BAHARUL ISLAM J. - Under section 25691) of the Income-tax Act, 1961 (hereinafter referred to as 'the 1961 Act'), the following two questions have been referred to us by the Income-tax Appellate Tribunal, Gauhati Bench, for our decision :
'(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the penalty proceedings under section 271(1)(a) has been legally initiated ?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the penalty was validly imposed taking into consideration the decision of the Supreme Court in the case of Commissioner of Income-tax v. Kulu Valley Transport Co. (P.) Ltd. : 77ITR518(SC) ?'
The facts of the case may be briefly stated as follows :
A notice dated November 14, 1958, under section 22(2) of the Indian Income-tax Act, 1922 (hereinafter referred to as 'the 1922 Act'), for the assessment year 1958-59 was served on the assessee on November 15, 1958, requiring the assessee to submit the return of income within 35 days from the date of the receipt of the notice. The assessee did not submit any return on the due date. He, however, submitted the return on May 25, 1961, which was long after the period of 35 days allowed under the notice. As the assessee had failed to submit the return within the date, a notice dated May 25, 1963, under section 274 read with section 271 of the 1961 Act was issued. The notice was served on the assessee on March 28, 1963. By that notice the assessee was required to show cause why penalty should not be imposed for non-submission of the return within the time allowed. The assessee was asked to show cause on April 11, 1963. The assessee did not comply with the notice. Two other dates, namely, December 29, 1964, and February 12, 1965, were fixed for showing the cause. The assessee did not comply. On March 8, 1965, however, an application was filed on behalf of the assessee. In that application cause of the failure to furnish the return within the time allowed was not shown; but two contentions of law were raised, namely, (i) that only proceeding under section 274 read with section 271 was not a valid initiation of the proceeding in the eye of law, and (ii) that the assessment was completed under the 1922 Act and, as such, the penalty proceeding under the 1961 Act was invalid.
The Income-tax Officer overruled the two objections of the assessee. He held that as the assessee had not furnished any reason why the return could not be filed in terms of the notice under section 22(2) of the 1922 Act within the due date, he was satisfied that the default in filing the return was deliberate and as such the assessee rendered itself liable to penalty under section 271(1)(a). So he directed the assessee to pay penalty of Rs. 14,090 at the rate of 2% per month for 15 months from January 1, 1959, to April 30, 1961, under section 271(1)(a) for the assessment year 1958-59.
The assessee preferred an appeal before the Appellate Assistant Commissioner of Income-tax who has dismissed the appeal. The assessee then preferred a second appeal before the Income-tax Appellate Tribunal. The Tribunal also dismissed the appeal.
Counsel for the assessee did not seriously challenge before us the finding of the Tribunal on the first question referred.
The Supreme Court in the case of D. M. Manasvi v. Commissioner of Income-tax : 86ITR557(SC) has held :
'What is contemplated by clause (1) of section 271 is that the Income-tax Officer or the Appellate Assistant Commissioner should have been satisfied in the course of proceedings under the Act regarding matters mentioned in the clauses of that Sub-section. It is not, however, essential that notice to the present proceeded against should have also been issued during the course of the assessment proceedings. Satisfaction in the very nature of things precedes the issue of notice and it would not be correct to equate the satisfaction of the Income-tax Officer or the Appellate Assistant Commissioner with the actual issue of notice. The issue of notice is a consequence of the satisfaction of the Income-tax Officer or the Appellate Assistant Commissioner and it would, in our opinion, be sufficient compliance with the provisions of the statute if the Income-tax Officer or the Appellate Assistant Commissioner is satisfied about the matters referred to in clauses (a) to (c) of sub-section (1) of section 271 during the course of proceedings under the Act even though notice to the person proceeded against in pursuance of that satisfaction is issued subsequently.'
At page 563 of the report, their Lordships have further observed :
'There is also no force in the submission made on behalf of the appellant that the Income-tax Officer, before feeling satisfied regarding the necessity of initiating proceedings for imposition of penalty and before issuing the consequential notice should have issued another notice to the assessee and held a preliminary enquiry regardig the necessity of initiating proceedings. Such a course, in our opinion, would result in mere duplication of the procedure without any advantage to the parties.'
The Tribunal has found that the Income-tax Officer was satisfied in course of the proceedings under the Act and before the completion of the assessment and before he signed the notice asking the assessee to explain the cause of his failure to furnish the return within the time allowed. This finding of fact has not been challenged before us.
