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Petitioner: COMMISSIONER OF WEALTH TAX VS Respondent: SRI JAGDISH PRASAD CHOUDHARY
Court Name: Patna High Court Judge(s): K. S. Paripoornan, Ashok Kumar Ganguly, Naresh Kumar Sinha Title: COMMISSIONER OF WEALTH TAX vs SRI JAGDISH PRASAD CHOUDHARY Case No.: Taxation Cases Nos.243 to 245 of 1980 Date of Judgment:1994-05-19 Reported As: 1995 PTD 1341 [211 I T R 472] Result: Question answered
JUDGMENT
JUDGMENT ' ASHOK KUMAR GANGULY, J.--- This is a reference at the instance of the Revenue. ' The question which has been referred to this Court under section 27(1) of the Wealth Tax Act, 1957 (hereinafter referred to as "the said Act"), is set out below:-- "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in cancelling the penalties imposed under section 18(1)(a) of the Wealth Tax Act, 1957, on the ground that no reasonable opportunity of being heard was given by the successor Wealth Tax Officer before passing the order imposing penalties under section 18(1)(a) of the aforesaid Act to the assessee for the assessm ent years 1968-69 to 1970-71?" ' The facts of this case, which are not very much in dispute, are stated as follows:-- ' For the late filing of the wealth tax returns, penalty proceedings were initiated against the assessee for the assessm ent years 1968-69, 1969-70, 1970-71. On or about March 14, 1973, three similar show-cause notices were issued by Mr. N. Debey, the concerned Wealth Tax Officer, in respect of the aforesaid three assessment years calling upon the assessee to show cause on or before May 8, 1973, why penalty should not be levied. The assessee did not respond to those show- cause notices. Pursuant to those show-cause notices, no penalty was, however, imposed by Shri Dubey either on May 8, 1973, or thereafter, Mr. Dubey was thereafter succeeded by another Wealth Tax Officer, namely, Smt. C. Merwar. ' The matter was thus kept pending. It is an admitted position that no notice or intimation was evil given to the assessee of the fact that the original officer, who issued the show-cause notices, has been succeeded by another officer. Thereafter, on or about March 26, 1975, Smt. C. Merwar levied a penalty of Rs,481 in respect of the assessment year 1968-69, a penalty of Rs,14,399 for the
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assessm ent year 1969-70 and a penalty of Rs,4,185 for the assessment year 1970-71. All these orders of levy of penalty have been passed under section 18(1)(a) of the said Act. ' These three penalty orders were challenged in appeal by the assessee before the Appellate Assistant Commissioner, unsuccessfully. Thereafter, the assessee filed Wealth Tax Appeals Nos.118 to 120 (Patna) of 1978-79 before the Appellate Tribunal and contended, inter alia, that after the issuance of show-cause notice, the case remained pending for about two years and the Wealth Tax Officer, who issued the show-cause notices, was succeeded by another and the assessee was not put on notice of the fact that the original officer has been succeeded by another Officer. It was also contended that the assessee was not given a reasonable opportunity of being heard by the succeeding officer. Smt. C. Merwar, who imposed the penalty. As such the penalty orders are bad. These contentions found favour with the Appellate Tribunal and it came to the finding that the assessee was not granted a reasonable opportunity of hearing before levy of the penalty and as such the penalty orders were annulled. Thereafter, at the instance of the Revenue, the aforesaid question was referred to the High Court for its decision. ' The matter was taken up by the High Court for hearing on March 4, 1994. On that date, a Division Bench of this Court consisting of the Honourable the Chief Justice and Honourable Mr. Justice Naresh Kumar Sinha referred the matter to a larger Bench in view of the divergence of judicial opinion of different High Courts on the interpretation of section 18(1) read with section 39 of the said Act and in view of the fact that a substantial question of law is involved in such interpretation. Accordingly, the matter was heard before this larger Bench. ' The question involved in this reference relates to the interpretation of the scope of sections 18(1) (a), 18(1)(b), 18(2) and 39 of the said Act. For a proper appreciation of the points involved, those sections of the said Act are set out below:-- "18. (1) If the Wealth Tax Officer, Appellate Assistant Commissioner, Commissioner or Appellate Tribunal in the course of any proceedings under this Act is satisfied that any person-- (a) has without reasonable cause failed to furnish the return which he is required to furnish under subsection (1) of section 14 or by notice given under subsection (2) of section 14 or section 17, or has without reasonable cause failed to furnish within the time allowed and in the manner required by subsection (1) of section 14 or by such notice, as the case may be; or (b) has without reasonable cause failed to comply with a notice under subsection (2) of subsection (4) of section 16; or .... (2) No order shall be made under subsection (1) unless the person concerned has been given a reasonable opportunity of being heard. 