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Commissioner of Gift-tax Vs. C. Muthukumaraswamy Mudaliar - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberTax Case No. 242 of 1968 (Reference No. 85 of 1968)
Judge
Reported in[1975]98ITR540(Mad)
ActsGift Tax Act, 1958 - Sections 15(2), 15(4), 17 and 17(1); Gift Tax (Amendment) Act, 1962
AppellantCommissioner of Gift-tax
RespondentC. Muthukumaraswamy Mudaliar
Appellant AdvocateV. Balasubrahmanyan and ;J. Jayaraman, Advs.
Respondent AdvocateV. Ramachandran and ;V. Narayanamurthy, Advs.
Cases ReferredJain Brothers v. Union of India
Excerpt:
direct taxation - amendment - sections 15, 17 and 17 (1) of gift tax act, 1958 and gift tax (amendment) act, 1962 - amendment which took effect on 01.04.1963 would not be applicable to cases where default has been committed before amended act came into force - law applicable to levy of penalty for such default is law as it stood at time when default committed - law as it stood in financial year for which assessment made or as it stood on date when penalty proceedings were initiated not relevant - in present case last date of filing return was 30.06.1962 - assessee not having filed gift -tax return made himself liable for levy of penalty - on that day unamended provision of section 17 was applicable - tribunal right in holding that amended provision not applicable to assessee's case. - .....ramanujam, j.1. the following question has been referred to this court under section 26(1) of the gift-tax act, 1958 :'whether, on the facts and in the circumstances of the case, the tribunal was right in holding that section 17(1)(a) of the gift-tax act, 1958, as amended by the gift-tax (amendment) act, 1962, would not apply to the levy of penalty in this case?'2. the assessee made a gift of certain properties to his sister on july 14, 1961. the gift attracted tax liability and the gift-tax return was due on june 30, 1962. but the return was actually filed only on october 22, 1963. the gift-tax officer completed the gift-tax assessment on march 31, 1964 and as he found that the assessee had no reasonable cause for not filing the return within the time allowed under the act, he initiated.....
Judgment:

Ramanujam, J.

1. The following question has been referred to this court under Section 26(1) of the Gift-tax Act, 1958 :

'Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that Section 17(1)(a) of the Gift-tax Act, 1958, as amended by the Gift-tax (Amendment) Act, 1962, would not apply to the levy of penalty in this case?'

2. The assessee made a gift of certain properties to his sister on July 14, 1961. The gift attracted tax liability and the gift-tax return was due on June 30, 1962. But the return was actually filed only on October 22, 1963. The Gift-tax Officer completed the gift-tax assessment on March 31, 1964 and as he found that the assessee had no reasonable cause for not filing the return within the time allowed under the Act, he initiated penalty proceedings under Section 17(1)(a) of the Gift-tax Act and levied a penalty of Rs. 2,605.

3. The assessee filed an appeal before the Appellate Assistant Commissioner of Gift-tax who reduced the penalty to Rs. 1,000. The department preferred an appeal before the Appellate Tribunal and contended that the Appellate Assistant Commissioner of Gift-tax erred in reducing the penalty, as the penalty levied under Section 17(1)(a) by the Gift-tax Officer was the minimum leviable in the case. The Tribunal rejected the said contention holding that the provisions regarding minimum penalty came into force only on April 1, 1963, by virtue of the Gift-tax (Amendment) Act of 1962, that the default in filing the return having taken place on 30th June, 1962, the provisions insisting on minimum penalty cannot be applied to the assessee's case and that, therefore, there was nothing wrong in law in the action of the Appellate Assistant Commissioner reducing the penalty to Rs. 1,000. Aggrieved against the order of the Tribunal the revenue has sought this reference.

4. Before its amendment in 1962, Section 17(1) provided a maximum limit for the levy of penalty, but after the amendment the section lays down both the minimum and maximum limits for penalties for various offences, including the failure to furnish the return in time. Section 17(1) as amended provides for a penalty of 2% of the tax for every month during which the default continued but not exceeding in the aggregate 50% of the tax.

5. The contention of the revenue is that it is the amended provision that has to be applied in relation to the assessee's default as that was the law in force on the date when the Gift tax Officer levied the penalty and that, therefore, the reduction of the penalty by the Appellate Assistant Commissioner as confirmed by the Tribunal cannot legally be justified. The assessee, however, contends that it is the law in force as on the date of the commencement of the assessment year that should apply and not the law that is in force on the date of the order levying penalty. The question is which of the two rival contentions has to be accepted as correct.

