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TMI Blog1976 (9) TMI 51X X X X Extracts X X X X X X X X Extracts X X X X ..... because why a penalty under S. 36 (2) (c) with the Explanation should not be win respect of the assessment of the period. On the same date, a similar was issued asking the assessee to show cause why a similar penalty should not be levied for the second period. In subsequent proceedings the assessee was heard. Shri Mehta then proceeded to pass orders on 18th Aug., 1972 levying penalties under S. 36 (2) (c) read with the Explanation. 2. Appeals were field before the Assistant Commissioner of Appeals II, Bombay City Division, Bombay. The levy of penalty was challenged. The grounds were as follows. The proceedings as regards penalty were initiated after the passing of the assessment orders,. In the orders of assessment, there was nothing to indicate that the Sales Tax Officer entertained an intention to consider the imposition of a penalty under S. 36 (2) (c) read with the Explanation The STO had not reserved the right of subsequently initiating proceedings for the levy of the penalty in question. The succeeding STO Shri Mehtaf was not competent to pass orders of penalty. The contentions were rejected and the appeals were dismissed by the Assistant Commissioner Thereupon two second a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of arguments, reference has been made to certain legal positions which do not directly arise out of the questions referred. Nor are these legal position requisite for a proper decision of the questions refereed. It may be that in the larger context such positions could be said to relevant. However the mere relevance an argument or legal position is not the term respect for its consideration by a Special Bench or Full Bench, to which certain questions are referred for decision, The ambit of the jurisdiction of such a Bench in deciding the questions referred is quite obvious. It may be that certain legal aspects might be said to be theoretically related to or relevant for purpose of decision on particular questions referred to a Special Bench However, when such legal aspect a themselves of such importance that they should be independently referred or be heard by Special or a Full Bench that would become illogical and impressed this Bench to enter into an examination of decision of such aspects. This should be oppugn fair to both sides; this is so because in pointing of the attention of both sides by the formulation on those aspects specific questions, and the requisite proceed of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d one-half times the amount of the tax. Explanation.- (1) Where a dealer furnishing returns has been assessed by the Commissioner under sub-section (3) or (4) of s.33 or assessed under sub-section (3) of S.41, or reassessed under clause [b] of sub-section (1) of S. 35 or in whose base an order has been passed under s.55 or clause [a] of sub-section (1) of S. 57 and the total amount of tax paid by the dealer for any year is found to be less than eighty percent of the amount of tax as no assessed or reassessed or found due in appeal or revision, then, for the purpose of clause, (c) he shall be deemed to have concealed the turnover, or knowingly furnished inaccurate turnover liable to tax, unless he proves to the satisfaction of the Commissioner that the payment of a lesser amount of tax was not due to gross or wilful neglect on his part." 8 The problem, therefore, is as to what is the precise nature and the effect of the Explanation,. For deciding on the same, due consideration has to be given to those principles of interpretation of statutes which would really govern the position. It would also be requisite to consider judicial pronouncements containing reasoning or ratio which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lusion. In arguments reference has been made to certain rulings stating and following the above the said definition. It is not necessary to list the said rulings here. The enunciation above stated is clear and unequivocal. 11. The contention of Shri Ghanekar is that the Explanation embodies a fiction. He has sought to support this contention by attempting a very well worked out and critical analysis of the provisions of the Explanation. He has argued as follows: The Explanation provides that where a dealer furnishing returns has been assessed or reassessed as stated, and the total amount of tax paid by him for any year is found to be less than 80 per cent of the amount of tax assessed or reassessed, then for purpose of clause(c) he shall be deemed to have concealed the turnover or knowingly furnished inaccurate turnover liable to tax, unless he proves absence of gross or wilful neglect. The Explanation thus ordains that where the above said two circumstances exist, it shall be deemed that the has concealed the turnover or knowingly furnished inaccurate turnover. If the provision is construed according to its plain and natural meaning, the logical concluding would necessarily be t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dditional effective deterrent, it was necessary to effect a fiction., It was, therefore, that Explanation was added. In the statement of objects and reasons for the Explanation, the averment is as follows. "It is proposed to add an Explanation to this sub-section (sub-S. 2) to provide that where there is considerable disparity between the amount of tax paid by the dealer and the tax assessed or reassessed by the Commissioner and the dealer does not satisfy the Commissioner that the payment of a lesser amount of a tax was not due to gross or wilful neglect on his part, the dealer shall be deemed to have concealed the turnover or knowingly furnished inaccurate turnover liable to tax. ". It is argued that for the achievement of this purpose, the explanation advisedly uses the words " tax paid and tax assessed". It does not use the word tax payable. This shows that the purpose for which the Explanation is introduced is thus to create an effective additional deterrent in cases of considerable disparity between the tax paid and tax assessed. 