TMI Blog1969 (3) TMI 78X X X X Extracts X X X X X X X X Extracts X X X X ..... espect of which tax is payable under this Act is dead, the Executor, Administrator, successor in title or other legal representative of the deceased dealer shall, in respect of such business, be liable to submit the returns due under these rules, and to assessment under section 5 or 6 or any notification under section 9(1) and to pay out of the estate of the deceased dealer, the tax and/or any penalty assessed or levied as payable by the deceased dealer." The contention of Mr. Rama Rao, the learned Advocate for the respondent, is that rule 23(1) is ultra vires in that whereas section 39(2)(o) of the Act speaks of "the assessment and recovery of tax" and there is no reference to penalty, rule 23(1) seeks to impose not only tax but also penalty in respect of the business of a deceased person. The learned Advocate points out by reference to several sections in the Act that throughout the Act a dichotomy between tax and penalty is discernible and rule 23(1) travels beyond what is contemplated by section 39(2)(o). It seems to us that this is an important question which merits consideration by a Full Bench. Post this tax revision case before a Full Bench, after obtaining the orders of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ho succeeded to the business of his father, is not liable for the penalty under section 14(2), particularly when the return which gave rise to the best judgment assessment was filed by him". The revision case originally came up before a Division Bench consisting of Basi Reddy, J., and one of us, viz., Sambasiva Rao, J. The learned Advocate for the respondent contended before the Division Bench, that rule 23(1) of the Rules framed under the Sales Tax Act, under which penalty was levied against the respondent, is ultra vires, in that whereas section 39(2)(o) of the Act speaks of "the assessment and recovery of tax" only and there is no reference herein to penalty, rule 23(1) which purports to have been framed under the powers conferred by the aforesaid section 39(2)(o) seeks to impose not only tax, but also penalty in respect of business of the deceased person. In view of this important question, the Division Bench referred the matter to the Full Bench. Thus the matter has come up before us. The important question that arises, thus, for consideration by us is, whether rule 23(1) of the Rules is ultra vires the power of the rule-making authority. Section 39 of the Sales Tax Act co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stated, this is the argument of the respondent on this part of the case. Shri P. Ramachandra Reddy, the learned Principal Government Pleader appearing for the State, seeks to sustain rule 23(1) and the power to levy penalty thereunder on the basis of three arguments. In the first place, he argues that levy of penalty is incidental to the assessment proceedings. It is part of the machinery adopted for assessment of a dealer and to levy tax on him. Penalty is nothing but an additional tax imposed on the dealer, when he tries to evade tax. He seeks to invoke, in aid of this argument, the decision of the Supreme Court in C.A. Abraham v. Income-tax Officer[1961] 41 I.T.R. 425; A.I.R. 1961 S.C. 609. That is a case, which arose under the Travancore Income-tax Act and the Indian Income-tax Act, 1922. A partnership firm was assessed to income-tax. One of the partners died and the surviving partner submitted returns of the income of the firm. In the course of the assessment proceedings, it was discovered that the firm had carried on transactions in different commodities in fictitious names and had failed to disclose them. After giving show cause notice, the Income-tax Officer imposed pena ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scretion by the taxing authorities; but it is imposed as a part of the machinery for assessment of tax liability." Then, refuting the contention of the appellant that, if the process of assessment includes taking steps for imposing penalties, the Legislature has inadvertently left a lacuna in the Act, the learned judge laid down: "This plea may be accepted only if the court is compelled, in view of unambiguous language, to hold that such was the intention of the Legislature. Here the language used does not even tend to such an interpretation. In interpreting a fiscal statute, the court cannot proceed to make good deficiencies if there be any: the court must interpret the statute as it stands and in case of doubt in a manner favourable to the taxpayer. But where, as in the present case, by the use of words capable of comprehensive import, provision is made for imposing liability for penalty upon taxpayers guilty of fraud, gross negligence or contumacious conduct, an assumption that the words were used in a restricted sense so as to defeat the avowed object of the Legislature qua a certain class will not be lightly made." This decision which is based upon the provisions of the In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, clear that penalty is clearly separate and distinct from tax, under the Sales Tax Act. The usual proceedings taken for the assessment of the tax are not sufficient for the levy of penalty also. There is, thus, no doubt that under the Sales Tax Act, penalty is not merely incidental to assessment proceedings as the learned Government Pleader contends. The word "tax" as used in the Act does not include "penalty". The two are treated therein as distinct and separate. Gopal Rao Ekbote, J., expressed the same view in Morisetty Bhadraiah v. Sales Tax Appellate Tribunal[1964] 15 S.T.C. 787. , while dealing with