, for the years 1958-59^ 1959-60, 1960-61 and March 10, 1962, for the year 1961-62. However, the assessee filed the returns for all the four years on October 26, 1962, with a delay of eight months in the first three years, i.e., 1958-59, 1939-60, 1960-61 and seven months for the year 1961-62. The assessments for the years 1958-59, 1959-60, 1960-61 and 1961-62 were completed on July 9, 1967, July 29, 1967, January 31, 1968 and February 24, 1968, respectively. The Wealth-tax Officer (for short 'WTO') decided to initiate proceedings for levy of penalty under Section 18(1)(a) of the Act and, therefore, issued show-cause notice to that effect to the assessee on July 29, 1967, for the first two years, on January 31, 1968, for the year 1960-61 and on February 24, 1968, for the year 1961-62.

3. The WTO was of the opinion that there was about fifteen months' delay in filing the return from the date on which the assessee was liable to file the returns. The submissions of the assessee regarding the reasons fordelay did not find favour with the WTO. Separate orders under Section 18(1)(a) for the assessment years were, therefore, passed and penalties for default amounting to Rs. 4,849, Rs. 8,444, Rs. 9,290 and Rs. 4,891, respectively, for the aforesaid four assessment years was imposed.

4. The assessee preferred appeals before the Appellate Assistant Commissioner (hereinafter to be referred as 'the AAC') against the levy of penalties. The AAC also was not convinced that there was any reasonable cause for not filing the returns in time and held that the penalties were validly levied. He, however, directed that for the assessment years 1958-59 and 1959-60, the quantum of penalty should be computed after giving the assessee credit for the tax already paid by way of provisional assessment. For the other two years, the amount of penalty levied by the WTO was confirmed.

5. The assessee then preferred further appeals before the Income-tax Appellate Tribunal (for short 'the Tribunal'). The following two grounds were mainly relied on before the Tribunal :

1. that the assessee had reasonable cause for the defaults, and

2. that the levy of the penalties, without obtaining the previous approval of the Inspecting Assistant Commissioner, was illegal.

6. The learned accountant member of the Tribunal accepted the plea of the assessee that there was reasonable cause for not filing the returns of his total wealth in the individual capacity within the time prescribed by Section 14(1) of the Act. The judicial member of the Tribunal did not agree with that opinion. The two members were, however, in agreement regarding the applicability of the provisions of Section 18(1)(a) to the case of the assessee and held that the provisions of Section 18, as they stood prior to the amending Act No. 46 of 1964 coming into effect from April 1, 1965, were applicable to the assessee for the reason that the infringement of the provisions of the Act took place prior to the amendment of Section 18 of the Act. The learned members were of the opinion that the question of the applicability of amended Section 18 of the Act was not free from doubt and, therefore, the benefit of doubt should be given to the assessee. In that view of the matter, the Tribunal allowed the four appeals of the assessee by its consolidated order dated January 20, 1972. The two appeals filed by the WTO against the deduction, in the quantum of the penalty, granted to the assessee by the AAC for the assessment years 1958-59 and 1959-60 were dismissed.

7. The Commissioner of Wealth-tax, Rajasthan, filed applications before the Tribunal for referring two questions of law arising out of their order dated January 20, 1972, to the High Court under Section 27(1) of the Act.

8. The learned members allowed the request and drew up a statement of the case referring the two questions as mentioned above to this court.

9. The point involved in the first question is regarding the plea of the assessee that he had reasonable cause for not filing the wealth-tax return within the time allowed under Section 14(1) of the Act. The WTO did not accept the submissions made by the assessee in this respect. That finding on the point was affirmed by the AAC in the appeals. There was, however, difference of opinion between the two members of the Tribunal in this regard. The learned accountant member held that the assessee had reasonable cause for not filing the return of his wealth in his individual capacity. The learned judicial member, on the other hand, was not convinced that there was any reasonable cause for the assessee in not doing so.

10. In case of difference of opinion between the two members on a point, reference is to be made to the President or a third member and then the opinion of the two out of such three members is taken to be final.

