Bakshi Ram Dogra vs Commissioner of Income Tax and Others

C.K. Thakker, C.J.—Admitted. Mr. Inder Singh, senior advocate, instructed by Mr. Vijay Thakur, advocate, waives service of notice of admission on behalf of the respondents. In the facts and circumstances of the case, the matters have been taken up for final hearing today.

These petitions have been filed by the petitioner for an appropriate writ, direction or order quashing and setting aside a communication dated October 25, 2000 (annexure PK), and by directing the respondent-authorities to issue a certificate compounding the cases pending in the court of the Chief Judicial Magistrate, Shimla, and prohibiting them from prosecuting the petitioner for any offence for the assessment years 1979-80, 1980-81, 1981-82 and 1982-83. Other reliefs have also been claimed.

The case of the petitioner was that he received summons from the court of the Chief Judicial Magistrate, Shimla, staring therein that proceedings have been initiated against him by the respondents for the above assessment years for commission of certain offences under the Income Tax Act, 1961 (hereinafter referred to as "the Act"). It is stated by the petitioner that for the four assessment years 1979-80, 1980-81, 1981-82 and 1982-83, the petitioner was assessed in accordance with law but thereafter notices were issued to him u/s 271C of the Act for not paying legal Income Tax and he was asked whether he was ready and willing to get the cases compounded. Pursuant to the said notice, the petitioner appeared before the Income Tax Officer and showed his willingness to get the cases compounded. Accordingly, on March 18, 1999, orders were passed compounding the cases pending against him (annexure PB). The relevant part reads as under :

"In this connection, 1 am to inform you that you will pay compounding fee before composition of prosecution for each of the years as under :

Assessment year: 1979-80 Rs. Income declared in the original return : 23,920 Income assessed after appeal effect: 77,280 Income sought to be concealed: 53,360 Amount of lax calculated at 60 per cent, i.e., at (he maximum marginal 32,016 rate on the income sought to be concealed Compounding fee payable: (at 100 per cent) 32,016 Assessment year: 1980-81 Income declared in the original return 56,630 Income assessed after appeal effect: 1,12,650 Income sought to be concealed : 56,020 Amount of tax on it at 60 per cent. 33,612 Compounding fee payable: (at 100 per cent.) 33,612 Assessment year: 1981-82: Income declared in the original return: 26,270 Income assessed after appeal effect: 92,630 Income sought to be concealed : 66,410 Amount of tax on it calculated at 60 per cent. 39,346 Assessment year: 1982-S3 : Income declared in the original return : loss (-) 5,650 Income assessed after appeal effect; 90,350 Income sought to be concealed : 90,350 Amount of tax calculated on it at 60 per cent. 54,210 Compounding fee payable (at 100 per cent.) of above tax. 54,210."

The petitioner was asked to appear before the Commissioner of Income Tax, Railway Board Building, Shimla, on March 23, 1999, during office hours and to give his consent whether he was ready to pay the compounding fee as worked out in the said order.

The petitioner vide a communication dated April 15, 1999 (annexure PC), stated that for his whole life he was paying tax honestly and co-operated with the Department in the finalisation of assessment proceedings as well as payment of tax. He submitted that it was his first offence and that too was "with some wrong advice" given by his lawyer and due to misunderstanding. He stated that he had already deposited the amount of tax, interest and penalty. He further stated that he was an old man and wanted to live life peacefully and did not want to go to court because of his poor health. He, therefore, stated that he was ready and willing to pay the amount as per the communication vide annexure PB. He stated that he would deposit the amount as soon as intimation will be given to him. A communication dated June 16, 1999, by the Income Tax Officer, Ward No. 4, Shimla, shows that against an amount of Rs. 1,80,613, the petitioner was asked to pay an amount of Rs. 2,03,158. It is not in dispute by and between the parties that the said amount had already been paid by the petitioner.

According to the petitioner, thereafter, nothing was required to be done in the matter. Unfortunately, however, the authorities issued a communication on October 25, 2000 (impugned in the present petition at annexure PK). The said communication, by the Income Tax Officer, Ward No. 4, Shimla, stated that the compounding charges had not been correctly calculated in the letter dated March 18, 1999. As in the case of the petitioner, the "total concealed income" exceeded Rs. 1 lakh, the compounding fee payable by him would be more than the said amount and as such he was liable to pay Rs. 3,51,304. The case, therefore, could not have been compounded and accordingly proceedings launched against him would proceed. The said action of the Department is challenged by the petitioner in these petitions.

We have heard learned counsel for the parties. Several contentions have been raised by learned counsel for the petitioner. It is, however, not necessary for us to enter into the larger question.

From the record, it is amply clear that the allegation of the Department against the petitioner was that there was concealment of Income Tax by the petitioner in four assessment years 1979-80, 1980-81, 1981-82 and 1982-83. It is also not in dispute that the four cases have been instituted before a competent court. Even in the present proceedings, four writ petitions have been filed. It cannot be disputed and is not disputed that if each assessment year is taken as an independent unit, the concealed amount does not exceed Rs. 1 lakh. A short question is whether each assessment year is to be taken into account as an independent unit or all the four years can be considered as one unit simultaneously and action can be initiated on that basis. In this connection, our attention has been invited by learned counsel for the petitioner to some of the decisions of the Supreme Court.