14. Shri Ghanekar argues as follows. Thus the Explanation equates cases of non-concealment with those of concealment. On failure to prove absence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot be permissible to argue that when the above said categories which are not of concealment are to be deemed as concealment, the Explanation does not enact a fiction and is merely a rebuttable presumption. The above said purpose of enacting a fiction cannot thus be defeated. Reference was also made to observations in Seervai's 'Constitutional Law of India. Seervai has referred to the judgment of Supreme Court in Izhar Ahmed Khan vs. Union of India(3). Seervai has opined that irrebuttable presumptions and rebuttable presumptions differ not merely degree, but also in kind. In his opinion, the former constitutes a part of substantive law, while the latter is merely a rule of evidence. Reference was also made to observations in the case of Commissioner of Income-tax, Delhi vs. S. Teja Singh(4). The dictum, dealing with certain provisions of the Income-tax Act, observed as follows. The statute ordains that a failure to send an estimate in accordance with S. 18A(3), has to be deemed to be failure to make a return. Therefore, this fiction of necessarily involves the fiction that had been issued under s. 22 and that it have been complied with. Thus, in constitument assume all those facts o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to tax assessed; do this after the dealer has been assessed or reassessed as stated, then on failure of the assessee to prove absence of gross or wilful neglect, proceed to hold that there has been concealment, and thereupon proceed to levy penalty. Such a course would have several implications. One of these is that it would mean that the jurisdictional fact envisaged in sub-s.(2), namely, that it should appear to the Commissioner that there was concealment, could not apply to the provisions of the Explanation. It is therefore obviously necessary to duly decide as to whether the Explanation embodies a fiction, or whether it enacts a rebuttable presumption. 20. Shri. B.C. Joshi contended that it was not permissible to read from the statement of objects and reasons, for purposes of construing or interpreting a legal provision. He cites various rulings including A.I.R. 1973 Supreme Court 913, A.C. Sharma vs. Delhi Administration (6), and A.I.R. 1976 Supreme Court 1654 (August Issue); State of Haryana and another vs. Chanan Mal etc.(7), and Amrit Singh and Others vs. State of Haryana and Others (8). In this respect the position is well settled. It is that it is not permissible to in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he character of legal fiction, and makes it merely a rebuttable presumption. He also contended that the only effect of the Explanation is that there is a shifting of the onus. Prior to the enactment of the Explanation, the burden was entirely on the Department. After the introduction of the Explanation, in cases where the shortfall is 20 per cent or more, the burden is shifted to the assessee. 23. Shri Sheth supporting the contention and arguments made on behalf of the appellant, cited the dictum in Kalekhan Mohd. Hanif vs. Commissioner of Income Tax, M.P.(9). It is to the effect that if two views are reasonably possible, the one in favour of the assessee should be adopted. He also referred to the Notes in Sarkar's Evidence Act, 10th Edition, S. 4, wherein Sarkar has dealt with the subject of presumptions and the classes into which they fall. He also referred to the opinion of Seervai to which reference has already been made above (Constitutional Law of India) page 141, 1967 Edition. The opinion is to the effect that irrebuttable presumptions or conclusive presumptions both fall within the realm of substantive law, while rebuttable presumptions are merely rules of evidence. He al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... qualification specifying a contingency in which the deeming part of the provision cannot operate. The effect of the ultimate portion of the Explanation reproduced above is as follows. Even if there is the shortfall as envisaged in the provision and even if the Explanation authorises that such shortfall be deemed to be due to concealment, yet if the assessee proves absence of gross or wilful neglect, then concealment cannot be deemed. 27. Such a provision as the last portion reproduced above; is inconsistent with the position of the Explanation enacting a fiction proper. In fact, it militates against the contention that the Explanation embodies a fiction. As has been fully considered above, a fiction ordains that the unreal shall be treated as real and that on this basis the Court should proceed further to give full effect to the same and to work the same to its logical conclusion. It is not possible to conceive of a legal fiction where the provisions, instead of thus directing that the unreal shall be treated as the real and that action should be taken on the basis of the same, proceeds to insert a clause hedging or qualifying the direction contained in the earlier portion; and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h sides in an effort to demonstrate that the view taken in a particular ruling supported the stand of the respective sides. For the same purpose, attention has been drawn to the distinction between the Explanation in the Income-tax Act and the Explanation under the Bombay Sales Tax Act. It was argued that under the former reference was to the total income returned while under the Bombay Sales Tax Act, the reference is to the tax paid. On this basis the argument was made that rulings relating to the Explanation under the Income-tax Act could not be a basis for a decision for the Explanation under the Sales Tax Act. 30. From the same angle other arguments are advanced. The intention was to demonstrate that there are other distinctions between the Explanation in the two enactments and in view of the differences, rulings relating to the nature of the Explanation under the Income-tax Act could not be helpful for deciding the problem posed before us relating to the Explanation under the Bombay Sales Tax Act. It was thus argued that under the Income-tax Act, so far as the Explanation is concerned, the base is the non-disclosure of income; and this gets converted into concealment if abse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esumption and has the effect of placing the burden of proof on the assessee, which before the before the introduction of the Explanation was no the Department. WE are of the view that this reasoning is correct. The reasoning pronounces on a nature in law of the Explanation. 