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Mewar Textile Mills Limited Vs. Income-tax Appellate Tribunal and ors. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtRajasthan High Court
Decided On
Case NumberS.B. Civil Writ Petition No. 300 of 1974
Judge
Reported in[1985]151ITR127(Raj)
ActsIncome Tax Act, 1961 - Sections 140A and 140A(3)
AppellantMewar Textile Mills Limited
Respondentincome-tax Appellate Tribunal and ors.
Appellant Advocate S.C. Bhandari, Adv.
Respondent Advocate J.P. Joshi, Adv.
Cases ReferredIn Hindustan Steel Ltd. v. State of Orissa
Excerpt:
.....fail to understand as to how the said provision could be held to be confiscatory. act contains provisions for levy of penalty for non-compliance with various provisions relating to filing of returns, non-furnishing of particulars, failure to pay advance tax, concealment or evasion of income-tax. i, therefore, find myself in agreement with the view expressed by the andhra pradesh, calcutta, madhya pradesh and jammu and kashmir high courts in the cases referred to above and, with great respect, i am unable to agree with the view taken by the madras high court in salt maricar's case [1973]90itr116(mad) .15. on the second question canvassed by the learned counsel for the company, it was argued that at the relevant time, the company was under the control of the state government and an ias..........of tax. it is the consistent view of all the high courts referred to above that a liability for payment of penalty did not accrue merely because of non-payment of tax within the stipulated time. the provisions of section 140a(3) have been held to be valid on the basis that a discretion is vested in the taxing authority which he is expected to exercise reasonably, taking into consideration all the facts and circumstances of the case. as i have already pointed out above, the tribunal in the present case appears to have ignored to take into consideration the explanation furnished by the company and has made a bald statement while recording its findings that no satisfactory explanation has been furnished on behalf of the petitioner company, without any discussion on the subject. the.....
Judgment:

Dwarka Prasad, J.

1. The petitioner, the Mewur Textile Mills Ltd., Bhilwara (hereinafter referred to as 'the company '), is a public limited company incorporated under the Companies Act, having its registered office at Bhilwara in Rajasthan. In respect of the assessment year 1966-67, the company filed a return of its income on June 30, 1966. The company was required under Section 140A(1) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act'), to make payment of such amount of tax as was payable on the basis of the aforesaid return, after taking into account the amount of tax already paid by way of advance tax, within a period of 30 days of the furnishing of the return. But the company deposited the amount of tax due to be paid on the basis of self-assessment under Section 140A(1) only on October 17, 1966, and such payment was thus delayedby 78 days. . Later on, on May 24, 1968, the company filed a revised return of its income, according to which the tax liability of the company was increased by a sum of Rs. 19,476, but the company also failed to make payment of the amount of enhanced tax liability within a period of 30 days from the date of filing of the return. As a matter of fact, the said amount of Rs. 19,476 was not paid by the company towards its tax liability until a provisional assessment was made by the ITO under Section 141 of the Act on January 29, 1969.

2. After a notice was issued to the company under Section 140A(3) of the Act, calling upon it to show cause why penalty should not be imposed on it for non-compliance with the provisions of Section 140A(1), the ITO proceeded to impose a penalty of Rs. 5,000 upon the company for not depositing the amount of tax payable by it on self-assessment. The AAC, on appeal, upheld the imposition of penalty, but reduced the amount thereof from Rs. 5,000 to Rs. 4,000.