section 21(6) of the Andhra Pradesh General Sales Tax Act, 1957, and the Amending Act 26 of 1959. We have, therefore, no hesitation in repelling this argument advanced for the State. The second contention of the learned Government Pleader is that, though the return submitted relates to the business done by the deceased dealer, since the respondent himself has submitted it, he should also be liable for the penalty. According to him, the respondent must be held responsible for all the defects in the return. This theory cannot be countenanced even for a single minute, because the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subsection (1). It his to be noticed that every item included in sub-section (2) is only an instance of the several purposes of the Act, for which rules can be made. In other words, they are only illustrative cases of the general power referred to in sub-section (1). Nor could it be said that the instances enumerated in sub-section (2) exhaust all the purposes and subjects on which rules can be made. The very language of the first portion of sub-section (2) makes this position clear. It stated "In particular and without prejudice to the generality of the foregoing power, such rules may provide for". Thus, the language of sub-section (2) specifically declares that the several subjects enumerated therein are only particular or illustrative instances of the general power conferred under sub-section (1) and that they are without any prejudice and not restrictive of that power. It cannot, therefore, be said that, simply because a particular subject is not included in the illustrative list contained in subsection (2), the State Government cannot make a rule in regard to it, even though it is one of the purposes of the Act. This position is well-established and beyond the pale of contr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt they would come within the general power conferred by sub-section (1) of section 19 of the Madras General Sales Tax Act, 1939. Expressing this view, Kapur, J., speaking for the court, observed at page 246: "In any event as was said by the Privy Council in King Emperor v. Sibnath Banerji and OthersA.I.R. 1945 P.C. 156., the rule-making power is conferred by subsection (1) of that section and the function of sub-section (2) is merely illustrative and the rules which are referred to in sub-section (2) are authorised by and made under sub-section (1). The provisions of subsection (2) are not restrictive of sub-section (1) as expressly stated in the words 'without prejudice to the generality of the foregoing power' with which sub-section (2) begins and which words are similar to the words of sub-section (2) of section 2 of the Defence of India Act, which the Privy Council was considering. Now sub-section (1) of section 19 of the Act provides that 'the State Government may make rules to carry out the purposes of this Act' and the long title of the Act is 'an Act to provide for the levy of general tax on the sale of goods in the State of Madras'. Therefore in our opinion rule 17 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1) of section 39. According to him, there is only one purpose of the Act, namely, to assess and collect sales tax and levy of penalty is not its purpose. We cannot uphold this argument. In the first place, it should be noticed that section 39(1) does not use the singular word "purpose". On the other hand, it uses the plural word "Purposes". Therefore, it envisages more than one purpose of the Act. All those purposes are referred to and provided for by the different provisions of the Act. Imposition and collection of penalty also are clearly dealt with in a number of provisions of the Act. It must necessarily be so. In a taxing statute of this nature, the Legislature must envisage and provide for cases, where the assessees attempt to contravene the provisions of the Act and to evade payment of rightful tax levied thereunder. If such contingencies are not visualised and such leaks are not plugged, no taxation law can be effective and satisfactorily implemented. In order to satisfactorily and effectively implement their provisions, penalties are generally provided for in all taxation laws. Without such a sanction, there is the danger of evasion of tax. Thus, provision for levy and col ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollected from him and from his estate. It is unreasonable to permit the estate to escape this liability, because the dealer had died. If the tax is recoverable from his estate after his death, penalty also should equally be recoverable from it. The legal representative is liable to pay the said tax and penalty only to the extent and limit of the deceased dealer's assets in his hands. He is not mulcted with any personal liability. This, in our view, is pre-eminently reasonable. The view of the Appellate Tribunal that the principle actio personalis moritur cum persona is applicable to this case is clearly erroneous. That principle has no application, where the law clearly provides for the survival of the liability after the death of the concerned persons. The Sales Tax Act and the Rules made thereunder provide for the survival of the liability of the deceased dealer, when that is so, the dealer's liability to pay tax and/or penalty does not disappear with his death. The Appellate Tribunal clearly erred in applying this principle. Thus, we see no force in either of the two objections raised by Sri Rama Rao. We, therefore, hold that rule 23(1) is not ultra vires the powers of the r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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