PETITIONER: COMMISSIONER OF INCOME-TAX, DELHI Vs. RESPONDENT: S.TEJA SINGH DATE OF JUDGMENT: 05/11/1958 BENCH: AIYYAR, T.L. VENKATARAMA BENCH: AIYYAR, T.L. VENKATARAMA GAJENDRAGADKAR, P.B. SARKAR, A.K. CITATION: 1959 AIR 352 1959 SCR Supl. (1) 394 CITATOR INFO : R 1960 SC1016 (10) R 1962 SC 663 (7) RF 1963 SC1066 (13) RF 1975 SC1660 (3) RF 1978 SC1239 (12) RF 1986 SC 358 (21) RF 1988 SC 587 (11) R 1992 SC 1 (59,74) ACT: Income-tax-Penalty-New assessee-Failure to send estimate of tax-Absence of notice to the assessee-Competency of Income- tax Officer to levy penalty-Indian Income-tax Act, 1922 (XI of 1922), ss. 18A(3), 18A(9), 22, 23, 28. HEADNOTE: The respondent who bad not been assessed to income-tax prior to the assessment year 1948-49 made suo motu returns on July 4, 1949, showing an income of Rs. 4,494 and Rs. 31,646 respectively, for the assessment years 1948-49 and 1949-5o, but failed to send an estimate of the tax on his income as provided in s. 18A(3) of the Indian Income-tax Act, 1922. The Incometax Officer took action under s. 28 read with s. 18A(9) of the Act and imposed a penalty on him for the years 1948-49 and 1949-50. 395 The Appellate Tribunal held that the order imposing the penalty was ultra vires on the ground that s. 28 would, in terms, apply only when a person failed to furnish the return when he was required so to do by notice under s. 22 or s. 34 of the Act, and that there could be no such notices with reference to estimates of tax on income to be sent under s. 18A(3). The High Court, on reference, agreed with the view of the Tribunal. Held, that in view of the legal fiction contained in s. 18A(9) of the Act that when an assessee has failed to comply with s. 18A(3) he "shall be deemed to have failed to furnish the return of his total income and the provisions of s. 28, so far as may be, shall apply accordingly ", the failure to send an estimate of the tax under s. 18A(3) should be treated as failure to furnish return of income under s. 22. Accordingly, it was competent to the Income- tax authorities to impose a penalty under S. 28 read with s. 18A(9)(b) where there has been a failure to comply with s. 18A(3). The relevant provisions of the Indian Income-tax Act, 1922, are set out in the judgment. JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 122 of 1957.
Appeal from the order dated November 4, 1954, of the Punjab
High Court (Circuit Bench) at Delhi in Civil Reference No.
15 of 1953.
R. Ganapathy Iyer, R. H. Dhebar and D. Gupta, for the
appellant.
P. M. Mukhi, Gopal Singh for Udhai Bhan Choudhry, for the
respondent.
P. M. Mukhi and Ganpat Rai, for Dalmia Jain Aviation Ltd.
(now Asia Udyog Ltd.) (Intervener).
1958. November 5. The Judgment of the Court was delivered
by
VENKATARAMA AIYAR, J.-This is an appeal against the judgment
of the High Court of Punjab in a reference under s. 66(1) of
the Indian Income-tax Act, 1922, hereinafter referred to as
the Act.
The facts are that the respondent, had not been assessed to
income-tax prior to the assessment year 1948-49. On July 4,
1949, he made suo motu returns showing an income of Rs.
4,494 for the accounting year 1947-48 being the previous
year for the assessment year 1948-49 and an income of Rs.
31,646 for
396
the accounting year 1948-49 being the previous year for the
assessment year 1949-50. By orders dated August 25, 1949,
the Income-tax Officer assessed the income for the
assessment year 1948-49 at Rs. 6,277 and for the assessment
year 1949-50 at Rs. 36,281. The correctness of these orders
is not in question before us. We are concerned in these
proceedings with the vires of an order, which the Income-tax
Officer made on October 9, 1950, under s. 28 read with ss.
18A(3) and 18A(9) of the Act. It will be convenient to set
out these provisions, so far as they are material for the
purpose of this appeal. Section 18A(3) provides that :
” Any person who has not hitherto been assessed shall,
before the 15th day of March in each financial year, if his
total income of the period which would be the previous year
for an assessment for the financial year next following is
likely to exceed six thousand rupees, send to the Income-tax
Officer an estimate of the tax payable by him on that part
of his income to which the provisions of section 18 do not
apply of the said previous year calculated in the manner
laid down in sub-section (1), and shall pay the amount, on
such of the dates specified in that sub-section as have not
expired, by instalments which may be revised according to
the proviso to sub-section (2).”