On the scope of question No. 2 there was a controversy before us. The question plainly read and understood means, in our opinion, whether on the facts and in the circumstances of the case, the Tribunal was justified in holding that the penalty was validly imposed in view of the decision of the Supreme Court in Kulu Valleys case : 77ITR518(SC) . In other words, whether in view of the decision of the Supreme Court in the aforesaid case, the imposition of penalty was invalid.
The assessee submitted that this question should be understood to comprehend whether penalty was validly imposed, (i) in view of the decision of the Supreme Court in Kulu Valleys case : 77ITR518(SC) and also (ii) in view of the fact that the Tribunal placed the burden of proof on the assessee. He submitted that the question covering both aspects should be decided. His submission is, although this fact of the question has not referred, it was considered by him. This submission of the assessee was strenuously resisted by counsel for the department. His submission was that this was not permissible under the law. He submitted that when certain question was raised before the Tribunal and sought to be referred to the High Court, but it was not referred, it should be deemed to have been refused by the Tribunal. The remedy of the aggrieved party was, according, to him, to make an application before the High Court under section 256(2) of the 1961 Act for a reference. As the assessee failed to do so, he now could not ask the High Court to give its opinion on the point refused.
The relevant sections of the 1961 Act are sections 256, 258 and 260. The material portions thereof may be quoted :
'256. Statement of case to the High Court. -The assessee or the Commissioner may, within sixty days of the date upon which he is served with notice of an order section 254, by application in the prescribed form, accompanied where the application is made by the assessee, by a fee of rupees one hundred, require the Appellate Tribunal to refer to the High Court any question of law arising out of such order and, subject to the other provisions contained in this section, the Appellate Tribunal shall, within one hundred and twenty days of the receipt of such application, draw up a statement of the case and refer it to the High Court;.......
(2) If, on an application made under sub-section (1), the Appellate Tribunal refuses to state the case on the ground that no question of law arises, the assessee or the Commissioner, as the case may be, may, within six months from the date on which he is served with notice of such refusal, apply to the High Court, and the High Court may, if it is not satisfied with the correctness of the decision of the Appellate Tribunal, require the Appellate Tribunal to state the case and to refer it, and on receipt of any such requisition, the Appellate Tribunal shall state the case and refer it accordingly....'
'258. Power of High Court or Supreme Court to require statement to be amended. -If the High Court or the Supreme Court is not satisfied that the statements in a case referred to it are sufficient to enable it to determine the questions raised thereby, the court may refer the case back to the Appellate Tribunal for the purpose of making such additions thereto or alterations therein as it may direct in that behalf.'
'260. Decision of High Court or Supreme Court on the case stated. -(1) The High Court or the Supreme Court upon hearing any such case shall decide the questions of law raised therein, and shall deliver its judgment thereon containing the grounds on which such decisions founded, and a copy of the judgment shall be sent under the seal of the Court and the signature of the Registrar to the Appellate Tribunal which shall pass such orders as are necessary to dispose of the case conformably to such judgment......'
Sub-section (1) of section 256 provides that the Appellate Tribunal on an application by the assessee or by the department, shall refer to the High Court any question of law arising out of such order and the Appellate Tribunal, subject to the other provision contained in the section, shall draw up a statement of the case and refer the question of law arising out of the order to the High Court. What is necessary under sub-section (1) is the fulfilment of two conditions, namely, (i) that there must be a question of law, and (ii) that the question of law must arise out of the order of the Appellate Tribunal, in which case the Appellate Tribunal must draw up a statement of the case and refer the question to the High Court. If the Appellate Tribunal refuses to state a case on the ground that no question of law arises then the assessee or the Commissioner, as the case may be, subject to certain conditions, apply to the High Court and the High Court may, if it is not satisfied with the correctness of the decision of the Appellate Tribunal, require the Tribunal to state a case and refer to it. In such a case it is mandatory on the Appellate Tribunal to state a case and refer it to the High Court.
Under section 258, if the High Court finds that the statement of a case referred to it is inadequate or insufficient to enable it to determine the questions raised therein, it may refer back the case to the Appellate Tribunal for the purpose of making additions or alterations in the statement of the case.
