. F

AHMED IBRAHIM SAHIGRA DHORAJI

COMMISSIONER OF WEALTH TAX, GUJARAT

April 7, 1981

( R. S. PATHAK AND E.S. VENKATARAMIAH, JJ.]

Wealth Tax Act, 1957-Section 2(m)-Finance Act, 1965 gave incentives for voluntary disclosute of concealed income-Assessee declared large amount of such income and paid tax as provided by Finance Act-Tax so paid-Whether an allowable deduction as "debt owed" under the Wealth Tax Act.

As part of a measure to mop up unaccountt!d money on which no income tax had been paid, an incentive scheme was prepared by the Government under which a person disclosing such income was required to pay a specified rate of tax without attracting the penal provisions of the Income Tax Act. Section 68 of the Finance Act, 1965 provided that a person making a voluntary disclosure of his income in accordance with the provisions of the section would be charged income tax at a specified rate notwithstanding anything contained in the Income Tax . Act.

The assessee had a large sum of such unaccounted money in his possession.

Without allocating the total sum amongst the different assessment years, he declared that he had a sum of Rs. 7 lakhs in his possession which was earned by him during the assessment years 1957-58 to 1964-65. Income Tax in respect of this income computed in accordance with section 68 of the Finance Act was paid by him .

In the wealth tax returns filed by him in response to the notice issued by the Wealth Tax Officer for re-assessment consequent on the disclosure of his wealth the assessee claimed deductions of income-tax paid under section 68 of the Finance Act. But the Wealth Tax Officer disallowed the claim holding that since the assessee had not shown the liability to pay income tax in his balance sheets for the respective years the deductions claimed by him could not be allowed in any of the assessment years.

The Appellate Assistant Commissioner dismissed the assessee's appeal. The Tribunal, on the other hand, held that the liability constituted a "debt owed" because in truth and substance, it was a liability under the Income Tax Act, 1922 or 1961 and not a new liability created by the Finance Act, 1965.

On reference the High Court held in favour of the Revenue on the ground that section 68 of the Finance Act enacted a new charge of tax on an ad hoc

A.l.S. DHORAJI v. C.W.T. 403

basis on disclosed income and, therefore, it was not a "debt owed" which could A be allowed as a deduction under the Wealth Tax Act.

On behalf of the Revenue it was contended that since the tax paid by the assessee under the voluntary disclosure scheme was in discharge of a liability created for the first time by the Finance Act, 1965 it was not an allowable deduction under the Wealth Tax Act.

Allowing the appeal,

HELD : The assessee was entitled to claim deduction of income tax paid on the amounts added to his total wealth under section 2 (m) of the Wealth

Tax Act in the course of the assessment proceedings. (418 BJ C

I. Merely because the amounts were disclosed in a declaration under section 68 of the Finance Act, they did not cease to be incomes not already charged to income tax.

Although the Finance Act merely I evied a fixed rate of tax in respect of all the income disclosed without allowing deductions, exemptions and such other allowances which are allowable under the Income Tax Acts, its function was no more than that of an an nu a 1 Finance Act despite the fact that it made certain alterations in regard to the filing of declaration and computation of taxable income. (414 G-H]

The nature of the declaration which was dependent on the volition of the declarant and the fact that the liability to tax the amount was contingent upon the willingness of the declaranl to disclose the amount would not make a difference because such voluntary disclosure, even in the absence of section 68,

would have exposed the assesseee lo assessment or reassessment. The voluntary E character of the declaration cannot alter the character of the tax. [415 A-BJ

The true position is that the amount declared has the liability to pay income tax embeded in it on the valuation date but only the ascertainment of that liability is postponed to a future date. (417 CJ

Jn the instant case its determination was allowed to be done in accordance with the provisions of section 68.

Even though this section was a complete code in itself it was only a scheme which provided a method for the liquidation of an

ltlready existing income tax liability which was present on the relevant valuation date. [417D]

Nor did the absence of allocation of the amount disclosed amongst different assessment years detract the tax from being called a tax on income because such allocation would not achieve any additional purpose in the scheme of section 68.