Section 18A(9) is as follows:
” If the Income-tax Officer, in the course of any
proceedings in connection with the regular assessment, is
satisfied that any assessee-
(a) has furnished under sub-section (2) or sub-section(3)
estimates of the tax payable by him which he knew or had
reason to believe to be untrue, or
(b) has without reasonable cause failed to comply with the
provisions of subsection (3), the assessee shall be deemed,
in the case referred to in clause (a), to have deliberately
furnished inaccurate particulars of his income, and in the
case referred to in clause (b), to have failed to furnish
the return of his total income; and the provisions of
section 28, so far’ as may be, shall apply accordingly:”.
397
Then, there is a proviso which imposes a limit on the amount
of penalty, which can be levied. Section 28 of the Act runs
as follows:
(1) ” If the Income-tax Officer……. in the course of any
proceedings under this Act, is satisfied that any person-
(a)has without reasonable cause failed to furnish the return
of his total income which he was required to furnish by
notice given under sub-section (1) or subsection (2) of
section 22 or section 34 or has without reasonable cause
failed to furnish it within the time allowed and in the
manner required by such notice, or
(b)has without reasonable cause failed to comply with a
notice under subsection (4) of section 22 or subsection (2)
of section 23, or
(c)has concealed the particulars of his income or
deliberately furnished inaccurate particulars of such
income,
he….. may direct that such person shall pay by way of
penalty, in the case referred to in clause (a), in addition
to the amount of the income-tax and supertax, if any,
payable by him a sum not exceeding one and a half times that
amount, and in the cases referred to in clauses (b) and (c),
in addition to any tax payable by him, a sum not exceeding
one and a half times the amount of the income-tax and super-
tax, if any, which would have been avoided if the income as
returned by such person had been accepted as the correct
income:”.
The Income-tax Officer held that as the respondent had
failed to send an estimate of the tax on his income as
provided in s. 18A(3) he became liable to be proceeded
against under s. 28, and accordingly imposed a penalty of
Rs. 40 for the year 1948-49 and Rs. 1,000 for the year 1949-
50. On appeal, the Appellate Assistant Commissioner
confirmed the order in so far as it imposed a penalty for
the year 1948-49 but set it aside as regards the year 1949-
50 on the ground that by reason of the assessment for the
year 1948-49 the respondent ceased to be a new assessee for
1949-50, and that, in consequence, s. 18A(3) had no
application. Against the order cancelling the penalty for
1949-50,
398
the Income-tax Officer preferred an appeal to the Appellate
Tribunal, which disagreed with the view of the Appellate
Assistant Commissioner that the respondent was no longer a
new assessee within s. 18A(3) of the Act, but held that the
order of the lncome-tax Officer imposing a penalty under s.
28 was ultra vires, because that section would, in terms,
apply only when a person failed to furnish the return when
he was required so to do by notice under s. 22 or s. 34 of
the Act, and that there could be Do such notices with
reference to estimates of tax on income to be sent under s.
18A(3). In the result, the appeal was dismissed. On the
application of the appellant, the Tribunal referred the
following question for the opinion of the High Court:
” Whether on a true construction of Section 18A(9) (b) read
with section 28 of the Indian Income-tax Act,1922, a penalty
may be imposed for a total failure to comply with the
provisions of Section 18A(3) of the said Act ?”
The reference was heard by Bhandari, C. J., and Falshaw, J.,
who agreed with the Tribunal that the conditions as to
notice laid down in s. 22(1) or s. 22(2) must be satisfied
even when action was sought to be taken under s. 28 in
respect of a failure to comply with s. 18A(3), and that as
those conditions had not been satisfied, the order imposing
penalty was bad. The appellant applied for a certificate
under s. 66A(2) of the Act, and the same was granted, and
that is how the appeal comes before us.
The sole question that arises for our determination in this
appeal is whether under s. 28(1) read with s. 18A(9) of
the Act, it is competent to the Income-tax authorities to
impose a penalty on a person who has failed to comply with
s. 18A(3) of the Act. In answering it in the negative, the
learned Judges in the court below were influenced almost
exclusively by the terms of s. 28 which they held did not
cover- failure to comply with s. 18A(3). Now, s. 28(1)
provides for penalty being imposed in three classes of cases
which are mentioned respectively in cls. (a), (b). and (c).
Clause (b) deals with cases where there has been failure
399
to produce documents or accounts or other evidence which the
assessee had been required to produce under s. 22(4) or s.
