TMI Blog1979 (7) TMI 27X X X X Extracts X X X X X X X X Extracts X X X X ..... cumstances of the case, and on the basis of the findings recorded, the Tribunal was justified in law in holding that there was valid and legal service of the notice on the assessee in accordance with the provisions of section 41 of the Wealth-tax Act, 1957, read with Order 5, rule 15 of the Code of Civil Procedure, as amended for the State of Assam ? (4) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in computing the period of default from the date fixed for submission of return under section 14(1) of the Act, and not from the date fixed under the notice under section 14(2) and/or 17 of the Act ? (5) Whether, on the facts and circumstances of the case, the Tribunal was correct in law in upholding the penalty for the assessment year 1964-65, in the absence of any previous approval of the Inspecting Assistant Commissioner of Wealth-tax, as required under section 18(4) of the Wealth-tax Act, 1957, as it stood prior to its amendment by Act 46 of 1964, with effect from April 1, 1965 ? Question No. 1 was referred by the Appellate Tribunal under s. 27(1) of the Act, and questions Nos. 2 to 5 were referred by the Tribunal under s. 27(3) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 1,00,000 with effect from April 1, 1964, long before the returns were filed, and held, as such, that ignorance of law either as to exemption limit or to includibility of various assets could not be considered as an excuse in the eye of law, particularly in the case of a person of the assessee's status and affluence. The WTO imposed penalty of Rs. 16,486, Rs. 21,468, Rs. 20,693, Rs. 25,075, Rs. 27,347, Rs. 24, 177 and Rs. 8,988, respectively, for the assessment years 1964-65 to 1970-71, under s. 18(1)(a) of the Act. The assessee's appeals before the AAC of Wealth-tax for all the years, which were heard together, were dismissed, and the penalties levied by the WTO were confirmed by his common order dated July 12, 1974. The assessee carried further appeals to the Income-tax Appellate Tribunal for all the assessment years. The Tribunal dismissed the appeals, by its consolidated order, dated February 28, 1976, and confirmed the penalties imposed on the assessee. Penalties were calculated for the assessment years 1964-65 to 1968-69, in accordance with law as amended from time to time, in the view that the default was a continuing one. Question No. 1 is covered by the majority judg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the terms of the amended O. 5, r. 15 of the CPC, 1908, submits that the question is purely academic, as the Tribunal had already come to the finding on other circumstances, that the assessee consciously disregarded the provisions of law by her delay in filing the returns for the assessment years in question. We confine ourselves to the question as to whether the service of notice was valid or not. In our view, the question is not academic, which we shall presently show while discussing question No. 2. As seen from para. 39(A) and 40 of the consolidated order of the Tribunal it took the view that as the factum of service on the assessee's husband had not been denied on behalf of the assessee, service on her husband as an adult member of the assessee's family who was intended to be served and who was residing with her, was a good service. The Tribunal also observed that it had every reason to believe that her husband acted in a responsible and reasonable manner and that the notices were conveyed to the assessee. In our opinion, on the facts stated, service of notice on the husband of the assessee is not legal and valid as to bind the assessee. The decision in Ram Piyari Khemk ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns precedent, which we have pointed out, have not been satisfied. There is no evidence or proof of the circumstances to warrant the conclusion that service on the assessee's husband constituted a valid service on her. It is quite manifest that the Tribunal had not considered the validity of the notice on the anvil of the amended O. 5, r. 15, of the CPC, 1908. It is well settled that when a Tribunal has erred by applying a wrong legal test in determining a material question or has arrived at the conclusion wholly unsupported by evidence, the finding cannot be sustained in law. The Tribunal, in our opinion, has applied a wrong legal test as discussed above, and as such its view is untenable. We answer the question in the negative and against the department. We consider question No. 4. The assessing authority calculated penalty by computing the period of default from the date fixed for submission of return under s. 14(1) of the Act, i.e., 1st day of July of each assessment year till the date of filing return. Relying on the decision of the Patna High Court in Addl. CIT v. Bihar Textiles [1975] 100 ITR 253, learned counsel for the assessee submits that the calculation of penalty is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led. The second limb of argument of the learned counsel for the assessee is that as soon as the notice is issued under sub-s. (2) of s. 14 of the Act, it must be taken that the WTO had condoned the default for not having furnished the return under s. 14(1) of the Act. We are unable to accept the contention. It will be straining the language of s. 14(1) of the Act, if such an interpretation put by the learned counsel for the assessee is accepted. There is nothing in s. 14 which will throw any light to show that the WTO is given such a power of condonation. To accept such a contention would be really rendering sub-s. (1) of s. 14 otiose. In our considered view, default having taken place by not filing the return in compliance with the provisions of s. 14(1) of the Act, penalty shall be computed from the date of default under s. 14(1) of the Act, and not from the date fixed under the notice under s. 14(2) of the Act. We are in respectful agreement with the view expressed by the Rajasthan High Court in CIT v. Indra Co. [1971] 79 ITR 702. We answer the question in the affirmative and against the assessee. We shall consider question No. 5. Learned counsel for the department sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Nor can it be