The High Court disposes a reference under section 260 of the Act. The High Court on hearing a reference shall decide the questions of law raised therein and deliver its judgment thereon containing the grounds on which such decision is founded. Section 260 has not laid down that the High Court is to decide only the questions referred. It has provided that it shall decide the questions of law raised therein. This section read along with section 256 makes it clear that in order to give jurisdiction to the High Court under section 260 two conditions have to be fulfilled : (i) the reference must involve a question of law, and (ii) the question of law must have been raised and considered in the case, in which latter case the question of law may be said to arise out of the order of the Appellate Tribunal.
In the case of Kusumben D. Mahadevia v. Commissioner of Income-tax : 39ITR540(SC) , their Lordships of the Supreme Court considered the scope of section 66 of the 1922 Act, which provided for the reference of a case by the Appellate Tribunal to the High Court and was essentially equivalent to section 256 of the Act. Their Lordships held (page 544) :
'Section 66 of the Income-tax Act which confers jurisdiction upon the High Court only permits a reference of a question of law arising out of the order of the Tribunal. It does not confer jurisdiction on the High Court a decide a different question of law not arising out of such order. It is possible that the same question of law may involve different approaches for its solution, and the High Court may amplify the question to take in all the approaches. But the question must still be one which was before the Tribunal and was decided by it. It must not be an entirely different question which the Tribunal never considered.'
The above decision rules that in order that the High Court may have jurisdiction to give an answer to the questions of law referred, what is necessary is that although the questions may have different approaches, it must be one and it must have been raised before the Tribunal and decided by it. The High Court has jurisdiction to amplify the question.
In the case of Commissioner of Income-tax v. Scindia Steam Navigation Co. Ltd. : 42ITR589(SC) , their Lordships of the Supreme Court have held (page 608) :
'The jurisdiction of the High Court in a reference under section 66 of the Income-tax Act is a special one, different from its ordinary jurisdiction as a civil court. The High Court, hearing a reference under that section, does not exercise any appellate or revisional or supervisory jurisdiction over the Tribunal. It acts purely in an advisory capacity, on a reference which properly comes before it under section 66(1) and (2). It gives the Tribunal advice, but ultimately it is for the Tribunal to give effect to that advice. It is of the essence of such a jurisdiction that the court can decide only questions which are referred to it and not any other questions : the Tribunal should have had an occasion to consider the question so that it may decide whether it should refer it for the decision of the court.
The power of the court to issue a direction to the Tribunal under section 66(2) of the Income-tax Act is in the nature of a mandamus and it is well settled that no mandamus will be issued unless the applicant had made a distinct demand on the appropriate authorities for the very reliefs which he seeks to enforce by mandamus and that had been refused. Thus, the power of the court to direct a reference under section 66(2) is subject to two limitations-the question must be one which the Tribunal was bound to refer under section 66(1) and the applicant must have required the Tribunal to refer it. The form prescribed under rule 22A of the Income-tax Rules for an application under section 66(1) shows that the applicant muse set out the questions which he desires the Tribunal to refer and that, further, those questions must arise out of the order of the Tribunal. It is, therefore, clear that under section 66(2), the court cannot direct the Tribunal to refer a question unless it is one which arises out of the order of the Tribunal and was specified by the applicant in his application under section 66(1) '.
Their Lordships summed up their findings as follows :
'(1) When a question is raised before the Tribunal and is dealt with by it, it is clearly one arising out of its order.
(2) When a question of law is raised before the Tribunal but the Tribunal fails to deal with it, it must be deemed to have been dealt with by it, and is, therefore, one arising out of its order.
(3) When a question is not raised before the Tribunal but the Tribunal deals with it, that will also be a question arising out of its order.
(4) When a question of law is neither raised before the Tribunal nor considered by it, it will not be a question arising out of its order notwithstanding that it may arise on the findings given by it.'
Their Lordships further observed :
A question of law might be a simple one, having its impact at one point, or it may be complex one, trenching over an area with approaches leading to different points therein. Such a question might involve more than one aspect, requiring to be tackled from different standpoints. All that section 66(1) requires is that the question of law which is referred to the court for decision and which the court is to decide must be the question which was in issue before the Tribunal. Where the question itself was under issue, there is no further limitation imposed by the section that the reference should be limited to those aspects of the question which had been argued before the Tribunal, and it will be an over-refinement of the position to hold that each aspect of a question is itself a distinct question for the purpose of section 66(1) of the Act.
Sometimes the questions are framed in such general terms that, construed literally, they might take in questions which were never in issue. In such cases, the true scope of the reference will have to be ascertained and limited by what appears on the statements of the case.