11. In the present case, as the two members, viz., the accountant member and the judicial member, were in agreement regarding the procedure to be followed for the imposition of penalty and had allowed the appeals on that point, they did not find it necessary to refer the point of difference to the President of the Tribunal.

12. The answer to question No. 1 in such circumstances would depend oh the answer to question No. 2, If the answer is that obtaining the previous approval of the IAC to proceed under Section 18(1)(a) was necessary even after the amending Act No. 46 of 1964 came into force, for levying penalty after April 1, 1965, then there would be no necessity for any reference to a third member. But in case the answer would be in the negative, to the effect that previous approval of the IAC was not necessary after the amendment of Section 18, then there would be necessity of having the opinion of the third member regarding the assessee's plea about existence of reasonable cause for not filing the wealth-tax returns within the time allowed.

13. By Act No. 46 of 1964, Section 18 of the Act was amended as regards the procedure as well as the quantum of penalty to be imposed in the case of default in filing the return in time. This Act was made applicable from April 1, 1965. Section 18(4) prior to the amendment read as under :

Section 18(4) 'The Wealth-tax Officer shall not impose any penalty under this section without the previous approval of the Inspecting Assistant Commissioner of Wealth-tax.'

14. After the amendment of this provision, previous approval of the IAC for imposing penalty by the WTO was done away with. The pertinent question involved in the matter is whether the amendment in the procedure would apply retrospectively or prospectively.

15. Mr. Singhvi, learned counsel for the assessee, submitted that the provisions contained in Section 18(4) created a vested right in the assessee. Its intention was to impose restriction on the powers of the WTO and as such the subsequent amendment could not have vested in the WTO jurisdiction which he did not have at the time of the infringement of the provisions of the Act regarding the filing of the return of his assets. According to Mr. Singhvi, the due date for filing the returns in all the cases in response to the notice under Sections 17 and 14(2) fall prior to the amended Section 18 coming into effect and, therefore, infringement was to be considered from that time. Hence, the date of the completion of the assessment would not be material.

16. Mr. J.P. Joshi, learned counsel for the Revenue, on the other hand, urged that the penalty proceedings were initiated subsequent to the amendment of Section 18 and, therefore, there was no necessity of seeking previous approval of the IAC.

17. Mr. Singhvi referred to the case of Continental Commercial Corporation v. ITO : [1975]100ITR170(Mad) wherein the question regarding the jurisdiction of the assessing authority, subsequent to the amendment of the provisions for imposition of penalty under the I.T. Act came up for consideration. The amendment of Section 274(2) of the I.T. Act by Act No. 42 of 1970, enlarged the jurisdiction of the ITO with effect from April 1, 1971. Prior to the amendment, the ITO had to refer the case to the IAC if the minimum penalty imposable exceeded a sum of Rs. 1,000. The amendment enlarged the jurisdiction of the ITO up to Rs. 25,000. Their Lordships were pleased to hold that the provisions of Section 274(2) as it stood on April 1, 1971, were the relevant provisions which were applicable to the case.

18. In order to substantiate his case, regarding the jurisdiction of the taxing authority, Mr. Singhvi also placed reliance on the principles enunciated in the cases of CIT v. Royal Motor Car Co. : [1977]107ITR753(Guj) CIT v. Manu Engineering Works : [1980]122ITR306(Guj) and CIT v. Raman Industries . In all these three cases, the question of enlargement of jurisdiction regarding the cases referred to the IAC under Section 274 of the I.T. Act was involved.

19. In the first case, their Lordships were pleased to observe that as regards the jurisdiction of the IAC to pass the order of penalty, in view of the amendment to Section 274 by the amendment Act, it is well-settled law that every litigant has a vested right in the procedural law, so far as substance is concerned. If the substantive question of jurisdiction is to be affected by a new amendment, the Legislature must say so either in express terms or by necessary implication. Their Lordships referred tothe decision of the Privy Council in Colonial Sugar Refining Company Ltd. v. Irving [1905] AC 369 wherein the well-recognised principle that, though the right of appeal is a procedural right, it is a vested right, was relied upon. In view of that principle, their Lordships were pleased to hold that the IAC, whose power was affected by the amendment Act, would continue to have the jurisdiction in matters which were then pending before him, since the Amendment Act of 1970, neither in express words nor by implication, had indicated that the jurisdiction of the IAC, even in pending matters, that is, matters which were already referred to him, was to be affected.

