TMI Blog1971 (4) TMI 31X X X X Extracts X X X X X X X X Extracts X X X X ..... petitioner on the ground that there was no evidence of such incurring of expenditure and that the claim for deduction was not bona fide. While completing the petitioner's assessment on March 16, 1964, after the coming into force of the Income-tax Act of 1961 (herein-after called " the new Act "), the Income-tax Officer initiated proceedings for levy of penalty by issuing a notice under section 271(1)(c) of the new Act. The Officer referred the subject under section 274(2) of the new Act to the Inspecting Assistant Commissioner, the 1st respondent herein, who has issued the impugned notice under section 274(2) read with section 271(1)(c) of the new Act. In challenging the impugned notice, the petitioner claims that on merits there is no case for levy of penalty and that an appeal has been preferred against the original order of assessment which is now pending and that there is every chance of success in the appeal. Secondly, it is said that on a comparison of the provisions relating to the imposition of penalty under the old Act and the new Act, the petitioner has been discriminated since proceedings are initiated under the new Act for the imposition of penalty notwithstanding the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceedings sought to be initiated under the impugned notice being penal in nature and as this was not contemplated under the old Act, the initiation of such proceedings is without jurisdiction. To put it more simply, it is suggested that the proceedings sought to be commenced, though for the purpose of imposing a penalty, is virtually to book the petitioner as if it has committed an offence, and that not being available to the revenue, since the old Act prohibited such a process against a delinquent assessee, the provisions under which proceedings are initiated should be struck down as offending article 20 of the Constitution of India. The respondents contend that they have jurisdiction in the matter of taking proceedings for penalty against the petitioner in regard to its assessment for 1959-60 under section 271(1)(c) read with section 274(2) and section 297(2)(g) of the new Act. The first contention that section 297(2)(g) is violative of article 14 of the Constitution is no longer available in the light of the later pronouncement of the Supreme Court. On the other main contention it is stated that section 297(2)(g) read with section 271(1) is not repugnant to article 20(1) of the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... separate legal process is by itself expressive of the difference between the two aspects flowing from the concerned conduct of a defaulting assessee. Chapter VIII of the old Act provided for offences and penalties and how they are to be dealt with. Section 52 in particular deals with offences in connection with false statements in declarations. If the statement is false and if it is made knowing it to be false or believing it to be false, then the delinquent is punishable, on conviction before a Magistrate, with simple imprisonment which may extend to six months, or with fine which may extend to one thousand rupees, or with both. The Income-tax Act, 1961, made a slight departure in the position. Section 297 speaking about repeals and savings and providing for repeal of the old Act, states that notwithstanding the repeal of the old Act, any proceeding for the imposition of a penalty in respect of any assessment for the year ending on the 31st day of March, 1962, or any earlier year which is completed on or after the 1st day of April, 1962, may be initiated and any such penalty may be imposed under the Income-tax Act, 1961 [section 297(2)(g)]. Section 271 appearing in Chapter XXI, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he chapter on " Fundamental Rights " deals with only one circumstance, that is, when a person is accused of an offence and he should have been convicted of an offence. Article 20(1) provides : " No person shall be convicted of any offence except for violation of a law in force at the time of the commission of the act charged as an offence, nor be subjected to a penalty greater than that which might have been inflicted under the law in force at the time of the commission of the offence. " On the basis of this, Mr. Srinivasan urges that the " offence " having been committed when the old law was in force and there being no provision under the old Act for a prosecution being launched for the same violation of the statutory provision of the old Act, the impugned notice which threatens the infliction of penalty is violative of article 20(1), as the proposal should be deemed to be one which is penal in nature flowing from an offence as is popularly understood. To appreciate this contention, it is necessary once again to recapitulate that both under the old and the new Act, offences were kept distinct and separate from penalties leviable under the Income-tax Acts by the revenue as pres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he commission of the act. Mr. Srinivasan's attempt is that the proposal to levy a penalty is also a process by which an assessee is sought to be convicted of an offence. The word " offence " is sometimes loosely used even in cases where the subject-matter involved relates to a situation otherwise than a crime or a matter which could be dealt with only by criminal courts. Misdemeanour on the part of an assessee in the matter of submission of returns is sometimes referred to as an offence. But, in the light of the scheme of the Act, the word " offence " has to be understood to have acquired a