In framing questions, the Tribunal should be precise and indicate the grounds on which the questions of law are raised. Where, however, the question is sufficiently specific not only those contention can be argued in support of it which had been raised before the Tribunal, but it is also competent to the court in such a case to allow a new contention to be advanced, provided it is within the framework of the question as referred.'
Shah J., delivering a separate, but concurrent, judgment held :
'There is no warrant for the view that the question which the Tribunal may refer or which the High Court on the refusal of the Tribunal may call upon the Tribunal to refer, must be a question which was raised and argued before the Tribunal at the hearing under section 33(4). The statute does not specifically impose such a restriction nor is it implied. To import in the meaning of the expression any question of law arising out of such order the concept that the question must have been argued before and dealt with by the Tribunal in its judgment deciding the appeal, is to impose a fetter upon the jurisdiction of the High Court not warranted by the plain intendment of the statute.
A concrete question of law having a direct bearing on the rights and obligations of the parties which maybe founded on the decision of the Tribunal is one which arises out of the order of the Tribunal even if it is not raised or argued before the Tribunal at the hearing of the appeal. It is the duty of the Tribunal to draw up a statement of the case and to frame questions; that duty can only be performed adequately if specific questions relating directly to the dispute between the parties are raised. If the import of the question is unduly large, the High Court has, and is indeed bound, in dealing with it, to restrict it to its true content in the light of the findings recorded by the Tribunal. But in dealing with the question, the High Court may not only entertain those aspects of the case which were argued before the Tribunal, but all such aspects as have fairly a direct bearing on the dispute. The jurisdiction of the High Court is by statute not expressly circumscribed in recording its opinion on arguments advanced before the Tribunal, and the nature of the jurisdiction exercised by the High Court does not demand that such a limitation should be the order of the Tribunal, and not merely those which were raised and argued before the Tribunal.'
Although the question of burden of proof was not specifically raised in the application made by the assessee for reference, it appears from the order of the Appellate Tribunal that the point was raised before him and he has considered it and given a finding on it. The point arises out of the order of the Tribunal. This is a question of law. Although this point of law was not referred by the Tribunal, under section 260 of the Act, in our opinion, the High Court has jurisdiction to consider and give its opinion on it, and reframe the question for the purpose in order to bring out the true purport.
We, therefore, reframe question No. 2 as follows :
'(2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the penalty was validly imposed in view of the decision of the Supreme Court in the case of Commissioner of Income-tax v. Kulu Valley Transport Co. (P.) Ltd. : 77ITR518(SC) , and in view of the fact that the burden of proof was laid by the Tribunal on the assessee ?'
We shall now proceed to decide the question as reframed.
In Kulu Valleys case : 77ITR518(SC) the question referred was 'whether the losses of Rs. 1,51,520 and of Rs. 48,977 returned by the assessee in January, 1956, for the assessment years 1953-54 and 1954-55, respectively, require in law to be determined and carried forward under section 24(2) of the Income-tax Act ?' In that case, their Lordships were called upon to interpret, and their Lordships did interpret, section 24(2) of the 1922 Act. Their Lordships held at page 526 :
'Section 24(2) contains substantive provisions relating to carrying forward of the loss. It provides that where any assessee sustains a loss of profits or gains in any year being a previous year in any business, profession or vocation and the loss cannot be wholly set off under sub-section (1) (of section 24) so much of the loss as is not so set off or the whole loss where the assessee had no other head of income shall be carried forward to the following year.'
In interpreting section 24(2), their Lordships also examined sub-section (1) and other relevant sub-sections of section 22 of the Act. Their Lordships have also observed at page 527 :
'It is well settled by now that a return can always be filed at any time before the assessment is made. The Income-tax Officer has to make the assessment on that return and he could not choose to ignore it. The question that immediately arises is whether, in case of a voluntary return in which loss has been shown and determined, the Income-tax Officer can decline to give the benefit under section 24(2) of carrying forward the loss on the ground that the assessee did not comply with the provisions of section 22(2A) of the Act. In other words, when there is an express provision in that sub-section which must be availed of if the assessee is to be entitled to the benefit of carrying forward of loss in any subsequent assessment, can he take advantage of the provisions of section 22(3) and claim that since he has filed a voluntary return before any assessment has been made and, if it be determined that he has suffered a loss, he is entitled to carry forward that loss.'
