TaxTMI 
TaxTMI 
1975 (9) TMI 61
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....ents were originally completed for the asst. yrs. 1964-65 to 1971-72 under s. 16(3) of the WT Act, 1957. For the asst. yr. 1972-73, the trustees of H.E.H. the Nizam's trust filed returns on behalf of the above beneficiaries on 18th Sept., 1972. The assessments for the asst. yrs. 1964-65 to 1971-72 were sought to be reopened by issue of notices under s. 17 of the act on the ground that it came to light that the assessee had absolute share of interest in the corpus of H.E.H., the Nizam's Housing Accommodation Trust w.ef. 2nd May, 1960 by virtue of cl. 5(b) of the deep pool of partial revocation and new appointment dt. 2nd May, 1957, as against the life interest evaluated and declared in the returns on the basis of which the assessments were completed and that the difference between the values of the share of corpus and the life interest had escaped assessment. The trustees filed returns on behalf of the beneficiaries on 29th Jan., 1973, in compliance with the said notices including, inter alia the difference between the values of the share of corpus and the life interest in the Housing Accommodation Trust. In the course of the said reassessment proceedings, it was noticed that the be....
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....ake care to declare the correct net wealth even in the returns filed by them in January 1973, though the WTO brought the correct legal position to their notice in December, 1972 itself. In this view of the matter, the IAC held that there was continuous failure on the part of the trustees right from the time the WT Act come into force to implement the provisions of the trust deed or at least to declare the assessees' correct wealth from H.E.H., the Nizam's Family Trust. He came to the conclusion that the trustees had not proved that the failure to return the correct net wealth from H.E.H., the Nizam's Family Trust did not arise from any gross neglect on their part. He, therefore, held that the trustees should be deemed to have concealed the particulars of net wealth and consequently penalties under the Explanation to s. 18(1)(c) of the WT Act, 1957, were exigible. He accordingly imposed penalties. The particulars relating to the numbers of the Wealth-tax appeals, the names o the beneficiaries, the Wealth-tax assessment year, the difference between the life interest and the absolute corpus on account of the interest of the deceased father of the beneficiaries assessed in the reassess....
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.... 1,03,106 1,04,000 Aggrieved by the said orders of the IAC the assessees have come on appeal before us. 4. The learned counsel, Shri Y.V. Anjaneyulu, raised the following contentions before us:- (i) The assessee did not conceal any wealth nor did they furnish any inaccurate particulars of wealth. There was no gross neglect in returning the true wealth. Penalties are, therefore, not leviable. (ii) The orders levying penalties are illegal since there was no valid initiation or commencement of the penalty proceedings. (iii) The assessees are not the trustees of the beneficiaries in relation to the corpus under consideration and, therefore, no penalties can be levied on the trustees as representative assessees. (iv) Even assuming that the trustees can be treated as representative assessees, there is no provision under the WT Act, 1957, empowering the WTO to levy penalties on representative assessees. Elaborating the above contentions, the leaned counsel made the following submissions :- "In Para II of the Second Schedule to H.E.H., the Nizam's Family trust deed dt. 10th May, 1950, 8 sons and 37 grandchildren of H.E.H., the Nizam, besides others, had been sp....
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....r the purpose of brining to assessment the difference in the values of the reversionary interest of the beneficiaries in the Housing Accommodation Trust and the life interest thereof by issue of notices on 8th Sept., 1972 and since returns were filed in compliance therewith even on 29th Jan., 1973, the trustees offered to file revised returns, if necessary. The WTO completed the reassessments on 31st march, 1973 in most of the cases and on 30th May, 1973, in the other cases. In the assessment orders, there is no whisper about the proposal to levy penalties under s. 18(1)(c) of the Act. To the notices issued by the IAC proposing levy of penalties under s. 18(1)(c). The assessee had sent the reply wherein it was clearly explained that the trustees were of the bona fide opinion that after the death of any beneficiary leaving a child or children, under cl. 5(b) of the Trust deed, the units held by the deceased should be divided and distributed among the heirs and held in the same manner as they were holding the units held by the heirs as per the terms of the trust deed. It was pointed out that each grandson and granddaughter of H.E.H., the Nizam was also allotted one unit each in which....