secondary signification of its own in that it is relatable to a matter dealt with by the criminal courts of the land on a complaint made for the purpose by the appropriate statutory authority. It is in this sense that the sentence which follows conviction on the commission of an offence is different from the penalty which is imposed on the same delinquent for such a misconduct which is noticed by a statutory functionary under the Income-tax Act itself and for which misdemeanour he is penalised by levying a penalty. Thus, it is clear that the latter limb of clause (1) of article 20, which refer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the above decisions lends support to the conclusion that the statutory functionaries while dealing with an assessee's liability or exigibility to income-tax are functioning more as administrative tribunals though they are exercising quasi-judicial functions ; but the nature of such proceedings are administrative in character in so far as their right to levy a penalty for any violation of the statutory provisions under the Indian Income-tax Act is concerned. If this is the reasonable conclusion which flows from the Scheme of the Act and the well-established judicial precedents, it would, therefore, appear that the proceedings resulting in the levy of penalty against a delinquent assessee for violation of any of the prescribed statutory provisions of the Income-tax Act, cannot, therefore, be equatable to a punishment inflicted on the said assessee as if he has committed an offence which is triable by a criminal court as prescribed in the Act itself. If the above principles are borne in mind, then the poser projected by Mr. Srinivasan, whether the proceeding before the Income-tax Officer or the other statutory functionaries under the Act resulting in the imposition of penalty woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is an attempt at evasion of tax on the part of the assessee. Article 20(1) of the Constitution can have no application to a case where a penalty is imposed not as punishment for an offence but for some other collateral purpose. " Krishnaswami Reddy J. in S. Sannana Chetty Sons v. Third Income-tax Officer, considered the import of section 271(1)(c) of the new Act. The learned judge observed : " It cannot...... be said that the institution of proceedings for penalty is tantamount to prosecution in a criminal court and equally the punishment on a conviction which is criminal cannot be equated with the punishment of penalty which is either civil or quasi-criminal. " In this view of the matter the learned judge said that section 277 of the Act is not violative of article 20(2) of the Constitution. I respectfully adopt this argument, to hold that such penalty proceedings do not in any way violate article 20(1) of the Constitution as well. The argument that since the rigour of the penalty as provided in the new Act is higher, the provision for imposition of penalty and the proceedings for such imposition offends article 20(1) has been repelled by a Bench of the Rajasthan High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lation of a law in force and for the violation of which the law prescribes a penalty. The use of the word 'offence' in clause (3) also indicates, to my mind, that it has reference to an act in respect of which a person can be accused and where in respect of that accusation there is a question of taking evidence and deciding upon the culpability or otherwise of the person charged. The use of the word 'prosecuted ' in article 20 is also indicative of the fact that it has a reference to a prosecution for an offence before a court... Breaches which may loosely be termed 'offences' cannot, to my mind, fall within the purview of article 20 of the Constitution. We speak loosely of social offences and of departmental offences, but these lapses cannot obviously come within the purview of the word 'offence' within the meaning of article 20." Hegde J., speaking for the Supreme Court, in Assistant Collector of Customs v. L. R. Melwani, stated the proposition as follows : " It has been repeatedly held by this court that adjudication before a Collector of Customs is not a 'prosecution' nor the Collector of Customs a 'court'. In Maqbool Hussain v. State of Bombay this court held that the wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies and cannot be regarded as punishment awarded for an offence. In fact, prosecution for, an offence under the Income-tax Act is provided separately under the two Acts. Section 52 of the old Act provides for a prosecution and conviction before a magistrate with regard to offences enumerated therein. Similar provisions are to be found in Chapter XXII of the new Act. The Supreme Court in Maqbool Hussain v. State of Bombay held that article 20 contemplates proceedings of the nature of criminal proceedings and the prosecution in this context means an initiation of proceedings of a criminal nature. The first part of article 20(1) prohibits a conviction while the second part deals with penalty that may be inflicted on conviction by way of punishment. " There is therefore abundant authority for the view that proceedings initiated by taxing officers under the Income-tax Act for levying a penalty for conduct which is alleged to be contumacious are not, therefore, proceedings which are to be understood and placed on a level with proceedings, which for a similar purpose could be initiated in a criminal court, for such an offence being tried by criminal courts of the land. I am, therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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