TMI Blog1994 (5) TMI 13X X X X Extracts X X X X X X X X Extracts X X X X ..... s follows : For the late filing of the wealth-tax returns, penalty proceedings were initiated against the assessee for the assessment years 1968-69, 1969-70, 1970-71. On or about March 14, 1973, three similar show-cause notices were issued by Mr. N. Dubey, the concerned Wealth-tax Officer, in respect of the aforesaid three assessment years calling upon the assessee to show cause on or before May 8, 1973, why penalty should not be levied. The assessee did not respond to those show-cause notices. Pursuant to those show-cause notices, no penalty was, however, imposed by Shri Dubey either on May 8, 1973, or thereafter. Mr. Dubey was thereafter succeeded by another Wealth-tax Officer, namely, Smt. C. Merwar. The matter was thus kept pending. It is an admitted position that no notice or intimation was ever given to the assessee of the fact that the original officer, who issued the show-cause notices, has been succeeded by another officer. Thereafter, on or about March 26, 1975, Smt. C. Merwar levied a penalty of Rs. 481 in respect of the assessment year 1968-69, a penalty of Rs. 14,399 for the assessment year 1969-70 and a penalty of Rs. 4,185 for the assessment year 1970-71. All the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sonable cause failed to furnish within the time allowed and in the manner required by sub-section (1) of section 14 or by such notice, as the case may be ; or (b) has without reasonable cause failed to comply with a notice under sub-section (2) or sub-section (4) of section 16 ; or . . . (2) No order shall be made under sub-section (1) unless the person concerned has been given a reasonable opportunity of being heard. 39. Whenever in respect of any proceedings under this Act any wealth-tax authority ceases to exercise jurisdiction and is succeeded by another who has and exercises such jurisdiction, the authority so succeeding may continue the proceeding from the stage at which the proceeding was left by his predecessor: Provided that the assessee concerned may demand that before the proceeding is so continued the previous proceeding or any part thereof be reopened or that before any order of assessment is passed against him, he be reheard." Almost similar provisions relating to levy of penalty including the procedural safeguards against such levy are found in other taxation laws, namely, sections 274 and 129 of the Income-tax Act, sections 17, 17(2), 17A and 17A(4) of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the present context means a mere consideration of the case as made out in written representation. Inextricably mixed up with the consideration of the above question is an incidental query, namely, whether such an oral hearing can be given only on the request of the person concerned or whether under the scheme of the said Act it is an implied obligation of the concerned authority to offer an opportunity of an oral hearing to the person affected. In this context, the interpretation of section 39 of the said Act assumes very great significance. Section 39 of the said Act deals with the effect of transfer of authorities during the pendency of a proceeding. It provides that in such a case, when an authority initiating the proceeding is succeeded by another, the authority so succeeding may continue the proceeding from the stage at which the proceeding was left by the predecessor but the succeeding officer can do so subject to certain rights given to the assessee. The proviso gives a right to the assessee to demand that before the proceeding is so continued by the succeeding officer, the previous proceeding or part thereof may be reopened or that before any order is passed against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 and section 198 stated this principle in the following words : " It is a rule of law that the legislator intends the interpreter of an enactment to observe the maxim ut res magis valeat quam pareat ; so that he must construe the enactment in such a way as to implement, rather than defeat, the legislative purpose." I am further emboldened to take this view having regard to the fact that section 39 of the said Act provides a salutary safeguard which is attracted even in case of levy of penalty. Here again, I quote the following passage at page 573, section 271 from Bennion's treatise (supra), to illustrate the principle of construction of safeguards in a penal statute : " It sometimes happens that a penal enactment contains provisions giving relief from the imposed penalty in specified cases. It may be clear that a particular detriment is imposed, unless the case can be brough within a problematical exception. Here the presumption against doubtful penalisation requires that the exception be construed liberally (that is in favour of the subject). If it is doubtful whether an exception to a penalty applies, it is doubtful whether the penalty itself applies." Keeping those pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sputed