20. The same principle was enunciated in the second case. It was held that the jurisdiction of the IAC under the unamended Section 274 continued and he could dispose of the penalty proceedings. It was also observed that the IAC would continue to have jurisdiction in matters pending before him despite the amendment Act of 1970, as there is no intention either by express words or by necessary implication that the IAC will not have jurisdiction even in pending matters. In other words, the matters which were already referred to him remained unaffected.

21. The third case relied on by Mr. Singhvi, is also on the same line. Their Lordships were pleased to observe that there is no provision in the Taxation Laws (Amendment) Act, 1970, to indicate that the amendment of Section 274 is retrospective. The section deals with vested rights and, therefore, the amendment is prospective in operation. Their Lordships were further pleased to observe that the jurisdiction of the IAC to deal with a matter of penalty is to be looked at as on the date of the initiation of proceedings and not with reference to subsequent events and such jurisdiction cannot be divested by what has subsequently happened. If during the time when the matter of penalty had been referred to and was pending before the IAC, the law was changed and the minimum penalty for the purpose of making a reference to the IAC was raised from Rs. 1,000 to Rs. 25,000, it does not mean that the jurisdiction of the IAC has been taken away. In such a case, the IAC would have the jurisdiction to impose the penalty.

22. The principle propounded in all the above-refer red three cases was that the law prevailing at the time of initiation of penalty proceedings shall be applicable to such proceedings and subsequent amendment would not have the effect of taking away a vested right of an assessee. Thus if the case had already been referred to the IAC under the old provision, he shall have jurisdiction to dispose of those cases. It has nowhere been laid down that if the cases of infringement of the provisions of the I.T. Act are stillpending with the ITO, he would have to refer them to the IAC for approval regarding the imposition of penalty.

23. In the instant case, at the time of the amendment of Section 18 of the Act, the matter was with the WTO and even assessment proceedings were not completed. With the enlargement of the jurisdiction of the WTO, under the amended Section 18(1)(a), he was not required to refer the matter to the IAC for approval for imposition of penalty.

24. Mr. Singhvi next argued that the matter is fully covered by the decision of the Supreme Court in CWT v. Suresh Seth [1981] 129 ITR 328. That case related to the computation of the penalty to be imposed on the defaulter assessee and their Lordships were pleased to observe as under (headnote) :

'Where the default complained of is one falling under Section 18(1)(a) of the W.T. Act, 1957 (e.g., failure to file the return of wealth before the due date without reasonable cause), the penalty has to be computed in accordance with the law in force on the last day on which the return in question had to be filed. Neither the amendment made in 1964 nor the one made in 1969 to Clause (i) of Section 18(1) has retrospective effect.'

25. Their Lordships were of the opinion that the distinctive nature of a continuing wrong is that the law that is violated makes the wrongdoer continuously liable for penalty. A wrong or default which is complete but whose effect may continue to be felt even after its completion is, however, not a continuing wrong or default. The words 'for every month during which the default continued', according to their Lordships, indicate only the multiplier to be adopted in determining the question of penalty and do not have the effect of making the default in question a continuing one. Nor do they make the amended provisions modifying the penalty applicable to earlier defaults in the absence of necessary provisions in the amending Acts. The principle to be inferred and penalty to be imposed would be as provided in the relevant provisions at the time of committing the default. If the default continues subsequent to the amendment Act, the amount would be multiplied in accordance with the provisions prior to the amendment. The reason is simple. A person cannot be subjected to greater penalty or punishment greater than what he could be liable for when the offence was committed. The subsequent amendment would not change the position unless it is specifically provided for. That safeguard is also available for penal provisions under the taxation legislation. In this regard, reference may again be made to the case of CWT v. Suresh Seth [1981] 129 ITR 328 . Their Lordships were pleased to observe as under (p. 335):