6. It is necessary to note the relevant dates to appreciate the actual submissions made by the counsel on either side. They are as under:

Date of taxable gift...14- 7-1961Last date for filing the gift-tax return...30- 6-1962Date of coming into force of the Amending Act...1- 4-1963Date of actual filing of the return...22-10-1963Date of assessment order levying gift-tax...31- 3-1964Date of penalty order...29- 8-1964

7. Mr. Balasubrahmanyan, for the revenue, makes the following submissions as the basis for his main contention that the law as on the date of imposition of penalty should alone apply. He states that there is a clear-cut distinction between the levy of tax and the levy of penalty, that while the levy of tax follows a statutory charge, the levy of penalty stems from the assessment and is subject to the discretion of the officer concerned, and that, consequently, the levy of tax has to be made in accordance with the law in force as on the first day of the accounting year, whereas in the matter of penalty which is purely based on the discretion of the officer concerned, the law applicable is the law on the date when the officer chooses to impose penalty. According to him though in the imposition of tax the law in force on the first day of the commencement of the accounting year is relevant, in the imposition of penalty the law that is in force on the date of levying the penalty is relevant. He also submits that it is wrong to assume as has been done by the Tribunal that the amended Section 17(1) can be applied only if the default is committed after the amending Act came into force and it cannot be applied to defaults commited earlier, and the Tribunal has not kept in mind the distinction between a law which is retrospective and a law which is retroactive. In support of the above submissions reference has been made to the following three English decisions :

In Director of Public Prosecutions v. Lamb, [1941] 2 All ER 499 (CCA) certain persons were charged on an information dated August 17, 1940, with certain currency offences committed between September 3, 1939, and May 11, 1940, and they pleaded guilty. The regulation in force at the time of the commission of the offence limited the penalty for each offence to a fine of 100 or imprisonment for a term not exceeding three months or both. On June 11, 1940, the regulation was altered providing for a further alternative penalty of a maximum fine equal to three times the value of the currency in question. It was contended in that case that the amendment could not affect the punishment for an offence which was complete in other respects before the amendment was made and that if the conviction had taken place immediately after the offences had been commited it is only the unamended regulation which would have been applied. The said contention was rejected on the ground that as the amended regulation is plain and is not in any way ambiguous, it should be applied to all convictions after the date at which it came into force and it is, therefore, immaterial as to when the offence was committed. Humphreys J. said at page 505: '... I take the view that the magistrate was wrong in considering that the doctrine hampered him in any way from giving effect to the perfectly plain language of this order-in-council. To my mind, it was totally immaterial for him to consider what would have been the result and what would have been his powers if this matter had come before him six months earlier than it did. It had nothing to do with it. He was sitting on September 4 and all that he was concerned with was his powers on that date. In my opinion, his powers are perfectly clearly stated in that regulation into which the paragraph in question had been incorporated ever since the previous June, 11.'

8. Tucker J., dealing with the same contention, expressed at page 508 :

'I am unable to agree with that submission. It is true that, so far as the creation of any substantive offence is concerned, it is not retrospective. It is not making an offence of something which previously was not an offence, and it is, of course, dealing with the future when it says ' Any person is convicted ', and is not referring to any person who has been previously convicted. However, where I think that it has a retrospective effect it is with regard to the penalty which it imposes. If we suppose that next week the regulation with regard to looting were to be amended by a provision which said 'Any person convicted of looting shall suffer the penalty of death, and regulation so-and-so shall be amended accordingly?' I think that it would be difficult to persuade anybody who was next week convicted of the offence of having looted six months ago that that regulation had not a retrospective effect. I think that it clearly would have retrospective effect qua punishment, and I think that this regulation has a retrospective effect with regard to the penalty which it imposes......I think that it is clear that the language used is in terras applicable to an offence which has already been committed. It is not a case of a regulation creating any new offence, nor is it, for that matter, a regulation providing for some different kind of penalty or punishment altogether. It is merely increasing the amount of the monetary fine. In my view, the words are clear, and although I do not altogether like the idea of punishments being increased 'after the offences have been completed, none the less, if the language is clear, and if that is the result, I think that it is impossible to escape from the consequences of the language which has been used.'

