Kanhiyalal vs Commissioner of Income Tax

S.K. Mal Lodha, J.—The Tribunal, Jaipur Bench, has referred the following question for our decision: Whether, on the facts and in the circumstances of the case, the Tribunal is justified in directing the Wealth-tax Officer to compute the penalties in the manner as detailed in the order in question?

It is not necessary to recount the facts in detail which have given rise to this reference. The assessment years in question are 1965-66, 1967-68 and 1969-70. Suffice it to state that the WTO imposed penalty u/s 18(1)(a) of the Wealth-tax Act, 1957 (''the Act''). The assessee went in appeal and the AAC allowed the appeal in part and observed is under:

No doubt the default in these years occurred before 1-4-1969 and continued thereafter, Out? (Sic) It docs not mean if the scale of penalty is enhanced or changed subsequent to the assessment year. It is the changed law which would be applicable for any assessment year commencing before 1-4-1969. No law can be retrospective unless specifically mentioned by the statute. The law relating to vey of penalty for late submission of return s different from the one which governs the levy of penalty for concealment. In the case of concealment, the law which obtains on the day the assessee filed the return or commits the concealment would be applicable for determining the penalty for concealment, whereas in the case of late submission of return, the law of penalty is the one which prevails on the opening day of the assessment year concerned. The fact that the delay continued after 31-3-1969 is of no consequence. This is only important for calculating the period of default. Two types of substantive law cannot be made applicable for the same assessment year. This would also be against the law which provides that the penalty to be imposed should not be more than one-half of the tax imposed, whereas with effect from 1-4-1969 the maximum penalty to be imposed was one-half of the net wealth after excluding the initial exemption limit. Both these limits have been applied in these penalty orders.

On further appeal before the Tribunal, it was contended that the AAC was wrong in computing the penalty, for, the penalty should be calculated in accordance with law which was in force prior to 1-4-1969 and for the period beginning from 1-4-1969, the provisions of the statute as amended with effect from 1-4-1969 would apply. The Tribunal in its order dated 11-9-1975 held as follows:

From the facts discussed above, it is clear that default for filing the returns for the assessment years 1965-66, 1966-67, 1967-68 took place on 30-6-1966, 30-6-1967, 30-6-1968, respectively. The assessments were completed on 30-10-1971. It means that the default was committed prior to the amendment which came into effect with effect from 1-4-1969. This default continued even after coming into force of the said amendment.

The Tribunal relied on the Full Bench decision of the Bombay Bench ''B'' in Addl. Sixth WTO v. R.N. Telcherkar, dated 25-2-1975, wherein it was observed as under:

We have already held in paragraph 8 above that there was a continuing default by the assessee from the date when the time for filing the return expired till the date immediately preceding the day on which the returns were riled. For a continuing default, the law that is to be applied is the one in force during the period the default continued. Thus, for the period prior to 1-4-1969, it is the law then in force that would apply while for the period beginning from 1-4-1969, the provisions of the statute as amended with effect from 1-4-1969 would apply.

Mr. K.C. Bhandari, the learned counsel for the petitioner-assessee, submits that the case is squarely governed by Commissioner of Wealth Tax, Amritsar Vs. Suresh Seth, wherein an identical question arose for consideration before their Lordships of the Supreme Court and it was ruled as follows:

Where the default complained of is one falling u/s 18(1)(a) of the Wealth-tax Act, 1957 (e.g., failure to file the return of wealth before the due date without reasonable cause), the penalty has to be computed in accordance with the law in force on the last day on which the return in question had to be filed. Neither the amendment made in 1964 nor the one made in 1969 to clause (i) of section 18(1) has retrospective effect." (p. 328)

The distinctive nature of the continuing wrong was noticed and it was stated that the continuing wrong is that the law that is violated makes the wrong doer continuously liable for penalty and that a wrong or default which is completed but whose effect may continue to be felt even after its completion is not a continuing wrong or default. Their Lordships have expressed themselves in the following words:

Section 18 of the Act, with which we are concerned in this case, however, does not require the assessee to file return during every month after the last day to file it is over. Non-performance of any of the acts mentioned in section 18(1)(a) of the Act gives rise to a single default and to a single penalty, the measure of which, however, is geared up to the time lag between the last date on which the return has to be filed and the date on which it is filed. The default, if any, committed is committed on the last date allowed to file the return. The default cannot be one committed every month thereafter. The words ''for every month during which the default continued'' indicate only the multiplier to be adopted in determining the quantum of penalty and do not have the effect of making the default in question a continuing one. Nor do they make the amended provisions modifying the penalty applicable to earlier defaults in the absence of necessary provisions in the amending Acts...." (p. 338)

For the reasons mentioned in Suresh Seth''s case (supra), which is fully applicable to the case in hand, we hold that the Tribunal was not right and justified in directing the WTO to compute the penalties keeping in view the principles laid down in R.N. Telcherkar''s case (supra), wherein it was opined that for the period prior to 1-4-1969, it is the law then in force that would apply, while for the period beginning from 1-4-1969, the provisions of the statute as amended with effect from 1-4-1969 would apply. The penalties in this case are to be computed in accordance with the principles laid down in Suresh Seth''s case (supra).

The question referred to us is answered in the negative, i.e., in favour of the assessee and against the revenue.

In the circumstances of the case, we leave the parties to bear their own costs of this reference. Let the answer be returned to the Tribunal in accordance with the provisions of section 27(6) of the Act.