Commissioner of Wealth-tax vs M.V. Rajamma

Sethuraman, J.—In this reference under the W.T. Act, the following question has been referred at the instance of the assessee:

Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the order of penalty passed on March 14,

1973, for the assessment year 1964-65 under the provisions of Section 18(1)(c) of the Wealth tax Act, 1957, was not hit by limitation ?

At the instance of the CWT, the following questions have been referred :

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the law to be applied to determine

the quantum of penalty leviable under the provisions of Section 18(1)(c) of the Wealth-tax Act in the present case was the law as obtaining on

November 9, 1964, when the original return was filed ?

Whether the Tribunal was right in reducing the penalty of Rs. 30,655 imposed under the provisions of Section 18(1)(c) of the Wealth-tax Act to

Rs. 180?

The assessee was served and she is not present either in person or through counsel. The reference at the assessee''s instance is not prosecuted

and the question is not, therefore, answered, and we return the reference in so far as that question is concerned without answering it. We consider

below only the Commissioner''s reference.

The assessment year under consideration is 1964-65. The assessee filed a return under the W.T. Act on November 9, 1964, showing a net

wealth of Rs. 21,266. The assessment was completed on anet wealth of Rs. 2,51,353 on 27th October, 1965. During the course of the

assessment proceedings to levy Income Tax, the ITO found that the assessee had claimed debts amounting to Rs. 30,655 as being due to two

persons and that such a claim was not a proper one. He disallowed it. The assessment to Income Tax, including the said sum of Rs. 30,655,

became final and the WTO took proceedings u/s 17 of the W.T. Act and reopened the assessment made earlier on October 27, 1965, wherein

there was a deduction of Rs. 30,655. In compliance with the notice u/s 17, the assessee filed a fresh return on 3rd March, 1970, and the

assessment was completed on 30th June, 1970. In the wealth-tax assessment so made, the WTO added the sum of Rs. 30,655 and brought to tax

the net wealth of Rs. 2,81,098 which included the original amount assessed and also the amount that was added in the reassessment. The tax as

originally payable under the assessment made on 27th October, 1965, was Rs. 756.77. As a result of the reassessment, the tax payable came to

Rs. 905.49 resulting in a larger liability in a sum of Rs. 148.72 or Rs. 149 in round figures.

Penal proceedings were taken u/s 18(1)(c) of the W.T. Act and the IAC, who came to deal with the penalty proceedings, held that penalty was

attracted in this case for the concealment of the wealth in the sum of Rs. 30,655 and he, therefore, levied a sum of Rs. 30,655 as penalty which,

according to him, was the minimum penalty leviable under the law. The penalty so levied was the subject matter of an appeal before the Tribunal. It

was contended that no penalty was leviable and that, in any event, the penalty could be levied only under the law as it was in force at the time when

the original return was submitted, i.e., on November 9, 1964. The Tribunal did not accept the assessee''s plea that no penalty was leviable, but it

upheld the assessee''s contention that penalty could be levied only in accordance with the provision as it was in force at the time when the original

return was submitted. The result was that the Tribunal reduced the penalty to Rs. 180, which was about 20 per cent. of the tax sought to be

avoided. It is this order of the Tribunal that has given rise to the questions set out earlier as being at the instance of the CWT.

There is one feature which requires to be adverted to before we take notice of the contentions urged on behalf of the CWT. Section 18, as it

stood originally, provided for the levy of penalty in cases where the WTO was satisfied that any person had concealed the particulars of his assets

or deliberately furnished inaccurate particulars of his assets or debts. In such a case the WTO could direct that the assessee had to pay, by way of

penalty, in addition to the sum of the wealth-tax payable by him, a sum not exceeding 1 1/2 times of the amount of the tax, if any, which would

have been avoided if the net wealth returned by such person had been accepted as correct. It may be seen from the provision, as summarised

above, that there was no statutory minimum fixed in regard to the leviability of penalty.

This provision was amended by Central Act 46 of 1964 with effect from April 1, 1965. In the case of concealment of particulars of assets or

furnishing of inaccurate particulars of assets or debts, the quantum of penalty as fixed under the amended provision was that it should not be less

than 25 per cent. but should not exceed 1 1/2 times the amount of tax, if any, which would have been avoided if the net wealth as returned by the

assessee had been accepted as the correct net wealth. It may be seen that this provision came into force only from April 1, 1965, so that as on the

date on which the original return was submitted, this provision fixing a statutory minimum for the levy of penalty was not in operation. Section 18

was again amended by Section 32 of the Finance Act of 1968 with effect from April 1, 1968. Under the provisions in force after that date, the

minimum penalty should not be less than the amount representing the value of any assets in respect of which the particulars had been concealed or

any assets or debts in respect of which inaccurate particulars had been furnished. The maximum was twice the value of the assets taken as

concealed or twice the value of assets or debts in respect of which inaccurate particulars were taken to have been furnished.

