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TMI Blog1984 (2) TMI 48X X X X Extracts X X X X X X X X Extracts X X X X ..... e imposition of penalty under section 273(a) of the Income-tax Act, 1961 ? The assessees in the four sets of references are partners of a firm known as M/s. Parkash Brothers & Co. The cases relate to the assessment year 1964-65. The assessees were served on August 30, 1963, with notices under s. 156 of the Act for the payment of advance tax under s. 210. The assessees filed on August 31, 1963, their respective estimates of advance tax in terms of the provisions of s. 212(1). The amount demanded by the ITO in the case of Shri Parkash Chand was Rs. 13,841.58, in the case of Shri Roshan Lal-Rs. 16,214.44, in the case of Shri Budh Raj-Rs. 14,301.74, and in the case of Shri Dharam Pal-Rs. 13,859.31. Each of the partners paid advance tax as per their estimates in each case, i. e., Rs. 7,335.75. The assessees eventually filed their respective returns of income on November 11, 1964, for the assessment year 1964-65. The assessees had shown considerably higher incomes than those estimated under s. 212. The assessments were completed by the ITO on March 8, 1968. In the case of Shri Parkash Chand, the total income returned was Rs. 77,018 and the total income assessed was Rs. 83,011 on which t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r expressed the view that even assuming that at the time of the original assessment, the ITO had considered the provisions of s. 215 and the provisions of rule 40, in the absence of any discussion by him as to how the case fell within the terms of the rule, the Commissioner was entitled to revise the order and direct the ITO to consider the provisions of the section and the rule by applying his mind and then come to the conclusion as to whether interest should be charged or not. The Tribunal held that the Commissioner's order in so far as it related to the direction to the ITO to consider the provisions of s. 215 and rule 40 had to the upheld. The omission to consider the applicability of s. 273(a) regarding the imposition of penalty was held as totally extraneous to the scope of the assessment order and this omission could not be said to be an error vitiating the assessment order. The Tribunal set aside the direction of the Commissioner that in the course of the fresh assessment proceedings, the ITO should take steps for initiating proceedings under s. 273. In the result, the order of the Commissioner was upheld in part only and partly modified. As already noticed, the returns of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no further investigation of fact was required to be made. The Commissioner while considering the record of the proceedings and exercising his revisional power under s. 263 had to review the record and come to a conclusion that the rights of the Revenue had been injuriously affected by the order. The counsel concludes that an opinion is not expressed by the Commissioner in this case that there is fair likelihood that but for the error there would have been a different result in regard to the imposition of penal interest. Reliance is heavily placed on the decision of a Bench of this court in CIT v. Caxton Press (P.) Ltd. [1981] 129 ITR 462. Let me first make a review of the relevant provisions of the Act. The procedure for assessment is provided in Chapter XIV. Section 143 confers power on the ITO to make an assessment. The collection and recovery of tax is provided in Chapter XVII. Advance payment of tax is provided in Part C of this Chapter. Under s. 210, where a person has been previously assessed by way of regular assessment under the Act or under the Indian I.T. Act, 1922, the ITO may, on or after the 1st day of April in the financial year, by order in writing, require him to p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igation on the ITO to levy penal interest. Omission to do so would constitute a violation of statutory duty and the order of the ITO would be clearly erroneous. If an ITO who is required in law to calculate the interest in the manner provided in the Act, does not levy and calculate interest and then make demand of it, the consequence is that the Revenue is inevitably deprived of the interest payable. Such an order adversely affects the legal right of the Revenue and, hence, prejudicial to the interests of the Revenue. Prejudicial to the interests of the Revenue means, though not defined, that the lawful revenue due to the State has not been realised. Section 215 of the Act provides that in the circumstances set therein, interest shall be payable by the assessee. The rigour of the law is, however, mitigated by a discretion given to the ITO to reduce or waive the interest payable by the assessee under s. 215. Sub-s. (4) of s. 215 provides that in such cases and under such circumstances as may be prescribed, the ITO may reduce or waive the interest payable by the assessee under this section. Rule 40 is the relevant rule reading as follows : " Waiver of interest.