The point had been elaborately dealt with in Joint Family of Udayan Chinubhai, etc. Vs. Commissioner of Income Tax, Gujarat, wherein the Supreme Court observed thus (page 423):

"It is true that an assessment year under the Income Tax Act is a self-contained assessment period and a decision in the assessment year does not ordinarily operate as res judicata in respect of the matter decided in any subsequent year, for the Assessing Officer is not a court and he is not precluded from arriving at a conclusion inconsistent with his conclusion in another year. It is open to the Income Tax Officer, therefore, to depart from his decision in subsequent years, since the assessment is final and conclusive between the parties only in relation to the assessment for the particular year for which it is made. A decision reached in one year would be a cogent factor in the determination of a similar question in a following year, but ordinarily there is no bar against the investigation by the Income Tax Officer of the same facts on . which a decision in respect, of an earlier year was arrived at. But this rule, in our judgment, does not apply in dealing with an order u/s 25A(1). Income from property of a Hindu undivided family ''hitherto'' assessed as undivided, may be assessed separately if an order u/s 25A(1) had been passed. When such an order is made, the family ceases to be assessed as a Hindu undivided family. Thereafter that family cannot be assessed in the status of a Hindu undivided family unless the order is set aside by a competent authority. Under Clause (3) of Section 25A if no order has been made, notwithstanding the severance of the joint family status, the family continues to be liable to be assessed in the status of a Hindu undivided family, but once an order has been passed, the recognition of severance is granted by the Income Tax Department, and Clause (3) of Section 25A will have no application."

In M.M. Ipoh and Others Vs. Commissioner of Income Tax, Madras, , the apex court observed that the doctrine of res judicata does not apply so as to make a decision on a question of fact or law in a proceeding for assessment in one year binding in another year. The assessment and the facts found are conclusive only in the year of assessment ; the findings on a question of fact may be good and cogent evidence in subsequent year, when the same question falls to be determined in another year, but they are not binding and conclusive. A similar view was taken in Sri Ramdas Motor Transport Ltd. and Others Vs. Tadi Adhinarayana Reddy and Others, .

It is no doubt true that if a question of law has been decided independent of the assessment year such as, the constitutional validity or vires of an Act, such a decision would operate as res judicata even in future litigation and cannot be challenged (vide The Amalgamated Coalfields Ltd. and Another Vs. The Janapada Sabha, Chhindwara, But, so far as the assessment years are concerned, it is well settled that each assessment year is an independent unit.

In these circumstances, in our opinion, the contention raised by learned counsel for the petitioner that when the concealed amount did not exceed Rs. 1 lakh in any assessment year, each assessment year must be taken as an independent and separate unit and could not have been consolidated and no action could have been taken on that basis.

No doubt, our attention was invited by learned counsel for the respondents to the guidelines for compounding of offences under the direct taxes, namely, "Guidelines for compounding of the offences under the Direct Tax Laws", (annexure R-2) to the affidavit-in-reply dated October 20, 1995, wherein the principles have been formulated when the concealed amount exceeded Rs. 1 lakh. Strong reliance was placed on paragraph 4 of the guidelines which reads as under :

"To sum up, henceforth, the compounding fee would be worked out at 100 per cent, of the tax calculated at the maximum marginal rate of income sought to be concealed, where the amount is less than Rs. 1 lakh and at 200 per cent, of the income sought to be concealed exceeds Rs. (sic) lakh."

It was submitted that in the light of the above guidelines, statutory in nature, the impugned action cannot be held to be bad in law and the prosecution launched against the petitioner cannot be said to be ill founded. We cannot uphold the argument. Firstly, the said communication does not expressly or specifically state that an assessment year will not be taken as an independent unit. But even otherwise, in our considered opinion, in the light of the law laid down by the Supreme Court in several cases, for the purpose of considering the provisions of the Act, each assessment year has to be considered as an independent unit for the purpose of payment of tax. If so, obviously, the guidelines dated October 20, 1995, would not apply to the cases on hand, inasmuch as, in none of the assessment years 1979-80, 1980-81, 1981-82 and 1982-83, the concealed amount, reached Rs. 1 lakh. The petitions, hence, deserve to be allowed.

Alternatively, it was submitted that even if two interpretations are possible, the one which favours the assessee (petitioner) will be accepted and not the one which would favour the Revenue (respondents). We need not go into that question as, in our opinion, the law has been settled by the Supreme Court.

For the aforesaid reasons, all the petitions deserve to be allowed and are hereby allowed. The impugned communication at annexure PK dated October 25, 2000, is hereby quashed and set aside. It goes without saying that all consequential actions taken by the respondent-authorities on the basis of the said communication also deserve to be quashed and are hereby quashed.

The petitions are allowed to the extent indicated above. The respondent-authorities will now issue necessary compounding certificate within three months.

In the facts and circumstances, there will be no order as to costs.