The IAC applied the provision as in force from April 1, 1968, as the return in respect of the reassessment proceedings had been filed on March

3, 1970. He, therefore, levied Rs. 30,655 as penalty. Whether the order of the Inspecting Assistant Commissioner is right or wrong will have to be

gone into. His order was, however, consistent with the provision that was in force at the time he conceived the liability for penalty to arise. But, the

Tribunal, after observing that there was no minimum penalty, has sustained Rs. 180 as penalty describing it as 20 per cent. of ""the tax sought to be

avoided"". Though the assessee had returned only Rs. 21,265 as her wealth and though she was originally assessed on a net wealth of Rs.

2,51,353, no penalty proceedings were taken in the course of the original assessment proceedings. The tax that was sought to be avoided was thus

the amount due on the wrong claim of Rs. 30,655 and this, as shown in paragraph 2 of its order, would only amount to Rs. 149. Twenty per cent.

of this amount would not be Rs. 180. The calculation of Rs. 180 as penalty does not appear to be proper on the facts. However, as the assessee

has not challenged this part of the order of the Tribunal by raising an appropriate question, it is unnecessary for us to pursue this point further.

The only point that requires consideration in the present reference is whether penalty is leviable with reference to the law in force on the date

when the original return was submitted, i.e., November 9, 1964, or whether it is leviable with reference to the law in force on March 3, 1970,

when the return in pursuance of the provision u/s 17 came to be submitted. On this point there is a decision of the Allahabad High Court in

Commissioner of Income Tax Vs. Ram Achal Ram Sewak, . In that case the assessee was assessed under the I.T. Act for the assessment year

1963-64. The original assessment was completed on the basis of a return filed prior to April 1, 1964. On receiving information that the assessee

had made a number of investments, the assessment was reopened by issue of a notice u/s 148 of the I.T. Act. In the reassessment, a sum of Rs.

52,783 was added, and proceedings for the levy of penalty u/s 271(1)(c) of the I.T. Act were initiated. Section 271(1)(c) had undergone a

modification or amendment as made by Section 40 of the Finance Act of 1964 with effect from April 1, 1964. The question before the Allahabad

High Court was whether the penalty provision as in force at the time when the original return was submitted, that is, prior to 1st April, 1964, was

to be applied, or whether the penalty provision as in force subsequent to its amendment with effect from that date, was to be applied. It was

pointed out at page 150 :

This apart, where an assessee has concealed the particulars of his income or furnished inaccurate particulars of such income once, it cannot be

said that if he repeats the same act again, there is a fresh concealment or furnishing of inaccurate particulars of the same income.

It was held that the provision as in force prior to 1st April, 1964, would alone apply and that the relevant return for the purpose of levy of

penalty was the original return and not the revised return.

Though this decision was rendered under the I.T. Act, the scheme for levy of penalty for wealth tax being identical, what applies to Income

Tax will ordinarily apply to wealth tax also. We were not referred to any distinguishing features based on the language of the respective statutes, so

as to rule out of application the aforesaid decision in wealth-tax cases.

The learned counsel for the revenue contended that this decision cannot be accepted as correct as it runs counter to the decision of the

Supreme Court in N.A. Malbari and Bros. Vs. Commissioner of Income Tax, Bombay, . This decision of the Supreme Court had not been cited

or noticed in the decision of the Allahabad High Court. In the case before the Supreme Court, the assessee did not include the profits of a business

from Bangkok in the return filed for the assessment year 1951-52. The ITO estimated the profits of the Bangkok branch and completed the

assessment accordingly. He initiated penalty proceedings and imposed Rs. 20,000 as penalty for the concealment of the income earned in

Bangkok. In the course of the assessment for the next year, the ITO came across the books of the Bangkok branch and he found that the assessee

had made a profit of Rs. 1,25,520 as against Rs. 37,500 estimated by him. He, therefore, took proceedings u/s 34 of the Indian I.T. Act, 1922,

and added the said sum in the reassessment. In due course he issued a notice for levy of penalty and levied Rs. 68,501 as penalty for the

concealment of income in the return. The penalty was levied in respect of the return filed in the original assessment proceedings. The legality of the

penalty so levied came to be challenged before the Tribunal. Before the Tribunal there were two appeals, one against the levy of penalty in the

original assessment proceedings and the other against the levy of penalty in the reassessment proceedings. The Tribunal cancelled the penalty levied

in respect of the original assessment proceedings, but sustained the penalty levied in the course of the reassessment proceedings. The question

before the Supreme Court was, in effect, whether two penalties could be levied with reference to the concealment as shown above. The Supreme

Court pointed out that the ITO had full jurisdiction to make the second order of penalty, and that he did not lose that jurisdiction merely because

he had omitted to recall the earlier order. It was also pointed out that the two orders could not be in force simultaneously and could not stand

together. As the earlier order of penalty had been cancelled by the Tribunal, it was held that the second order of penalty was a legal one. The

Supreme Court did not have any occasion to deal with the question (a) which is the return in respect of which penalty proceedings could be taken,

or (b) which is the law that would govern the leviability of penalty where there is a change in the law after the filng of the first return. It may be seen

that in that particular case the assessee had submitted a correct return in the reassessment proceedings. Therefore, the concealment, was in the

original proceedings. The real objection of the assessee was that penalty in respect of the original proceedings could not be levied in the

reassessment proceedings, and it is this contention which was rejected, and in doing so a decision of this court in C. Vs. GOVINDARAJULU

IYER v. COMMISSIONER OF Income Tax, MADRAS., was approved. We do not, therefore, find that this decision has anything to do with

the point which is before us or which was before the Allahabad High Court. The decision of the Allahabad High Court is not inconsistent with that

of the Supreme Court.

