DEVAYANI AMMA Vs. UNION OF INDIA

JUDGEMENT

(1.) IN this Writ Petition the petitioner who is an assessee to wealth tax on the file of the second respondent,the Wealth Tax Officer,Assessment V,Calicut,challenges the validity of Exts.P -7 to P -12 penalty orders,on various grounds.Though the grounds raised are many,in the course of arguments,Sri C.T.Peter,counsel for the petitioner,confined himself to two points:"( 1)the orders,Exts.P -7 to P -12,are illegal in as much as they are passed without jurisdiction;( 2)mens rea,which is a pre -requisite to an order imposing penalty,has not been established in this case.

(2.) ELABORATING his argument on the question of lack of jurisdiction,counsel for the petitioner submitted that from Exts.P -7 to P -12 it is seen that the proceeding for the imposition of penalty has been initiated during the course of the proceedings for assessment,and that course adopted by the second respondent is opposed to the principles laid down by the Supreme Court in Commissioner of Income -tax v. Angidi Chettiar, 44 I.T.R.739.The observation of the Supreme Court at page 745,to which my attention has been drawn is as follows:" The power to impose penalty under section 28 depends upon the satisfaction of the Income -tax Officer in the course of proceedings under the Act;it cannot be exercised if he is not satisfied about the existence of conditions specified in clauses(a ),( b)or(c)before the proceedings are concluded.The proceeding to levy penalty has,however,not to be commenced by the Income -tax Officer before the completion of the assessment proceedings by the Income -tax Officer.Satisfaction before conclusion of the proceeding under the Act,and not the issue of a notice or initiation of any step tor imposing penalty is a condition for the exercise of the jurisdiction. Sri P.K.Ravindranatha Menon,Standing Counsel for the Revenue,submits that the ruling in Commissioner of Income -tax v. Angidi Chettiar, 44 I.T.R.739 cannot be applied to the present case,because the provisions that came up for consideration before the Supreme Court are not identical to the provisions contained in section 18 of the Wealth Tax Act,1957 under which the impugned orders have been passed by the second respondent.For this purpose it is necessary to notice the relevant provisions of section 28 of the Indian Income -tax Act,1922,which were the provisions that came up for consideration before the Supreme Court,and the relevant provisions of section 18 of the Wealth Tax Act,1957,under which the impugned orders have been passed.They are extracted below.Section 28(1)of the Income -tax Act: 28. Penalty for concealment of income or improper distribution of profit. "( 1)If the Income -tax Officer,the Appellate Assistant Commissioner or the Appellate Tribunal,in the course of any proceedings under this Act is satisfied that any person " (a)has without reasonable cause failed to furnish the return of his total income which he was required to furnish by notice given under sub -section(1)or sub -section(2)of section 22 or section 34 or has without reasonable cause failed to furnish it within the time allowed and in the manner required by such notice;or (b)has without reasonable cause failed to comply with a notice under sub -section(4)of section 22 or sub -section(2)of section 23,or (c)has concealed the particulars of his income or deliberately furnished inaccurate particulars of such income: He or it may direct that such person shall pay by way of penalty,in the case referred to in clause(a ),in addition to the amount of the income -tax and super -tax,if any,payable by that amount,and in the cases referred to in clauses(b)and(c ),in addition to any tax payable by him,a sum not exceeding one and a half times the amount of the income -tax and super -tax,if any which would have been avoided if the income as returned by such person had been accepted as the correct income. Provided that " (a)no penalty for failure to furnish the return of his total income shall be imposed on an assessee whose total income is less than three thousand five hundred rupees unless he has been served with a notice under sub -section(22)or section 34 and proves that he has no income liable to tax,the penalty imposable under this sub -section shall be a penalty not exceeding twenty -five rupees. (c)no penalty shall be imposed under this sub -section upon any person assessable under section 12 as the agent of a person not resident in the taxable territories for failure to furnish the return required under section 22 unless a notice under sub -section(2)of that section or under section 34 has been served on him; (d)when the person liable to penalty is a registered firm,or an unregistered firm treated under section 23(5 )(b)as a registered firm,so that the amount of the income -tax and super -tax payable by the firm itself has not been determined,that amount shall be taken to be an amount equal to the tax which would have been payable by an unregistered firm on an income equal to the firm 's total income,and in the cases referred to in clauses(b)and(c ),the amount of the income,tax and super -tax which would have been accepted as the correct income,shall be taken to be the difference between the amount of the tax which would have been payable by an unregistered firm on an income equal to the firm 's total income and the amount of the tax payable by an unregistered firm on an income equal to the income of the firm as actually returned by the firm. 18.( 1)if the Wealth -tax Officer,Appellate Assistant Commissioner,Commissioner of Appellate Tribunal in the course of any proceedings under this Act is satisfied that any person " (a)has without reasonable cause failed to furnish the return which he is required to furnish under sub -section(1)of section 14 or by notice given under sub -section(2)of section 14 or section 17,or has without reasonable cause failed to furnish it within the time allowed and in the manner required by sub -section(1)of section 14 or by such notice,as the case may be,or (b)has without reasonable cause failed to comply with a notice under sub -section(2)or sub -section(4)of section 16,or (c)has concealed the particulars of any assets or furnished inaccurate particulars of any assets or debts; he or it may,by order in writing 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 wealth tax,if any,payable by him,a sum,for every month during which the default continued,equal to one -half per cent of " (A)the net wealth assessed under section 16 as reduced by the amount of net wealth on which,in accordance with the rates of wealth tax specified in paragraph A of Part I of the Schedule or Part II of the Schedule,the wealth tax chargeable is nil,or (B)the net wealth assessed under section 17.where assessment has been made under that section,as reduced by - (1)the net wealth,if any assessed previously under section 16 or section 17,or (2)the amount of net wealth on which in accordance with the rates of wealth tax specified in paragraph A of Part I of the Schedule or Part II of the Schedule the wealth tax chargeable is nill,whichever is greater, but not exceeding,in the aggregate,an amount equal to the net wealth assessed under section 16,or as the case may be,the net wealth assessed under section 17,as reduced in either case in the manner specified; (ii)in the cases referred to in clause(b ),in addition to the amount of wealth tax payable by him,a sum which shall not be less than one per cent,of the assessed net wealth but which shall not exceed the amount of the assessed net wealth. Explanation ."For the purposes of clause(ii)assessed net wealth shall he taken to be the net wealth assessed under section 16 as reduced by the net wealth declared in the return,if any,furnished by such person or,as the case may be,the net wealth assessed under section 17 as reduced by - (i)the net wealth,if any,assessed previously under section 16 or section 17 or (ii)the net wealth declared in the return,if any,furnished by such person under section 17, whichever,is greater; (iii)in the cases referred to in clause(c)in addition to any wealth tax payable by him,a sum shall not be less than,but which shall not exceed twice,the amount representing the value of any assets in respect of which the particulars have been concealed or any assets or debts in respect of which inaccurate particulars have been furnished. Explanation 1."Where, (i)the value of any asset returned by any person is less than seventy -five per cent of the value of such asset as determined in an assessment under section 16 or section 17(the value so assessed being referred to hereafter in this Explanation as the correct value of the asset ),or (ii)the value of any debt returned by any person exceeds the value of such debt as determined in an assessment under section 16 or section 17 by more than twenty -five per cent,of the value so assessed(the value so assessed being referred to hereafter in this Explanation as the correct value of the debt ),or (ii)the net wealth returned by any person is less than seventy -five per cent of the net wealth as assessed under section 16 or section 17(the net wealth so assessed being referred to hereafter in this Explanation as the correct net wealth ). then,such person shall,unless he proves that the failure to return the correct value of the asset or,as the case may be,the correct value of the debt or the correct net wealth did not arise from any fraud or any gross or wilful neglect on his part,be deemed to have concealed the particulars of assets or furnished inaccurate particulars of assets or debts for the purposes of clause(c)of this sub -section. Explanation 2."For the purpose of clause(iii) (a)the amount representing the value of any assets in respect of which the particulars have been concealed or any assets in respect of which inaccurate particulars have been furnished,shall be the value of such assets determined for the purposes of this Act,as reduced by the value thereof,if any,declared in the return made under section 14 or section 15; (b)the amount representing the value of any debts in respect of which inaccurate particulars have been furnished,shall be the amounts by which the value of such debts declared in the return made under section 14 or section 15 exceeds the value thereof determined for the purposes of this Act ;. Section 18(5 )." No order imposing a penalty under this section shall be passed after the expiration of two years from the date of the completion of the proceedings in the course of which the proceedings for the imposition of penalty have been commenced. Explanation ."In computing the period of limitation for the purposes of this section,the time taken in giving an opportunity to the assessee to be re -heard under the proviso to section 39 and any period during which a proceeding under this section for the levy of penalty is stayed by an order or injunction of any court shall be excluded ;.