3. On further appeal to the Income-tax Appellate Tribunal, Jaipur Bench, Jaipur (hereinafter called 'the Tribunal'), the company advanced a plea that when the revised return was filed, the company was under the control of the State Government and was managed by an administrator appointed by the State Government and as such the non-payment of the amount of tax, payable under Section 140A(1) on self-assessment was not on account of any contumacious conduct or dishonest intention on the part of the company. It was stated on behalf of the company that an IAS Officer was appointed as an administrator of the company by the State Government of Rajasthan and if he did not make payment of the amount of tax in accordance with the provisions of Section 140A(1), the company should not be made liable to pay a penalty in respect thereof. The Tribunal rejected this contention. Another ground advanced before the Tribunal on behalf of the company was that the provisions of Section 140A(1) of the Act were ultra vires the provisions of Article 19(1)(f) of the Constitution of India and were not saved by article 19(5) thereof. A decision of the Madras High Court in Soli Maricar v. ITO : [1973]90ITR116(Mad) was relied upon in support of the aforesaid contention. The Tribunal, by its order dated March 31, 1973, did not accept this contention as well and held that as there was no decision of the Rajasthan High Court or of the Supreme Court till then on the question of the alleged invalidity of the provisions of Section 140A(1), the judgment of the Madras High Court was not binding upon the Tribunal and it was bound to give effect to the provisions contained in Section 140A. The company filed an application before the Tribunal under Section 256(1) of the Act requesting the Tribunal to make a reference to the High Courtin respect of the questions of law arising out of its order dated March 31, 1973, but the Tribunal refused to make a reference to the High Court by its order dated September 19, 1973.

4. In this writ petition, two grounds were urged by the learned counsel for the petitioner company, which were the same as were submitted on its behalf before the Tribunal. In the first place, it was urged that the provisions of Section 140A(3) of the Act were ultra vires as they were violative of the provisions of Article 19(1)(f) of the Constitution of India and were not saved by Article 19(5) thereof. The decision of the Madras High Court in Sali Maricay's case : [1973]90ITR116(Mad) was relied upon by the learned counsel for the petitioner company in support of his aforesaid contention. The second contention advanced before me was that the Tribunal erred in upholding the imposition of penalty upon the company under Section 140A(3) of the Act, without even considering the case set up by the company for non-payment of the amount of tax on self-assessment within the time limited under Section 140A(1) of the Act.

5. Although the provisions of Article 19(i)(f) of the Constitution of India relating to right to property have been deleted with effect from June 20, 1979, by the Constitution (Forty-fourth Amendment) Act, 1978, yet the subsequent deletion of the right to property from the array of fundamental rights would not deprive the petitioner company of such rights as were available to it prior to the coming into force of the 44th Amendment Act. As this writ petition was filed in the year 1974, and at that time the provisions of Article 19(1)(f) were available to the petitioner company, I shall proceed to consider the question of validity of the provisions of Section 140A(3) of the Act.

6. Section 140A was inserted in the I.T. Act, 1961, by the Finance Act of 1964, and the provisions thereof, as they existed at the relevant date, when the company was alleged to have incurred the liability for imposition of penalty under Section 140A(3), ran as under :

'140A. Self-assessment.--(1) Where a return has been furnished under Section 139 and the tax payable on the basis of that return as reduced by any tax already paid under any provision of this Act exceeds five hundred rupees, the assessee shall pay the tax so payable within thirty days of furnishing the return.

(2) After a provisional assessment under Section 141 or a regular assessment under Section 143 or Section 144 has been made, any amount paid under Sub-section (1) shall be deemed to have been paid towards the provisional assessment or regular assessment, as the case may be.

(3) If any assessee fails to pay the tax or any part thereof in accordance with the provisions of Sub-section (1), he shall, unless provisionalassessment under Section 141 or a regular assessment under Section 143 or Section 144 has been made before the expiry of thirty days referred to in that sub-section, be liable, by way of penalty, to pay such amount as the Income-tax Officer may direct, so however, that the amount of penalty does not exceed 50 per cent, of the amount of such tax or part, as the case may be :

Provided that before levying any such penalty, the assessee shall be given a reasonable opportunity of being heard. '