that in very many cases the penalty proceedings are kept in abeyance awaiting the final result of the assessment proceedings and, although notice under section 28(3) is served upon the assessee and he filed a written explanation, for months and sometimes years together the penalty proceedings are kept in abeyance and the assessee has no knowledge as to what has happened or is happening except when he gets the final order made in the proceedings served upon him. In such a case, if the assessee, due to a long lapse of time, assumes that his explanation perhaps was found to be satisfactory and proceedings were dropped, he cannot be said to be altogether wrong in such assumption. If officer after officer succeed when proceedings are thus pending and the assessee does not even know about such transfers then how is he to exercise his right to demand reopening or rehearing if he has no notice that the succeeding officer proposes to continue the proceedings. The assessee must, therefore, be told about the intention of the succeeding officer to continue the proceedings and who can tell him so, except the succeeding officer who proposes to continue the proceedings and who also knows t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ention to continue the proceedings from the stage at which his predecessor has left, by necessary implication it provides for such an intimation. We must, we think, infer from the power given to the succeeding officer that such a notice was intended by the Legislature. When the Legislature has directed something to be done, it must be considered to have empowered something ancillary to be done which is necessary in order to accomplish the ultimate object of section 5(7C). What must follow is that the succeeding officer must give notice to the assessee before he decides to continue the proceedings from the stage where it was left by his predecessor." I am in respectful agreement with the aforesaid statement of law and they apply also to the interpretation of section 39 of the said Act. There is a still more recent judgment of the Calcutta High Court in the case of CIT v. Smt. Chitra Mukherjee [1981] 127 ITR 252. The hon'ble judge of the Division Bench, relying on the aforesaid decision of the Andhra Pradesh High Court in Anantha Naganna Chetty's case [1970] 78 ITR 743, came to the conclusion that penalty proceedings under section 271(1)(a) of the Income-tax Act, 1961, were not o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... objectors against the scheme framed under Chapter IV-A of the Motor Vehicles Act (4 of 1939). The procedure which had been prescribed by the State of Andhra Pradesh for the hearing of such objections was that the secretary to the Government had to give personal hearing, but the decision had to be given by the Chief Minister. Their Lordships of the Supreme Court in that case held that--- " personal hearing enables the party appearing at such hearing to persuade the authority concerned by reasoned arguments to accept his point of view. Therefore, in the fitness of things, it is the same authority which has to decide which must hear." In the context, the learned judge of the Supreme Court was pleased to observe as follows : " If one person hears and another decides, then personal hearing becomes an empty formality." On the same parity of reasoning, I am of the view that the hearing contemplated under section 18(2) of the said Act is a personal hearing. In order that such a personal hearing does not become "an empty formality", the assessee has been given under section 39 of the said Act a right of rehearing before the succeeding officer inasmuch as the succeeding officer has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... again that the principles of natural justice are a facet of article 14 of the Constitution of India. Therefore, in construing the provisions of sections 18(2) and 39 of the said Act, I must be guided by the constitutional principles emanating from article 14 of the Constitution of India. The Supreme Court has also equated the principles of natural justice with fairness in action and it has been consistently held that " fairness in action " is an inbuilt content of article 14 of the Constitution of India. Reference, in this connection, is made to the Constitution Bench judgment of the Supreme Court in the case of Delhi Transport Corporation v. D. T. C. Mazdoor Congress [1991] 79 FJR 1 ; AIR 1991 SC 101. At paragraph 260, at page 195, of the majority judgment of the said case, the learned judges of the Supreme Court came to this conclusion (at page 134 of 79 FJR) : " Maneka Gandhi's case, AIR 1978 SC 597, is also an authority for the proposition that the principles of natural justice are an integral part of the guarantee of equality assured by article 14 of the Constitution. In Union of India v. Tulsiram Patel [1985] Suppl. 