In the above case, the penalty provisions of Chapter XXI including sections 271 and 274 with which we are concerned in the instant case, did not fall for their Lordships consideration. In interpreting section 22 of the 1922 Act, which is equivalent to section 139 of the 1961 Act, their Lordships observed at page 529 :
'The Income-tax Officer could not have ignored the return and had to determine those losses. Section 24(2) confers the benefit of losses being set off and carried forward and there is no provision in section 22 under which losses have to be determined for the purpose of section 24(2). The question which immediately arises is, whether section 22(2A) places any limitation on that right. This sub-section which has been reproduced before simply says that in order to get the benefit of section 24(2) the assessee must submit his loss return within the time specified by section 22(1). That provision must be read with section 22(3) for the purpose of determining the time within which a return has to be submitted. It can well be said that section 22(3) is merely a proviso to section 22(1). Thus, a return submitted at any time before the assessment is made is a valid return. In considering whether a return made is within time sub-section (1) of section 22 must be read along with sub-section (3) of that section. A return whether it is a return of income, profits or gains or of loss must be considered as having been made within the time prescribed if it is made within the time specified in section 22(3). In order words, if section 22(3) is complied with, section 22(1) also must be held to have been complied with. If compliance has been made with the latter provision the requirements of section 22(2A) would stand satisfied.'
Their Lordships have not decided in the Kulu Valleys case : 77ITR518(SC) that no penalty can be levied if a return is submitted beyond the time allowed, without reasonable cause; as such it must be held that the order levying penalty was not invalid in view of the decision of the Supreme Court in Kulu Valleys case : 77ITR518(SC) .
This view gets support from a decision of the Gujarat High Court in Addl. Commissioner of Income-tax v. Santosh Industries : 93ITR563(Guj) . A Division Bench of the Gujarat High Court considered the decision of the Supreme Court in Kulu Valleys case : 77ITR518(SC) . Their Lordships observed at page 580 :
'The Supreme Court was concerned only with the limited question, namely, whether on a proper interpretation of section 22, sub-section (2A), an assessee was entitled to set off and carry forward of loss under section 24, sub-section (2), if he filed a loss return after the time allowed under section (1) of section 22 but before the expiration of four years from the end of the assessment year under section 22, sub-section (3). The argument of the revenue was that the words within the time specified in the general notice given under sub-section (1) or within such time as the Income-tax Officer in any case may allow in section 22, sub-section (2A), restricted the right of set-off and carry-forward of loss to a case where a loss return was filed strictly within the time specified in the general notice given under section 22, sub-section (1), or within the extended time, but if it was filed after the expiration of such time, the condition of these words would not be satisfied and set-off and carry-forward of loss would not be admissible. This argument was repelled by Grover J., stating that section 22, sub-section (2A), was merely clarificatory. It did not add anything to section 22 nor take away anything from it. Even without it, a loss return could be filed by an assessee within the time allowed under section 22, sub-section (1), also under section 22, sub-section (3), and if such return was filed, the Income-tax Officer would be bound to determine the loss and allow it to be set off and carried forward under section 24 sub-section (2). Sub-section (2A) was introduced in section 22 merely with a view to clarifying this position. It was not intended to alter the law against the assessee by providing that in order to be entitled to the benefit of set-off and carry-forward of loss, the assessee must file a loss return within the time strictly allowed under sub-section (1) of section 22 and if he failed to do so, he should be disentitled to such benefit. It was in this context that Grover J. made the aforesaid observations interpreting section 22, sub-section (2A). It is difficult to see how these observations made in the context of section 22, sub-section (2A), can be applied blindly and mechanically, when we are interpreting a wholly different section in a totally different context. It is unsafe and contrary to logic and reason to try to interpret the words used in one statutory provision by reference to the interpretation placed on similar words in another statutory provision.'
The above observations of their Lordships of the Gujarat High Court, in our respectful opinion, aptly apply to the facts of the case in hand.
Now as to burden of proof. In a legal proceeding the general rule is that he who asserts must prove. The burden of proof has two meanings : the burden of proof as a matter of substantive law and pleading, and as a matter of adducing evidence. The former burden is fixed at the commencement of the trial by the state of the pleadings or their equivalent and is one that never changes under any circumstances whatever; and if, after all the evidence has been given by both sides, the party having this burden on him has failed to discharge it, the case should be decided against it. In considering upon whom the burden of proof of an issue, that is, the legal burden, falls, a convenient test is to inquire whether the allegation involved, be it affirmative or negative, is or is not essential to the particular partys case, that is, whether he would fail if it were struck out of the record. If it is essential, and he would so fail, then the burden of proving it is upon him.