32-A. Apart from precedents, the nature of the Explanation under the Bombay Sales Tax Act as to whether the same embodies a fiction or a rebuttable presumption has been considered in detail above. A critical analysis in greater depth is, however, possible for further considering this problem. The same would be as follows. As observed above, in the case of the three categories enunciated Shri Ghanekar, it is true that the unreal is directed to be treated as the real. However, the categories contemplated under the Explanation do not include only the three categories above stated. On the other hand, the Explanation includes all categories of cases whatever, wherein the shortfall occurs. It would appear that the three categories referred to by Shri Ghanekar would cover only a small part of the various categories which would be included within the ambit of the Explanation. In other words. Out of the total volume of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in case of a presumption, on proof of the probative fact, a particular conclusion about the existence of a other fact has to be drawn. What a presumption does therefore precisely is this. The probative value of the former fact gets added statutory force so as to constitute due basis for the conclusion as regards the existence of the other fact. In case of the Explanation under the Bombay Sales tax Act, the words shall be deemed' clearly enact a presumption. These words add statutory force to the probative value of the set of facts preceding, on the basis of which the conclusion is to be drawn. The effect of that on account of the statutory force thus added, the conclusion subsequently set out has to be drawn unless the contrary is proved. 34. The precise nature and effect of a legal rebuttable presumption has been authoritatively enunciated by the Supreme Court in Izhar Ahmad Khan's case in para 25. The observations are so important for the purposes of the present case, that it is necessary to reproduce the same. " It is conceded, and we think, rightly that a rule prescribing a rebuttable presumption is a rule of evidence. It is necessary to analyse what the rule about rebuttab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espect of which an irrebuttable presumption is prescribed by a rule of evidence, the position is that the inherent probative value of fact A in that behalf is very great and it is very likely that when it is proved in a judicial proceeding, the judicial mind would normally attach great importance to it in relation to the proof of fact B. The rule steps in with regard to such facts and provides that the judicial mind should attach to the said fact conclusiveness in the matter of the probative value. It would be noticed that as in the case of rebuttable presumption, so in the case of an irrebuttable presumption, the rule purports to asssit the judicial mind in appreciating the existence of facts. In one case the probative value is statutorily strengthened but yet left open to rebuttal, in the other case, it is statutorily strengthened and placed beyond the pale of rebuttal." 35. The Supreme Court, therefore, lays down as to what the rule about the rebuttable presumption really means. Fact A has relevance and some probative or persuasive value in proof of fact B. However, when there is a rule providing for a rebuttable presumption, that on proof of fact A, fact B shall be deemed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ired an Explanation cannot be read in inconsistent with the content section. In Commissioner Gujarat I vs. S.P. Bhatt(2) they are as follows:- What is borne in mind is that when the true meaning Explanation, the Explanation which adds to the rigour of a highly penal provision and we must not, therefore, be over anxious to enlarge the scope and ambit of the Explanation by making an effort to bring every possible case within it. We should construe the Explanation and apply it in a fair and reasonable way with a view to achieving the purposes of the main section. In D.V. Patel & Co vs. Commissioner of Income-tax Gujarat-III 13, the Gujarat High Court reiterated the principles in 97 ITR 440. In addition to the above rulings, Shri Jetly placed reliance also on the following rulings. In Sugauli Sugar Works (P) Ltd vs. Asstt. Registrar, Co-operative Societies, Motihari and others 14, it has been laid down that an Explanation under the Bihar and Orissa Co-operative Societies Act could not be read as adding a new head to the categories specified in the main provision. The Explanation even as amended, could not be enlarged in its scope nor that of the main section. Reference was also made to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interpretation must depend upon the words used in the provision. The safest course in such cases is to apply fundamental general rule to construe explanation according to its own to having regard to its context and setting. If the provision is capable of two interpretations, one in accordance with the title and the other inconsistent with it, there the one in accordance with the title must be accepted. Reference was also made to observations in State of Orrisa vs. Debaki Debi and Others19 at page 162. The observations are as follows. A particular provision was an independent legislative provision though it appears as a proviso to a particular section. On this basis the Supreme Court held that there was no logic or reason for construing the proviso to hold that its operation must be confined to an assessment contemplated under the section to which it was a proviso. 