9. In Buckman v. Button, [1943] 2 All ER 82 (KB) one Buckman was charged with certain offences under the Defence (General Regulations) and was convicted. After the commission of the offences but before the hearing of the case the regulations were amended by increasing the penalties for such offences. The question arose as to whether the increased penalties provided for in the amended regulation could be imposed. It was held that the imposition of higher penalties provided by the amended regulation which was in force at the time of the hearing was right in law. This case confirms the decisions in Lamb's case, referred to above, in so far as it deals with the position where the penalty is increased after the offence is complete. In R. v. Oliver, [1943] 2 All ER 800 (CCA) a person was charged with an offence of having sold sugar as a wholesaler without necessary licence. After the commission of the offence the penalties were increased. The question was whether the person who had already committed an offence before the penalty was increased can be made liable to the higher penalty, and it was held that the increased penalties were leviable even in respect of offences already committed. In that case it was contended that the decisions earlier referred to were wrong, on the basis of the following passage in Maxwell's Interpretation of Statutes, 8th edition, at page 190 :

'It is chiefly where the enactment would prejudicially affect vested rights, or the legality of past transactions or impair contracts, that the rule in question prevails. Every statute, it has been said, which takes away or impairs vested rights acquired under existing laws, or creates a new obligation, or imposes a new duty, or attaches a new disability in respect of transactions or considerations already past, must be presumed, out of respect to the legislature, to be intended not to have a retrospective operation.'

10. But the Court of Criminal Appeal agreed with the view expressed in the two earlier cases and held that if the words of the amended statute are perfectly plain and unambiguous, they have to be given due effect notwithstanding the fact that such a construction will give the statute a retrospective eSect.

11. Mr. Balasubrahmanyan points out that Section 17(1) as amended in 1962 is clear and unambiguous and it applies to any person who has failed to furnish the return within the time allowed without reference to the time when the default was committed, and, therefore, the assessee is liable for the increased penalties provided by the amended provision. He also contends that the prohibition contained in Article 20(1) of the Constitution of India is not applicable to penalty proceedings and, therefore, the amended Section 17(1) is free to operate even in respect of defaults committed earlier, and relies on Cement Distributors (P.) Ltd, v. Inspecting Assistant Commissioner : [1973]87ITR163(Mad) . In that case Ramaprasada Rao J. had specifically held that a penalty levied on a delinquent assessee for violation of the provisions of the Income-tax Act cannot be equated to a punishment inflicted for an offence which is triable by a criminal court and that Article 20(1) of the Constitution of India cannot stand attracted to the penalty proceedings. Before the learned judge it was contended that as no person shall be subject 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, the imposition of a greater penalty under the Income-tax Act of 1961 than the one provided under the 1922 Act violated Article 20(1) of the Constitution of India. This contention was rejected on the ground that Article 20 of the Constitution does not deal with penalties imposable by quasi-judicial tribunals giving administrative decisions, and that it deals with only conviction for offences. Krishnaswami Reddy J. in S. Sannana Chetty & Sons v. Third Income-tax Officer : [1970]76ITR177(Mad) considered the import of Section 271(1)(c) of the Income-tax Act, 1961, and observed that the institution of proceedings for penalty is not tantamount to prosecution in a criminal court and equally the punishment on a conviction, which is criminal, cannot be equated with the punishment of penalty which is either civil or quasi-criminal and that, therefore, Section 271 is not violative of Article 20(1) of the Constitution. The Kerala High Court in P. Ummali Umma v. Inspecting Assistant Commissioner of Income-tax : [1967]64ITR669(Ker) also rejected a similar contention that as no minimum in the quantum of penalty was fixed under Section 28 of the Indian Income-tax Act of 1922, the prescription of a minimum penalty under Section 271 of the Income-tax Act of 1961 amounts to an imposition of a greater penalty for the commission of the offence and as such it is violative of Article 20(1) of the Constitution, by observing:

'No conviction for any offence is involved in the imposition of a penalty.....A penalty, therefore, would come within the purview of Article 20(1) of the Constitution only if the earlier part of the clause is attracted, i.e., there must have been a conviction for an offence.....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 an 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.'

12. Relying on the above decisions, Mr. Balasubrahmanyan contends that so long as there is no constitutional prohibition against the amended law operating retrospectively, the amended provisions in Section 17(1) should be applied to all defaults whenever committed. According to him where the language of the amended provision is so clear and unambiguous as to include transgressions which have taken place earlier, then the court must give effect to the words as found in the statute.