7. It may be pointed out that the provisions of Section 140A were amended by the Taxation Laws (Amendment) Act, 1970, with effect from April 1, 1971, and the aforesaid section was again amended and substituted by the Amending Act No. 141 of 1975, with effect from April 1, 1976. The provisions of Section 140A, as they existed at the relevant time, were applicable only to those cases in which the tax payable under Section 140A(1), as reduced by any amount of tax already paid, exceeded Rs. 500. In such cases, the assessee was required to make payment of the amount of tax payable on self-assessment within 30 days of the furnishing of the return. If the amount of tax was not paid within the period of 30 days, Sub-section (3) authorised the ITO to impose a penalty upon the assessee, which could not exceed 50% of the amount of tax. In Soli Maricar's case : [1973]90ITR116(Mad) relied upon by the learned counsel for the company, a Bench, of the Madras High Court took the view that Parliament has provided for imposition of penalty on the amount of tax which remained unpaid, from the day the tax was due and payable, but penalty could not be imposed in the case of self-assessment, as it was confiscatory in nature and, further, that there was no relation to the duration of delay or the wilful or other nature of the violation or the inability to pay tax. The learned judges of the Madras High Court observed as under (p. 134):

' To sum up : Tax due and payable under Section 140A(1) of the Act is a civil debt. Any provision in the Act for enforcing payment of that debt would be valid. This provision for enforcing payment and recovery of the tax payable may include or impose anything compensatory for delayed payment or retention of the tax. It is not the nomenclature, which the legislature has used in the provision, that decides the issue as to whether the provision is compensatory or penal, but the substance of the provision. A power to levy penalty which is not compensatory is neither incidental nor ancillary to the power of recovery, and it is not inherent in the power to recover the tax payable. The levy of penalty could be sustained only in cases of concealment or evasion of taxes. Penalty for concealment or evasion is a punishment and intended as a deterrent against repetition of the same which is criminal or quasi-criminalin nature. Concealment of income or evasion of tax and non-payment of a tax ascertained or determined and payable are different in nature and character. Failure to pay tax due and payable, attracts only a civil liability.

Every citizen has a fundamental right to retain his income after payment of taxes. Any provision in the Act which authorises the taking away of this retained income would be confiscatory unless it is saved under Article 19(5). The penalty levied under Section 140A(3) of the Act is not compensatory for delayed payment or retention of tax. In the guise of a deterrent provision for enforcing payment of tax due and payable, Section 140A(3) authorises confiscation of property. Confiscation of property for non-payment in time of a tax ascertained and payable is an unreasonable restriction on the fundamental right to property of an assessee.

Section 140A(3) of the Act authorising the levy of penalty for failure to pay within 30 days of the tax payable under Section 140A(1) is confiscatory and is not saved under Article 19(5) of the Constitution. '

8. The view taken by the Madras High Court in Sail Maricar's case : [1973]90ITR116(Mad) has been dissented from by the Andhra Pradesh, Calcutta, Madhya Pradesh and Jammu and Kashmir High Courts.

9. In Kashiram v. 1TO : [1977]107ITR825(AP) a Bench of the Andhra Pradesh High Court, while disagreeing with the view taken by the Madras High Court in Sali Maricar's case : [1973]90ITR116(Mad) observed as under (p. 831) :