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....tances of this case, it will be clear that the assessees are not guilty of conscious concealment and they had acted bona fide throughout. The learned counsel referred us to the decisions in the following cases ;- CIT vs. Anwar Ali, reported in (1970) 76 ITR 696 (SC); Art Press vs. CIT reported in (1973) 87 ITR 468 (All); R. Srinivasan & Co. vs. CIT reported in (1974) 97 ITR 431 (Mad); and D.M. Dahmanukar vs. CIT reported in (1967) 65 ITR 280 (Bom). He further submitted that the charge against the assessee is that they did not include the difference in Wealth in question in the returns filed on 29th Jan., 1973. The assessees were not recalcitrant. There was no gross or wilful negligence or fraud on their part. It was only the interpretation of cl. 5(b) of the trust deed which the assessees bona fide put, that led to the omission. In the circumstances, the assessees have discharged the onus of proving that they are not guilty of gross negligence charged against them by the IAC. Reliance was also placed on the following decisions:- V.D. Thingan vs. State of Uttar Pradesh, reported in AIR 1966 Supreme Court 1762; Harbhajan Singh vs. State of Punjab, reported in AIR....
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....the learned standing counsel for the IT Department, supported the orders of the IAC. He pointed out that the assessees are clearly guilty of gross negligence. He submitted that the provisions of the explanation to s. 18(1)(c) of the WT Act, 1957, are attracted to these cases. Once the Explanation is attracted, there is no burden whatsoever on the Department to show that the assessees are guilty of concealment of wealth or furnishing inaccurate particulars of Wealth. On the other hand, the burden is squarely on the assessees to prove that the failure to return the correct net wealth did not arise from any fraud or any gross or wilful neglect on their part. If the assessees failed to do so, they will be deemed to have concealed particulars of assets or furnished inaccurate particulars of assets for the purposes of the s. 18(1)(c) of the Act. He drew our attention to the order dt. 13th day of Jan., 1973 passed by the High Court of Andhra Pradesh on a petition under s. 256(2) of the IT Act, 1961 Income-tax case No. 10 of 1972 (Addl. CIT, Andhra Pradesh, Hyderabad vs. Sri Venkateswara Construction Co., Vijaya Wade) and also the decision of the same High Court in the case of CIT vs. Anan....
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....ents. In this connection, he replied upon the following decisions:- K.C. Mukherjee & Anr. vs. CIT, reported in (1959) 37 ITR 224 (Patna); CIT vs. Angara Satyam, reported in 1959 37 ITR 230 (AP); and Jain Brothers vs. Union of India, reported in (1970) 77 ITR 107 (SC). As regards the plea of Shri Anjaneyulu that the corpus should have been distributed on 4th Nov., 1950, that is, the date on which Kazim Jah Bahadur died, and, therefore, the trustees were not under an obligation to file the returns, Shri Rama Rao pointed out that the assessee should not be permitted to raise such a plea at this stage when admittedly no distribution was made by the trustees in accordance with the trust deed. Dealing with the argument of Shri Anjaneyulu that the WT Act, 1957, has not conferred any power on the WTO to levy penalties on trustees, Shri Rama Rao submitted that the decision of the Andhra Pradesh High Court in Writ Petition Nos. 220 and 221 of 1973, cited by Shri Anjaneyulu, will not apply to these cases since the same relates to levy of penalty on the legal representative of a deceased person. He further submitted that under s. 21(1) of the WT Act, 1957, the liability of the trus....
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.... were levied by the IAC on the trustees in their representative capacity on the ground that they had not proved that the failure to return the correct net wealth of the beneficiaries under reference from H.E.H., the Nizam's Family Trust did not arise from any gross neglect on their part. In other words, the penalties were impesed under the Explanation to s. 18(1)(c) of the WT Act, 1957. Before we go into the facts of these cases, it would be necessary for us to consider the nature of the burden of proof referred to in the said Explanation. It is well settled that penalty proceedings are quasicriminal in nature, vide the following observations of the Supreme Court in the case of CIT vs. Anwar Ali at page 700 :- "The first point which falls for determination is whether the imposition of penalty is in the nature of a penal provision. The determination of the question or burden of proof will depend largely on the penalty proceedings being penalty in nature or being merely ment for imposition of an additional tax, the liability to pay such tax having been designated as penalty under s. 28. One line of argument which has prevailed particularly with the Allahabad High Court in Lal Chan....