13. The revenue further contends that the provisions relating to tax evasion should usually be taken to be retrospective, and refers to the following passage at page 392 of Crates on Statute Law, 7th edition, in support of his stand :

'If it is a necessary implication from the language employed that the legislature intended a particular section to have a retrospective operation, the courts will give it such an operation. 'Baron Parke', said Lord Hatherley in Parke v. Bingham, did not consider it an invariable rule that a statute could not be retrospective unless so expressed in the very terms of the section which had to be construed, and said that the question in each case was whether the legislature had sufficiently expressed that intention. In fact, we must look to the general scope and purview of the statute, and at the remedy sought to be applied, and consider what was the former state of law, and what it was that the legislature contemplated.'

14. The following passage at page 292 of Odgers' Construction of Deeds and Statutes, 5th edition, has also been referred to :

'A new class of legislation, namely, legislation against tax evasion, which may be free from any presumption against retrospective effect is indicated by the judgment of the Court of Appeal delivered by Lord Greene in Lord Howard de Walden v. Inland Revenue Commissioners : [1942]10ITR90(Cal) .'

15. In Lord Howard de Walden v. Commissioners of Inland Revenue, the court considered the scope of Section 18 of the Finance Act of 1936. It was argued for the assessee in that case that the said section is penal in its nature and, therefore, it should have a restricted meaning. While meeting that contention Lord Greene M.R. stated :

'The section is a penal one and its consequences, whatever they may be, are intended to be an effective deterrent which will put a stop to practices which the legislatures consider to be against the public interest. For years a battle of manoeuvre has been waged between the legislature and those who are minded to throw the burden of taxation off their own shoulders on to those of their fellow subjects. In that battle the legislature has often been worsted by the skill, determination and resourcefulness of its opponents, of whom the present appellant has not been the least successful. It would not shock us in the least to find that the legislature has determined to put an end to the struggle by imposing the severest of penalties. It scarcely lies in the mouth of the taxpayer who plays with fire to complain of burnt fingers......The fact that the section has to some extent a retroactive effect again appears to us of no importance when it is realised that the legislation is a move in a long and fiercely contested battle with individuals who well understand the rigour of the contest.'

16. Thus, the submission of Mr. Balasubrahmanyan is that so long as the language of the statute is clear, the language should be given full effect without reference to the time of the commission of the offence, that as the transgression of the law has no reference to the assessment year the penalty for non-submission of the return can only be under the law that was in force on the date when the penalty is imposed and it cannot have any reference to the law in force during the assessment year as contended for by the assessee, that the levy of penalty can only be after the completion of the assessment, and the proceedings for the assessment and levy of penalty are independent of each other and that, therefore, the law during the assessment year cannot be taken to govern the penalty proceedings.

17. In Commissioner of Income-tax v. Ramchand Kundanlal Saraf : [1975]98ITR474(MP) the Madhya Pradesh High Court dealt with a somewhat similar question. Section 271 of the Income-tax Act, 1961, was amended on April 1, 1968. The question arose whether the quantum of penalty for concealment of income leviable in respect of the assessment years 1961-62 and 1962-63 would have have to be regulated with reference to the provisions of the amended section. It was contended for the assessee that the amendment of Section 271 with effect from April 1, 1968, specifying that the amount of penalty shall not be less than the amount of concealed income would not be applicable to his case as it could not be given retrospective operation and that the penalty, if any, must be computed in accordance with the provisions in Section 271 as it stood before the amendment. For the revenue it was urged that the quantum of penalty must be regulated with reference to the law actually in force at the time of the imposition of the penalty or in any case at the time when the Income-tax Officer decides to initiate proceedings for imposition of penalty. The court, however, held that the provisions relating to penalty are of a penal character and their object is to punish an assessee so as to deter him from transgressing the law in future, and, therefore, the quantum of penalty must be determined with reference to the law prevailing on the day when the act of concealment in that case was committed and not when the penalty proceedings are initiated or the order was passed. The, court also held that the principle underlying Article 20 of the Constitution would apply to the case and its reasoning is as follows:

'We may here refer to the provisions of Article 20(1) of the Constitution which provides 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. Although imposition of penalty under the Income-tax Act is not a punishment for any offence so as to attract Article 20 of the Constitution in our view the principle underlying Article 20 would be applicable to this case in the absence of any express provision to the contrary.'