23(2) of the Act, and that is not relevant for the purpose
of the present discussion. Then, there are cls. (a) and
(c), and they have reference, stating it in plain language,
cl. (a) to failure to make a return and cl. (c) to making
false return. Now, the learned Judges observe that if an
estimate of the tax is furnished under s. 18A(3) and that is
deliberately inaccurate, that will fall under s. 28(1)(c)
read with s. 18A (9)(a) and penalty could be imposed under
that section, but that that could not be done when there is
failure to furnish an estimate as required by s. 18A(3), be-
cause sub-s. (1) of s. 28 would apply only when a person
failed to furnish the return when he had been required to do
so by notice under s. 22(1) or s. 22(2) or s. 34, or had
failed to furnish it within the time allowed and in the
manner required by the notice, and that there could be no
such notice with reference to s. 18A(3). Say the learned
Judges:
” In the first place, a person who fails to send an
estimate under section 18A(3) cannot be said to have failed
to furnish the return of his total income which he was
required to furnish in response to a notice issued under
section 22 or section 34; secondly, the said person cannot
be said to have failed to furnish it. within the time
allowed and in the manner required by such notice, for,
estimates under section 18A(3) must be furnished before the
15th March in the financial year immediately preceding the
year of assessment whereas the returns required by the
notices under sections 22 and 34 can be furnished at later
dates.”
With respect, the error in this reasoning lies in this that
it fails to give due effect to the fiction contained in s.
18A(9)(b) of the Act. Under that provision, when an
assessee has failed to comply with s. 18A(3) he ” shall be
deemed to have failed to furnish the return of his total
income and the provisions of section 28, so far as may be,
shall ‘apply accordingly.” In other words’ by a legal
fiction the failure to send an estimate of the tax under s.
18A(3) is treated as a
400
failure to furnish return of income under s. 22. It is a
necessary implication of this fiction that the estimate of
tax on the income to be submitted under s. 18A(3) is, in
fact, different from the return to be furnished under s. 22,
and to appreciate the full significance of this fiction, it
is necessary to examine what the distinction is. Under s. 3
of the Act, the tax is payable on the income of the previous
year. A statement of that income can be furnished only
after that year ends, and s. 22 enacts provisions as to when
it is to be furnished in the assessment year. Sub-sections
(1) and (2) provide for notices being given and the assessee
is required to file his statement of income within the
period provided therein, and it is this statement that is
termed ” return “. Section 18A(3), however, relates to the
sending of a statement of tax on the income of the
accounting year before the 15th day of March of that year
itself, and that statement is termed not a return but an
estimate, and quite rightly, because in the very nature of
it, it can only be that. A person who sends an estimate
under s. 18A(3) has also to send a return of his income for
the accounting year under s. 22, and sub-ss. (4) and (5) of
s. 18A provide for adjustment of advance tax paid under s.
18A(3) towards the tax as finally computed under s. 23.
Thus, there is a clear distinction between a return of
income under s. 22, which can only be during the year of
assessment and an estimate of tax on income under s. 18A(3),
which can only be in the year of account.
It is in the light of this distinction that the effect of
the legal fiction enacted ins. 18A(9) (b) that when a person
fails to send an estimate of tax on his income under s.
18A(3) he shall be deemed to have failed to furnish return
of his income, will have to be judged. The respondent
contends that its effect is only to place the estimate to be
sent under s. 18A(3) on the same footing as the return under
s. 22 for purposes of s. 28, and that that does not abrogate
the other conditions laid down in that section on which
alone action could be taken thereunder and penalty imposed,
and one of those conditions is the issue of notice under s.
22(1) or s. 22(2). But it must be noted that s. 18A(9)
(b) does
401
not merely say that an estimate under S. 18A(3) shall be
deemed to be a return. It enacts that the failure to send
an estimate in accordance with s. 18A(3) is to be deemed to
be a failure to make a return. Now, there can be no failure
to make a return, unless notice had been issued under s.
22(1) or s. 22(2) and there has been a default in complying
with that notice. Therefore, the fiction that the failure
to send an estimate is to be deemed to be a failure to send
a return necessarily involves the fiction that notice had
been issued under s. 22, and that had not been complied
with. It is a rule of interpretation well settled that in
construing the scope of a legal fiction it would be proper
and even necessary to assume all those facts on which alone
the fiction can operate. The following off-quoted
observations of Lord Asquith in East End Dwellings Co. Ltd.
v. Finsbury Borough Council (1) may appropriately be
referred to:
” If you are bidden to treat an imaginary state of affairs
as real, you must surely, unless prohibited from doing so,
also imagine as real the consequences and incidents which,
if the putative state of affairs had in fact existed, must
inevitably have flowed from or accompanied it. One of these
in this case is emancipation from the 1939 level of rents.
