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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

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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,

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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.,

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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,

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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

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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

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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.