18. The Punjab High Court also took the same view in Commissioner of Income-tax v. Bhan Singh Boota Singh . Circular No. 6-P dated 6th July, 1968, issued by the Central Board of Revenue dealing with the effect of the amendment made to Section 271 of the Income-tax Act with effect from April 1, 1968, by the Finance Act of 1968, is as follows :

'The amendment to Section 271(1) takes effect from 1-4-1968. Accordingly, penally on the increased scale will be leviable in cases where thereis concealment of income arising out of returns of income furnished on orafter April 1, 1968. In such cases, the new provisions will be applicableeven where the return relates to an earlier assessment year and irrespectiveof whether the return has been furnished in original assessment proceedingsor any proceedings for assessing or reassessing income escaping assessment.Where any proceedings for imposition of penalty are taken for any assess-ment year in respect of concealment of income through a return furnished prior to April 1, 1968, the provisions of Section 271(1), prior to its amendment by the Finance Act, 1968, will be applicable.'

19. Circular No. 22 dated July 17, 1969, issued by the Central Board of Direct Taxes dealing with the increase in the scales of penalty leviable under Section 18(1) of the Wealth-tax Act, brought about by the Finance Act of 1969, states :

'The increased scales of penalties, as stated above, take effect from April 1, 1969. Penalty on the increased scale will be leviable in a case where the default in furnishing the return of net wealth occurs on or after that date, or having occurred earlier, the default continues on or after April 1, 1969. In the latter circumstances, the scale of penalty for any period of detault falling before April 1, 1969, will be that laid down under the law in force before its amendment by the Finance Act, 1969, namely, 2% of the wealth-tax payable for every month during which there was failure, without reasonable cause, to furnish the return of wealth, subject to a maximum in the aggregate, of an amount equal to 50% of such tax. In regard to defaults, without reasonable cause, in producing accounts and documents called for by notice, the new scale of penalty will be operative where the default occurs on or after April 1, 1969.'

20. These circulars show that if the infringement of the law has taken place before the amendment came into force, the law before the amendment should apply and if the transgression is a later one then the law as amended has to apply.

21. The Delhi High Court in Commissioner of Income-tax v. Maya Rani Punj : [1973]92ITR394(Delhi) dealt with the question whether the enhanced penalty under Section 271(1)(a) of the Income-tax Act, 1961, can be leviecen respect of a default in filing the return, in respect of the assessment year 1961-62, which had to be filed on September 28, 1961. In that case the return was actually filed after a delay of 7 months on 3rd May, 1962, that is, after the Income-tax Act of 1961 came into force. The Income-tax Officer held that the penalty should be levied as per Section 271(i)(a) of the Act of 1961. The Tribunal had held that though the penalty could be levied under the new Act the quantum of penalty had to be determined with reference to Section 28 of the Act of 1922. The court took the view that the minimum penalty provided in Section 271(1)(a) of the Act of 1961 has to be levied for the reason, that even in respect of defaults committed under the provisions of the old Act, penalty could be levied under the provisions of the new Act and that the decision of the Supreme Court in Jain Brothers v. Union of India : [1970]77ITR107(SC) supports that view. In Jain Brothers v. Union of India the assessee was served with a notice on May 26, 1960, under Section 22(2) of the old Act calling upon him to file his return of income for the assessment year 1960-61, within 35 days of the service of notice. The assessee did not file the return within the time stated in the said notice but filed it on November 18, 1961. The assessment was completed on November 23, 1964, under the provisions of the old Act. A penalty was levied on the assessee under Section 271(1)(a) of the new Act for non-compliance with the notice under Section 22(2) of the old Act. The imposition of penalty was challenged and ultimately it came before the Supreme Court. One of the contentions advanced was that the language of Section 271 of the new Act did not warrant the taking of proceedings under that section when a default had been committed by failure to comply with the notice issued under Section 22(2) of the old Act. This contention was repelled by the Supreme Court observing:

'It is true that Clause (a) of Sub-section (1) of Section 271 mentions the corresponding provisions of the Act of 1961, but that will not make the part relating to payment of penalty inapplicable once it is held that Section 297(2)(g) governs the case. Both sections 271(1) and 297(2)(g) have to be read together and in harmony and so read the only conclusion possible is that for the imposition of a penalty in respect of any assessment for the year ending on March 31, 1962, or any earlier year which is completed after first day of April, 1962, the proceedings have to be initiated and the penalty imposed in accordance with the provisions of Section 271 of the Act of 1961. Thus, the assessee would be liable to a penalty as provided by Section 271(1) for the default mentioned in Section 28(1) of the Act of 1922, if his case falls within the terms of Section 297(2)(g).'