'In the case, of acts amounting to crimes, the punishment to be imposed cannot be enhanced at all under our Constitution by any subsequent legislation by reason of Article 20(1) of the Constitution which declares that no person shall be subjected to a penalty greater than that which might have been inflicted under the law in force at the time of the commission of the offence. In other cases, however, even though the liability may be enhanced, it can only be done by a subsequent law (of course subject to the Constitution) which either by express words or by necessary implication provides for such enhancement.'

26. In the case of Thakur Mandhatta Singh v. CWT [1982] 137 ITR 52 the principle enunciated in the above referred Supreme Court decision was followed. The following question was referred by the Tribunal (at p. 52):

'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the law, under which penalty is to be computed in the present case for the default under Section 18(1)(a), is the one which prevailed on the date when the assessment order was completed, i.e., on October 10, 1972, and not as per law prevailing on July 1, 1968, when the default of not furnishing the return had commenced ?'

27. It is evident from the question itself that guidance was sought for the computation of penalty and not for the procedure to be followed. In view of the principle enunciated in the Supreme Court decision of CWT v. Suresh Seth : [1981]129ITR328(SC) with reference to art. 20 of the Constitution of India (quoted above), the question was answered in the negative.

28. The imposition of penalty being a penal provision, there cannot be any dispute on the point that the computation of the amount of penalty would be in accordance with the provisions of law prevailing at the time of infringement of any provisions of the relevant Act.

29. The question before us is regarding the procedure to be followed in initiating penalty proceedings subsequent to the amendment Act.

30. Mr. Singhvi's contention is that the amount of penalty to be imposed is to be computed as per provisions in force prior to the amendment Act and the procedure for referring the case to the IAC should also be followed.

31. There is no dispute for the first proposition that the computation of penalty to be imposed should be as per the law effective at the time of infringement. The position of law stands settled by the above-referred Supreme Court decision. However, we find ourselves unable to agree with the second proposition regarding the procedure to be followed for imposing the penalty. In our view, Section 18(4) only provides the procedure to be adopted regarding the imposition of penalty and not the rate of penalty. Thus, the procedure to be followed subsequent to the amendment of thatsection would not put the petitioner in any disadvantageous position regarding the quantum of penalty to be imposed. Assuming for a moment that the post of IAC would have been abolished, then would it mean that all the cases in which imposition of penalty have been proper, would be dropped automatically. It would be profitable to refer to some cases which lay down the general proposition regarding the retrospectivity of a law relating to procedure.

32. In the case of Anant Gopal Sheorey v. State of Bombay, : 1958CriLJ1429 the question regarding the retrospective effect of the change in law of procedure came up for consideration and their Lordships were pleased to lay down the following principles (p. 917) :

'No person has a vested right in any course of procedure. He has only the right of prosecution or defence in the manner prescribed for the time being by or for the court in which the case is pending and if, by an Act of Parliament the mode of procedure is altered, he has no other right than to proceed according to the altered mode. In other words, a change in the law of procedure operates retrospectively and unlike the law relating to vested right, is not only prospective.'

33. In the case of Memon Abdul Karim Haji Tayab, Central Cutlery Stores, Veraval v. Deputy Custodian General, New Delhi, : [1964]6SCR837 the question before their Lordships was about the applicability of the amended provisions of Section 48(1) and (2) of the Administration of Evacuee Property Act, 1950. It was held that Sub-Sections (1) and (2) are clearly procedural and would apply to all cases which have to be investigated in accordance therewith after October 22, 1956, even though the claim may have arisen before the amended section was inserted in the Act. Their Lordships were further pleased to observe that it is well-settled that procedural amendments to a law apply, in the absence of anything to the contrary, retrospectively in the sense that they apply to all actions after the date they come into force, even though the actions may have begun earlier or the claim on which the action may be based may be of an anterior date.