' In our opinion, the provision made in Sub-section (3) is only a measure enacted for ensuring compliance with Sub-section (1) of Section 140A. It is not true that the said Sub-section does not provide for or take into account the various circumstances of the nature pointed out at page 126 of the said report. The said Sub-section merely makes the assessee liable for a penalty which may go up to 50% of the tax payable under Sub-section (1). A discretion is conferred upon the Income-tax Officer in the matter of levying the penalty. In a proper case, he may decline to levy any penalty. We do not read the said provision as compelling the Income-tax Officer to levy such a penalty in each and every case and/or up to the maximum limit. An appeal and a second appeal are provided against his orders and a further reference to the High Court. Further, we cannot assume the case of an assessee, 'who is not able to pay his taxes'. Every person earning taxable income has to provide for payment of taxes. However, certain situations may arise where the assessee may not be able to pay the taxes within 30 days as required by Section 140A. But in such cases, if he properly explains the circumstances to the satisfaction of the Income-tax Officer, he would not levy the penalty. We furtherfind ourselves unable to agree with the statement of the learned judges that 'the levy of penalty could be sustained only in cases of concealment or evasion of taxes'. With respect, we see no warrant for such a statement. As pointed out by us above, Chapter 22 provides for criminal prosecutions in case of several matters and not only for concealment and evasion of taxes. Penalties are also provided by Chapter 21 in the case of failure to furnish information regarding securities, etc., failure to furnish returns or to comply with notices, failure to give notice of discontinuance as required by Section 176(3), for filing a false estimate or failure to pay advance tax, etc. We equally fail to understand as to how the said provision could be held to be confiscatory. What is due towards tax cannot be said to be the 'property' of the assessee, since it is a debt due to the State towards tax, even as per his own return. The mere fact that it is not quantified by the department on that date would not make it any the less the tax due under Section 140A(1). It is not necessary that every provision conceived in the interest of the revenue, i.e., made to ensure proper payment of taxes should be compensatory only and that no penalties can be provided therefor. In our opinion, therefore, Sub-section (3) of Section 140A does not in any manner infringe Article 19(1)(f) of the Constitution of India and that it is not an unreasonable restriction upon the said right. '

10. In Gunny Exporters Pvt. Ltd. v. ITO [1976] TLR 603 Sabyasachi Mukherjee J., as he then was, also disagreed with the view taken by the Madras High Court in Salt Maricar's case : [1973]90ITR116(Mad) and observed as under (p. 604) :

' The section compels an assessee to pay the tax due on his own estimate on the basis of return filed after taking into account the taxes already paid. In order to enforce compliance with the said provisions for payment of tax within one month of the filing of the return, Sub-section (3) authorises imposition of penalty, in case of non-compliance. The provision of the Sub-section fixes a maximum. Therefore, discretion has been given to the authority concerned to impose penalty up to a maximum dependent upon the facts and circumstances of each particular case. The order can only be passed after giving the assessee reasonable opportunity of being heard. The order imposing penalty is subject to appeal. The provision which authorises imposition of penalty in a case of non-payment of admitted dues of an assessee subject to the aforesaid provisions, in my opinion, cannot be considered to be an unreasonable restriction on the right to hold property or retain the income. The purpose and object being enforcement and compliance with the provisions for payment of taxes, a power, authorising imposition of penalty, conditioned as it is and being subject to appeal, in my opinion, cannot be termed as a confiscatory provision. Anassessee undoubtedly has authority to retain his income. But that right of retention is subject to payment of all lawful dues. A deterrent provision to ensure compliance with the obligation to pay the tax dues in time fixed by the Legislature is not an unreasonable restriction to retain income. In the aforesaid view of the matter, I am unable, with great respect, to agree with the reasonings of the Division Bench of the Madras High Court. In the view I have taken, the aforesaid provision is not confiscatory in nature.'

11. In CIT v. Vrajlal Manilal & Co. : [1981]127ITR512(MP) a Bench of the Madhya Pradesh High Court presided over by G. P. Singh, Chief Justice, also dissented from the view taken by the Madras High Court in Sali Maricar's case : [1973]90ITR116(Mad) and agreed with the view taken by the Andhra Pradesh High Court in Kashiram's case : [1977]107ITR825(AP) and by the Calcutta High Court in Gunny Exporters' case [1976] Tax LR 603 (Cal) and observed as under (p. 517):

' Having regard to the discretion conferred upon the Income-tax Officer, which has to be reasonably exercised, the provision of penalty under Section 140A(3) cannot be held to be confiscatory and unreasonable. The penalty is in the nature of additional tax for securing compliance that the tax is paid within the time allowed under Section 140A(1). The asses-see's income is, no doubt, his property but the assessee can retain that property only subject to the right of the State to recover taxes and a reasonable provision made to secure payment of tax on due date cannot be held to be infringement of the right to hold property. '

12. A similar view was also expressed by the Jammu and Kashmir High Court in Seva Ram v. ITO wherein G. M. Mir J. also dissented from the view taken by the Madras High Court in Sali Maricar's case : [1973]90ITR116(Mad) and agreed with the view taken by the Andhra Pradesh High Court in Kashiram's case : [1977]107ITR825(AP) .