22. From the extract set out above it is clear that the Supreme Court's decision is rested on the fact that the default committed under the old Act can be penalised under Section 271(1) if the case falls within the terms of Section 297(2)(g). But Section 297(2)(g) only deals with cases of imposition of penalty in respect of any assessment which is completed on or after the first day of April, 1962, and it does not deal with the cases of imposition of penalty in respect of assessments completed before the first of April, 1962. It is not, therefore, possible to construe the decision of the Supreme Court in Jain Brothers v. Union of India as throwing any light, on the question arising in this case. The case decided by the Delhi High Court in Commissioner of Income-tax v. Maya Rani Punj is also one which is covered by Section 297(2)(g) and, therefore, the levy of penalty under the new Act could be legally justified. There is no specific provision as Section 297(2)(g) in the Gift-tax Act indicating as to in what cases the minimum penalty has to be levied.

23. We have to, therefore, proceed only on the basis of the general principles for interpretation of statutes. We are not inclined to agree with the learned counsel for the revenue that where a provision is intended to arrest tax evasion a different rule of interpretation has to be applied, giving retroactive or retrospective effect to the provisions even if the words of the provision are not clear. We are, however, inclined to agree with him when he says that the words of the statute have to be given its full scope and effect and that if the words of the statute are of sufficient amplitude to cover the infringements that took place before the amendment, their operation cannot be curtailed or restricted so as to apply only to infringements after the amendment on the ground that an amendment is normally prospective. The decisions in Lamb's case, Buckman's case and Oliver's case also proceed on the basts that if the language of the statute is clear, it is impossible for any one to escape from the consequences of the language which has been used.

24. In this case the amendment was made on April 1, 1963. As already pointed out, it is not clear as to whether the amendment is intended to apply to defaults or concealments taken place earlier and, in the absence of clear language, we have to interpret the amendment as applying to future offences. The circulars issued by the Central Board of Revenue relating to similar amendments in the Income-tax Act and Wealth-tax Act also proceed on the same basis. Considering a similar amendment in the Income-tax Act the Madhya Pradesh High Court has held that the amended provision will apply only if it was in force on the day when the infringement of the statute took place. With respect, we are inclined to agree with the said view. The case before that court was one of concealment of income. We are concerned in this case with a failure to submit a return in time. As already stated, the return in this case had to be filed on June 30, 1962, The non-submission of the return on June 30, 1962, is the infringement of the law for which the penalty is sought to be levied. Therefore, the provisions relating to penalty that were in force on June 30, 1962, will have to be applied in the assessee's case. In cases relating to concealment of income the penal provisions that were in force on the date of filing the return, out of which concealment of income arises, can be made applicable.

25. The learned counsel for the assessee would, however, contend that the penalty being in the nature of an additional income-tax levied for a contumacious conduct, the law that is applicable to income-tax assessment should also govern the levy of penalty, and the canon of construction of the provisions relating to penalty should be the same as for tax. According to the learned counsel normally the law as on the first of April of the assesment year should be taken to apply in respect of assessment to tax and that the same law has to apply even in respect of penalties, they being only additional tax. The learned counsel refers to the decision in C. A. Abraham v. Income-tax Officer : [1961]41ITR425(SC) wherein penalty leviable under Section 28 of the Indian Income-tax Act, 1922, has been held to be an additional tax which is imposed as a part of the machinery for assessment of tax liability. The relevant observations of the Supreme Court are these :

'By Section 28, the liability to pay additional tax which is designated penalty is imposed in view of the dishonest contumacious conduct of the assessee. It is true that this liability arises only if the Income-tax Officer is satisfied about the existence of the conditions which give him jurisdiction and the quantum thereof depends upon the circumstances of the case The penalty is not uniform and its imposition depends upon the exercise of discretion by the taxing authorities, but it is imposed as a part of the machinery for assessment of tax liability.'

26. But these observations have been explained in the later decision of the Supreme Court in Jain Brothers v. Union of India, in these words :

'There can be no manner of doubt that penalty has to be calculated and imposed according to the tax assessed. It follows that imposition of penalty can take place only after assessment has been completed.... Although penalty has been regarded as an additional tax in a certain sense and for certain purposes it is not possible to hold that penalty proceedings are essentially a continuation of the proceedings relating to assessment where a return has been filed.'