'The burden of proof, in the sense of the burden of adducing evidence, on the other hand, is a burden which may shift continually throughout the trial, according as the evidence in one scale or the other preponderates. This burden rests upon the party who would fail if no evidence at all, or no more evidence, as the case may be, were adduced by either side. In other words, it rests, before any evidence whatever is given, upon the party who has the burden of proof on the pleadings, that is, who asserts the affirmative of the issue; and it rests, after evidence is gone into, upon the party against whom, at the time the question arises, judgment would be given if no further evidence were adduced by either side.'
But there are exceptions to the general rule.
'(i) When there exists a rebuttable presumption of law in favour of a party, the burden of rebutting it lies upon his opponent, and (ii) where the truth of a partys allegation lies peculiary within the knowledge of his opponent, the burden of disproving it lies upon the latter.' (See Halsburys Laws of England, 3rd edition, volume, 15, page 269.)
'Generally, the burden of proof upon any affirmative proposition necessary to be established as the foundation of an issue does not shift, but the burden of evidence or the burden of explanation may shift from one side to the other according to the testimony.' (Whartons Evidence in Criminal Cases).
The above principles of the law of evidence have been ingrained in sections 101 to 114 of the Indian Evidence Act. We may refer to the relevant sections.
Section 101 :
'Whoever desires any court to give judgment as to any legal right or liability dependent on the existence of facts which he asserts must prove that those facts exist............'
Section 102 :
'The burden of proof in a suit or proceeding lies on that person who would fail if no evidence at all were given on either side.'
Section 103 :
'The burden of proof as to any particular fact lies on that person who wishes the court to believe in its existence, unless it is provided by any law that the proof of that fact shall lie on any particular person.'
We are not concerned with section 104. Section 105 provides :
'When a person is accused of any offence, the burden of proving the existence of circumstances bringing the case within any of the general exceptions in the Indian Penal Code, or within any special exception or proviso contained in any other part of the same Code, or in any law defining the offence, is upon him, and the court shall presume the absence of such circumstances.'
Section 106, under which the Tribunal placed the burden of proof on the assessee, is in the following terms :
'When any fact is especially within the knowledge of any person, the burden of proving that fact is upon him.'
Sections 107 to 113 are not material. Section 114 provides :
'The court may presume the existence of any fact which it thinks likely to have happened, regard being had to the common course of natural events, human conduct and public and private business, in their relation to facts of the particular case.'
Illustration (g) to section 114 is in the following terms :
'The court may presume - ..............
(g) that evidence which could be and is not produced would, if produced, be unfavourable to the person who withholds it.'
In a criminal case the burden of proof is upon the prosecution to establish the guilt of the accused beyond reasonable doubt, But if the accused takes the plea of general exception, under section 105 of the Evidence Act, the burden of proof is upon him to prove it.
'As a rule affecting merely the time and manner or proof, but not for the purpose of affecting the merits of the testimony, when facts are peculiarly within the knowledge of a party, the burden is on him to prove such facts, whether the proposition be in an affirmative or a negative one. A court may, therefore, properly hold so far as the mode of offering proof but in no way touching the question of the degree of proof, it is incumbent on a party who has a peculiar proof in his possession to first produce it.' (Wharton : ibid : s. 201, vol. I, 11th edition.)
The learned author gives an illustration of the prosecution of a person exercising a trade or profession or doing other acts without a licence and observes :
'In such a case it would greatly inconvenience the prosecution to prove that the defendant has no licence, whereas the defendant could easily prove that he did have one.'
It is also well settled that when defence in a criminal case is one of admission of the act and avoidance of the liability, the burden is on the accused to make good the defence.
The penalty proceeding under section 271 of the Income-tax Act, 1961, is a quasi-criminal proceeding, but not a criminal prosecution as such, and, therefore, in our opinion, the doctrine of criminal jurisprudence that the guilt of the accused shall be established beyond reasonable doubt by the prosecution, does not fully apply to a proceeding under section 271 of the Income-tax Act. In other words the department, in the course of any proceeding under the Income-tax Act, in order to levy penalty, need not prove beyond reasonable doubt, negatively, that the assessee has, without reasonable cause, failed to furnish the return of the total income which he was required to furnish.
