TaxTMI 
TaxTMI 
1972 (12) TMI 7
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..... 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. 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 pending. Thiru Kesava Iyengar, the learned counsel for the petitioners, raised three main contentions in these writ petitions: (1) Section 140A(....
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.... (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 be: Provided 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 accordanc....
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....y limitation, the loss falls on the public, the Supreme Court upheld the constitutional validity of article 149 of the Limitation Act, 1908, providing for a special period of limitation of sixty years for recovery of amounts due to the Government in the decision in Nav Rattanmal v. State of Rajasthan. It is on this principle, the Supreme Court has also upheld the special provisions like the Revenue Recovery Acts for summary recovery of the amounts due to the Government without resorting to suit, in Mannalal v. Collector of Jhalawar. Even arrest and detention of the defaulter under the said Revenue Recovery Acts in cases where the defaulter is guilty of fraudulent conduct in order to evade payment were upheld as provisions for enforcing payment in the decisions of the Supreme Court in Purshottam Govindji Halai v. B. M. Desai, Addl. Collector of Bombay, and Collector of Malabar v. E. Ebrahim. In Collector of Malabar v. E. Ebrahim, the Supreme Court considered the contention that the act of arrest was not a mode of recovery of arrears of tax but it is a punishment for failure to pay, and held : "When dues in the shape of money are to be realised by the process of law and not by volun....
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....t out of it provided the agreement, express or implied, between the parties provided for it or there exists an express statutory provision to the effect that the interest may be allowed. The Income-tax Act itself has in various provisions imposed liability to pay interest on delayed payment of taxes. In this connection it is useful to refer to the following passage in American Jurisprudence, volume 51, page 850: " It is, however, undoubtedly within the power of the legislature to provide that taxes remaining unpaid shall bear interest from the time when they are due and payable and it is equally constitutional to provide that taxes which have already become delinquent shall bear interest from the time the delinquency commences." Thus, Parliament could validly provide for payment of interest on taxes remaining unpaid from the time when they are due and payable. In fact, the Act itself provides for payment of such interest under various sections. Thus far, there is no difficulty. But the question is whether Parliament could not provide for levy of a penalty of the nature stated in section 140A(3) for failure to pay in time the tax payable. Every citizen is entitled to retain his i....
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....xpected to exercise a judicial discretion and impose a penalty only in those cases where the failure to pay was wilful by a person who had enough resources to pay but deliberately and fraudulently fails to pay. He also relied on the proviso to sub-section (3) requiring the issue of notice and giving opportunity to the assessee of being heard. This will enable the assessee to bring to the notice of the assessing authority the mitigating circumstances which would have to be taken into account by the assessing authority. In this connection he also relied on a Circular No. 20(LXXVI)D of 1964 dated July 7, 1964, issued by the Central Board of Direct Taxes, New Delhi, which contained an extract of the observation of the Minister of Finance in the Lok Sabha in his reply to the debate on clause-by-clause consideration of the Finance Bill, 1964, which reads as follows: "The amount of penalty is only the maximum that has been mentioned. The idea is, in cases where a man has assessed himself, he should remit the money along with the assessment. A time of one month is given......I can certainly assure honourable Members that while the intention is that the money should be paid along with the ....
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....ods 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 v....
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.... 16(3)(a)(i) and (ii) of the Indian Income-tax Act, 1922, on the ground that it was designed to prevent evasion of tax by carrying on business nominally in the name of a wife or minor child. For the same reasons sections 2(6A) and 12(1B) of the Indian Income-tax Act, 1922, were upheld in Navnit Lal C. Javeri v. Appellate Assistant Commissioner of Income-tax. In Sivagaminatha Moopanar & Sons v. Income-tax Officer, this court had to consider the scope of section 28 of the Indian Income-tax Act, 1922, which provided for a levy of penalty for failure to furnish a return without reasonable cause and for concealment of the particulars of his income or deliberate furnishing of inaccurate particulars. It was held that section 28 was enacted for the purpose of rendering evasion unprofitable and of securing to the State compensation for damages caused by attempted evasion. It was also held that the expression "taxes on income" is of the widest import and would obviously include laws in relation to the taxation of evaded income, and that such a law may take the form of an appropriation not merely of the income evaded but even more as the tax or as the reparation for damage caused to the State....