39. Whenever in respect of any proceedings under this Act any wealth tax authority ceases to exercise jurisdiction and is succeeded by another who has and exercises such jurisdiction, the authority so succeeding may continue the proceeding from the stage at which the proceeding was left by his predecessor:-- ' Provided that the assessee concerned may demand that before the proceeding is so continued the previous proceeding or any part thereof be reopened or that before any order of assessment is passed against him, he be reheard." ' Almost similar provisions relating to levy of penalty including the procedural safeguards against such levy are found in other taxation laws. Namely, sections 274 and 129 of the Income-tax Act, sections 17, 17(2), 17-A and 17A(4) of the Gift-tax Act as also section 10-A(i) of the Central Sales Tax Act, 1956. On a glance at the provisions of sections 18(1)(a) and 18(1)(b) of the said Act, it is clear that the levy of penalty contemplated under those sections does not by way of a legislative mandate fasten an absolute liability on the assessee concerned. The imposition of penalty is at the discretion of the Officer concerned on a relevant consideration of various factors. In other words, even in case of a
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default contemplated under sections 18(1)(a) and 18(1)(b) of the said Act, levy of penalty is not a must in as much as it is clear from the wording of those sections that no penalty shall be imposable if the assessee concerned shows that there was a reasonable cause for the failure referred to in those sections. About the existence or otherwise of a reasonable cause, the concerned assessee is, therefore, entitled to offer a factual explanation and it is incumbent upon the officer concerned to be satisfied about the existence or the absence of the reasonable cause in the context of the explanation offered. It goes without saying that the concerned officer in arriving at his satisfaction in such a situation is acting in a quasi-judical capacity and the proceeding being one for imposition of penalty is a quasi-criminal one. Therefore, the satisfaction has to be reached by the concerned officer objectively and on consideration of relevant and germane materials only and to the total exclusion of extraneous and irrelevant considerations. Today this position in law is far too well settled to require reiteration of any authority and this Court proceeds to decide the questions involved in this case on the aforesaid basic assumption of the legal position. ' It is in the background of the statutory exercise of power of the officer concerned, the Court has to consider and examine the scope, content and the gist of the right given to the person concerned under section 18(2) of the said Act. The right given is a very valuable one, namely, the right of getting a reasonable opportunity of being heard. The said right is a facet of one of the well-known principles of natural justice, namely, audi alteram partem. ' Now, the controversy here is over the exact connotation of the word "heard" occurring in section 18(2) of the said Act---whether it means to be heard "orally" and through ears or whether hearing in the present context means a mere consideration of the .Case as made out in written representation. ' Inextricably mixed up with the consideration of the above question is an incidental query, namely, whether such an oral hearing can be given only on the request of the person concerned or whether under the scheme of the said Act it is an implied obligation .Of the concerned authority to offer an opportunity of an oral hearing to the person affected. In this context, the interpretation of section 39 of the said Act assumed very great significance. Section 39 of the said Act deals with the effect of transfer of authorities during the pendency of a proceeding. It provides that in such a case, when an authority initiating the proceeding is succeeded by another, the authority so succeeding may continue the proceeding from the stage at which the proceeding was left by the predecessor but the succeeding officer can do so subject to certain rights given to the assessee. The proviso gives a right to the assessee to demand that before the proceeding is so continued by the succeeding officer, the previous proceeding or part thereof may be reopened to that before any order is passed against him, he may be reheard. Thus, condition obviously implies and postulates that before the assessee can demand the right given to him under the proviso, he must necessarily have a right to be put on notice of the two facts, namely: (a) that the previous authority who was so long continuing the proceeding has been succeeded by another officer; and (b) that the officer so succeeding wants to continue the proceeding from the stage at which the proceeding was left by his predecessor. (c) It is upon his being informed of the aforesaid two facts, that the assessee can make an effective exercise of his right to demand that the previous proceeding or part thereof may be reopened or that he may be reheard before final order is passed in the proceeding. This is an opportunity of hearing at a pre-decisional stage. ' It is faintly argued on behalf of the Revenue that it may not be convenient for the Department to inform the assessee in such cases. It may be so. But we know that often justice and convenience