(3.) SRI Peter has drawn my attention to yet another decision,i.e .,a decision of a Division Bench of the Allahabad High Court,reported in Commissioner of Income -tax v. Bankey Lal Hira Lal, 92 I.T.R.587.The portion relied on by the counsel reads as follows:" While the statute does not require any formal order recording the satisfaction of the Income -tax Officer that the assessee has committed the default mentioned in section 271(1 ),it is sufficient for the validity of the penalty proceeding if there is something to show the Income -tax Officer was satisfied in the course of the assessment proceeding before the penalty proceeding is commenced,that evidence is forthcoming,as in the present case,if the Income -tax Officer records in the assessment order itself that he is satisfied that it is a case in which a penalty proceeding should be taken as the Supreme Court has pointed out in Commissioner of Income -tax v. Angidi Chettiar [1962(44)I.T.R.739],that is the only condition requiring compliance during the course of the assessment proceeding.It is open to the Income -tax Officer to actually commence the penalty proceeding after the assessment has been concluded ;. Great stress is laid on the wording It is open to the Income -tax Officer to actually commence the penalty proceeding after the assessment has been concluded.It is pertinent to note that the question that came up both before the Supreme Court and the Division Bench of the Allahabad High Court was the point of time at or before which the satisfaction in regard to the need for initiating penalty proceedings had to be reached.The question whether it was open to the officer to commence proceedings for imposition of penalty after the completion of the proceedings for assessment did not directly engage the attention of the Supreme Court and the Allahabad High Court in those cases.A plain reading of section 18(1)along with section 18(5)of the Wealth Tax Act makes no room to doubt that the Wealth Tax Officer is competent to commence proceedings during the course of the proceedings in which satisfaction in regard to the need for commencement of such proceedings has been reached.I am,therefore,of the view that the petitioner is not entitled to succeed on the statement in paragraph 1 in all the impugned orders,Exts.P -7 to P -12,which reads as follows: ¦ ;.She did not do so,and,therefore,proceedings under section 18(1 )(a)were initiated in the course of the assessment proceedings asking the assessee to show cause why a penalty should not be levied for such default ;.