2 SCR 131, at page 233 ; AIR 1985 SC 1416, at page 1460, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yond the control of the assessee. "Reasonable cause" obviously means a cause which prevents a reasonable man of ordinary prudence acting under normal circumstances, without negligence or inaction or want of bona fides, from furnishing the return in time. It is, however, made clear that I am not giving any exhaustive definition of the phrase " reasonable cause " occurring in sections 18(1)(a) and 18(1)(b) of the said Act. In other words, such an attempt is unnecessary and futile. The reasonableness of a cause will depend upon the facts and circumstances of each penalty case. All that I want to emphasise is that for convincing the officer concerned about the reasonableness of the cause which prevented the assessee from furnishing the return in time, an oral hearing is a must. An oral hearing is necessary not only on grounds of fairness but also for enabling the assessee concerned to record his case which has been described as to " blow off steam". Such an oral hearing is necessary on grounds of public policy and in public interest also as has been described by Professor H. W. R. Wade in his article " The Twilight of Natural Justice " published in 1951 in Law Quarterly Review, Vol. 67 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t : " it must be pointed out, however, that when the words 'hearing' or 'opportunity to be heard' are used in legislation, they nearly always denote a hearing at which oral submissions and evidence may be tendered." Professor S. A. de Smith was pleased to further add at page 201 of the same treatise that " In the absence of clear statutory guidance on the matter, one who is entitled to the protection of the audi alteram partem rule is now prima facie entitled to put his case orally." Reference, in this connection, may be made to the decision in R. v. Immigration Appeal Tribunal [1977] 2 All ER 602 (QBD). In that case a deportation order was set aside by Queen's Bench Division consisting of Lord Widgery C. J., Forbes and Slynn JJ., on the ground that there was no oral hearing given to the person affected. Their Lordships gave their conclusion at page 608 of the said report in the following words : " On the other hand, it is possible that if the applicant had had an oral hearing before the Tribunal, on the hearing of his appeal, further matters could have been advanced on his behalf. In our judgment, he has been deprived of that opportunity. Whether anything new will emerge or wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions which are now being considered in this judgment. While construing the ambit and scope of " reasonable opportunity of being heard ", the Constitution Bench of the Supreme Court in Khem Chand's case, AIR 1958 SC 300, has been pleased to observe as follows at page 307 : "(a) an opportunity to deny his guilt and establish his innocence, which he can only do if he is told what the charges levelled against him are and the allegations on which such charges are based ; (b) an opportunity to defend himself by cross-examining the witnesses produced against him and by examining himself or any other witnesses in support of his defence ; and finally (c) an opportunity to make his representation as to why the proposed punishment should not be inflicted on him, which he can only do if the competent authority, after the enquiry is over and after applying his mind to the gravity or otherwise of the charges proved against the Government servant tentatively proposes to inflict one of the three punishments, and communicates the same to the Government servant." Though there are some vital contextual differences between the grant of reasonable opportunity of being heard to a member of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of India which envelops within itself the requirement of fairness which, in turn, in these days is a requirement of the principles of natural justice. Therefore, having regard to the developments of the principles of natural justice as well as the dynamic interpretation of article 14 of the Constitution by the apex court in a series of decisions, it is no longer open to the wealth-tax authorities acting under section 18(1)(a) read with section 18(2) of the said Act to decide the liability to penalty of an assessee merely on the basis of consideration of a written representation given by the assessee. In my opinion, he must offer the assessee an opportunity of oral hearing and if that opportunity is not availed of by the assessee, that is of course a different matter but without offering the assessee an opportunity of oral hearing, the decision made on the basis of consideration of the written representation only, is bound to be an unfair one and, in my view, such a decision does not satisfy the mandatory requirement of section 18(2) of the said Act. In view of the fact that I have taken the aforesaid view about the obligation of the Wealth-tax Officer where he is acting in disch ..... X X X X Extracts X X X X X X X X Extracts X X X X
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