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are not on speaking terms. Therefore, this plea of the Revenue cannot be accepted in view of the statutory provision now under consideration. I am compelled to take this view that the obligation of the concerned authority to inform the assessee of the facts stated at (a) and (b) above is in built in section 39 of the said Act. I am of this view primarily for the reason that transfer of officers, while a proceeding is pending, is an official act of which the assessee can have no clue unless he is informed. Therefore, in given a case the valuable safeguard and right given to the assessee will be defeated if he is not informed of the facts pointed out at (a) and (b) above. Such a valuable right given to the assessee under the proviso to section 39 of the said Act cannot be made to depend on the mere chance of his being informed. Therefore, the obligation of the Revenue to inform the assessee is inherent in the very scheme of section 39 of the said Act. ' Apart from that, the other compelling reason which weights with me in taking this view is the well- known principle of statutory construction that while construing a provision which creates a right, the Court will always lean in favour of a construction which saves the right rather than the one which defeats it. Francis Bennion in his treatise "Statutory Interpretation"---Second edition (Butterworths), at page 411 and section 198 stated this principle in the following words: "It is a rule of law that the legislator intends the interpreter of an enactment to observe the maxim ut res magis valeat quam pareat ; so that must construe the enactment in such a way as to implement, rather than defeat, the legislative purpose." ' I am further emboldened to take this view having regard to the fact that section 39 of the said Act provides a salutary safeguard which is attracted even in case of levy of penalty. Here again, I quote the following passage at page 573, section 271 from Bennion's treatise (supra), to illustrate the principle of construction of safeguards in a penal statute: "It sometimes happens that a penal enactment contains provisions giving relief from the imposed penalty in specified cases. It may be clear that a particular detriment is imposed, unless the case can be brought within a problematical exception. Here the presumption against doubtful penalization requires that the exception be construed liberally (that is in favour of the subject). If it is doubtful whether an exception to a penalty applies, it is doubtful whether the penalty itself applies." ' Keeping those principles in mind, I am of the view that reasonable opportunity of hearing mentioned in section 18(2) of the said Act means a reasonable opportunity of oral hearing and similarly "reheard" mentioned in section 39 of the said Act would mean reasonable opportunity of "reheard". This construction would obviously flow from a combined reading of the safeguards \given in section 18(2) with section 39 of the said Act. In other words, if the legislative intent of giving a reasonable opportunity of hearing is confined merely to a consideration of the written representation without an oral hearing, in that case there is no meaning in giving an opportunity of reopening of the case or an opportunity of being reheard before the succeeding officer. To put it differently, if the legislative intent behind the expression "hearing" in section 18(2) of the said Act does not mean a personal and an oral hearing, in that case, the succeeding officer can continue with the proceeding on the basis of the materials on record and there is no purpose in giving a right to the assessee to demand a reopening of the proceedings or demand a rehearing. The legislative intent behind giving to the assessee a right of reopening of the proceeding or a right of rehearing in it becomes meaningful only if the right of hearing given in section 18(2) of the said Act is construed as a right of oral and personal hearing. Therefore, what was implicit in section 18(2) of the said Act becomes explicit on a combined reading of section 18(2) with section 39 of the said Act. Any other construction, in my view, will dilute and water down the procedural safeguards given
