9911796707
TMI Blog1975 (9) TMI 61X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 beneficiaries were entitled to 2/9th share in the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 reassessment and the penalties levied by the IAC are as un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 specified as beneficiaries. The first among the 8 sons was Niwab Kazim Jah Bahadur who was allotted two units and the grandchildren, who included the sons and daughters of Niwab Kazim Jah Bahadur,were allotted one unit each. Under cl. 5 of the deed of trust, the trustees held the units of the corpus of the trust fund upon trust in the respective proportions set opposite their respective names in the second column of the Second Sche ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses 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 they had only life interest. In was further explained that the trustees were of the opinion that the heirs had only life interest in the share derived by them from the units held by the deceased and so did not pay to the children of the late Kazim Jah Bahadur the value of the share of units inherited. It was also explained that on receipt of the WTO's letter, the trustees examined the matter in detail, and after obtaining the le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (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 1966 Supreme Court 97; Addl. CIT vs. Karnail Singh V. Kaleran, reported in (1974) 94 ITR 505 (P & H); D. Halappa Sons vs. CIT reported in (1974) 95 ITR 542 (Mys); CIT vs. Narang & Co. reported in (1975) 98 ITR 482 (Del); CIT vs. S.P. Bhatt, reported in (1974) 97 ITR 440 (Guj); D.V. Patel & Co. vs. CIT reported in (1975) 100 ITR 524 (Guj); and Addl. CIT vs. Narayanadas Kamkishan, reported in (1975) 100 ITR 18 (AP); Shri Anjaneyulu the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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. Anantharam Veerasingaiah and Co., reported in (1975) 99 ITR 544 (Hyd). He strenuously contended that, on the facts of these cases, the assessees have not discharged the burden of proof cast on them. He pointed out that neither in the original returns nor in the revised returns filed by the trustees did they show the values of the shares of the corpus that devolved upon the heirs of late Kazim Jah Bahadur. Clause 5(b) of the deed of trust is quite clear. A plain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 trustees to tax is in the like manner and to the same extent as it would be liable upon the person on whose behalf or for whose benefit the asset are held, that the liability of the trustees to assessment is the same as beneficiary on whose behalf the assets are held, that the expression "provisions of the Act shall apply" takes in the proceedings for levy of penalty also, and that, even otherwise, the expression "tax" includes penalty. 6. In reply, Shri Anjaneyulu s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 Chand Gopal as case is that there was no essential difference between tax and penalty because the liability for payment of both was imposed as a part of the machinery of assessment and the penalty was merely an additional tax imposed in certain circumstances on account of the assessee's conduct. The justification of this view was founded on certain observations in C.A. Baraham vs. ITO Kottayam. It is true that penalty proceedings under s. 28 are included in the expression "ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (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 Explanation creates a legal fiction if the condition of its applicability is satisfied. If the Explanation applies, the assessee shall be deemed to have concealed the particulars of his wealth or furnished inaccurate particulars of such wealth within the meaning of s. 18(1)(c) of the Act. Since the Explanation raises a legal fiction, on the application of the Explanation, the assessee gets caught straightway within the mischief of s. 18(1)(c). It is then not necessary for the Revenue to sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se; 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 probability is proved, the burden shifts to the prosecution which has still to discharge its original onus. It must be remembered that basically, the original onus never shifts and the persecution has, at all stages of the case, pro prove the guilt of the accused, beyond a reasonable doubt. As Phipson has observed, when the burden of an issue is upon the accused, he is not, in general, called on to prove it beyond a reasonable doubt or in default to incur a verdict of guilty; it is sufficient i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 it down can be entertained". This principle is a fundamental part of the English Common Law and the same position prevails in the Criminal Law of India. That does not mean that if the statue places the burden of proof on an accused person, he is not required to establish his plea; but the degree and character of proof which the accused is expected to furnish is support of his plea, cannot be equated with the degree and character of proof expected from the prosecution which is required to prove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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. CIT, reported in (1975) 100 ITR 524 (Guj), followed its earlier decision in the case of CIT vs. S.P. Bhatt at pages 444, 445, 446 wherein the following