This section is in the nature of a package deal. The net result achieved was that the declarant was treated as having discharged all his liability in respect of such income under the income tax Jaw. (415 El

5. The finding of the High Court that section 68 created a fresh charge is incompatible with the foundation of the very reassessment proceedings under section 17 of the Wealth Tax Act. (415 HJ .

Moreover section 68, at more than one place slated that what was payable was income tax which clearly showed that what was p; iyable under the section B was income tax. [ 412 B-C] ·

C.I.T. v. Kha/au Makanji Spinning and Weaving Co. Ltd., 40 LT.R. 189; Madurai District Central Cooperative Bank Ltd. v. Third I.T.O., IOI I.T.R. 24, distingu ishcd.

C. K. Babu Naidu v. Wealth Tax Officer, 112 ITR 34; C.W.T. v. GirdhariLal, 99 ITR 79; C. W.T. v. BX Sharma, 110 LT.R. 902; C. W.T. v. Bansidhar Poddar,

112ITR 957; D. C. Shah v. C.W.T., 117 ITR 348; Bhagwandas Jain v. Addi.

C.W.T. 116 !TR 347 and Bhagwanidas Binani v. C.W.T., 124 ITR 783, approved.

CivIL APPELLATE JURISDICTION : Civil Appeal Nos. 1217- 1222 of 1973.

D Appeals by certificate from the Judgment and Order dated

21.12.1972 of the Gujarat High Court in Wealth Tax Reference No. 2 of 1969.

V. S. Desai, Shardul S. ShroJ!' and H. S. Parihar for the Appellant.

S. T. Desai, P. A. Francis and Miss A. Subhashini for the Respondent.

The Judgment of the Court was delivered by

VENKATARAMIAH, J.

On the basis of a certificate granted under section 29(1) of the Wealth-tax Act, 1957 (hereinafter referred to as 'the Act'), the appellant has filed these appeals against the judgment and order dated December 21, 1972 of the High Court of Gujarat in Wealth-tax Reference No. 2 of 1969.

The questions referred to the High Court under section 27 of the Act by the Incometax Appellate Tribunal, Ahmedabad Bench read thus:

"(I). Whether on the facts and in the circumstances of the case the liability in respect of income-tax payable on the concealed income disclosed by the assessee pursuant to section 68 of the Finance Act, 1965 is deductible under section 2(m) of the Wealth-tax Act, 1957, in computing the net wealth of the assessee for the

A.I.S. DHORAJI v. C.W.T. (Venkataramiah. J.) 405

assessment years 1959-60, 1960-61, 1961-62, 1962-63, A

I 963-64 and 1964-65.

(2) Whether the Tribunal was right in holding that the liability to pay tax on the amount disclosed under section 68 of the Finance Act J 965, arose not under that Finance Act but under section 3 of the Indian Income-tax Act, J 922."

Having regard to the assessment years in question, the second question should be read as including within its scope also the question whether the Tribunal was right in holding that the liability to pay tax on the amount disclosed under section 68 of the Finance Act, 1965 arose not under that Finance Act but under section 4 of the Income-tax Act, 1961.

The assessee, who is the appellant in these appeals, had been assessed on the basis of his returns of net wealth and the statements filed therewith in the status of an. individual to wealth-tax under section 16(3) of the Act during the assessment years 1957-58 to, 1964-65 on various dates between January 15, 1960 and July 14 1964.

Subsequently the assessee made a disclosure under section 68 of the Finance Act, 1965 (hereinafter referred to as 'the Finance Act') of Rs. 7,00, COO which had been shown as having been covered by some hundi transactions with a concern known as M/s Abdul Razack & Co. in his books of account at the Bombay branch of his business. Alongwith the declaration the assessee filed a statement that this concealed income had been earned by him during the assessment years 1957-58 to 1964- 65.

He, however, did not allocate the total um disclosed amongst different assessment years but showed it in a'.Jump sum. The amount of income-tax was computed at 60% of the total concealed income and it was paid as contemplated under secton 68 of the Finance Act. The Wealth-tax Officer thereafter reopened the assessments of the assessee to wealth-tax for assessment years 1957-58 to 1964-65 on the ground that he had reason to believe that certain wealth of the assessee had escaped assessment during the said years and that his belief was founded on the disclosure made by the assessee under section 68 of the Finance Act.