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to an assessee in the penal provision of a taxing law and such a construction which has the effect of weakening and diffusing the protection given to a subject in a penal provision must be avoided. ' In the view which I am taking, I am supported by the decision of the Andhra Pradesh High Court in the case of Anantha Naganna Chetty v. CIT (1970) 78 ITR 743. That was a case of penalty proceeding under section 28(3) of the Indian Income Tax Act, 1922, read with section 5(7-C) of the said Act. Those were the corresponding provisions of sections 274 and 129 of the Income Tax Act, 1961. ' The Division Bench of the Andhra Pradesh High Court in that case while construing the provisions of section 5(7-C) held as follows (at page 749):-- "It is not disputed that in very many cases the penalty proceedings are kept in abeyance awaiting the final result of the assessm ent proceedings and, although notice under section 28(3) is served upon the assessee and he filed a written explanation, for months and sometimes years together the penalty proceedings are kept in abeyance and the assessee has no knowledge as to what has happened or is happening except when he gets the final order made in the proceedings served upon him. In such a case, if the assessee, due to a long lapse of time, assumes that his explanation perhaps was found to be satisfactory and proceedings were dropped, he cannot be said to be altogether wrong in such assumption. If officer after officer succeed when proceedings are thus pending and the assessee does not even know about such transfers then how is he to exercise his right to demand reopening or rehearing if he has no notice that the succeeding officer proposes to continue the proceedings. The assessee must, therefore, be told about the intention of the succeeding officer to continue the proceedings and who can tell him so, except the succeeding officer who proposes to continue the proceedings and who also knows that he cannot continue the proceedings if he is told by the assessee that he wants him to reopen the case or give him a rehearing. It is thus inherent in the situation that the succeeding officer should give notice to the assessee not under section 28(3) but under section 5(7-C) itself intimating him that the succeeding officer proposes to continue the proceedings. This intimation alone would provide the assessee with an opportunity to exercise or decline to exercise the right given to him by the first proviso to section 5(7-C). The second proviso lends considerable support to such a construction. The notice is thus necessarily implied in the provisions of section 5(7-C) as the right to continue the proceedings is made dependent upon the assessee's right of demanding reopening or rehearing of the case. It cannot be assumed that the Legislature has given with one hand right to the assessee to demand reopening or rehearing and has taken away that right with the other by not intending to inform him about the opportunity to exercise such a right by not expecting any notice to be given to the assessee by the succeeding Officer of his intention to continue the proceedings. Any such interpretation would mean that the enactment has conferred on the assessee a mere illusory right. ' In this connection, it is well to remember that the proceedings under the Act, which can be said to fall within the purview of section 5(7-C), are of quasi-judicial character. The penalty proceedings in any case are of a quasi-criminal nature. It can, therefore, safely be presumed that the Legislature while conferring the power on the succeeding officer to continue the proceedings from the stage where it was left by his predecessor thought it proper to provide an opportunity to the assessee to demand the reopening or rehearing of the case and that is why the power to continue the proceedings is made subject to such right. The notice, therefore, for the exercise of such right becomes necessary". ' The learned Judges in Anantha Naganna Chetty's case (1970) 78 ITR 743 (AP), after considering the famous treatise of Maxwell and Craies on the interpretation of statutes came to the following conclusion at page 751:-
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"We are, therefore, satisfied that even though section 5(7-C) does not in terms or expressly provide for any notice by the succeeding officer to the assessee informing him of his intention to continue the proceedings from the stage at which his predecessor has left, by necessary implication it provides for such an intimation. We must, we think, infer from the power given to the succeeding officer that such a notice was intended by the Legislature. When the Legislature has directed something to be done, it must be considered to have empowered something ancillary to be done which is necessary in order to accomplish the ultimate object of section 5(7-C). What must follow is that the succeeding officer must give notice to the assessee before he decides to continue the proceedings from the stage where it was left by his predecessor." ' I am in respectful agreement with the aforesaid statement of law and they apply also to the interpretation of section 39 of the said Act. ' There is a still more recent judgment of the Calcutta High Court in the case