-The Income-tax Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the question of levy of interest in the context of rule 40. In Shantilal Rawji v. Nair [1958] 34 ITR 439 (Bom) by an assessment order dated March 10, 1953, the total income of the assessee there was assessed. Later on, the ITO discovered that the assessee had not paid tax in advance on the proper amount. He, therefore, made an order on October 9, 1956, under s. 35 of the Indian I.T. Act, 1922, adding interest on unpaid tax due under s. 18A(6) and issued a notice of demand. The assessee invoked the writ jurisdiction of the High Court to challenge the validity of the order of rectification. A contention raised was that there was no mistake in the order of the ITO as a result of the omission to charge interest leviable under s. 18A(6) by reason of the fifth proviso to s. 18A(6) which was inserted in the 1922 Act on May 24, 1953, with retrospective effect from April 1, 1952, and which vested a discretion in the. ITO to reduce or waive the interest payable by the assessee. What was decided in that case was that the omission to charge interest cannot constitute an apparent error, because the ITO could, under the law in force (though retrospectively), have waived the interest. Mr. Palkh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was right in holding that the ITO must be deemed to have exercised his discretion and waived levy of penal interest and that the Commissioner had no jurisdiction under s. 33B of the Indian I.T. Act, 1922, to revise the order of the ITO. Another Division Bench of this court expressed that either the Appellate Tribunal was right in holding that the ITO must be deemed to have exercised his discretion and waived penal interest or it must be held that he had omitted to say anything on this question, that if it was an order waiving the penal interest, then the Commissioner clearly had no jurisdiction under s. 33B, that if it was an omission, then only the ground on which the interest should have been imposed under rule 48(1) of the Indian I.T. Rules, 1922, was on the ground that the delay in the assessment was attributable to the assessee and that this is not the finding of the Commissioner in his order under s. 33B. The ratio recorded does support the case of the assessees, but they were made in the context of the facts and circumstances of the case and the question posed for answer. With great respect to the learned judges, I am unable to persuade myself to agree to the view expressed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew expressed by the Division Bench of this court. I regret to note that the counsel did not bring the Caxton's case [1981] 129 ITR 462 (Delhi), to the notice of the Division Bench. For the above reasons, I would have answered question No. 1 in the affirmative, i.e., against the assessees and in favour of the Revenue but for the contra view taken by another Division Bench in Caxton Press' case [1981] 129 ITR 462 (Delhi). It would, therefore, be necessary to resolve the conflict. Mr. Wazir Singh, the learned counsel for the Revenue, urges that an order of the ITO which does not levy penalty without stating any reasons therefor is on the face of it an order erroneous and prejudicial to the interests of the Revenue. He submits that as penalty proceedings can be initiated only in the course of the assessment proceedings, the failure to do so by the ITO can be the subject-matter of a direction by the Commissioner while examining the assessment record in exercise of the powers conferred under s. 263 of the Act. Reliance is placed on three cases of the Madhya Pradesh High Court in support of this contention. These are Addl. CIT v. Indian Pharmaceuticals [1980] 123 ITR 874 (MP), Addl. CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... true estimate. It is also true that it is in the course of the proceedings in connection with the regular assessment that the ITO should be satisfied regarding the default of the assessee, but the proceedings for the levy of a penalty are proceedings independent of and separate from the assessment proceedings. There is no identity between the assessment proceedings and penalty proceedings, the latter are separate proceedings, that may, in some cases, follow as a consequence of the assessment proceedings. I am in respectful agreement with the view expressed by the Division Bench of this court that the Commissioner, while dealing with the assessment proceedings in assessment order, cannot extend his powers to deal with penalty proceedings when they are not before him. I would have answered question No. 2 against the Department but for the fact that my learned brother holds a different view. GOEL J.-I agree with the reasoning and conclusion of my learned brother S. S. Chadha J. on question No. 1. As regards question No. 2, S. S. Chadha J. proposes to follow the two decisions of an earlier Bench of this court consisting of S. Ranganathan and Ms. Leila Seth JJ. in the cases, Addl. CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se are also very pertinent for the purpose of resolving the controversy arising in the present case : " Whether or not the revisional power can be exercised in a given case must be determined solely by reference to the terms of s. 33B itself. Courts would not be justified in imposing additional limitations on the exercise of the said power on hypothetical considerations of policy or the extraordinary nature of the power." Section 263 of the Act of 1961 is the provision corresponding to s. 33B of the Act of 1922. It is also equally settled that the revisional powers of the Commissioner under s. 263 are of the widest amplitude. Before I deal with the main question as to the connection of penalty action under s. 273(a) and for that matter under s. 271(1) also with assessment proceedings and assessment orders, it may be pointed out here that this court in the case of Gee Vee Enterprises v. Addl. CIT [1975] 99 ITR 