We are concerned in these appeals only with the assessrr.ent years 1959-60 to 1964-65. On scrutiny it was found on the basis of peak cash credits in each assessment year that the amounts covered by hundies were as under :

406 SUl.'REME COURT REPORTS

[1981] 3 S.C.R.

Assessment years

1959-60

1960-61

1961-62

1962-63

1963-64

1964-65

Peak cash credits

Rs. 4,57,465/-

Rs. 5,59,823/-

Rs. 6,38,325/-

Rs. 6,82,974/-

Rs. 7,01,578/-

Rs. 7,01,578/-

As can be seen from the above statement, the assessee had substantial sums with him in the years in question which had not been disclosed earlier.

Since these amounts constituted the wealth which was liable to tax on the respective valuation dates, the assessee filed returns of wealth for the above mentioned years in compliance with the notices issued to him and in the course of the assessment proceedings he claimed the deduction for incometax payable by him in respect of the sums which had been progressively earned by him from year to year and which were liable to income tax under the relevant income tax law in force during the years relying upon the decision of this Court in Kesoram Industries and Cot/on Mills Ltd v.

Commissioner of Wealth-tax (Central), Calcutla.(1) The Wealth-tax Officer, however, held that since in his balance sheets the assessee had not shown the liability to pay income-tax, the deduction of the amounts claimed could not be allowed in any of the assessment years and accordingly the orders of reassessment were passed by him after disallowing the claim made by the assessee.

He, however, included the sums mentioned in the above statement in the net wealth of the respective assessment years and determined the wealth-tax payable by the assessee.

The appeals filed by the assessee against the orders of the Wealth-tax Officer before the Appellate Assistant Commissioner were dismissed.

On further appeal to the Income-tax Appellate-Tribunal, the Tribunal held that the deduction claimed in respect of each assessment year was in truth and substance a liability under the Indian Income-tax Act, I 922 or the Income-tax Act, 1961, as the case may be, and not a new liability created. by the Finance Act, and, therefore, it constituted a 'debt owed' by the assessee on the respective valuation dates within the meaning of section 2(m) of the Act and that the deduction claimed should be allowed while computing the net wealth

(I) 59 I.T.R. 767.--(1966] 2 SCR 688.

A.l.s. DHORAJI v. C.W.T. (Venkataramiah. J.) 407

of the assessee.

Accordingly the Tribunal allowed the appeals of the assessee.

Thereafter at the instance of the Commissioner of Wealth-tax, the Tribunal referred under section 27 of the Act the two questions mentioned above to the High Court. After hearing the parties, the High Court answered both the questions in the negative and in favour of the Revenue by its judgment dated December 21, 1972.

On a certificate granted by the High Court under section 29( l) of the Act, the assessee has come up in appeal to this Court. '

The relevant part of section 2(m) of the Act reads :

"2. (m} "net wealth" means the amount by which the aggregate value computed in accordance with the provisions of this Act of all the assets, wherever located belonging to the assessee on the valuation date, including assets required to be included in his net wealth as on that date under this Act, is in excess of the aggregate value of all the debts owed by the assessee on the valuation date other than,,,,,, ... "

In the se of Kesoram Industries and Cotton Mills Ltd. (supra) this Court has held that income-tax other than that falling under clause (iii) of section 2(m} of the Act payable on the valuation date is a debt owed by the assessee and hence is deductible from the total wealth of the assessee while determining the net wealth for the purpose of levying wealth-tax.