40. Shri Ghanekar has also tried to demonstrate that if S. 36 (2) (c), the main provision and the Explanation, are both read in the light of the plain meaning of the words, difference in the conditions requisite for application and the application itself will become clear. Thus, he has stated that in case of main secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on and to throw light on the construction of the words used by the legislature. The Explanation in the case before the High Court created a legal fiction or raised a statutory presumption. In Bengal Immunity Co. Ltd. vs. the State of Bihar & Ors. 10 the Court made certain observations. The Explanation in the case before the Supreme Court (to Art. 286 of the constitution) only explained the provisions of sub-cl. (a) by explaining what constituted an outside sale referred to in that sub-clause and this was done by enacting a fiction. The fiction should be limited to its avowed purpose. The avowed purpose was to explain what an outside sale referred to in sub-cl. (a) was. The Explanation should therefore be limited to this purpose. These are the various ruling cited on behalf of the appellant. 42. Thus the respective propositions and the arguments developed by the two sides on the question as to whether an Explanation can enlarge the scope of the main provisions, are as discussed above. On a study of the same, it would appear that the legal position in the matter is as follows. An explanation has to be construed on its own terms and according to its tenor. An Explanation may enlarge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nderstood and borne in mind. The Supreme Court holds that the law on the point is trite. The observations concern a proviso. We are aware that in some respects there is a distinction between a proviso and an explanation. However, so far as the question of operation being limited to the subject-matter of the enacting clause or otherwise is concerned, the principles enunciated are equally applicable to an explanation. The Supreme Court has laid down that in construing a proviso it should be read and considered in relation to the principal matter to which it is a proviso. On the same analogy the explanation under the B.S.T. Act will have to be read and considered in relation to s. 36(2)(c) of which it is a proviso. The Explanation is tacked to the main section and cannot be read divorced from this context. Prima facie the Explanation should be limited in its operation to the subject-matter of the enacting clause. The golden rule is to read s. 36(2) and the Explanation in such a manner, that they mutually throw light on each other resulting in a harmonious construction. 44. Thus we have so far decided that the Explanation to s. 36(2)(c) cannot be held to enact a fiction. It embodies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion to the subject matter of the enacting clause. It is tacked on the main section and has to be considered in relation to the main section. The proper course is to read the section inclusive of the Explanation so as to result in a harmonious construction. From these propositions the following position becomes clear. The initial portion of sub-s. (2) incorporates the jurisdictional fact. It does apply to the Explanation. The requisites concerning the jurisdictional fact have therefore to be satisfied before the Explanation can be invoked. This is the position which must follow from a proper construction and interpretation of the Explanation in the light of the principles laid down earlier. This means that even for the applicability of the Explanation, the satisfaction envisaged as the jurisdictional fact has to be arrived at, and this has to be arrived at while assessing. 47. In this connection the respective sides namely the Advocates of the appellant and Shri Ghanekar for the Department, have tried to dissect the above said proposition and developed what may be styled as facets of the same problem and have tried to advance arguments in support. One such relates to the import of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the entries in item 33 and in the subsequent entries, item 35 (now item 36) is styled as Assessment Order. Then follows the signature and designation of the taxing authority. From the above, it would be clear that second terminal for the satisfaction envisaged as a jurisdictional fact is the stage of the quantification. 49. This therefore would be the correct construction of the terms of the Explanation in the light of the principles laid down by the Supreme Court. It is requisite for the applicability of the Explanation that there has to be the satisfaction of the Commissioner as stated. This has to be arrived at while assessing. The import of 'while assessing' is the one stated above. 50. This is the position which emerges on the proper construction of the Explanation in the light of various principles referred to above. The same is supported by the arguments advanced by the learned Advocates for the appellants. Mr. B.C. Joshi has argued as follows. Chapter V of the B. S. T. Act relates to assessment. sec. 33 is concerned with the assessment of taxes. Sub-s. (7) also refers to an assessment being made under s. 33. Sec. 36(1), from the phraseology, is a provision which would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irectly lay down that penalty proceedings must be commenced before completion of the main proceedings in the course of which the satisfaction requisite was reached, yet the Legislature by using the word 'in the course of which the proceedings for the imposition of penalty have been commenced, does indicate that the proceedings for levy of penalty must have been commenced before the completion of the main proceedings. 