A M SALI MARICAR Vs. INCOME TAX OFFICER

JUDGEMENT

(1.) IN these two writ petitions the constitutional validity of section 140A(3) of the INcome-tax Act, 1961 (hereinafter called "the Act") is challenged. The petitioners are different but identical contentions have been raised. IN the first case for the assessment year 1968-69 the petitioner filed on April 18, 1969, a return of income declaring a total income of Rs. 51, 350. The tax payable thereon under section 140A(1) was Rs. 15, 506. Since the petitioner did not pay the tax within thirty days of furnishing the return as required under section 140A(1), a notice under section 140A(3) was issued to him to show cause why a penalty should not be imposed. The petitioner filed a written reply on October 28, 1969, stating that his funds were locked up in the business and that, therefore, the tax could not be paid in accordance with that section. But the INcome-tax Officer rejected his explanation on the ground that the petitioner was showing large cash balance in his wealth-tax returns and that therefore there was no proper explanation for non-payment of tax under section 140A. By his order dated October 31, 1969, the INcome-tax Officer levied a penalty of Rs. 5, 000 under section 140A(3) of the Act. It may be mentioned that the regular assessment is stated to have been completed on September 30, 1969, and the tax payable on the regular assessment was determined at Rs. 17, 501 IN the second case also the facts are almost identical except that there is slight difference in the total income returned and the amount of tax payable.

(2.) THE total income returned for the year 1968-69 was Rs. 51, 310 and the tax payable under section 140A was Rs. 15, 482. A sum of Rs. 5, 000 was levied as penalty in this case also. In both these cases it appears that the penalty was reduced to Rs. 2, 500 on appeal by each of the assessees to the Appellate Assistant Commissioner when these writ petitions were pendingThiru Kesava Iyengar, the learned counsel for the petitioners, raised three main contentions in these writ petitions(1) Section 140A(3) of the Act enabling the Income-tax Officer to levy a penalty which may extend upto 50% of the amount of tax payable under section 140A and not paid within 30 days of furnishing the return, is confiscatory in nature and unreasonable and offends article 19(1)(f) of the Constitution of India(2) Though under the relevant provisions of the Act, the Government is liable to pay only interest at 9%(now 12%) per annum for failure to refund within the time specified any excess paid, assessees like the petitioners are made liable to pay penalty under section 14OA(3) for failure to pay tax in time. This amounts to an invidious and hostile discrimination against the petitioners and violates article 14. THE section also confers on the Income-tax Officer an arbitrary and unguided power in the matter of imposition of penalty for non-payment of the tax and therefore is discriminatory violating article 14 of the Constitution(3) THE power to levy a penalty for non-payment of tax which has become payable is not incidental or ancillary to the power to "tax income" and, therefore, section 140A(3) is beyond the legislative competence of ParliamentElaborating the first point, the learned counsel submitted that section 140A(3) of the Act, in the guise of a provision for enforcement of payment of tax, authorises the confiscation of property, that the provision is not compensatory for delayed payment or retention of tax payable, that the penalty could be imposed by statute only for concealment of tax which is in the nature of an offence, that the section authorises the levy of penalty by assuming an offence where there is none, that the non-payment of the amount of tax payable under section 140A(1) creates only a civil liability and not an offence or criminal or quasi-criminal liability and that any penalty imposed for not discharging that civil liability amounts to confiscation of the propertyTHE relevant portions of the section read as follows"140A. Self-assessment.-(1) Where a return has been furnished under section 139 and the tax payable on the basis of that return as reduced by any tax already paid under any provision of this Act exceeds five hundred rupees, the assessee shall pay the tax so payable within thirty days of furnishing the return(3) If any assessee fails to pay the tax or any part thereof in accordance with the provisions of sub-section (1), he shall, unless a regular assessment under section 143 or section 144 has been made before the expiry of the thirty days referred to in that sub-section, be liable, by way of penalty, to pay such amount as the Income-tax Officer may direct, and in the case of a continuing failure, such further amount or amounts as the Income-tax Officer may, from time to time, direct, so, however, that the total amount of penalty does not exceed fifty per cent. of the amount of such tax or part, as the case may beProvided that before levying any such penalty, the assessee shall be given a reasonable opportunity of being heard." *This is a new section which was introduced by section 34 of the Finance Act of 1964, with effect from April 1, 1964. As per sub-section (1), the moment a return is furnished the tax due, on the basis of the return as reduced by the tax already paid, becomes payable. With reference to the legal position prior to the introduction of section 140A, the Supreme Court in Kesoram Industries and Cotton Mills Ltd. v. Commissioner of Wealth-tax held that a liability to pay income-tax was a present liability, though the tax became payable after it was quantified in accordance with the ascertainable data and that there was a perfected debt at any rate on the last date of the accounting year and not a contingent liability. Again, in Commissioner of Wealth-tax v. Standard Vacuum Oil Co. Ltd., approving the decision of the Gujarat High Court in Commissioner of Wealth-tax v. Raipur Manufacturing Co., the Supreme Court observed that a condition subsequent, the fulfilment of which may result in the reduction or even extinction of liability, would not have the effect of converting the liability which attaches into a contingent liability.

(3.) THE court must interpret the statute as it stands: vide C. A. Abraham v. Income-tax Officer, Kottayam. THE power to levy penalty under section 140A(3) is very wide and enables levy of penalty even in cases where the delay in payment was bona fide or due to inability or other good reasons and the amount of penalty is also not made dependent on the amount of tax payable or the length of time of the delayIn Check Post Officer v. K. P. Abdulla and Bros., the Supreme Court held that section 42(3) of the Tamil Nadu General Sales Tax Act, 1959, which empowers the Check Post Officers to confiscate goods and levy penalty in lieu of confiscation without inspection of the goods found in a vehicle when the driver of the vehicle was not carrying with him the documents specified in the section, is not a provision which is ancillary or incidental to the power to tax sale of goods under entry 54 of List II of the Seventh Schedule to the Constitution, approving the decision of this court in K. P. Abdulla & Bros. v. Check Post Officer. Though the Supreme Court was concerned with the legislative competency of a State legislature under entry 54 of List II of the Seventh Schedule to the Constitution, the ratio of that judgment, in our opinion, is that a provision for confiscation or levy of penalty is not a provision for enforcement of payment of tax. Thus, the provision for confisaction of property for non-payment of tax arrears could not be sustained as a provision ancilliary or incidental for enforcement of payment and, therefore, a reasonable restriction under clause (5) of article 19 of the Constitution. Even as a punishment for failure to pay the tax within time, the legislation could not be sustained from the attack of article 19(1)(f). THE decision in Collector of Malabar v. E. Ebrahim is illustrative of this principle. In that case the constitutional validity of the provision for arrest and detention under the Madras Revenue Recovery Act, 1864, for recovery of arrears of income-tax was considered.