The principal question which arises for consideration in these appeals relates to the true character of the tax. paid by the assessee in the proceedings under section 68 of the Finance Act and the applicability of the ratio of the decision of this Court in the case of Kesoram Industries and Cotton Mills Ltd. (supra). Since it is contended by the assessee that the tax so paid was the tax which he was liable to pay under the relevant income-tax law in force during the assessment years in question and it is urged by tlie Department that the said payment was in discharge of a liability created for the first time by the Finance Act, it is necessary to examine the provisions of section 68 of the Finance Act in some detail, in so far as they relate to the question involved in this case. The relevant part of section 68 of the Finance Act which came into force on March I, 1965 reads :

"68. Voluntary disclosure of income -(I) Where any person makes a declaration in accordance with sub-section

(2) in respect of the amount representing income-

(a) which he has failed to disclose in a return of income for any assessment year filed by him before the first day of March, 1965, under the lndian'Jncome-tax Act, 1922 (XI of 1922), or the Income-tax Act, 1961 (XLIJI of 1961 ), or

(b) which has escaped assessment for any assessment year for which an assessment has been made before the 1st day of March 1965, under either of the said Acts, or

(c) for the assessmen_t of which no either of the said Acts has been

I st day of March, 1965,

proceeding under taken before the

he shall, notwithstanding anything contained in the said Acts, be charged income-tax at the rat!! specified in subsection (3) in respect of the amount so declared if he,-

(i) pays the amount. of income-tax as 1computed at the said rate, or

(ii) furnishes adequate security for the payment thereof in accordance with sub-section (4) and undertakes to pay such income-tax within a period, not exceeding six months, from the date of the declaration as may be specified by him therein, or

(iii) on or before the 31st day of May, 1965, pays such amount as is not less than one-half of the amount of income-tax as computed at the said rate or furnishes adequate security for the payment thereof in accordance with sub-section (4), and in 1 either case assigns any shares in, or debentures of, a joint stcck company or mortagages any immovable property, in favour of the President of India by way of security for the payment of the balance and undertakes to pay such balance within the

periodfreferred to in clause (ii).

A.LS. DHORAJI v. C.W.T. (Venkataramiah, J.} 409

(2) The declaration shall be made to the Commissioner, and shall specify the period required to be specified under clause (ii) of sub-section (I), contain the name, address and signature of the person making the declaration and also full information in respect of the following matters, namely : -

(a) Whether he was assessed to income-tax or not and, if assessed, the ame of the Income-tax Circle in which he was assessed.

(b) The amount of income declared, giving where avPjlable, details of the. financial year or years in w.lich the income was earned and the amount pertaining to each such year.

(c} Whether the amount declared is represented by cash (including bank deposits), bullion, investments in shares, debts due from other persons, commodities, or any other assets, and the name in which it is held and location thereof :

Provided that the declaration shall be of no effect unless it is made after the 28th day of February, 1965, and before the 1st day of June, 1965.

(3) The rate of income-tax chargeable in respect of the amount referred to in sub-section (l) shall be sixty per cent, of such amount :

Provided that if before the 1st day of April, 1965, the tax on the amount declared is paid by the declarant at the rate of fifty seven per cent, of such amount, he shall not be liable to pay any further tax on such amount.

( 4) A person shall not be considered to have furnished adequate security for the payment of the tax for the purposes of sub-section (l) unless the payment is guaranteed by a scheduled bank or the person makes an assignment, in favour of the President of India, of any security of the Central or State Government.

Explanation-For the purposes of this sub-section, where an assignment of Government securities is made in

favour of the President, the amount covered by such assignment shall be the market value of the securities on the date of the assignment.

(5) Any amount of income-tax paid in pursuance of a declaration made under this section shall not be refundable in any circumstances, and no person who has made the declaration shall be entitled, in respect of any amount so declared or any amount of tax so paid, to reopen any assessment or reassessment made under the Indian Income-tax Act, 1922 (XI of 1922), or the Income-tax Act, 1961 (XLIH of 1961 ), or the Excess Profits Tax Act, 194) (XV of l 940), or the Business Profits Tax Act, 1947 (XXI of 1963), or the Companies (Profits) Surtax Act, l 954 (VII of 1964) or claim any set-olf or relief in any appeal, reference, revision or other proceeding in relation to any such assessment or reassessment.

