Court affirms legislative competence of Income-tax Act Section 28, penalties upheld.

Sivagaminatha Moopanar And Sons Versus Income-tax Officer

Sivagaminatha Moopanar And Sons Versus Income-tax Officer - [1955] 28 ITR 601 (MAD.) Issues Involved:
1. Legislative competence of Section 28 of the Income-tax Act.
2. Violation of Article 14 of the Constitution by Section 28.
3. Proper construction and application of Section 28 of the Income-tax Act.

Issue-wise Detailed Analysis:

1. Legislative Competence of Section 28 of the Income-tax Act:
The petitioner contended that Section 28, which enables the Income-tax Officer to levy a penalty, was beyond the legislative competence of the Central Legislature under the Government of India Act, 1935. The court dismissed this contention, stating that Entry 54 of the Federal List in Schedule VII of the Government of India Act, 1935, empowers the Central Legislature to enact laws with respect to "taxes on income," which includes laws related to the taxation of evaded income. The court emphasized that the power to enact laws to prevent evasion and impose penalties is incidental or ancillary to the substantive power conferred by Entry 54. The court also noted that historically, laws relating to income tax in both the United Kingdom and India have included provisions to counteract evasion and impose penalties. Therefore, the court concluded that Section 28 is within the legislative competence of the Central Legislature.

2. Violation of Article 14 of the Constitution by Section 28:
The petitioner argued that Section 28 violates Article 14 of the Constitution because it vests arbitrary and unguided discretion in the Inspecting Assistant Commissioner to either levy a penalty or initiate prosecution, leading to unequal treatment of assessees. The court rejected this argument, stating that Sections 28 and 51-52 serve different purposes. Section 28 aims to render evasion unprofitable and secure compensation for the state, while Sections 51 and 52 aim to punish offenders for deliberate infractions of the law. The court emphasized that the two remedies are not mutually exclusive and can be concurrent. The court also noted that the requirement of prior approval from the Inspecting Assistant Commissioner does not render the penalty levied by the Income-tax Officer invalid. The court concluded that Section 28 does not violate Article 14 of the Constitution.

3. Proper Construction and Application of Section 28 of the Income-tax Act:
The petitioner contended that the penalty proceedings should be completed "in the course of any proceeding" under the Act, and since the assessment proceedings were completed before the penalty was levied, the penalty was invalid. The court rejected this argument, stating that the usual practice is for the Income-tax Officer to issue a notice to the assessee to show cause why a penalty should not be levied while making the assessment. The penalty is then determined based on the final assessment figures. The court emphasized that the jurisdiction to levy the penalty is not dependent on the continuance of the assessment proceedings. The court concluded that the penalty proceedings initiated by the Income-tax Officer were valid, even though the assessment proceedings had terminated by the date of the actual order levying the penalty.

Conclusion:
The court dismissed the writ petitions, upholding the validity of the penalties levied against the petitioner. The court also ordered the petitioner to pay costs, fixing the fee payable to counsel at Rs. 350 for all the petitions together.