34. Mr. Joshi also referred to the case of Nani Gopal : Mitra v. State of Bihar, : 1970CriLJ1396 dealing with the retrospective operation of an amendment in the procedural law. The case was under the Prevention of Corruption Act, 1947. When an appeal was pending, Section 5(3) of the Act was repealed. It was held that the appellate court could invoke the presumption under Section 5(3) of the Act. Their Lordships were pleased to observe as under (p. 1638) :

'It is true that as a general rule alterations in the form of procedure are retrospective in character unless there is some good reason or other why they should not be.'

35. Referring to the principle embodied in Section 6 of the General Clauses Act, their Lordships were further pleased to hold that even though pending appeal against conviction under Section 5(2) of the Prevention of Corruption Act, Section 5(3) was repealed by Anti-Corruption Laws (Amendment) Act (Act No. 40 of 1964), it is open to the High Court to invoke the presumption contained in Section 5(3) in considering the case of the appellant, since the conviction of the appellant was pronounced by the trial judge long before the amendment.

36. It is on this principle that the first three cases referred to were based and cases pending before the IAC were not disturbed by applying the amended provisions retrospectively. The position, therefore, is that the amendment in the procedural law would ordinarily operate retrospectively in the absence of anything to the contrary. In respect of cases pending before the IAC at the time of amendment of Section 18(4) of the Act, he had authority to grant or refuse permission. But to cases which were not so referred to him by that time under Section 18(4) of the Act, the provisions of amended Section 18(1)(a) would be applicable.

37. In view of the above discussion, the Tribunal was not right in giving the benefit of doubt to the assessee, on the ground that the question whether after the amendment of Section 18(1)(a) of the Act by Act No. 46 of 1964, the WTO should obtain the previous approval of the IAC of Wealth-tax for levying penalty under that section was not free from doubt. The procedure provided in the amended provisions of Section 18(1)(a) of the Act had retrospective effect and was applicable to the proceedings for imposition of penalty which were initiated after the amending Act came into force.

38. Question No. 2 is answered accordingly.

39. Regarding question No. 1, we are of the view that the Tribunal was not right in holding that the assessee was not liable for penalties under Section 18(1)(a) of the Act for the assessment years 1958-59, 1959-60, 1960-61 and 1961-62. We would, however, make it clear that this much answer only would not set the matter at rest so far as the alleged default of the assessee and the imposition of penalty in consequence thereof are concerned. The reason is that Section 18(1)(a) of the Act is retrospective only for procedural purposes. So far as the computation of the amount of penalty is concerned, guidance is to be taken from the principles enunciated in the case of CWT v. Suresh Seth : [1981]129ITR328(SC) . To put it in other words, the authorities concerned will have to take into consideration the rate of penalty as provided in Section 18 prior to the amendment of 1964, so far as the computation of the quantum of penalty to be imposed is concerned. Despite the answer regarding the retrospective operation of the procedural law contained in amended Section 18(1)(a), an important questionwould still remain to be decided by the Tribunal, before considering the question of liability of the assessee for penalty. The assessee had taken the plea of reasonable cause in not filing the returns in time. His plea found favour with the accountant member on this point. In case of difference of opinion between the two members, the matter should have been referred to the President of the Tribunal who could either hear it himself or refer the case to a third member. The appeals were accepted by the Tribunal because of the learned members giving the benefit of doubt lingering in their minds regarding the retrospective operation of amended Section 18(1)(a) of the Act. As such, the question of existence of reasonable cause for not filing the return in time still remain undetermined. Now that we have held that the operation of Section 18(1)(a) is retrospective so far as the procedure to be followed is concerned, but prospective regarding the computation of the rate and quantum of penalty to be imposed, the plea of the assessee that he had reasonable cause for not filing the return in time will have to be considered before proceeding to impose penalty for the four years in question. There being difference of opinion in this regard between the accountant member and the judicial member, the matter will have to be referred to the President of the Tribunal for final decision of that question in accordance with law.

40. With these observations, the reference is answered as stated earlier.


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