Commissioner of Income Tax West Bengal v. Anwar Ali

Grover, J, This is an appeal by special leave from a judg-ment of the Calcutta High Court answering the following question which was referred to it by the Tribunal in the negative and in favour of the assessee.

"Whether on the facts and in the circumstances of the case, the Income-tax authorities were justified in imposing a penalty on the assessee under Section 28 (1 ) ( c) of the Income-tax Act ?"

The assessee during the assessment year 1947-48, the correspond-ing previous year being the financial year ending on March 31, .G 1947 was a partner in the firm 'of M/s. Haji Sk. Md. Hussain

Md. Jan of Calcutta. The Income-tax Officer while making the assessment discovered an undisclosed bank account of the assessee with the Central Bank of India ~td. Bettiah, Bihar. It was found that a cash deposit of Rs. 87 ,000 had been made by the assessee on November 21, 1946 in that Bank. He was asked to explain the sourc~ of ihe amount of deposit. According to his e:pla~atio.n all. his relations got panicky during the communal nots m Bihar m the year 1946 and entrusted him with whatever rash amounts they had with them at that :ime for safe custody. It was stated that a sum of Rs. 87 ,000 had been received in the following manner :

Zahir Hussain. alias Md. Zahir (Cousin) Rs. 18,500/- Mohammad Jan (deceased father) Rs. t.OOJ r Mohd. Haniff (cousin) Rs. 1.750 Khairunnessa Bibi (mother) Rs. 23,000 Safihan Bibi (Sister) Rs. 13,000 Fatema Bibi (Wife) Rs. 15,750 Hasuia Bibi (Brothe(s wife) Rs. 12,000 Rs. 87.000 'fhese amounts which were received by the assessee from his relations were deposited by him in a fixed deposit account in the joint name of himself and his minor sons in the Bank at Bettiah. The Income-tax Officer did not accept the explanation of the assessee and held that the sum of Rs; 87 ,000 represented income from undisclosed sources. He added the amount to the total income of the assessee in his personal assessment. This addition was maintained by the Appellate Assistant Commissioner in · appeal. The Appellate Tribunal also agreed with the decision of

the Income-tax Officer and the Appellate Assistant Commissioner.

Penalty proceedings were initiated after the assessment . and in due course the Income-taic Officer imposed a penalty amounting to Rs. 66,000 on the assessee under s. 28 ( 1) ( c) for concealing income and deliberately furnishing inaccurate particulars. The Appellate Assistant Commis~ioner in appeal held that the case clearly called for a penal action but he redu.ced the amount of penalty by Rs. 22,000. Subsequently he rectified his order under s. 35 and confirmed the penalty of"Rs. •66,000 imposed by the Income-tax Officer. The assessee went up to the'·Appellate Tri-I.· bunal in appeal. The Tribunal took the view that penalty pro-ceedings were of a criminal nature. The onus lay on the depart-ment to show by adequate evidence that the amoup.t of the cash stated to have be.en concealed by the assessee was of a revenue nature and was assessable as income and that the assessee had concealed it or deliberately furnished false particulars in regard thereto. This onus, in the opinion of the Tribunal, was not discharged by the Income-tax !IUthorities by showing merely that the explanation given by the assessee in the assessment pr111ceed-ings was found to b~ unacceptable. The Income-tax Officer, according to the Tribunal, must .find some material apart from :he falsity of the assessee's explanation to support his finding that the receipt from undisclosed sources was income. As no satis-factory evidence had been produced by the department to establish tha.t the amount in question represented the in.come of the assesseec the. Tribunal held that no penalty _could be imposed.

' Now penalty can be imposed under s. 28 (1 )( c) if the Income ·tai(Officer, the Appellate Assistant Commissioner or the Appellate Tribunal in the course of any proceedings under the Income-tax B:, Acf'1922 is satisfied that any person "has con,cealed the particularsf.

o( bis income or deliberately furnished inaccurate particulars o stie1\'income". In the judgment under appeal reference has been m~e to the decisions of the various . High Courts on the true ai\lJ!it and scope of. this provision and the burden in the matter of es!!fli.Iishing concealment of particulars of incciine or deliberately c· f1,1~hing inaccurate particulars of such income. The majority

o(" High Courts, namely, Bombay in Codimissioner of Jncome-tai, Ahmedabad v. Gokuldas Harivallabhdas(1}, Gujarat in Com-- mf!isidner of Inciime-tax Gujarat v. L. H. Vora(') and' Patna in Commissioner of Income-tax Bihar & Orissa v. Moha,h Mallafz( 3 ) hadJxpressed ihe view that proceedings under s. ~S(ll(c) were of a penal nature and it was for the department to es!MJlish that De:! the ·assessee was guilty of conceahrient of the particulars of income.