375 (Delhi) held that as it is incumbent on the ITO to further investigate the facts stated in the return when circumstances would make such an enquiry prudent that the word " erroneous " in s. 263 includes the failure to make such an enquiry. The order becomes erroneous b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out the leviability of penalty in the case. It cannot be disputed that proceedings for assessment are not confined only to the computation of income and tax but various other things which fall within the scheme of Chapter XIV containing provisions relating to procedure for assessment are included therein. Not only that, according to s. 273(a) of the Act, if the ITO in the course of any proceedings in connection with the regular assessment is satisfied that the assessee has without reasonable cause failed to furnish an estimate of the advance tax payable by him in accordance with the provisions of s. 212(3), he may impose penalty on him as provided in that provision. If the facts attract the provisions of s. 273(a), it is obligatory on the ITO to initiate penalty action under that provision. Further, as pointed out above, for initiating penalty action, the ITO has to record his satisfaction in that regard in the course of assessment proceedings i.e., up to the time of the passing of the assessment order. The ITO may make a note in that regard either in the record of the assessment proceedings or in the assessment order which is the culmination of assessment proceedings. I am unable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gs or the assessment order that the note by the ITO regarding the reaching of his satisfaction has to be made. In a case in which, according to the Commissioner, the ITO ought to have recorded his satisfaction that it is a fit case in which penalty action under s. 273(a) is called for, but omits to do so, the Commissioner on finding its omission in the assessment proceedings and the assessment order, has to hold the et assessment order " as erroneous and prejudicial to the interests of the Revenue. The reason is that the ITO may withhold the recording of his satisfaction till the passing of the assessment order ; and he is bound in the last to record that in the assessment order. It is thus the assessment order, which in the event of non-recording of the ITO's satisfaction in the said regard, that would be erroneous. Thus, to say that for seeing if in a particular case, penalty action was or was not called for, assessment order is not to be seen or in the event of its omission in the assessment proceedings and the assessment record, the assessment order cannot be held to be erroneous, to my mind, is wholly incorrect. It may also be pointed out at this stage that in a case like the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ative, i.e., in favour of the Revenue and against the assessee. [The matter then came up for hearing before AVADH BEHARI ROHATGI J. His Lordship delivered the following judgment on February 23, 1984.] AVADH BEHARI ROHATGI J.-In these eight references under s. 256(1) of the I.T. Act, 1961 (" the Act "), four at the instance of the assessee and four at the instance of Commissioner of Income-tax (CIT), the following two questions of law were referred for the opinion of the court: (1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the Commissioner of Income-tax should have directed the Income-tax, Officer to modify the original assessment order by including any interest under section 215 that he might consider chargeable after duly considering the provisions of that section and of rule 40(1) ? (2) Whether, on the facts and in the circumstances of the case, the Commissioner of Income-tax was entitled to pass an order under section 263 to revise the assessment order, to direct the Income-tax Officer to initiate proceedings for the imposition of penalty under section 273(a) of the Income-tax Act, 1961 ? " The cases relate to the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... D'Costa [1982] 133 ITR 7 (Delhi) (S. Ranganathan and Leila Seth JJ.). These two cases-Caxton and D'Costa-being of co-equal authority taking different views on the subject, are in conflict with each other, they thought. So Chadha and Goel JJ. suggested that the conflict must be resolved. On the second question of initiation of penalty proceedings, the learned judges took diametrically opposite views. Chadha J. following D'Costa and Addl. CIT v. Achal Kumar Jain [1983] 142 ITR 606 (Delhi), held that the Commissioner had no power to make a direction with regard to the initiation of penalty proceedings. Goel J., however, took the opposite view. He disagreed with D'Costa and Achal Kumar Jain of this court and preferred to follow the decisions of the Madhya Pradesh High Court in Addl. CIT v. Indian Pharmaceuticals [1980] 123 ITR 874, Addl. CIT v. Kantilal Jain [1980] 125 ITR 373 and Addl. CIT v. Nathoolal Balaram [1980] 125 ITR 596. Goel J. held that it was within the power of the Commissioner under s. 263 to direct the ITO to initiate penalty proceedings under s. 273(a). On this difference of opinion, the cases were referred to me under s. 259 of the Act. Before I proceed to deal with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... All that happens is that the third is segregated from the two and does not sit with them. He comes in later on when there is a difference of opinion between them. In all cases, it is the theory of numbers which is the foundation of the doctrine of