The statute says that you must imagine a certain state of
affairs; it does not say that having done so, you must cause
or permit your imagination to boggle when it comes to the
inevitable corollaries of that state of affairs.”
The fiction under s. 18A(9) (b) therefore that failure to
send an estimate under s. 18A(3) is to be deemed to be a
failure to send a return must mean that all those facts on
which alone there could be a failure to send the return must
be deemed to exist, and it must accordingly be taken that by
reason of this fiction, the notices required to be given
under s. 22 must be deemed to have been given, and in that
view, s. 28 would apply on its own terms.
Some argument was addressed to us based on the use of the
definite article “the” qualifying the word
(1) [1952] A.C. 109, 132.
51
402
“return” in s. 18-A(9)(b). It was said that that expression
meant the – return which is to be furnished under of s. 22,
and that that requires that there must have been a notice
issued under s. 22(1) or s. 22(2), before action could be
taken under s. 28. In the view expressed above that the
fiction enacted in s. 18-A(9)(b) involves the fiction that
notices had been issued under s. 22(1) or s. 22(2), this
contention does not call for further consideration.
It was finally argued that a fiscal statute and especially
one imposing a penalty, should be strictly construed and
that if the words of the enactment be not sufficiently
explicit to reach the subject, the Revenue must fail, and
the following observations in Vestey’s (Lord) Executors v.
Inland Revenue Commissioners (1) were relied on in support
of this position :
“Parliament in its attempts to keep pace with the ingenuity
devoted to tax avoidance may fall short of its purpose.
That is a -misfortune for the taxpayers who do not try to
avoid their share of the burden and it is disappointing to
the Inland Revenue. But the court. will not stretch the
terms of taxing Acts in order to: improve on the efforts of
Parliament and to stop gaps which are left open by the
statutes. Tax avoidance is an evil, but it would be the
beginning of much greater evils if the courts were to
overstretch the language of the statute in order to subject
to taxation people of whom they disapproved.”
These observations would be in, point if the language of the
enactment left us in any doubt as to what the legislature
meant. But can that be said of s. 18-A(9)(b)? Its object
avowedly is to assimilate the position of a person who has
failed to send the estimate under s. 18-A 3) to that of a
person who has failed to furnish the return.. under s. 22,
and that object is sought to. be achieved by enacting the
fiction which is contained in s. 18-A(9)(b). And ‘if, on
the principles laid down in East End Dwellings Co. Ltd. v.
Finsbury Boorough Council (2), the true effect of that
fiction is that it imports that notice had been issued under
s. 22, then the conditions prescribed in s. 28 of the Act
are satisfied and
(1) [1949] 1 All E.R. 1108, 1120.
(2) [1952] A.C. 109, 132.
403
penalty could be imposed under that section for failure to
comply with s. 18-A(3), on the clear language of that
enactment itself without straining or overstretching it.
We must now refer to an aspect of the question, which
strongly reinforces the conclusion stated above. On the
construction contended for by the respondent, s. 18-A(9)(b)
would become wholly nugatory, as ss. 22(1) and 22(2) can
have no application to advance estimates to be furnished
under s. 18-A(3), and if we accede to this contention, we
must hold that though the legislature enacted s. 18-A(9)(b)
with the very object of bringing the failure to send
estimates under s. 18-A(3) within the operation of s. 28, it
signally failed to achieve its object. A construction which
leads to such a result must, if that is possible, be
avoided,, on the principle expressed in the maxim, “ut res
magis valeat quam pereat”. Vide Curtis v. Stovin (1) and in
particular the following observations of Fry, L. J., at page
519 :
I “The only alternative construction offered to us would
lead to this result, that the plain intention of the
legislature has entirely failed by reason of a slight
inexactitude in the language of the section. If we were to
adopt this construction, we should be construing the Act in
order to defeat its object rather than with a view to carry
its object into effect”.
Vide also Craies on Statute Law, p. 90 and Maxwell on The
Interpretation of Statutes, Tenth Edn., pp. 236-237. “A
statute is designed”, observed Lord Dunedin in Whitney v.
Commissioners of Inland Revenue (2), “to be workable, and
the interpretation thereof by a court should be to secure
that object, unless crucial omission or clear direction
makes that end unattainable”.
We are accordingly of opinion that it was competent to the
Income-tax authorities to impose a penalty under s. 28 read
with s. 18-A(9)(b) where there has been a failure to comply
with s. 18-A(3).
in the result., we set aside the order of the court below
and answer the reference in the affirmative.
(1) [1889] 22 Q.B.D. 513.
(2) [1925] 10 Tax Cas. 88, 110.
404
The appellant will have his costs here and in the court
If below.
Appeal allowed.