27. From the observations of the Supreme Court in Jain Brothers v. Union of India, it is clear that though penalty is treated as an additional tax for some purposes, penalty proceedings are essentially different from and follows closely the assessment proceedings. It is not, therefore, possible to accept the contention of the learned counsel for the assessee that in the levy of penalty also the law in force as on the date of first of April of the assessment year should govern. Admittedly, the levy of penalty follows the completion of the assessment and, therefore, the law applicable for the imposition of tax cannot automatically be applied to the imposition of penalty which comes admittedly at a later stage. As has been pointed out by the learned counsel for the revenue, in the matter of tax a uniform charge is created by the statute and, therefore, the statutory provisions dealing with the charge; assessment and collection of the taxes should be as on the first day of April of the assessment year. But, so far as the levy of penalty is concerned, it is not an uniform imposition by the statute and its imposition depends upon the exercise of the discretion by the taxing authorities, though it is imposed as a part of the machinery for assessment of the tax liabilty.

28. There are various view-points with reference to the law that has to be applied for the levy of penalty :

(1) the law on the first day of April of the assessment year,

(2) the law as on the date when the return is due,

(3) the law as on the date when the return is filed,

(4) the law as on the date of the assessment order, and

(5) the law as on the date of the order levying penalty.

29. Imposition of penalty under Section 17(1) of the Gift-tax Act normally arises out of the assessee's: (1) failure to furnish a return under Sections 13(1) 13(2) and under Section 16; (2) failure without reasonable cause to comply with a notice under Section 15(2); (3) concealing the particulars of any gift or deliberately furnishing inaccurate particulars thereof. If the penalty is for failure to furnish a return under Section 13(1) or 13(2) or under Section 16 the offence or the infringement consists in not filing the return within the time allowed under the relevant provision. If the offence or infringement is one of assessee's failure to comply with a notice under Sub-section (2) of Section 15, the date of non-compliance will be taken as the date when the infringement has taken place. In the matter of concealment of particulars of gift or deliberately furnishing inaccurate particulars thereof the infringement takes place on the date when the return is filed in which the concealment of gift or furnishing inaccurate particulars thereof, has taken place. Therefore, the date when the offence or infringement takes place will be different in each case depending upon the nature of the infringement which is taken as the basis for levying the penalty- It has already been stated that the law as on the first day of April of the assessment year cannot regulate the levy of penalty which arises after the assessment is completed. Therefore, the law as it stood in the financial year in which the assessment is made cannot in any event regulate the levy of penalty.

30. Where the infringement is said to be the failure to furnish the return in time, the offence is complete when the return is not filed on the due date. - Therefore, in such cases the offence having taken place on the date fixed for furnishing the return, the law as on that date has to govern the levy of penalty. In eases of non-compliance with a notice under Section 15(2) or 15(4) the infringement takes place when the notice is not complied with, and, therefore, the law as on the date of the non-compliance will have to govern the levy of penalty. In cases of concealment of particulars or deliberate furnishing of inaccurate particulars in a return, the infringement is committed when the return is filed and, therefore, the law as on the date of the filing of the return will have to regulate the levy of penalty as has been held by the Madhya Pradesh High Court in Commissioner of Income-tax v. Ramchand Kundanlal Saraf, and the Punjab High Court in Commissioner of Income-tax v. Bhan Singh Boota Singh.

31. Thus, on a due consideration of the matter, we hold that the amendment which took effect from first of April, 1963, would not be applicable to cases where the default has been committed before the amended Act came into force, and that the law applicable to the levy of penalty for such defaults is the law as it stood at the time when the default is committed and not as it stood in the financial year for which the assessment is made as urged by the learned counsel for the assessee, nor as it stood on the date when the penalty proceedings were initiated or when the penalty order was imposed as urged by the revenue.

32. In this case the last day for the filing of the gift-tax return was 30th June, 1962, and the assessee not having riled his return on that day has made himself liable for the levy of penalty. On that day it was the un-amended provision in Section 17 that was applicable. Therefore, the Tribunal was light in holding that the amended provision was not applicable to the assossee's case.

33. The result is, the question referred to us has to be answered in the affirmative and against the revenue and it is answered accordingly. The revenue will pay the costs to the assessee. Counsel's fee Rs. 250.


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