13. Section 140A provides for payment of tax upon self-assessment which is one of the modes for collection of tax devised by Parliament in exercise of its power of taxation. Once an assessee has filed a return admitting his liability for payment of a certain amount as tax, it is normally expected from him that he shall make payment of the amount of tax payable on the basis of self-assessment along with the filing of the return or within a reasonable time thereof. As in the case of payment of advance tax by an assessee, whose income exceeds the prescribed limit, the assessee is also required to make payment of the amount of tax which according to his own admission contained in the return filed by him under Section 139 is payable by him, reduced by the amount of tax paid under any provision of the Act including the advance tax. The principle behind Section 140A is that if at theend of the year the assessee, according to his own estimate of income, is liable to make payment of any amount by way of tax, he should make payment of the same within 30 days of the filing of the return. If the assessee is liable to make payment of advance tax, he would normally pay the entire amount of tax due from him in the shape of advance tax; and, if at the end of the year, the assessee finds some further amount is due from him by way of tax, he is required to make payment of the said amount under Section 140A(1) of the Act, when according to the assessee's own estimate (return) of his income he finds that some more amount was yet to be paid by him by way of income-tax. In such circumstances, the assessee need not wait for payment of such amount of tax until a provisional assessment is made under Section 141 or the regular assessment proceedings are completed under Section 143 or Section 144 of the Act. The I.T. Act contains provisions for levy of penalty for non-compliance with various provisions relating to filing of returns, non-furnishing of particulars, failure to pay advance tax, concealment or evasion of income-tax. The provisions regarding criminal prosecution only relate to prosecution and punishment and are intended to vindicate public justice by punishing the offender ; while the object of imposing penalty is to render evasion unprofitable and to secure to the State the compensation for delay in payment of taxes or attempted evasions. Moreover, as held by the Andhra Pradesh and Calcutta High Courts, the ITO has a discretion in the matter of imposing penalty and in each and every case of non-payment of tax within 30 days of the submission of the return, the ITO is not bound to impose penalty under Section 140(3). Further, if penalty is imposed, the quantum thereof has to be determined by the ITO not only in relation to the amount of tax which remained unpaid as also the period for which such tax was not paid by the assessee. The ITO is expected to exercise his discretion in respect of the imposition of penalty under Section 140A(3) of the Act reasonably after considering the circumstances of each case. The order passed by the ITO is subject to appeal and then to a second appeal to the Tribunal. The provisions relating to self-assessment are based upon the principle that payment of tax is similarly a civil duty which should be voluntarily performed. When the provisions of Section 140A were introduced in the Act, it was made clear that the amount of penalty specified in Sub-section (3) thereof was the maximum that could be imposed. In cases where a person had assessed himself, he should normally remit the tax payable by him within a reasonable time, according to his self-assessment. A month's time was considered as reasonable to make payment of tax, which was admittedly due according to the return filed by the asseesee. A penalty to the extent of 50% of the amount of tax due was not obligatory, but it only represented the maximum extent to which the penalty could be imposed and the ITO has a discretion in thematter. It may be observed that the penalty cannot be imposed merely because it is lawful to do so. No penalty was intended to be imposed where there was sufficient justification for non-payment of the amount of tax payable under Section 140A within the period of one month.