53. Mr. Jetly has also supported the position that satisfaction must be arrived at, while assessing i.e. before the stage of quantification. He has referred to certain judgments. In Commissioner of Income Tax, West Bengal III vs. Balkrishna Malhotra the Supreme Court has emphasised that in the Income Tax Act the words 'assessment and assessee' are used in different places with different meanings. Therefore the context in which the word is used has to be duly considered. So far as the reply of Shri Ghanekar to this particular contention is concerned, his reliance mainly was on the propositions already noted above. These were that the Explanation enacted a fiction. The fiction therefore had to be carried to its logical conclusion. As a result the Explanation had to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the word 'appears' connotes a judicial adjudication after the application of the mind. He has also referred to Rogets' Thesaursus, which states that from the word 'appear' the adjective is 'apparent'. The term 'apparent' in law, means existing or duly proved. For instance in provisions relating to rectification, a mistake apparent on the record can be rectified. This term 'apparent' implies a fact which is existing and which is clearly seen from the record. Hence, it is argued, the term 'appears' in sub-s. (2) must be held as meaning that the Commissioner has to first adjudicate and record a finding as to the existence of the facts envisaged in clause (c). Reference is made to the judgment of the Allahabad High Court in Ganesh Das Ram Gopal vs. The Munsif, South Lucknow & another (28). Observations in Para 11 are to the effect that when the Legislature repeats certain words in a statute, it must be taken to have adopted the meaning put upon the words by the courts earlier. Since the word 'apparent' has been interpreted by the Courts as stated above, the connotation of the term 'appears' must be equivalent to a fact proved. The Commissioner, therefore, has to adjudicate and record ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on on the part of the Commissioner. The contention is supported as follows. The initial portion of sub-s. (2) prescribing the jurisdictional fact does not direct that the appearance shall be recorded in writing. The provision only requires that the appearance should be there. Such an appearance can be there in the assessment order itself. The statute does not use such a phrase as 'for reasons to be recorded'. It is sufficient compliance with the law, if there is in the assessment order itself, material or other circumstances indicating concealment of the particulars of a transaction or the furnishing of inaccurate particulars. Specific recording of any appearance or satisfaction prior to the initiation of the penalty proceedings, may be there on the record or may not be there. However, even if it is not there, anyone on looking to the material can arrive at the conclusion that it did appear to the taxing authority, prior to the initiation of penalty proceedings and that such satisfaction was there. Thus, an appellate or revisional authority can very well satisfy itself by reference to the material on record that the requisite satisfaction or appearance to the taxing authority must ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an be cases where there may be material showing prima facie the existence of the facts in clause (c). However, the taxing authority might have failed at all to consider the question of levy of penalty. Similarly, there may be cases where inspite of such material being there on the record, he has merely ignored it. Similarly, there may be cases where inspite of such material being there, the taxing authority, in deciding on the exercise of his discretion to initiate penalty proceedings, might have decided that penalty need not be imposed, and on this account failed to record any appearance or satisfaction. 61. In these categories of cases, it would be wrong to infer or assume, that the Commissioner did in fact entertain the satisfaction which is stipulated by the initial portion of sub-s. (2). Pushed to its logical conclusion, the argument of Shri Ghanekar would lead to the position that in every case where there is material prima facie showing concealment or furnishing of inaccurate particulars, then even if there is nothing to show that the requisite satisfaction while assessing was arrived at by the Commissioner, yet proceedings in respect of penalty could be initiated in all t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d form. The sequence of the items above noted shows that there has to be a finding regarding penalty before item 35, namely, assessment order, is prepared and signed. The preamble to form 30 also is 'order of assessment under s. 33, Bombay Sales Tax Act, 1959.' 64. It has also been argued by the learned Advocates for the appellant that the mental process of adjudication and deciding to levy penalty must precede the writing of order of assessment. The term in the Explanation 'has been assessed' refers to the mental process of adjudication. Shri Jetly further supports the contention that in the interests of avoiding multiplicity of proceedings, it is requisite that the order levying penalty should be included in the assessment order itself. 65. It is further argued as follows. Sub-clause (2) of Rule 36 reads "An order imposing a penalty under sub-s. (1), (2) or (4) or sub-s. 36 may be incorporated in the order of assessment made under this rule". As regards this rule, it is contended that though the said rule uses the word 'may be incorporated' yet the word 'may' means and has to be interpreted as 'shall'. Support is sought for this proposition by the learned Advocates for the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the matter of passing of an order of penalty. The position, therefore, is that the order of penalty can be passed at any time. The argument on behalf of the appellant that the term 'while assessing' qualifies not only the jurisdictional fact, but also the passing of the order of penalty, is baseless and fallacious. The term can govern only the jurisdictional fact. Reference is made to the observations in The Swastik Oil Mills Ltd. vs. H.B. Munshi, Deputy Commissioner of Sales Tax, Bombay (35) on pages 401 and 402, in support of the proposition that when no period of limitation for revisional powers was provided and under an enactment no limitation could be read into the statute. Reference was also made to observations in a case under the Income-tax Act, Commissioner of Income-tax, Madras and Another vs. S.V. Angidi Chettiar (36). The observations are that the proceeding to levy penalty has to be commenced by the Income-tax Officer before the commencement of the assessment proceedings. Satisfaction before the conclusion of the proceeding under the Act and not the issue of the notice or initiation of any step for imposing penalty, is a condition for the exercise of jurisdiction. On ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... verride the provisions in the Rule proper. When sub-rule (2) clearly directs that the penalty order may be incorporated in the assessment order, one cannot deduce from the sequence appearing in Form 30, that inspite of sub-rule (2), the penalty order must be incorporated in the assessment order. As observed in Commissioner of Income-tax, Bombay vs. Abdul Hussein Essaji Ariswalla (37) rules are to be interpreted in the light of the provisions under which it is made. In that case an interpretation was suggested on the basis of the contents of a column of the income-tax return. The High Court held that such an interpretation would be contrary to the plain language of the provision and was therefore rejected. 