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....sed amount represented income and that the assessee had consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars." In the above case, the Supreme Court was dealing with s. 28(1)(c) of the Indian IT Act, 1922 which was more or less analogous to s. 271(1)(c) of the IT Act, 1961, and s. 18(1)(c) of the WT Act, 1957. Sec. 271(1)(c) of the IT Act, 1961, and s. 18(1)(c) of the WT Act, 1957, were amended by the Finance Act, 1964, and the WT (Amendment) Act, 1964, respectively introducing the Explanation. In the WT Act, 1957, the following Explanation was introduced to s. 18(1)(c) by the aforesaid Amendment Act :- "Explanation.-Where the net wealth returned by any person is less than eighty per cent of the net wealth (hereinafter in this Explanation referred to as the correct wealth) as assessed under s. 16 or s. 17, such person shall, unless he proves that the failure to return the correct 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 cl. (c) of this sub-section." The Expl....
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....der s. 105 of the Evidence Act, if an accused person claims the benefit of Exceptions, the burden of proving his plea that his case falls under the Exceptions is on the accused. But the question which often arises and has been frequently considered by judicial decisions is whether the nature and extent of the onus of proof placed on an accused person who claims the benefit of an Exception is exactly the same as the nature and extent of the onus placed on the prosecution in a criminal case; and there is consensus of judicial opinion in favour of the view that where the burden of an issue lies upon the accused, he is not required to discharge that burden by leading evidence to prove his case beyond a reasonable doubt. That, no doubt, is the test prescribed while deciding whether the prosecution has discharged its onus to prove the guilt of the accused; but that is not a test which can be applied to an accused that his cases falls under an Exception. Where an accused person is called upon to prove that his case falls under an Exception, law treats the onus as discharged if the accused person succeeds "in proving a preponderance or probability." As soon as the preponderance of probabil....
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....case beyond a reasonable doubt. That is, of course, the test prescribed in deciding whether the persecution has discharged its onus to prove the guilt of the accused, but the same test cannot be applied to an accused person who seeks to discharge the burden placed upon him under s. 4(1) of the Prevention of Corruption Act. It is sufficient if the accused person succeeds in proving a preponderance of probability in favour of his case; It is not necessary for the accused person to prove his case beyond a reasonable doubt or in default to incur a verdict of guilty. The onus of proof lying upon the accused person is to prove his case by a preponderance of probability. As soon as he succeeds in doing so, the burden is shifted to the prosecution which still has to discharge its original onus that never shifts, i.e., that of establishing on the whole case the guilt of the accused beyond a reasonable doubt. It was observed by Viscount. Sankey in Woolmington vs. Director of Public Prosecutions, 1935 AC 462, that "no matter what the charge or where the trial, the principle that the presecution must prove the guilt of the prisoner is part o the common law of England and no attempt to whittle ....
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....y a preponderance of probability and it is not necessary that he should establish his case by the test of proof beyond a reasonable doubt. In other words, the onus on an accused person may well be compared to the onus on a party in civil proceedings, and just as in civil proceedings, the Court trying an issue makes its decision by adopting the test of probabilities, so must the Criminal Court hold that the plea mad by the accused is proved if a preponderance of probability is established by the evidence led by him." The authoritative pronouncements of the Supreme Court in the above cases make it clear that the burden of proof cast on an assessee, who is placed similarly as the accused in the said cases, will be satisfied if the assessee establishes his case by a preponderance of probability and that it is not necessary for him to establish it by proof beyond reasonable doubt. Various High Courts in India have also considered the extent of the burden of proof under the Explanation. Referring to the Explanation to s. 271(1)(c) of the IT Act, 1961, which is analogous to the Explanation to s. 18(1)(c) of the WT Act, 1957, the Gujarat High Court in the case of D.V. Patel & Co. vs. CI....