The relevant portion of section 271 of the Income-tax Act, 1961, with which we are primarily concerned in this case, may be quoted :
'271. Failure to furnish return, comply with notices, concealment of income, etc. - (1) If the Income-tax Officer or the Appellate Assistant Commissioner in the course of any proceedings under this Act, is satisfied that any person -
(a) has without reasonable cause failed to furnish the return of total income which he was required to furnish under sub-section (1) of section 139 or by notice given under sub-section (2) of section 139 or section 148 or has without reasonable cause failed to furnish it within the time allowed and in the manner required by sub-section (1) of section 139 or by such notice, as the case may be, or
(b) has without reasonable cause failed to comply with a notice under sub-section (1) of section 142 or sub-section (2) of section 143, or
(c) has concealed the particulars of his income or furnished inaccurate particulars of such income,
he may direct that such person shall pay by way of penalty, -
(i) in the cases referred to in clause (a), in addition to the amount of the tax, if any, payable by him, a sum equal to two per cent. of the tax for every month during which the default continued, but not exceeding in the aggregate fifty per cent. of the tax;
(ii) in the cases referred to in clause (b), in addition to any tax payable by him, a sum which shall not be less than ten per cent, but which shall not exceed fifty per cent. of the amount of the tax, if any, which would have been avoided if the income returned by such person had been accepted as the correct income;
(iii) in the cases refered to in clause (c), in addition to any tax payable by him, a sum which shall not be less than, but which shall not exceed twice, the amount of the income in respect of which the particulars have been concealed or inaccurate particulars have been furnished.........'
Section 274 also may be quoted :
'274. Procedure. - (1) No order imposing a penalty under this Chapter shall be made unless the assessee has been heard, or has been given a reasonable opportunity of being heard...........'
In the instant case, as stated at the beginning, a notice under section 22(2) of the 1922 Act dated November 14, 1958, was served on the assessee on November 15, 1958, requiring the assessee to submit the return within 35 days from the date of the receipt of the said notice. The assessee did not furnish the return on the date fixed, namely, June 25, 1961, nor did he furnish the return on two subsequent dates fixed, namely, December 29, 1964, and February 15, 1965, granted to him. But finally on March 8, 1965,he made an application in which two legal pleas were taken; but the ground of his failure to furnish the return within the time allowed was not disclosed. Undoubtedly, the ground for not furnishing the return within the time allowed, was within the special knowledge of the assessee and the department could not know it. But when the ground was not disclosed by the assessee, which ground was within the special knowledge of the assessee, the Income-tax Officer could reasonably presume that he had no reasonable ground of his failure to furnish the return within time, or the ground, if disclosed, would show that it was unreasonable. This presumption is of course a rebuttable presumption and the burden was upon the assessee to rebut the presumption. He failed to do so. The initial burden of establishing the case has been discharged by the department by the aforesaid presumption that arose against the assessee, and the burden then shifted to the assessee to rebut it but he failed to discharge it.
Strong reliance has been taken by the assessee on two decisions of the Supreme Court in Hindustan Steel Ltd. v. State of Orissa : 83ITR26(SC) and Commissioner of Income-tax v. Anwar Ali : 76ITR696(SC)
In Hindustan Steel Ltd. v. State of Orissa : 83ITR26(SC) , one of the question referred to the High Court was 'whether imposition of penalties for failure to register as a dealer was justified ?' The assessee, in that case, failed to register itself as a dealer under the Orissa Sales Tax Act. Their Lordships of the Supreme Court observed as follows at page 29 :
'Under the Act penalty may be imposed for failure to register as a dealer : section 9(1), read with section 25(1)(a) of the Act. But the liability to pay penalty does not arise merely upon proof of default in registering as a dealer. An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding, and penalty will not ordinarily 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 to its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute. Those in charge of the affairs of the company in failing to register the company as a dealer acted in the honest and genuine belief that the company was not a dealer. Granting that they erred, no case for imposing penalty was made out.'