(6) (a)· Any amount declared by any person under this section in respect of which the tax referred to in subsection (3) is paid shall not be included in his total income for any assessment under any of the Acts mentioned in sub-section (SJ if he credits in the books of account, if any, mainta:ned by him for any source of income or in any other rcord, the amount declared as reduced by the tax paid thereon under this section ... "

Section 68( I) of the Finance Act provides that where any person males a declaration in accordance with section 68(2) in respect of any amount representiig income which he has failed to disclose in his return or which has escaped assessment for any assessment year for which an assessment has been made before March I,

1965 under either of the two Acts namely the Indian Income-tax Act, 1922 and the Income-tax Act, 1901 or for the assessment of which no proceeding is taken before March 1, 1965, he shall, notwithstanding anything contained in the said Acts, be charged incometax at the rate specified in sub-section (3) thereof in respect of the amount so declared. If he pays the amount of income-tax as computed at the said rate or furnishes adequate security for the payment thereof in accordance with sub-section (4) thereof and undertakes to pay such income-tax within the period specified in the section, he would be absolved from the liability under the relevant law of iny

A.LS. DHORAJI v. C.W.T. (Venkatc, nmiah, J.) 411

come-tax. The declaration should, however, be filed with the particulars mentioned in section 68(2).

Section 68(3) provides that the rate of income-tax chargeable in respect of the amount referred to in the declaration shall be sixty percent of such amount provided that if the tax is paid within April l, 1965, the tax payable would be fifty seven percent. Sub-section ( 5) of section 68 of the Finance Act provides that any amount of income-tax paid in pursuance of a declaration made under that section shall not be refundable in any circumstances nor a declarant is entitled in respect of any amount declared or tax paid thereon to reopen any assessme; it or reassessment made under the Indian Income-tax Act 1922, or Income-tax Act, 1961 or any other Act mentioned therein.

He cannot also claim any set-off or relief in any appeal, reference, revision or other proceeding in relation to any such assessment or reassessment.

Clause (a) of sub-section (6) of section 68 grants immunity from proceedings under the Acts mentioned in section 68 (5) to the assessee by providing that any amount declared by any person under section 68, in respect of which the tax referred to in sub-section (3) thereof is paid, shall not be included in his total income for any assessment under any of the assessments made under any of the Acts mentioned in section 68(5) if he credits in the books of account, if any, maintained by him for any source of income or in any other record, the amount declared as reduced by the tax paid thereon under section 68.

On an examination of the several provisions contained in section 68 of the Finance Act it becomes clear that they had ben enacted as a part' of the measures adopted with a view to unearthing unaccounted money in possession of the members of the public on which income-tax had not been paid and also to create an incentive to such persons to make disclosure of their unaccounted incomes and to pay tax thereon at the specified rate without the liability to pay any interest thereon or penalities for non-compliance with the law of income-tax.

The declaration to be tiled by a person under section 68 is about an aniount representing his income earned in an earlier accounting period which has not been subjected to tax in the ordinary course although income-tax was payable in respect of it. If the declarant pays tax at the rate specified in sub-section (3) of section 68 he would be absolved from any further liability to tax on such income. The declaration has to be made before the Commissioner of Income-tax and it should contain full information, namely whether he was asessed to income-tax or not and if assessed, t1'e nanie of the Income-tax circle in which he was assessed, the

amount of income declared giving where avail able, details of the financial year or years in which the income was earned and the amount pertaining to each such year and whether the amount declared is represented by cash (including bank deposits), bullion, investment in shares, debts due from other persons, commodities or any other assets and the name in which it is held and the location thereof.

Section 68 also states at more than one place that what is payable pursuant to a declararion is income-tax.

Section 68 (J) contains words such as, "he shall, notwithstanding anything contained in the said Acts be charged income tax at the rate specified in sub-section (3)", "if he pays the amount of income-tax at the said rate" a_nd "undertakes to pay such income-tax".

Section 68(3) contains the words : "the rate of income-tax chargeable". Section 68(5) refers to : "(a) any amount of income-tax paid" and section 68(7) contains the words : "paid the income-tax under this section".

These words show that Parliament was of the view that what was payable under section 68 was income-tax.

The points of difference between any Finance Act, that may be passed annually fixing the rates of income tax and section 68 of

the Finance Act, however, relate to (i) the time within which and the manner in which information in regard to the income is to be furnished, (ii) the method of computation of taxable income and

(iii) the rate of tax payable on such income. The declaration which is equivalent to a return to be filed under the Indian Income-tax Act, 1922 or Income-tax Act, 1961, need not contain all the parti culars that have to be furnished in such return.