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.... Taxation Act (Act 6 of 1939), which was extended to Andhra Pradesh. Thereupon, best judgment assessments were made against the petitioners and they were required to pay the tax, though liberty to pay in instalments was granted to them for that purpose. As the petitioners failed to pay the instalments, the registration certificate of one of the petitioners was cancelled and the other petitioners were threatened with cancellation of the registration certificate. Thereafter, petitions were filed challenging the provisions of the Act relating to cancellation of registration certificates on the ground that such cancellation was not a reasonable restriction on the fundamental rights of the petitioners to carry on business under article 19(1)(g) of the Constitution. Section 4(1) of the Act provided that no person shall, after the commencement of the Act, carry on business in motor spirit at any place in the State unless he has been registered as such under the Act. Sub-section (6) of that section stated that any registration under sub-section (1) may be suspended or cancelled by such authority for such reasons in such manner as may be prescribed. Under the rule making power, rule 14 was ....
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....r cancellation of registration for failure to pay the tax or for fraudulently evading the payment of it is an additional coercive process which is expected to be immediately effective and enables the State to realise its revenues which are necessary for carrying on the administration in the interest of the general public. The fact that in some cases restrictions may result in the extinction of the business of a dealer would not by itself make the provision as to cancellation of registration an unreasonable restriction on the fundamental right guaranteed by article 19(1)(g). We may in this connection refer to Narendra Kumar v. Union of India, where it was held that: 'the word "restriction" in articles 19(5) and 19(6) of the Constitution includes cases of "prohibition" also; that where a restriction reaches the stage of total restraint of rights special care has to be taken by the court to see that the test of reasonableness is satisfied by considering the question in the background of the facts and circumstances under which the order was made, taking into account the nature of the evil that was sought to be remedied by such law, the ratio of the harm caused to individual citizens b....
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.... framed thereunder, prohibiting or debarring a person whose licence has been cancelled, from applying for a fresh licence. This case is, in our opinion, similar to those cases where the arrest and detention for recovery of arrears of tax under the Revenue Recovery Act were upheld. A law with respect to the recovery of debts is also not one with respect to carrying on of any trade or business, though the debtor might be a trader as held in Lachhman Das on behalf of the firm Tilak Ram Ram Bux v. State of Punjab. Confiscation of property is also not allowed under articles 19(1)(f) and 19(5). The learned counsel for the revenue also referred to the decision in Western Union Telegraph Co. v. State of Indiana. In that case a penalty of 50 per cent. for non-payment of taxes by a telegraph company which was imposed by an Indiana Act of 1893, was held not unconstitutional as a denial to such company of the equal protection of the law, or as an arbitrary classification, or as a deprivation of property without due process of law. It is seen from the judgment that the ordinary remedies by way of levy, distraint and sale of the properties of the company were not available for recovery of the p....
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....f) and, therefore, was void under article 13. Though the Supreme Court itself has held in a number of cases that the State is entitled to priority of payment of its dues over private unsecured debts that right was held not available to the State and could not be given even by statute so as to affect the prior mortgagee's right, which was held to be property. Even for a public demand, the recovery of which will be in the public interest, the Supreme Court refused to uphold the confiscation of property and held it to be an unreasonable restriction on the right to property. In K. T. Moopil Nair v. State of Kerala the Supreme Court struck down a taxing provision on the ground that it is confiscatory. Again in Assistant Commissioner of Urban Land Tax v. Buckingham & Carnatic Co. Ltd. the Supreme Court held that where the taxing statute is plainly discriminatory or provides no procedural machinery for assessment and levy of the tax, or that it is confiscatory, courts would be justified in striking down the impugned statute as unconstitutional. The learned counsel for the revenue then relied on the procedural safeguards in the Act in support of his plea that the penalty provision under s....