71. In a case under the Madras Sales Tax Act reported in State of Madras vs. Sri V.P. Ramulu Naidu (24) the penalty provision reads, "when making any assessment...........the assessing authority may direct the dealer to pay a penalty." Here a distinct point of time is indicated by the words " when making any assessment". The provision under the Bombay Sales Tax Act however is different. In a case from Andhra Pradesh, Shri Radhakrishna and Co. vs. The State of Andhra Pradesh, (38 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntroversy cannot be said to be strictly necessary for the decisions we have already recorded in the previous paragraphs. It was argued by the learned Advocates on behalf of the appellant that if the record contains no indication about any decision or intention on the part of the assessing authority either prior or during the passing of the assessment order, about the levy of the penalty, then it must be inferred that the taxing authority had taken a decision not to levy penalty. The learned Advocates for the appellant in support of his proposition relied on certain decisions of the Tribunal. According to the Advocates, the Tribunal has consistently held the view in the above said cases, that in such a situation it must be held that the taxing authority decided not to levy the penalty. The cases cited have been listed as follows by Shri Jetly:- Cases where the Sales Tax Officer had not imposed the penalty while assessing and where it was held that the Sales Tax Officer is deemed to have waived the penalty :- (1) M/s. Vishnu Bhavan Lodge vs. The State of Maharashtra (39). (2) M/s. Bapat & Co. vs. The State of Maharashtra (40). (3) M/s. Sudarshan Chemical vs. The State of Maha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion, if two views are possible, then the one in favour of the subject has to be adopted by the Court. Reliance is placed for the purpose on certain rulings. One such ruling is the recent dictum of the Supreme Court in Khemka & Co. (Agencies) Pvt. Ltd. vs. State of Maharashtra (51). The reference is to the observations on page 594. These are as follows. The liability under s. 16(4) of the Bombay Sales Tax Act, 1953 (analogous to s. 36(3) of the 1959 Act) is a liability in the nature of an additional or penal tax. It is observed that it is an imposition of a pecuniary liability which is comparable to a punishment for the commission of an offence. The imposition of a pecuniary liability cannot be relegated to the region of mere procedure and machinery. The emphasis placed by the learned Advocates is on the observation that the imposition of the pecuniary liability is comparable to punishment for the commission of an offence. From this Shri Jetly contended, it should follow that the provision under the Explanation is equated to a criminal provision. In Hindustan Steel Ltd. vs. The State of Orissa (52), the observations are that an order imposing penalty for failure to carry out a stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , however, it is not possible to deduce the inference, that the Supreme Court in the later ruling has formed the conclusion that penalty provisions are criminal in nature. The observation that imposition of pecuniary liability is comparable to punishment for the commission of an offence, cannot be equated with an observation that a penal provision must be held as equivalent to a criminal provision. The clear implication of the observations of the three judges in Hindustan Steel, to the effect that a penalty provision is quasi-criminal, in nature, cannot, be held to be departed from by the above said observations of Beg, J. Nor does it appear from a reading of the judgment of Justice Beg, that he wanted to lay down a proposition contrary to the observations in Hindustan Steel and to hold that a penalty provision is in the nature not of a quasi-criminal proceeding, but of a criminal proceeding. Our conclusion, therefore, is, following the judgment in Hindustan Steel, that penalty proceedings are quasi-criminal in nature. 78. The above said conclusions set out by us form links in a logical chain; and by now, in view of those conclusions, we are in a position to record our answers to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly furnished inaccurate turnover liable to tax. This presumption can be dislodged by the assessee by proving absence of gross or wilful neglect. However when the assessee fails to do so, the taxing authority can straightaway proceed to pass the order of levy of penalty, without having to record any further finding. 80. Shri Sheth has argued that even after the taxing authority holds during assessment proceedings that a particular transaction is liable to be tax, even then when the question of levy of penalty comes up, the authority must again discharge the burden of proof that this item is turnover within the meaning of s. 2 (35) or s. 36. For the purpose a finding is necessary inspite of the Explanation. Clause (c) of sub-s (2) of s. 36 applies if a dealer has filed his return. The base of concealment in the return. Therefore, the same read with the Explanation would complete the process relevant for levy of penalty, No concealment can be presumed in respect of that turnover which is out side the return. If the transaction is shown in the return, the main section cannot apply and therefore the Explanation cannot also apply. Reference is made to observations in Palkhiwalla's Inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terms. Even if it is held not to embody a fiction it does embody a rebuttable presumption. Hence, on a proper construction of the Explanation position will be that if the jurisdiction fact is established and if the assessee fails to discharge the burden on him of proving absence of gross or wilful neglect, the assessing authority can record a finding in terms of the Explanation and proceed to levy the penalty. 