of CIT v. Smt. Chitra Mukherjee (1981) 127 ITR 252. The Honourable Judge of the Division Bench, relying on the aforesaid decision of the Andhra Pradesh High Court in Anantha Naganna Chetty's case (1970) 78 ITR 743, came to the conclusion that penalty proceedings under section 271(1)(a) of the Income Tax Act, 1961, were not only quasi-judicial but also quasi-criminal and the revenue in order to impose penalty has to discharge its onus in strict compliance with the law. The learned Judges of the Division Bench in the case of Smt. Chitra Mukherjee (1981) 127 ITR 252 (Cal.) had gone to the extent of holding that even in a case where there is no response from the assessee to the notice under section 274 of the Income Tax Act issued by the predecessor Income. Tax Officer, which is similar to the factual position in this case, the successor Income Tax Officer has no authority to pass an order of penalty under section 271(1)(a) of the Income Tax Act without giving the assessee a fresh opportunity of being heard. I follow the ratio of the said judgment in Chitra Mukherjee's case (1981) 127 ITR 252 (Cal.). ' In another decision of a Division Bench of the Punjab and Haryana High Court in the case of Ram Saran Das Kapur v. CIT (1970) 77 ITR 298, the learned Judges of the Division Bench on a construction of sections 28 and 5(7-C) of the Indian Income Tax Act, 1922, came to the conclusion that the hearing contemplated under section 28 of the Act is a personal hearing. At page 303, the said Division Bench held as follows:-- "It is well-known that no amount of written representation, howsoever detailed, can, in all cases, be treated as an equality effective substitute of a personal hearing. It is easier for an assessee to persuade an assessing authority to his point of view by removing his doubts and by answering his questions at a personal hearing, than by merely availing of the cold effect of a written representation." ' Then again in the same page, their Lordships were of the view that (at page 304):-- "So far as personal hearing is concerned, it seems to us to be plain that such a hearing can have some meaning only if it is given by the very person who has to ultimately decide the matter. Oral hearing by one officer cannot possibly be of any advantage to his successor in deciding a case. To hold otherwise would amount to saying that the farce of a hearing is equal to a real, genuine and effective hearing." ' In coming to the aforesaid conclusion their Lordships relied on the judgment of the Supreme Court in Gullapalli Nageswa ra Rao v. Andhra Pradesh State Road Transport Corporation, AIR 1959 SC 308, where a similar question arose relating to the duty of the State Government to give a personal hearing to objectors against the scheme framed under Chapter IV-A of the Motor Vehicles Act (4 of 1939). The procedure which had been prescribed by the State of Andhra Pradesh for the hearing of such objections was that the secretary to the Government had to give personal hearing, but the decision had to be given by the Chief Minister. Their Lordships of the Supreme Court in that case held that--
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"Personal hearing enables the party appearing at such hearing to persuade the authority concerned by reasoned arguments to accept his point of view. Therefore, in the fitness of things, it is the same authority which has to decide which must hear." ' In the context, the learned Judge of the Supreme Court was pleased to observe as follows (at page 327):-- "If one person hears and another decides, then personal hearing becomes an empty formality." ' On the same parity of reasoning, I am of the view that the hearing contemplated under section 18(2) of the said Act is a personal hearing. In order that such a personal hearing does not become "an empty formality", the assessee has been given under section 39 of the said Act a right of hearing before the succeeding officer inasmuch as the succeeding officer has not heard him at the stage of hearing under section 18(2) of the said Act. Any other construction would defeat the purpose of hearing which is an oral hearing meant under section 18(2) as also under section 39 of the said Act. ' It is well-known that principles of natural justice are not, in the inimitable words of Lord Bridge, "engraved on tablets of stone". What are the requirements of the principles of natural justice have been very succinctly expressed by Lord Bridge in the case of Lloyd v. McMahon, a decision of the House of Lords reported in (1987) 1 All ER 1118. At page 1161, of the said report Lord Bridge has equated the requirements of natural justice with those of fairness and has been pleased to observe as follows:-- "What the requirements of fairness demand when anybody, domestic, administrative or judicial, has to make a decision which will affect the rights of individuals depends on the character of the decision-making body, the kind of decision it has to make and the statutory or other…
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