TMI Blog1966 (5) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... im whatever cash they had for safe custody. The assessee said that he deposited the amounts received from his said relations in a fixed deposit account in the joint names of the assessee and his minor sons. It was also said that he held the money on behalf of his relations as trustee. The Income-tax Officer did not accept the explanation of the assessee and held that the sum of Rs. 87,000 represented the income of the assessee from an undisclosed source. The Income-tax Officer added the amount with the total income of the assessee in his personal assessment. The assessee preferred an appeal to the Appellate Assistant Commissioner and a second appeal to the Tribunal. The Tribunal held that the authorities were justified in treating the amount as the assessee's income from undisclosed source. Thereafter, the Income-tax Officer started proceedings under section 28(1)(c) of the Income-tax Act for imposition of penalty for concealing income and deliberately furnishing inaccurate particulars thereof. The Income-tax Officer imposed a penalty of Rs. 66,000. The Appellate Assistant Commissioner on appeal reduced the amount of penalty by Rs. 22,000. The Appellate Asssistant Commissioner he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 28 of the Act was additional tax, and, thirdly, that it would appear from the assessment proceedings in the present case that the assessee had concealed part of his income and that evidence would be sufficient or, in the alternative, that evidence would be material and, in the absence of anything to the contrary being shown by the assessee, would be sufficient to sustain the penalty. In the case of Commissioner of Income-tax v. Gokuldas Harivallabhdas Chagla C.J. said that proceedings under section 28(1)(c) were in the nature of penal proceedings and the department was to establish that the assessee was guilty of concealment of the particulars of income. It was observed that the offence under section 28 was not that the assessee was charged with having given false explanation but that the assessee gave inaccurate particulars about his income. It was also observed in that decision that it was not possible to infer from the falseness of the assessee's explanation that the receipt necessarily constituted an income of the assessee. The view expressed by the Bombay High Court in the case of Gokuldas Harivallabhdas has not been accepted by the Allahabad High Court. The decisions of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he imposition of penalty. The Madras High Court in the decisions in P. K. Kalaswami Nadar v. Commissioner of Income-tax, M. Hussain Ali Sons v. Commissioner of Income-tax Gnanambika Mills Ltd. v. Commissioner of Income-tax and A. V. Thomas Co. v. Commissioner of Income-tax dealt with the question as to whether proceedings under section 28 of the Income-tax Act are penal proceedings. In Kalaswami Nadar's case the Madras High Court expressed concurrence with the view of the Bombay High Court in the case of Gokuldas Harivallabhdas regarding the nature of the penalty proceedings under the Income-tax Act. The concurrence was with regard to the proposition that proceedings under section 28(1)(c) of the Income-tax Act were in the nature of penal proceedings and the onus of proof was upon the department and the onus to prove was not discharged by reason only of the fact that the assessee gave a false explanation in regard to the income alleged to have been concealed. It should be stated here that the Madras High Court made observations as to the degree or quantum of proof that was needed and it was said that the penal proceedings under the Income-tax Act were more in the nature of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me-tax affirmed the view of the Patna High Court in the case of Khemraj Chagganlal v. Commissioner of Income-tax that the mere fact that the assessee was not able to establish by satisfactory evidence the source of the income did not mean that the explanation was false or that the assessee had been guilty of deliberate suppression within the meaning of section 28(1)(c) of the Income-tax Act. The Patna High Court in the case of Commissioner of Income-tax v. Mohan Mallah expressed the view that proceedings under section 28 of the Income-tax Act were penal proceedings and the onus was upon the income-tax department to show that the assessee was guilty of concealment of the particulars of his income or deliberately furnishing inaccurate particulars of such income. Counsel on behalf of revenue relied on the decisions of the Allahabad High Court and of the Madras High Court and also placed reliance on the decision of the Supreme Court in C. A. Abraham v. Income-tax Officer in support of the proposition that proceedings under section 28 of the Income-tax Act were part of the assessment proceedings and also that the penalty imposed under section 28 of the Income-tax Act was additional ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sioner of Income-tax expressed concurrence with the Bombay decision. The other decisions of the Madras High Court did not express the view that proceedings under section 28 of the Income-tax Act are of the nature of criminal proceedings. The Allahabad decisions expressed the view that proceedings under section 28 of the Income-tax Act are not of the nature of criminal proceedings. The views expressed in all the aforesaid decisions are that the onus is upon the department to establish that the assessee is guilty of violation of provisions contained in section 28 of the Income-tax Act. The onus that is cast upon the income-tax authorities is to prove that the assessee has concealed the particulars of his income or deliberately furnished inaccurate particulars of such income. The gist of the matter is, as Chagla C. J. said, that in the assessment proceedings it is open to the department to take the view that if a certain receipt appears in the books of account of the assessee and the assessee is not in a position to give an explanation in regard to that receipt, that receipt constitutes an income from undisclosed source, but in proceedings under section 28(1)(c) the assessee is not ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at receipt as income from undisclosed source. In proceedings under section 28(1)(c) of the Indian Income-tax Act, it is the income-tax department which has to prove, first, that the moneys are income and, secondly, that the assessee concealed or deliberately furnished inaccurate particulars of income. In the present case, the Appellate Tribunal correctly held that the Income-tax Officer must find materials, apart from falsity of the assessee's explanation, to support the finding that the receipt from undisclosed source was income in nature. In my opinion there was no justification for the income-tax authorities, in the facts and circumstances of the case, to impose a penalty on the assessee. The question is therefore answered in the negative. The assessee is entitled to the costs of the reference. Certified for two counsel. D. BASU J.