In the above case it was found that the failure of the company to register itself as a dealer was in honest and genuine belief that it was not a dealer. In other words, the ground of failure to register was in effect held to be reasonable. Their Lordships held that in order that the penalty may be levied, the assessee must have acted deliberately in defiance of law, or guilty of conduct, contumacious or dishonest, or acted in conscious disregard of his obligation. In the instant case the failure of the assessee to submit the return within the time allowed was deliberately in defiance of law, inasmuch as, in his objection petition, only legal grounds were taken and the cause of not furnishing the return within time was not disclosed. He was, therefore, guilty of conduct contumacious or dishonest. In the case of Hindustan Steel Ltd. : 83ITR26(SC) the breach of the provisions of the Act was held to be technical or venial, but in the instant case it was neither technical nor venial. Therefore, Hindustan Steel Ltd.s case : 83ITR26(SC) is of no assistance to the assessee. That apart, this decision has not dealt with the question of burden of proof in a penalty proceeding.
In Anwar Alis case : 76ITR696(SC) , the assessee during the assessment year 1947-48 was a partner in the firm, M/s. Haji SK. Md. Hussain Md. Jan of Calcutta. The Income-tax Officer while making the assessment discovered an undisclosed bank account of the assessee with the Central Bank of India Ltd., at Bettiah, Bihar. It was found that a cash deposit of Rs. 87,000 had been made by the assessee in November, 1946. The assessee was asked to explain the source of the amount of deposit. The explanation was that all his relations got panicky during the communal riots in Bihar in the year 1946 and entrusted him with whatever cash amounts they had with them at the time for safe custody. The assessee gave the names of 7 persons who were alleged to have been his relatives with the respective sums alleged to have been deposited by them. The Income-tax Officer did not accept the explanation of the assessee and held that the sum of Rs. 87,000 represented income from undisclosed sources. And he added the amount to the total income of the assessee in his personal assessment. Penalty proceedings were then initiated after the assessment and in due course the Income-tax Officer imposed a penalty of Rs. 66,000 on the assessee under section 28(1)(c) of the 1922 Act for concealing income and deliberately furnishing inaccurate particulars.
The question referred was 'whether, on the facts and in the circumstances of the case, the income-tax authorities were justified in imposing a penalty on the assessee under section 28(1)(c) of the Income-tax Act ?'
Their Lordships of the Supreme Court, after examining the two opposite views of the High Court in India, held-See : 76ITR696(SC) . :
'The.....question is that when proceedings under section 28 are penal in character what would be the nature of the burden upon the department for establishing that the assessee is liable payment of penalty.'
Their Lordships, approving the view of Chagala C.J. in Commissioner of Income-tax v. Gokuldas Harivallabhdas : 34ITR98(Bom) , held that the gist of the offence under section 28(1)(c) is that the assessee has concealed the particulars of his income or deliberately furnished inaccurate particulars of the such income and, therefore, the department must establish that the receipt of the amount in dispute constitutes income of the assessee. Their Lordships observed - See : 76ITR696(SC) :
'It must be remembered that the proceedings under section 28 are of a penal nature and the burden is on the department to prove that a particular amount is a revenue receipt. It would be perfectly legitimate to say that the mere fact that the explanation of the assessee is false does not necessarily give rise to the inference that the disputed amount represents income. It cannot be said that the finding given in the assessment proceedings for determining or computing the tax is conclusive. However, it is good evidence.'
Their Lordships have laid down that in a penalty proceeding, the burden is on the department to prove the assessees liability for the penalty. But how to discharge that burden depends on the relevant rules of evidence referred to above. The authority has to consider the materials on record and come to a finding on it. In Anwar Alis case : 76ITR696(SC) itself it has been observed at page 701 :
'Before penalty can be imposed the entirely of circumstances must reasonably point to the conclusion that the disputed amount represented income and that the assessee had consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars. In the present case, it was neither suggested before the High Court nor has it been contended before us that, apart from the falsity of the explanation given by the assessee, there was cogent material or evidence from which it could be inferred that the assessee had concealed the particulars of his income or had deliberately furnished inaccurate particulars in respect of the same and that the disputed amount was a revenue receipt.'
In Anwar Alis case : 76ITR696(SC) , the question was whether the amount of Rs. 87,000 was income of the assessee; if it was not, then it was not liable to be assessed. Even if the amount was not the amount alleged to have been deposited by relatives of the assessee, it could possibly be not an income, and, as such, naturally, the burden was upon the department.
This case, therefore, does not support the contention of the assessee.
Both the questions, therefore, are to be answered in the affirmative and in favour of the department.
The assessee shall pay costs of this reference. Hearing fee Rs. 100.
B. N. SARMA J. - I agree.