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.... taxes within a specified period. Such an imposition is doubtless within the constitutional power of the legislature. The state may provide a penalty for failure promptly to pay a corporate franchise tax .... The power to exact interest on delinquent taxes is an incident of the power to tax, and many jurisdictional statutes impose liability for interest on delinquent taxes in the nature of a penalty for non-payment of taxes when due. However, the imposition of liability for interest for non-payment of taxes when due is not necessarily equivalent to a penalty thereon. This depends upon the wording and context of the statute. In many instances the legislature in imposing liability for interest uses that term in its ordinary sense of a charge imposed for the use of money; this may be indicated by the fact that the amount of interest imposed is fixed at the legal rate of interest and chargeable on other obligations." In the book Introduction to Taxation by Ray N. Sommerfeld, Hershel N. Anderson and Horace R. Brock, we find the following passages at pages 461 and 462: " Penalties : The Internal Revenue Code includes a number of penalties intended to encourage taxpayers to file a tim....
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....ubstantial grounds for varying this provision of levying interest for delayed payment into one of penalty. To sum up: Tax due and payable under section 140A(1) of the Act is a civil debt. Any provision in the Act for enforcing payment of that debt would be valid. This provision for enforcing payment and recovery of the tax payable may include or impose anything compensatory for delayed payment or retention of the tax. It is not the nomenclature, which the legislature has used in the provision, that decides the issue as to whether the provision is compensatory or penal, but the substance of the provision. A power to levy penalty which is not compensatory is neither incidental nor ancillary to the power of recovery, and it is not inherent in the power to recover the tax payable. The levy of penalty could be sustained only in cases of concealment or evasion of taxes. Penalty for concealment or evasion is a punishment and intended as a deterrent against repetition of the same which is criminal or quasi-criminal in nature. Concealment of income or evasion of tax and non-payment of a tax ascertained or determined and payable are different in nature and character. Failure to pay tax due ....
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.... date on which the refund is granted. Thus, while these provisions make the Government liable for interest only, for failure to refund within time the excess amount of tax collected, section 140A(3) makes the assessee liable for penalty. This, according to the learned counsel for the petitioners, is an invidious and hostile discrimination against the assessees like the petitioners and therefore section 140A(3) is violative of article 14. We are unable to accept this argument. Section 140A(3) treats all these persons who fail to pay the tax as provided under section 140A(1) as a class by itself and makes them liable to pay the penalty. In our opinion, there can be no comparison between that class of persons and the Government. Government can be legitimately treated as a class by itself. It is well known that governmental machinery does not move as quickly as non-governmental bodies or individuals. Government being an impersonal body, there have to be departmental correspondence, consultations, obtaining sanction, etc., and these necessarily take some time. The Government have to depend on the efficiency and promptness of a team of officials. Loss or damage to the Government is a los....
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....ection that the rules for the guidance should be laid down in express terms. Such guidance may be obtained from or afforded by, (a) the preamble read in the light of the surrounding circumstances which necessitated the legislation, taken in conjunction with well-known facts of which the court might take judicial notice or of which it is apprised by evidence before it in the form of affidavits, (b) or even from the policy and purpose of the enactment which may be gathered from other operative provisions applicable to analogous or comparable situations or generally from the object sought to be achieved by the enactment. " The Supreme Court further held that the guidance may be gathered from the provisions of the Act, its scheme, policy and purpose and the surrounding circumstances which necessitated the legislation. The question for consideration in that case was whether section 3 of the Indian Income-tax Act, 1922, vested in the Income-tax Officer an arbitrary and unguided power to assess to tax the income of an association of persons in the hands either of the association or of the persons constituting that association. Though the Supreme Court expressed the view that section 3 it....
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....ly exercised or not is open to question in appeals and further appeals. Thus, there is an effective check on the exercise of the power by the Income-tax Officer. We are, therefore, of opinion that section 140A(3) does not infringe article 14 of the Constitution on this ground. Regarding the legislative competency of Parliament, the submission of the learned counsel for the petitioners was that a power to levy penalty or confiscation of property for non-payment or failure to pay in time of the tax payable is not a power incidental or ancillary to the power to legislate on "taxes on income" under entry 82 of List I to the Seventh Schedule to the Constitution. Regarding article 248 and entry 97 of List I to the Seventh Schedule, his submission was that if there is a specific entry and the particular power is not comprehended within that entry no resort to residuary power is permitted. Entry 82, according to him, is definitive and exhaustive of the power of legislation on "taxes on income". The residuary power could be invoked only if it is not enumerated in List I. Entry 82 of List I prohibits, so to say, according to the learned counsel, levying penalty or confiscation for non-payme....