observations occurred:-- "It is an Explanation enacted in the context of a highly penal provision and there can, therefore, be no doubt that it must be construed fairly and reasonably. This, of course, does not mean that if a case falls fairly and squarely within the language of the Explanation, we should refuse to give effect to the mandate of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt 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 assessee. The purpose of the Explanation is to create a presumption that whether the total income returned is less than 80 per cent of the income assessed, the assessee had concealed the income or furnished inaccurate particulars of such income. This presumption can be displaced by the assessee by proving that failure to return the correct income did not arise from any fraud or gross or wilful negligence. The quantum of proof necessary would be that required in a civil case, namely, preponderance of pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 part in furnishing his return of income, but where the circumstances do not lead to the reasonable and positive inference that the assessee's explanation in false, the assessee must be held to have proved that there was no fraud or gross or wilful neglect on his part. In the decision of the Andhra Pradesh High Court in the case of CIT vs. Anantharam Veerasingaiah & Co. reported in (1975) 99 ITR 544 (AP),their Lordships of the Andhra Pradesh High Court have reinforced the same view with reference the Exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h 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 units allotted to their late father, Nawab Kazim Jah Bahadur, on the impression that the trustees were to hold the share of the corpus of Nawab Kazim Jah Bahadur after his death in the same manner as they held the individual units of the children of Nawab Kazim Jah Bahadur. The Department also had been accepting the returns for as long a period as 14 years. On 22nd Dec., 1972, the ITO wrote to the secretary of the Nizam's Trusts as under :-- "Sub : Wealth tax assts. of beneficiaires of H.E.H. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal 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 Money Trust devolved on him absolutely whereas in the assessments already completed only life interest was assessed. We were also further told that in the cases of the seven children of the late Nawab Kazim Jah the Corpus in HEH the Nizam's Family Trust settled for the benefit of the late Nawab Kazim Jah should have been assessed in entirety in proportionate shares in the hands of the seven children whereas only life interest was assessed in the original assessment. 4. So far as the Housing Accommodation Trust is concerned it was alr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, 1973, the following letter was sent by the assessees : "Sub : WT assessments of beneficiaries of HEH the Nizam's Family Trust--Assessment of deceased's Share for Wealth-tax purposes--regarding: Ref : Your letter No. CR 80/72-73 dated nil With reference to your letter above referred to I am directed to inform you that the matter is under consideration of the Trustees. Hence you are requested to grant time till 20th March, 1973, for filing of the reply on the subject." On 12th March, 1973, the trustees passed the following resolution :-- " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned 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 the trustees had agreed for the inclusion of the proportionate share of the corpus of the deceased father of the beneficiaries or the mother, as the case may be, in accordance with cl. 5(b) of the deed of trust. Since returns had already been filed in compliance with notices under s. 17 of the Act which were issued for the purpose of brining to tax the escaped wealth being the shares of interest in the corpus of H.E.H. Nizam's Housing Accommodation Trust on 29th Jan., 1973 itself, the Trustees desired to know whether fresh revised returns should be filed for including the shares ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 difference between the value of the corpus and value of life interest already assessed and complete the assessments in March 1973. Subsequently in September 1974 he initiated the penalty proceedings under s. 18(1)(c) for not admitting the value of corpus. From the above facts it is clear that the Trustees were under a bona fide belief that the units had to be divided among the heirs and to hold the corpus in the same manner as they were holding the units allotted to the heirs under the terms of the Trust Deed and that they had only life interest therein. It is theref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessed, 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 life interest only and not to the proportionate shares of the corpus. It is not the case of the Revenue that the assessee had concealed any wealth. There could be no motive also for the trustees to conceal any wealth or furnish inaccurate particulars of the wealth of the beneficiaries. Having regard to the fact that the wealth tax due in respect case of the difference in the wealth assessed in each for each year is a few hundred of Rupees against which oppressive penalties running to tens of thousand of Rupees have been imposed, motice, if any, for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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