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.... to discharge this burden which rests upon him. The assessee may claim to have discharged the burden by relying on the material which is on the record in the penalty proceedings, irrespective of whether it is produced by him or by the revenue. The only question to which the IT authority has to address itself is whether, on the material on record in the penalty proceedings, can it be said on a preponderance of probabilities that the failure to return the total assessed income ahs not arisen on account of any fraud or any gross or wilful neglect on the part of the assessee." The Kerala High Court, in the case of CIT vs. Sankarson & Co., reported in (1972) 85 ITR 627, considered the scope of the Explanation to s. 271(1)(c) of the IT Act, 1961, analogous to the Explanation to s. 18(1)(c) of the WT act, 1957, and observed as under at page 629 :- "The object of the Explanation was to get over the difficulty created by the decisions which placed the burden of proving concealment of the particulars of income on the revenue. Now the Explanation places the burden of proving that the failure to return the correct income did not arise from any fraud or gross or wilful neglect upon the as....
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....ly penalty or quasi-criminal in nature, but departs from the normal well-established rule which would throw the burden of proof on the revenue to establish that the assessee had consciously concealed the particulars of his income or deliberately furnished inaccurate particulars in respect thereof. The onus of proof, on the other hand, has been placed on the assessee, who is required to prove the negative, that is, the absence of fraud or gross or wilful neglect on his part. The assessee is to be afforded an opportunity to furnish this proof. He would, in these peculiar circumstances, be taken to have discharged the onus, if he, in the absence of any proof to the contrary, can raise probabilities in his favour or point out circumstances which can create doubt, the benefit of which can be given to him". The Punjab and Haryana High Court also considered the scope of the same Explanation in the case of Addl. CIT vs. Karnail Singh vs. Karleran, reported in (1974) 94 ITR 505, and observed that where the income returned is less than 80 per cent of the income assessed, the Explanation puts the burden squarely on the assessee to show that there was no fraud or gross or wilful neglect on his....
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.... one unit each. Under cl. 5 of the said, deed the trustees are required to hold and possess the said units of the corpus of the trust fund and pay the respective incomes of the respective units of the corpus of the trust fund to the beneficiaries during the terms of their natural lives. Nawab Kazim Jah Bahadur died on 4th Nov., 1950. It is common ground that in the original assessment made for the asst. yrs. 1964-65 to 1971-72, the beneficiaries who are the children of the late Nawab Kazim Jah Bahadur were assessed through the trustees in respect of their wealth which admittedly included the life interest of the beneficiaries in H.E.H. the Nizam's Family Trust. Under cl. 5(b) of the said deed of trust it is provided that on and after the death of any relative of the settlor specified in Pt. II of the Second Schedule leaving children, the trustees have to divide and distribute the unit or units of the corpus of the trust fund according to the specification made therein. The assessee were furnishing in the wealth tax returns of the life interest of the beneficiaries in the units allotted to them in part II of the second Schedule individually, and also in their shares out of the two u....
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.... January, 1973. 2. You have also been pleased to issue notices under s. 17 of the trustees of H.E.H. the Nizam's Family Trust to file supplemental wealth-tax returns in respect of the following 7 children of the late Nawab Kazim Jah:- Mir Ahmed Ali Khan 1964-65 to 1972-73 Mir Baquer Ali Khan 1964-65 to 1971-72 Seleha Begum 1964-65 to 1971-72 Salma Begum 1964-65 to 1968-69 Hussainni Begum 1964-65 to 1972-73 Kazimunnisa Begum 1964-65 to 1972-73 Abbasi Begum 1964-65 to 1972-73 3. Supplemental returns relating to the above beneficiaries in response to the notices under s. 17 were also filed before you in the months of January 1973. On enquiry we were told that the reassessment proceedings were initiated for purposes of assessing the absolute interest of the beneficiaries in the Housing Accommodation Trust pursuant to the Deed Poll of Partial Revocation and New Appointment executed by the Settlor. We are also told that in the case of Nawab Imbad Jah the corpus relating to the corpus held by his late mother Jani Bengum was liable to be assessed in its entirety as on the death of Jani Bengum her interest in H.E.H. the Nizam's Family Pocket M....