-Agreeing with the judgment pronounced by my Lord, I would like to add a few words on the question of law which arises out of this reference. The question of law relates to the interpretation of sub-section (1) of section 28(1)(c) of the Income-tax Act, 1922, the material portion of which reads as follows : " If the Income-tax Officer in the Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 29) ; but these cannot change the essential nature of the imposition in question, namely, that it is intended to be a punishment for the acts referred to in clauses (a) to (c) of the sub-section. As explained in the Irish case of R. v. Aildare penalty means a sum of money recoverable in a summary manner, for breach of some statutory provision. In the same strain, the Bombay High Court has held in Kuberdas v. State of Bombay, that a penalty is provided for by a statute to punish a contravention of a statute or the doing of something which is prohibited by the statute : vide Halsbuty's Laws of England, volume 10, page 389. In order to enforce the mandatory provisions of a statute, the legislature may impose sanctions of either of two kinds : (a) declare it as an 'offence under the general law of crimes and make the person guilty of such offence punishable judicially ' : (b) alternatively, or additionally, it may provide that the contravention will be punishable extra-judicially, by the prescribed administrative authority. The latter is a case of statutory penalty, but it has affinity to a criminal offence in the following respects: (a) There is an offence in the bro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and then only is the penalty prescribed therein attracted. It would be pertinent in this connection to point out that the failure to furnish a return or the making of a false declaration is also a criminal offence, punishable by a criminal court, under sections 51 and 52 of the Act, but sub-section (4) of section 28 provides : " No prosecution for an offence against this act shall be instituted in respect of the same facts on which a penalty has been imposed under this section. It is clear that the contraventions referred to in section 28(1) may give rise both to a criminal offence as well as a statutory offence ; but if a penalty has been imposed under section 28, no prosecution before the criminal court shall again lie in respect of the same offence. It may safely be concluded that the " additional tax " imposed by section 28(1) is nothing but a punishment for a statutory offence and that instead of a judicial punishment, the section prescribes for a penalty being awarded by the revenue authority. It has nevertheless been asserted in some High Court decisions that, though the imposition under section 28(1) may be a " penalty ", the proceeding to make such imposition is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in whole or in part the punishment of the defendant. This is equally so, whether he is imprisoned, or compelled to pay a pecuniary penalty to a common informer, or is held liable in damages to the person injured by him. All these proceedings, therefore, may be classed together as penal, and as the source of penal liability.... It will be noted that all criminal proceedings are at the same time penal, but that the converse is not true. At another place, the learned author says : " Sanctioning rights may be divided into two kinds with reference to the purpose of the law in creating them. This purpose is either, (1) the imposition of a pecuniary penalty upon the defendant for the wrong he has committed, or (2) the provision of pecuniary compensation to the plaintiff for the wrong he has suffered. . . The first of these kinds is rare in modern English law ... But it is sometimes the case even yet, that the law creates and enforces a sanctioning right which has in it no element of compensation to the person injured, but is appointed solely as a punishment for the wrongdoer. For example, a statute may make provision for a pecuniary penalty payable to the State or to a common inform ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eeking to punish the person and the penalty cannot be awarded unless this onus is discharged (Gian Chand v. State of Punjab and Amba Lal v. Union of India). In the case before us, it is the question of onus which has been raised in connection with the nature of the proceeding under section 28(1) of the Income-tax Act, and this I shall deal with separately. The question of onus in a " penal proceeding " for the imposition of a statutory penalty has been fully explained by me in my judgment in the Division Bench decision of this court in Mangala Prosad v. Manerikar and I need only refer to the observations made therein as a part of my judgment in the instant case. Nevertheless, I shall summarise those points herein : (i) The " golden thread " running through " the web of the English law ", as Viscount Sankey said in Woolmington v. Director of Public Prosecutions is that " it is the duty of the prosecution to prove the prisoners guilt or that " a criminal charge has to be established by the prosecution (Lawrence v. King). (ii) The above golden rule of criminal jurisprudence is attracted to any " penal proceeding " as has been held in England in Fattiorini's case, and in Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld have produced funds (it being accepted that the contract with the bank was not unreasonable) out of which to declare a dividend ' without jeopardising the interests of the company or without making it impossible to acquire the shares which it desired to buy.' I accept this here as a correct statement of what would have been sufficient if established. The Board have not found that this has been proved. It seems to me that their conclusion in paragraph 25 was based upon their view as to the onus of proof. If the Board were wrong in that view, and I think they were, it follows that in law there was no evidence to support their finding of fact in paragraph 25" In view of the above, we may, without more, come to the conclusion that the onus of establishing, in a proceeding under section 28(1)(c) of the Income-tax Act, 1922, that the assessee has, (a) concealed the particulars of his income, or (b) deliberately submitted inaccurate particulars, is upon the revenue and not upon the assessee. (iii) The only point left is whether the revenue has discharged that onus in the instant case. As to this, I fully agree with the finding of my learned brother that the revenue has failed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ility arises only if the Income-tax Officer is satisfied about the existence of the conditions which gave him jurisdiction and the quantum thereof depends upon the circumstances of the case. The penalty is not uniform and its imposition depends upon the exercise of discretion by the taxing authorities ; but it is imposed as a part of the machinery for assessment of tax liability." As stated by me earlier, the mode of imposition or recovery of a penalty does not alter its character as a punishment for some misconduct and that is the very sense in which the foregoing observation has been made. It merely explains how the penalty under section 28 is to be imposed and recovered as a part of the machinery of assessment. It does not say that the proceeding under section 28 is not a penal proceeding nor does it speak of onus. In fact, a later passage explains the penal nature of the imposition thus : " 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 ... will no ..... X X X X Extracts X X X X X X X X Extracts X X X X
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