nil foe re fact that 'the assessee had given a false explanation did not prove that the receiij[ necessai:ily constituted· inco_me of the assessee. Allahabad Higfi Court, 1iowever, in Moman Ram Ram Kumar(') v. Commissioner of Income-tax U.P. observed that w~re the explanation offered by. the assessee i!L.te· t. of an item of income sho.wn as._ capi\jll receipt was delibe . ly false it was. open' to the tilcomi~tax authorities to impose a"pe alty under s. 38 ( 1 )( c). In ~e earlier judgment in Lal Chand Go pal" Das v. Commissioner of income-tax U.P. (') the Allahabad· C?wt. had. said· tp.at if a r~ceipt was income. but was d1sgwsed m the , account or 1rt the return as a non,assess-. abl~ ol receipt it wa8 · cleai:Jy a case of concealment of the particulars or furnishing iµaccurate particulars of income and a penalty under s. 28 (I) ( c) sh<>uld be imposed on th., assessee.

' ,"the first. point wliich falls .for determination is whether the imposition of penalty is in the nature of a penal provision. The determination of the question of burden of proof will depend largely on the penalty proceedings being penal in nature or being merely meant for imposition of an additional tax, the liability to pay such tax having been designated as penalty under s. 28. One· line of argument which has prevailed particularly with H1•1 Allaha-bad High Court in Lal Chand Gopal Das(') case is that there was no essential difference between tax and penalty because the liability for payment of both was imposed as a part of the·

(I) 34 J.T.R. ~8. (2) 56 J.T.R. 126.

(3) S4 J.T.R. 499. (4) 591.T.R. 135.

(5) 48 l.T.R. 324.

machinery of assessment and the penalty was merely an additional tax imposed in certain circumstances on account of the assessee 's conduct. The justification of this view was founded on certain observations in C . .A. Abraham v. Income-tax Officer, Kottayam & Anr. ('). It is true that penalty proceedings under s. 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 s. 28 i!. to provide a deterrent against r.:currence 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 legisl2•ure considers to be against the public interest. It is signi-ficant :hat in C. A. Abraham's(') case this Court was not ca!Jed upon to determine whether penalty proceedings were penal or of -qaasi 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 a quasi criminal ;:iroceedings; (Hindustan Steel Ltd. v. The State of Orissa('). In England also it has never been doubted that such proceedings are penal; Fattorini (Thomas) (Lanchashire) (Ltd., v. Inland Reven* Commissioner(•).

The next question is that when proceedings under s. 28 are penal in character what would be the nature of the burden upon the department for establishing that the assessee is liable to pay-ment of penalty. As has been rightly observed v. by Chagla C.J., in Commissioner of Income-tax, Ahmedabad Gokuldas Hari-vallabhdas(') th~ gist of the offence under s. 28 (1) ( c) is that the assessee has concealed the particulars of his income or deliberately furnished inaccurate particulars of such income and .~herefore the department must establish that the receipt of the amoun~ in dispute ··constitutes income of the assessee. If there is no evidence on the record except the explanation given by the assessee which explanation has been found to be false it does not follow that the receipt constitutes his taxable income.

Another point is whether a finding given in the assessment proceedings that a particular receipt is income after rejecting 1he explanation giv.~n by the assessee as false would P.rima facie be sufficient for establishing in proceedings under s. 28 that the dis-puted ani.ount was the assessee's income. It must be remembereC: that the proceedings under s. 28 are of a penal nature and the burden .i.s on the department to prove that a particular amount

(I) 41 l. T.R. 425. (2) C.A.S. 883-392/66 dt. 4-8-1969. (3) 1943 (11) l.T.R. (Supp.)50. (4) 34 I.T.R. 98.

is a revenue receipt. It would be perfectly legitimate to say that the mere fact that the explanation of the assessee is false does not necessarily give rise to the inference that the disputed amount represents income. It cannot be said that the finding given in the assessment proceedings for determining or computing the tax is conclusive. However it is good evidence. Before penalty can be imposed the entirety of circumstances must reasonably point to the conclusion that th.~ disputed amount represented income and that the assessee had consciously concealed the particulars of his income or had deliberately furnished inaccurate, particulars.

In the present case, it was neither suggested before the High Court nor has it been contended before us that apart from the falsity of the explanation give~ by the assessee there was cogent material or evidence from which it could be inferred that the assessee had concealed the particulars of his income or had deliberately furnished inaccurate particulars in respect of the

and that the disputed amount was a / revenue receipt. The ~ame question was, therefore, rightly answered by the High Court.

The appeal fails and it is dismissed with costs.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 2560 of 1966.

Appeal from the judgment and order dated May 11, 1966 of 'the Calcutta High Court in Income-tax Matter No. 98 of 1962.

S. T. Desai, G. C. Sharma and R. N. Sachthey, for the appellants. ·

D. K. De, A. N. Sinha, Rathin Das for P. K. Mukherjee, for respondent.