14. In this view of the matter, it is apparent that the provisions contained in Section 140A(3) were introduced in the Act for the purpose of enforcement and to secure compliance with the provisions for payment of tax admittedly payable according to self-assessment. In my view, such provisions cannot be termed as confiscatory in nature nor can they be held to be unreasonable restrictions on the right to retain one's income. I, therefore, find myself in agreement with the view expressed by the Andhra Pradesh, Calcutta, Madhya Pradesh and Jammu and Kashmir High Courts in the cases referred to above and, with great respect, I am unable to agree with the view taken by the Madras High Court in Salt Maricar's case : [1973]90ITR116(Mad) .

15. On the second question canvassed by the learned counsel for the company, it was argued that at the relevant time, the company was under the control of the State Government and an IAS Officer was appointed as the administrator by the State Government for managing the affairs of the company and if the IAS Officer failed to make payment of the tax, in accordance with the return filed by way of self-assessment, as provided under Section 140A(1) of the Act, it cannot be held that there was any contumacious conduct or dishonest intention on the part of the company, which could have led to the imposition of penalty.

16. In Hindustan Steel Ltd. v. State of Orissa : [1972]83ITR26(SC) it was held by their Lordships of the Supreme Court that an order imposing penalty for failure to carry out a statutory obligation is in the nature of a quasi-criminal proceeding, and penalty cannot 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. The ITO is required to consider all the circumstances of the case before proceeding with the imposition of penalty. Their Lordships of the Supreme Court observed in the aforesaid case as under (p. 29):

' 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 therelevant 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. '

17. In the present case, the Tribunal has made a bald statement to the effect that the company has not given a satisfactory explanation for not making the payment of the amount of tax in terms of Section 140A(1) of the Act. The Tribunal was swayed by the consideration that the assessee was tax conscious and understood its rights and obligations under the Act and was legally well advised. But the Tribunal failed to take into consideration the case set up by the petitioner company that at the relevant time its management was under the control of the State Government of Rajasthan and on behalf of the State Government, an I.A.S. Officer was working as its administrator and was managing the affairs of the company and if such an officer of the State Government failed to make payment of the tax, in accordance with the terms of Section 140A(1), then the conduct of such an officer of the Government managing the affairs of the company could not be held to be contumacious or dishonest, as it could not be visualised that such an officer would have wilfully neglected to make payment of the amount of tax. It is the consistent view of all the High Courts referred to above that a liability for payment of penalty did not accrue merely because of non-payment of tax within the stipulated time. The provisions of Section 140A(3) have been held to be valid on the basis that a discretion is vested in the taxing authority which he is expected to exercise reasonably, taking into consideration all the facts and circumstances of the case. As I have already pointed out above, the Tribunal in the present case appears to have ignored to take into consideration the explanation furnished by the company and has made a bald statement while recording its findings that no satisfactory explanation has been furnished on behalf of the petitioner company, without any discussion on the subject. The Tribunal should have considered as to whether, in the circumstances of the case, as explained by the asses-see-company, imposition of penalty was justifiable and should have decided the question after applying its mind to the facts relied upon by the company. In this view of the matter, the case should go back to the Income-tax Appellate Tribunal for a fresh decision of the question as to whether penalty should be imposed upon the assessee for its failure to comply with the provisions of Section 140A(1) of the Act. In these circumstances, I do not wish to make any further observation on the subject, but leave it to the discretion of the Tribunal to decide the question of imposition of penalty after taking into consideration all the facts and circumstances of the case.

18. In the result, the writ petition is partly allowed, the order passed by the Income-tax Appellate Tribunal, Jaipur Bench, Jaipur, dated March 31, 1973, is set aside and the case is remanded to the Tribunal with the direction that it should decide afresh the question of imposition of penalty upon the petitioner company under Section 140A(3) of the I.T. Act, after taking into consideration all the facts and circumstances of the case and in the light of the observations made above. The parties are left to bear their own costs of this writ petition.


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