considered to be another aspect of the question No. 2 raised before the Tribunal, within the principle of law laid down by the Supreme Court in Scindia Company Ltd. [1961] 42 ITR 589 and affirmed in CIT v. Indian Molasses Co. P. Ltd. [1970] 78 ITR 474. Question No. 2, though widely framed, was about the legality of penalty, arising out of considerations of reasonable cause, on the facts and circumstances of the case. We are satisfied that the question was neither raised before the Tribunal nor considered by it. We therefore, decline to answer the question. We consider question No. 2. The Tribunal agreed with the WTO and the AAC that the assessee has failed to show reasonable cause for her default in filing returns within time for all the assessment years in question. Rejecting the explanation of the assessee as unacceptable, the Tribunal reached the conclusion that the assessee had consciously disregarded the provisions of law in making the defaults. Learned counsel for the assessee submits before us that in arriving at that finding, the Tribunal allowed itself to be influenced by the consideration of the service of notice under s. 17 of the Act on the assessee's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lative effect of all the facts in their setting as a whole. In Mehta Parikh and Co. v. CIT [1956] 30 ITR 181, the Supreme Court also observed that the court would be entitled to intervene, if it appears that the fact-finding authority acted without any evidence which cannot reasonably be entertained or the facts found are such that no person acting judicially and properly instructed as to the relevant law would have come to the determination in question. The principles of law above have also been reiterated in the following cases. CIT v. S. P. Jain [1973] 87 ITR 370 (SC) and CIT v. Manna Ramji and Co. [1972] 86 ITR 29 (SC). Before dealing with the facts of the case bearing in mind the principles of law above, it may be relevant to consider an ancillary question as to whether mens rea is an essential element to be read in the penalty proceeding in s. 18(1)(a) of the Act. Learned counsel for the assessee submits that the Tribunal has accepted the principle of law that mens rea is an essential ingredient for imposition of penalty and that the onus is on the department to show that the assessee has consciously disregarded the provisions of law to justify imposition of penalty. On t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on certain observations in C. A. Abraham v. Income-tax Officer, Kottayam [1961] 41 ITR 425 (SC). It is true that penalty proceedings under section 28 are included in the expression 'assessment' and the true nature of penalty has been held to be additional tax. But one of the principal objects in enacting section 28 is to provide a deterrent against recurrence of default on the part of the assessee. The section is penal in the sense that its consequences are intended to be an effective deterrent which will put a stop to practices which the Legislature considers to be against the public interest. It is significant that in C. A. Abraham's case [1961] 41 ITR 425 (SC), this court was not called upon to determine whether penalty proceedings were penal or of quasi-penal nature and the observations made with regard to penalty being an additional tax were made in a different context and for a different purpose. It appears to have been taken as settled by now in the sales tax law that an order imposing penalty is the result of quasi-criminal proceedings : [Hindustan Steel Ltd. v. State of Orissa [1970] 25 ITC 211 ; [1972] 83 ITR 26 (SC)]. In England also it has never been doubted that such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the object of the particular statute, the words used, the nature of the duty, the person upon whom it is imposed, the person by whom it would in ordinary circumstances be performed, and the person upon whom the penalty is imposed must all be considered : (Set Craies on Statute Law, 7th Edn., at p. 542.) One of the principal objects in enacting s. 18(1) of the Act is to provide a deterrent against recurrence of default on the part of the assessee. The section is penal in the sense that its consequences are intended to be an effective deterrent which will put a stop to the practices which the Legislature considers to be against the public interest, viz., payment of wealth-tax. Reading the words of s. 18(1) of the Act, the object of the statute, and considering the principles of law discussed above, we are of the opinion, that the element of mens rea has not been dispensed with, either expressly or impliedly, and is to be read into the penalty proceeding under s. 18(1)(a) of the Act. Consequently, to justify imposition of penalty, onus is on the department to establish prima facie by producing some evidence that the assessee is liable to payment of penalty for default to file th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of law and that too when she was in a position to easily comply with the provisions of law. It is thus manifest that the Tribunal took into consideration her failure to file returns despite service of notice on her husband as one of the circumstances showing contumacious conduct on the part of the assessee. We have held in answering question No. 3 that the notice on her husband is not valid. In arriving at this finding, the Tribunal has acted on material partly relevant and partly inadmissible, and it is impossible to say to what extent the mind of the Tribunal was affected by the inadmissible material, namely, her defaults despite service of notice on her husband in arriving at the finding. The finding in regard to the assessment years 1964-65 to 1968-69 is, therefore, vitiated. In regard to the assessment year 1969-70, it is apparent from para. 41 of the order of the Tribunal, that it took into account not only the default to file return as showing her contumacious conduct, but also the default to file returns for the previous years 1964-65 to 1968-69, despite service of notice on the assessee's husband as her previous conduct. By assessing the cumulative effect of all t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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