It is now settled, as far as this court is concerned, that the law applicable for the imposition of penalty will have to be determined with reference

to the date on which the offence was committed. Offences of con cealment of particulars or deliberate furnishing of inaccurate particulars in a

return are committed when the return is filed, and, therefore, the law as on the date of the filing of the return would have to regulate the levy of

penalty. This principle was laid down by this court in Commissioner of Gift-tax Vs. C. Muthukumaraswamy Mudaliar, with reference to the gift of

movables under the G.T. Act, and the same principle was applied in COMMISSIONER OF WEALTH-TAX, MADRAS Vs. P. C. M.

SUNDARAPANDIAN AND OTHERS., with reference to the W.T. Act.. It is thus clear that the law as on November 9, 1964, would have to

be applied and the proper penalty would have to be calculated with reference to that law.

The learned counsel for the Commissioner submitted that as soon as reassessment proceedings were started, the original assessment

proceedings got set aside and that, therefore, the only proceedings in respect of which penalty could be levied are the reassessment proceedings.

The learned counsel for the revenue further submitted that whatever may be the provision with reference to the levy of penalty as regards the return

filed on November 9, 1974, in the present case, the return filed on August 8, 1970, gives a fresh cause of action for the revenue to levy penalty as

there was concealment or furnishing of inaccurate particulars in regard to the debts in that return.""It is in support of this submission that the learned

counsel drew our attention to the decision in V. Jaganmohan Rao and Others Vs. Commissioner of Income Tax and Excess Profits Tax, Andhra

Pradesh, . That was a case where as a result of certain civil proceedings, which determined the rights of parties, the Income Tax proceedings came

to be reopened on the basis of information obtained from the said civil proceedings and reassessment made accordingly. One of the contentions

taken in that case was that in the assessment proceedings the amount that could be brought to tax was only the amount in respect of which

information had been obtained and not any other amount. In dealing with this submission, the Supreme Court pointed out that when once

proceedings u/s 34 were taken to be validly initiated, the jurisdiction of the ITO could not be confined only to that portion of the income, and at

page 380, it was observed :

It is therefore, manifest that once assessment is reopened by issuing a notice under Sub-section (2) of Section 22, the previous under-assessment

is set aside and the whole assessment proceedings start afresh.

In the present case, the question as to whether, by reason of the reassessment proceedings, the original assessment proceedings got completely

set aside is not relevant, and the decision cited has no application. The Supreme Court has not also laid down that the original return itself got set

aside by reason of the reassessment proceedings. Therefore, any concealment in the original return is not washed off by the reassessment. The

offence having been committed at the time of the submission of the original return, it is that offence that has to be punished. No fresh cause of

action arose for the levy of penalty when the return was filed in March, 1970, as it was only a continuation of what had happened earlier. A

repetition of the same mistake does not give rise to a fresh offence.

In the present case, both the IAC and the Tribunal have pointed out that the amount which is now added, namely, Rs. 30,655, was the

subject-matter of the furnishing of inaccurate particulars of debts in the original return itself. In fact, in the course of the penalty order, the IAC has

pointed out:

During the course of examination of accounts for the Income Tax assessment, it was found that the assessee''s claim that the debt due to two

persons amounting to Rs. 30,655 was false. The sum was, therefore, disallowed in the Income Tax assessment as false claim and was also

confirmed in appeal by the Appellate Assistant Commissioner. The wealth-tax assessment was, therefore, reopened u/s 17 of the Wealth-tax Act

and as there was no proper explanation from the assessee, the assessment was completed disallowing the debts claimed.

It is thus clear that the mistake made or the wrong claim made by the assessee in respect of the claim for Rs. 30,655 was made even in the

original return filed on November 9, 1964, and it is only on this basis that the IAC and the Tribunal proceeded to consider the leviability of penalty.

As pointed out by the Allahabad High Court, the return filed in this case on March 3, 1970, was only a repetition of the wrong claim made in the

original return and, therefore, what can be the subject of penalty proceedings is only the original wrong claim. In this view, the penalty due under

the law in force on November 9, 1964, could alone be levied.

In the result, both the questions referred at the instance of the Commissioner are answered in the affirmative and against the revenue. Though

the assessee did not appear, Mr. K. R. Ramamani, an advocate of this court, rendered us assistance by bringing to our notice the relevant

authorities, and we place on record our appreciation of his assistance. There will be no order as to costs.