stare decisis. Majority is a term signifying the greater number. Counting of heads underlies the theory of judicial precedents as in any majority decision. The constitutional requirement of a constitution court of five judges is based on this theory. Similarly, the Code of Civil Procedure, 1908, enacts that in the case of a difference of opinion, the matter has to be referred to a third judge. (see sec. 98, C.P.C.). In my opinion, the reference was correctly made to me as the third judge. I now turn to the two questions referred to us. On the first question, there is a plethora of precedents of the various High Courts. To name but a few of those cases, I may mention: Addl. CIT v. D'Costa [1982] 133 ITR 7 (Delhi), CIT v. Cochin-Malabar Estates Ltd. [1974] 97 ITR 466 (Ker), Prem Chand Sita Nath Roy v. Addl. CIT [1977] 109 ITR 751 (Cal), Singho Mica Mining Co. Ltd. v. CIT [1978] 111 ITR 231 (Cal), Addl. CIT v. Saraya Distillery [1978] 115 I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dian I.T. Act, 1922, to set aside the order except if he had found that the delay in the assessment proceedings was attributable to the assessee. " This, they said, the Commissioner did not find. " The foundation of the Commissioner's jurisdiction therefore", they continue, " did not exist and he could not have set aside the order of the ITO ". On the facts of a particular case, this may be so, but the principle enunciated in that case is not correct. The judges upheld a silent order. But there is no room for silence where there is a duty to disclose reasons. A silent order is as inscrutable as the face of the sphinx. The learned judges in Caxton asked the right question: " Is a specific order necessary, or can the waiving of the penalty be done without saying anything ? " But, with respect, their answer is wrong. The underlying thought of their judgment is that the ITO need not pass a " specific order " and he can waive penal interest " without saying anything ". There is much in the train of thought in the judgment of Caxton to suggest that in the view of the learned judges a speaking order is not an essential requirement of law under s. 215 of the Act. This is not right. In CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to say nothing on the subject of interest. A speaking order by the ITO is, therefore, necessary. Section 215 casts a statutory duty on the ITO. The performance of a statutory duty involves the application of mind. Natural justice must be observed. The assessee must be heard . Section 215 requires the ITO to pass an order in the discharge of his quasi-judicial duty stating why he was not charged interest. If he waives interest, he must state the circumstances in which he does so. But he cannot waive interest " without saying anything Say he must, whether he charges interest or waives it. " A specific order is the sine qua non of the exercise of a statutory power. There is no assumption or presumption that the ITO has waived interest simply because he has chosen to remain silent. Silence is not waiver. There is a duty on the ITO to speak. If he does not speak, he does not do his duty. Chadha and Goel JJ. seem to be right in dissenting from Caxton. Their criticism of this case is valid. I join them and hold that Caxton should be overruled here and now. In Addl. CIT v. Saraya Distillery [1978] 115 ITR 34 at p. 38 (All), it was held that the omission of the ITO to charge interest und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se and confers power on the Commissioner to set aside the assessment where the ITO has not levied penalty in a case in which, in the opinion of the Commissioner, he ought to have levied. The question turns on the proper construction of s. 263. The controversy centres round the word " assessment " used in s. 263. Does it comprehend penalty proceedings? The Delhi view is that penalty proceedings are not part of assessment proceedings. The M.P. view is that the word it assessment " is of " wider perspective " and includes in its fold penalty proceedings. If the words were so plain and precise as to be capable of one signification only, so that the actual provision were its own expositor, leaving no room for construction, no court could venture to alter its meaning. But the words of a mixed and wavering content are the greatest of all tricksters. Language plays great tricks with the human mind. We were told by that distinguished tax judge, Rowlatt J., that one must look at what is clearly said in the statute (See Cape Brandy Syndicate v. IRC [1921] 1 KB 64 at p. 71). But the difficulty is that in the taxing Acts nothing is clearly said. " Of the maker of the tax code, as of another i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isfied that any assessee has furnished under section 212 an estimate of the advance tax payable by him which he knew or had reason to believe to be untrue " under s. 273(a). Section 275 enacts a bar of limitation for imposing penalty. Penalty proceedings can be commenced only on the completion of the assessment proceedings. They must be concluded within two years from commencement. This shows that the legislature attaches the greatest importance to the time-limit of two years after which no order for penalty can be passed. But the Commissioner by cancelling the assessment and directing a fresh assessment will open the door to the ITO to start everything de novo. Even then the ITO may say: " I find no case for the imposition of penalty. " With this the Commissioner