The declaration can be filed during the period mentioned in proviso to section 68(2).

There is no provision to claim various deductions, exemptions, set off etc. in respect of the income disclosed in the declaration as in the case of income shown in an ordinary return.

Since the rate of tax is a uniform one and does not vary with the quantum of the income disclosed, there is no need to trace it to any specific assessment year.

Further the declaration is a voluntary one and it is not pursuant to any notice issued by the Department.

The question is whether these distinguishing features make the amount disclosed in a declaration anything different from the income of an assessee and the tax paid under section 68, anything different from a tax on income.

In other words, does section 68 impose a new charge on the income of the declarant for the first time wholly independent of the levy under section 3 of the Indian Income-tax Act, 1922 or section 4 of the Income-tax Act, 1961 ? The High

..,...-··

A.LS. DHORAJl v. c.w.T. (Venkataramiah, J.) 413

Court has given the following reasons for holding that the tax pid under section 68 is not tax on income payable under the Indian Income-tax Act, 1922 and Income-tax Act, 1961 : (i) the charge under the Income-tax Act is on the total income of the previous year and not on any particular item of incJme but that is not so under section 68, (ii) payment of tax under section 68 has no reference to any assessment year and unless it is correlated to an assessment year it can not be ordinary income-tax and (iii) the disclosed income is chargeable to tax without allowing usual deductions and without providing for any procedure for quantification.

The High Court proceeded to hold that section 68 enacted a new charge of tax, on an ad hoc basis, on disclosed income irrespective of the assessment year in which it was earned. The disclosure of concealed income coupled with the payment of tax as contemplated in clause (i) of sub-section (I), according to the High Court, not only created a charge of tax but also satisfied it.

In its view, the disclosure of concealed income coupled with furnishing of security and undertaking as contemplated in clause (ii) created a new charge of tax and when the undertaking was carried out by payment of tax, the liability arising from the charge of tax was satisfied.

One basic fallacy underlying the conclusion of the High Court that a new charge is being levied under section 68 appears to be the assumption that the amount in question in respect of which tax is payable under that provision was not liable to income-tax earlier.

It should be borne in mind that the declaration contemplated under section 08 is a declaration in respect of income of earlier years, which had been concealed and on which tax was payable during the relevant assessment years in the ordinary course.

Section 3 of the Indian Income-tax Act, 1922 and section 4 of Income-tax Act, l 961 which are couched more or less in the same language state that where any Central Act enacts that income-tax shall be charged for any year at any rate or rates, income-tax at that rate or those rates shall be charged for that year in accordance with and subject to the provisions of the relevant Act in respect of the total income of the previous year or previous years, as the case may be, of every person. Now it is well settled by a series of judicial decisions that the liability to income-tax arises by virtue of the charging section in the relevant Income-tax Act and it arises not later than the close:of . . the prev10us year, even though the rate of tax for the year of assessment may be fixed after the close of the previous year and the assessment has necessarily to be made after the previous year.

The quality of chargeability of any income to tax is not dependent upon the passing of the Finance Act though its quantification may be governed by the provisions of the Finance Act in respect of any assessment year vide Wallace Brothers and Co. Ltd. v.

Commissionfr of Jncome-tax(1), Messers Challuram Hori/ram Ltd. v. Commissioner of Income-lax and Ors.(2) and Kahva D1vadallom & Ors. v.

The Union of India & Ors.(3) In the case of Kesoram Industries and Cotton Mills Ltd. (supra) Subba Rao, J. (as he then was) summarized the legal position thus :-

"To summarize : A debt is a present obligation to pay an ascertainable sum of money, whether the anhmnt is payable in praesenti or in juturo: dehitum in praesenti, solvendum in ji1turo.

But a sum payable upon a contingency does not become a debt until the said contingency has happened.

A liability to pay income-lax is a present liability though it becomes payable after it is quantified in accordance with ascertainable data.

There is a perfected debt at any rate on the last day of the accounting year and not a contingent liability.

The rate is always easily ascertainable. If the Finance Act is passed, it is the rate fixed by that Act; if the Finance Act has not yet been passed, it is the rate proposed in Finance Bill pending before Parliament or the rate in force in the preceding year, whichever is more favourable to the assessee.