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....inform you that they will further communicate to you in regard to the assessment of the interest of the deceased parents referred to above and we, therefore, request you to keep the assessments pending till we further communicate to you in this matter. Thanking you." The said two letters were acknowledged by the ITO in his letter C.R. 80/72-73 which reads as under :- "Subject : Wealth-tax assts : of beneficiaries of HEH the Nizam's Family Trust-Asst. of deceased's share for Wealth-tax purposes-regarding. Reference : Your letter BFT/57/73/FSO/26-73/T/83 dt. 9th Jan., 73 & 2nd Feb., 1973. Please refer to the above. You are requested to expedite the reply without any further delay. If no reply is received by 5th March, 1973, I shall take it that the difference between the share of corpus of the deceased beneficiaries devolved on their legal heirs and the life interest thereof declared and assessed had escaped assessment, and accordingly proceed to initiate to re-open the WT assessment of such beneficiaries." Though the WTO had already reopened the WT assessments, he has stated in this letter that he is initiating proceedings for reassessments. Again, on 2nd March, 19....
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.... Thanking you". It is not disputed by the Department that the assessees had sent the above letters to the WTO. It is surprising to see the IAC observing in his orders imposing the penalties that the assessees did not respond to the letter of the WTO dt. 22nd Dec., 1972 till the finalisation of the assessments on 31st March, 1973. It is thus obvious that the IAC has completely overlooked the several letters written by the assessees explaining their conduct. The finding of the IAC that the assessee are guilty of gross neglect is thus clearly vitiated. Shri Rama Rao, the learned counsel for the Revenue, contended that the recalcitrant attitude of the assessee is evident from the tone and tenor of the replies sent by them. He particularly drew our attention to the letter on behalf of the assessees dt. 31st march, 1973 wherein it was stated that if the WTO so desired, they would file revised wealth-tax returns. We are unable to agree with Shri Rama Rao that the assessees were recalcitrant. The assessee-trust is administered by an IAS Officer and there is nothing wrong in the tone or the tenor of the letters written by them. A perusal of the letter dt. 31st March, 1973 shows that t....
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....us of the Trust Fund allotted to the said Kazim Jah Bahadur under cl. 3(b) of the said Deed of Trust were thereupon divided and distributed among the children." The Trustees were of the opinion that the units have to be divided and that the corpus need not be paid to them in cash in the case of not only of the children of Kazim Jah but also in the case of children or heirs of other deceased beneficiaries who died and did not distribute cash. It may be mentioned that there are 10 more beneficiaries of the category of Kazim Jah. On receipt of the ITO's letters dt. 28th Feb., 1973 the Trustees examined the matter in detail and after obtaining the legal opinion decided to distribute the corpus as the heirs are entitled to it and decided to file revised wealth-tax returns in all cases of heirs who derived share in units held by the deceased persons (vide our letter No. T/7387 dt. 30th March, 1973 to the Auditors (copy enclosed). Since returns were already filed in November 1972 under s. 17, in these four cases admitting share of corpus in the Housing Accommodation Trust instead of Life Interest, the WTO did not press for the submission of revised returns once gain but added the diffe....
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....ct remains that the trustees stand in a fiduciary capacity towards the beneficiaries and the beneficiaries had not laid any claim in respect of the shares of corpus of their deceased father who died as early as November, 1950. This circumstances also shows that there was clear mis-understanding of the correct legal position. It is also on record that as soon as the WTO brought to the notice of the trustees that the values of the shares of the corpus have to be included in the assessments instead of the values of the shares of life interest already assessed, the trustees moved in the matter and sought legal opinion. The resolution passed by the trustees at their meeting held on 12h March, 1973, which is extracted above, shows that legal opinion was obtained, and thereafter, the trustees readily agreed for the inclusion of the value of the shares of the corpus. At this stage, it has to be remembered that in the original assessment made, the existence of the impugned asset had been disclosed and the values of the shares of the life interest therein had been shown in the returns and were also assessed by the Department on the erroneous impression that the beneficiaries were entitled to....