83. There is no case decided by the High Court or the Supreme Court arising out of the provisions of the Explanation to Bombay Sales Tax Act, 1959, s. 36(2) (c). The cases cited relate to the Explanation under the Income Tax Act. The cases would however be studied and the propositions laid down therein perused in order to find out whether any guidance can be derived thereform for the problem posed before us. 84. Some of the rulings cited by the learned Advocates for the appellant will now be studied. In Additional Commissioner of Income-tax, Punjab vs. Karnail Singh V. Kaleran, (53) the Punjab and Haryana High Court considered the Explanation to s. 271 of the Income Tax Act, 1961. The phraseology used in this explanation has already been reproduced above. The High Court, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elation to Explanation under s.271 (1), Income-tax Act, has observed as follows. From the mere fact that the explanation of the assessee was found to be false in assessment proceedings, it would not follow that the ingredients necessary for levying a penalty are established. For the levy of penalty there should be material to establish that the assessee had consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars of the same. A penalty order cannot be solely based on the reasons given in the original order of assessment. The authorities are expected to consider afresh all the material available either produced at the assessment stage or later in the penalty proceedings without merely proceeding on the basis of the findings given earlier at the stage of assessment. If those materials reasonably point to the conclusion that the disputed amount represented income and that the assessee had deliberately concealed particulars of the same, levy of penalty can be justified. The Madras High Court in delivering this judgment has relied on the dictum of the Supreme Court in Commissioner of Income-tax vs. Khoday Eswara and Sons,.(56). It would, h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rulings containing observations contrary to those cited above, relating to the Explanation under the Income-tax Act. In Commissioner of Income-tax, Orissa vs. K.C. Behera (60) the facts briefly stated were as follows : the case arose under the Explanation to s.271 (1)(c) of the Income-tax Act introduced with effect from 1st April, 1964. The Tribunal had relied on the decision of the Supreme Court in the case of Anwar Ali and decided the case accordingly. The contention before the High Court was that the Tribunal had acted contrary to law in not applying s.271(1)(c) read with the Explanation and in relying on a ruling which related to the position prior to the enactment of the Explanation. The High Court first concluded that the Explanation applied to the case and the case had to be decided as per Explanation. The Tribunal had disposed of the case on the judgment in Anwas Ali's case wherein the penalty proceedings were taken under s.28(1)(c). In Anwar Ali's case the Supreme Court had laid down firstly that penalty proceedings are of a penal nature. The burden was on the Department to prove that a particular amount was a revenue receipt. The mere fact that the Explanation of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d different views on the particulars legal position with which we are concerned in question No.3 (b) posed for decision before us. It is therefore, obvious that from the law of precedents, it is not possible to find an authoritative and uniform view laid down in the matter, from which it would be possible to proceed to a comparison between the Explanations under the Income-tax Act and the Bombay Sales Tax Act and thereupon to find and decide on the legal position and then answer the said question. Had there been an uniform view held by the Courts, at least as regards the legal position concerning the Explanation under the Income-tax Act, then such a course might conceivably have been feasible; and following the said course an attempt to answer the said problem could have been thought of. 90. This is not so. However, recourse is had to precedents in order to find out whether there are any authoritative pronouncements setting out and laying down the legal position. This is ordinarily done by placing a proper construction on the statute in question. Since the higher courts are supposed to study the matter in its entirety and to apply the correct principles of construction and interp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n rebuttable or otherwise. The task of laying down authoritatively the legal nature of presumptions including a rebuttable presumption has been done by the Supreme Court in State of Uttar Pradesh vs. Fogendra Singh (33). In the absence of a statutory definition, the nature and legal position of a rebuttable presumption as authoritatively enunciated by the Full Bench of the Supreme Court in Iszzar Ahmed Khan's case above cited, would of course be the last word on the subject. Due and full effect would have to be given to the principles laid down by the Supreme Court in this respect. In para 34 above, the ratio laid down by the Supreme Court has been reproduced. For the present purpose the principles laid down by the Supreme Court may be briefly stated as follows. The Supreme court has analysed what the rule about the rebuttable presumption really means (para 25 in A.I.R. 1962 SC. 1052). The fact to be proved in fact B. The probative fact is fact A. Fact A has some degree of probative or persuasive value for proof of fact B. Fact A if proved has to be weighed by the judicial mind. Ordinarily, the judicial process will be that fact A would be weighed by itself and its precise probativ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a rebuttable presumption. The combination of these two, namely, the natural and the inherent probative value, plus the added statutory probative value are together sufficient to constitute proof of fact B, subject of course to rebuttal. 