may disagree. He will again cancel the assessment and direct a fresh assessment. Every time the assessment will have to be cancelled. Because, without a regular assessment, penalty proceedings cannot be commenced. Is assessment more important or penalty proceedings ? Of central importance is the assessment. That is the cornerstone of the Act. Cancelling an assessment wholesale has far-reaching consequences, as was pointe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penalty. And " regular assessment " means the assessment made under s. 143 or s. 144 (s. 2(40). For the infraction of the statute, the legislature has prescribed penalty. The penalty is not uniform and its imposition depends upon the exercise of discretion by the taxing authorities. We must, therefore, reject the wide interpretation of the term " assessment ". It has to be interpreted in the context of the Act and its scheme as would yield a more just result. I am of the view that assessment and penalty are different and distinct concepts under the Act. Penalty proceeding have distinctive features. The taxpayer is heard separately. Separate evidence is taken. They have to be initiated in the course of the regular assessment. A separate time-limit is fixed for their completion. They are committed to the sole discretion of the ITO and the AAC. The power to impose penalty depends upon the " satisfaction " of the ITO " in the course of any proceedings in connection with regular assessment ". If he is not satisfied, the power cannot be exercised. His satisfaction is a condition for the exercise of the jurisdiction. What is important is the satisfaction of the income-tax authorities t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Murthy [1980] 121 ITR 326 (AP), it was said that tax and penalty cannot be equated. The observations in Abraham's case [1961] 41 ITR 425 (SC) were made in a different context and for different purpose, as was pointed out by the Supreme Court in CIT v. Anwar Ali [1970] 76 ITR 696,700. In Jain Bros. v. Union of India [1970] 77 ITR 107 at p. 116, the Supreme Court said: "Although penalty has been regarded as an additional tax in a certain sense and for certain purposes, it is not possible to hold that penalty proceedings are essentially a continuation of the proceedings relating to assessment where a return has been filed." Issacs J. said : " Miller on the Constitution of the United States at p. 235 says: 'The definition by both Webster and Story is that 'a tax is " a contribution imposed by Government on individuals for the service of the State " penalty is never spoken of as a contribution. " (R v. Barger p. 99) I cannot better the language of Issacs J., when he says that penalty is not a contribution and, therefore, not a tax. Nor " additional tax Penalty is a punishment annexed by law to some illegal act. Philosophically, linguistically and morally, it is a contradiction in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that Parliament ever intended the consequences which flow from the contention of the Revenue. Himself, the Commissioner cannot impose penalty. It is left to the ITO by the Legislature. He has to be satisfied in the course of assessment that penalty proceedings should be initiated. If, ultimately, he finds no case either for initiation or for imposition, there is precious little that the Commissioner can do. He can only cancel the assessment and direct a fresh assessment. Himself, he cannot impose penalty, as I have said. The uncontrollable width of the language of s. 263 adds little to his powers in the matter of penalty. The scheme of the Act is that assessment must be made in the past and imposition of penalty in the future. The assessment plays its part in the quantification of the penalty. A multiplier of the tax with which taxpayer ought to be charged is made a constituent of the penalty. The timing factor is crucial. The Commissioner's revisional power can be exercised only within two years. Section 275 says that no order imposing a penalty shall be passed after the expiry of two years from the date of the completion of assessment in the course of which the proceedings for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wn expositor. It takes colour from the context. Context is everything. " The proper course in all these cases is to search out and follow the true intent of the Legislature, and to adopt that sense of the words which harmonizes best with the context and promotes in the fullest manner, the apparent policy and objects of the Legislature." [Scott v. Cawsey [1907] 5 Commonwealth Law Reports 132, at p. 157, per Issacs J. (Australia)]. The context suggests that the vital term " assessment " used in s. 263 should be given a limited construction rather than a literal interpretation. At the end of the day, I will quote Dryden: "As long as words different sense will bear, And each may be his own interpreter, Our airy faith will no foundation find: The words a weathercock for every wind. " (Dryden: "The Hind and the Panther II 462. Quoted in Statutory Interpretation in Australia by D. C. Pearce (2nd edn., 1981) at p. 179). For these reasons, I agree with Chadha and Goel JJ. that the first question must be answered in favour of the Revenue. As against Caxton, D' Costa should be preferred as an accurate statement of the law. On the second question, I am with Chadha J. In my opinion, we should ..... X X X X Extracts X X X X X X X X Extracts X X X X
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