All the ingredients of a "debt" are present.

It is a present liability of an ascertainable amount."

It is thus clear that if the assessee had brought to the notice of the Department in the usual course the existence of incomes which were later on declared under 'ection 68, they would have been taxed during the relevant assessment year.

Hence merely because they are disclosed in a declaration filed under section 68, they cannot cease to be incomes not already charged for income tax.

It is true that the Finance Act in question merely levied a fixed rate of tax in respect of all the income disclosed without allowing deductions, exemptions and set-off under the relevant income-tax law yet its function was no more than that of a Finance Act passed annually even though it made certain alterations with regard to filing of declaration and computation of taxable income

(I) 16 l.T.R. 240. (P.C.)

(2) (1955]2 S.C.R. 290 : 27 l.T.R. 709 (S.C.)

(3) (1964] 3 S.C.R. 191 : 49 J.T.R. 165 (S.C.l

A.I.S. DHORAJI v. C.W.T. (Venkataramiah, J.) 415

It was, however, urged on behalf of the :oepartmen t that ~the nature of the declaration which was dependent upon the volition of the declarant and the fact that the liability to tax the amount mentioned therein was contingent upJn the willingness of the declarant to disclose the amount ought to make a difference.

We do not think so because any such voluntary disclosure by an assessee even in the absence 0f section 68 would have exposed him to an assessment or reassessment, as the case may be, being made in respect of the sum disclosed as part of the income of the relevant assessment year and of course with the additional liability to payment of interest and levy of penalty and perhaps with the right to claim deductions, if any, admissible in the 'circumstances of the case and the benefit of other prccedural rights. The voluntary c:1aracter of the declaration cannot, therefore, alter the character of the tax.

There is also no substance in the contention that in the absence of the allocation of the amount disclosed amongst dil'i'erent assessment years the tax payable under section 68 cannot be termed as a tax on income because snch allocation would not ac'.1ieve any additional purpose in the scheme of section 68.

Irrespective of the other income which may have been determined in an ordinary proceeding under the relevant law of income-tax, a fixed rate of tax is payable under section 68(3) and hence the amount disclosed being treated as the income of any particular year would not make any difference regarding the quantum of tax.

Nor is there any other purpose to be served by such allocation.

Section 68 is in the nature of a package deal but the net result achieved is that the declarant is treated as having discharged all his liability in respect of the said income under the income-tax law.

There is one other circumstance which may be noticed here.

The tax levied under section 68 can be only a tax on income. If we hold it otherwise it may become a tax on wealth itself.

The basis of tbe liability in this case is the admission made by the declarant that the amount declared was his income earned in previous years but concealed from the knowledge of the Department.

In these circumstances it cannot be said that the amount declared under section 68 is not income which was not taxable under the Indian Income-tax Act, 1922 or the Income-tax Act, 1961, as the case may be. The finding of the High Court that section 68 created a fresh charge is incompatible with tbe foundation of the very reassessment proceedings under section 17 of the Act.

The basis of these proceedings is the information which the Wealth-tax Officer acquired

from the declaration filed by the assessee, in this case that the assessee was in possession of unaccounted funds represented by the non-genuine hundis which had progressively reached the level of Rs. 7,01,578 during the assessment year 1964-65 from the level of Rs. 4,57,465 in 1959-60 by gradual accumulation of income.

But for this assumption, in the absence of any other material, reassessment under the Act would have been possible only in the last year in which the .disclosure was made. That, however, is not the case here.

The High~Court in support of its view has relied on the decision of the Kerala High Court, though not the reason given in support of that decision in C. K. Babu Naidu v. Wealth-tax Officer.(1} That decision has since been reversed in appeal by a Division Bench of that Court in C. K. Babu Naidu v. Wealth-tax Officer, 'A' Ward, Calicut & anr.(2) in which the Kerala High Court has held that the liability for tax arising under section 68 of the Finance Act was nothing other than the liability under the Income-tax Act, 1961 itself and accordingly has allowed the dedl1ction of tax paid under section 68 as a 'debt owed' on the valuation date.