95. It does not appear that these principles can in any manner be departed from, in construing the Explanation under the Bombay Sales Tax Act. On analysis, the Explanation provides that where a dealer has been assessed or reassessed as stated, and there is the shortfall as stated, there will be the presumption as stated. In the light of the principles above stated, this means that the fact of the dealer being assessed or reassessed as stated, plus the fact of the shortfall have to be weighed by the judicial mind, not by the normal process of appreciating evidence. The rebuttable presumption embodied in the words 'he shall be deemed' has the effect of regulating the above said normal judicial process of appreciating evidence. The enactment of the rebuttable presumption adds statutory force to the probative value of the facts on the basis of which the presumption has to be draw. The result of the addition of this statutory force to the natural and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clause (c) could he expected. We are, however, clear in our mind that neither of these courses are open to us. In the first place, we have no justification to ignore the legal provision enacted in the Explanation, or to escape from our duty of properly construing the same. Secondly, in performance of our duty of placing a proper construction of the Explanation, we have neither any justification nor any ground to ignore the law as laid down by the Supreme Court and to give due effect to the same. After carefully considering all the arguments advanced by the learned Advocates for the appellant, it must be said that they have been unable to make out any justification or legal ground on our part to follow the courses outlined above, which clearly are not permissible for us. We are, therefore, constrained to hold that before passing an order levying penalty under s.36(2) (c) read with the Explanation, a finding in terms of the Explanation is requisite. 97A. In this connection useful reference may be made to certain observation of the Gujarat High Court in, Commissioner of Income-tax, Gujarat vs. S.P. Bhatt (12). It may be made clear that it is only some of the observations in the ruli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scious furnishing of inaccurate particulars of a transaction liable to tax. Thus, the argument is, before levying a penalty under the Explanation a finding in terms of clause (c) is requisite. 99. As already observed, there can be no dispute with the proposition that the Explanation embodies a penal provision. There can be no quarrel with the other proposition, namely, that if a penal provision is capable of two constructions, the one is in favour of the subject has to be adopted. As has been exhaustively discussed above, in the light of the principles laid down by the Supreme Court as regards a rebuttable presumption, there is no other construction which can be reasonably put on the Explanation other than the one which has been put above. The next limb of the argument is that the Explanation should be held to embody a criminal provision. It must be stated that this proposition has far-reaching consequences which must be duly visualised before such a proposition can be said to be correct. One of such consequences is that the principle applicable in criminal jurisprudence, namely, that the burden always remains on the prosecution and never shifts, will have to be applied in its en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a criminal proceeding. The Supreme Court further proceeded to lay down various important principles. Categories of the default, with reference to the degree of culpability, were enunciated. It was further emphasised that penalty will not be imposed merely because it is lawful to do so. It was further laid down that the imposition of a penalty was a matter of discretion to be exercise judicially and on a consideration of all the relevant circumstances. 102. It is impossible to disregard the above said statement of the law including the principle that penalty proceedings are quasi-criminal in nature. The observations of Justice Beg certainly cannot be held to constitute a departure from the law laid down as above said in Hindustan Steel. As regards Palkhiwalla's observations, all that needs to be stated is that it embodies the observations found in the set of rulings cited on this point by the learned Advocates for the appellant which have been duly discussed above. As already pointed out, these rulings set out one view while the contrary view is held by some other High Courts. In view of the above considerations, it follows that the contention made that penalty provisions must b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te for the taxing authority to record a finding on the question whether the assessee had failed to discharge the burden of proving that the payment of the lesser amount of tax was not due to gross or wilful neglect on his part. 106. Before concluding, certain facts must be noted. In some respects the present case has been unique. Out of the four learned Advocates who appear for the assessee Shri B.C. Joshi,, G.S. Jetly, Shri J.K. Sheth and Shri P.V. Surte, three appeared amicus curiae. It was obvious that all the advocates devoted considerable energy and time for a deep study of the law, working out very well prepared arguments and the proper exposition of the same. Even during the course of the arguments which extended to 19 working days, perhaps a record in the history of the Tribunal, the Advocates were making continued efforts to find out the latest case law relevant to the propositions as they developed during the course of arguments. We are thankful for the valuable assistance provided by them. Similarly, Shri Ghanekar, Deputy Commissioner (Legal) was equally pain-staking. Obviously a strenuous effort and study had been put in for advancing the arguments as he did. The same ..... X X X X Extracts X X X X X X X X Extracts X X X X
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