In Commissioner of Wealth-tax, Haryana, H.P. & Delhi-I/I v. Girdhari La/(3), Commissioner of Wealth-tax v. B. K. Sharma(4), Commissioner of Wealth- /ax, West Bengal-III, Calcutta v. Bansidhar Poddar,(5) D. C. Shah v.

Commissioner of U'ealth-trx, Mysore(6) and Shri Bhagwandas Jain v.

Addi. Commissioner of Wealth-tax, M. P.(7), the High Courts of Delhi, Allahabad, Calcutta, Karnataka and Madhya Pradesh have accepted the view that the tax paid under section 68 of the Finance Act should be treated as a 'debt owed' for purposes of determining net wealth as defined in section 2(m) of the Act.

The High Court of Bombay has also reached the same conclusion in Bhagwanidas Binam v. Commissioner of w, altl.-tax, Bombay City-Jll(8) but in doing so it observed that "it appears to us that although it is not possible to say that the amount of income-tax paid under section 68 of the Finance Act, 1965 is income-tax under the charging sec-

(I) 82 I.T.R. 410 (Kerala)

(2) 112 l.T.R. 341 (Kerala)

(3) 99 I.T.R. 79 (Delhi)

(4) 110 J.T. R. 902 (All.)

(5) 112 I.TR. 957 (Cal.)

(6) 117 I.T.T. 348 (Karnataka)

(7) J 16 l.T.R. 347 (Madhya Pradesh)

(8) 124 I.T.R. 783 (Born.)

...,, .• --

A.I.S. DHORAJJ v. C.W.T. (Venkataramiah, J.) 417

tion 3 or section 4 of the LT. Acts, it must be regarded as incometax paid in lieu of such income-tax and would be entitled to the same considerations as lavished by the Supreme Court on the ordinary charge of income-tax". The High Court of Bombay appears to take the view as the High Court of Gujarat has done in the decision under appeal that a new liability is created by section 68 but it however would not have any adverse effect on the right of the assessee to claim the deduction.

While we approve of the conclusion reached by the High Court of Bombay, we feel that the said decision to the extent it attempts to follow the reason given by the Gujarat High Court to hold that the liability under section 68 is a fresh liability is not correct. The true position is that the amount declared has the Jiability to pay income-tax imbedded in it on the valuation date but only the ascertainment of that liability is postponed to a future date. In the instant case, its determination is allowed to be done in -accordance with the provisions of section 68. Even though it may appear to be itself a complete code, it is only a scheme which provides a method for the liquidation of an already existing income-tax liability which was present on the relevant valuation date. The view does not in any way go counter to any observations made by this Court in Commissioner of Income-tax, Bombay City Iv.

Khatau Makanji Spinning and Weaving Co. Ltd.(') In that case this Court was concerned with the validity of a charge levied by the Finance Act, 1951 in respect of dividends distributed in excess of the specified limit under clause (ii) of the proviso to Paragraph B of Part I of the First Schedule to that Act as applied to the assessment year 1953-54 by the Finance Act, 1953. This Court held that income-tax was a tax on income of the previous year and it would not cover some thing which was not the income of the previous year or made fictionally so and according to the scheme of that provision it was impossible to say that the additional income-tax was properly laid upon the total income because what was actually taxed was never a part of the total income of the previous year.

This decision is clearly distinguishable from the present case where what is taxed is the income which was ordinarily liable to tax but which had not been included in the return of the assesssee, or which had escaped assessment or which was still to be assessed to incometax under the relevant Income-tax Act. It was in fact a part of the total income though not assessed till the declaration was made.

Merely because it is stated that the rate of tax charged on the

(I) 40 I.T.R. 189 (S.C.)~[1960] 3 SCR 873.

amount declared is sixty per cent or fifty-seven per cent as the case may be it does not cease to be a part of the total income.

This is not a case where what was not in fact income had been converted into income by section 68.

For the same reason the Department cannot derive any support from the observations made by this Court in Madurai District Central Co-operative Bank Ltd. v. Third Incometax Officer, Madurai.( 1) We are, therefore, of the view that the assessee was entitled to claim deduction of income tax payable on the amounts added to his total wealth under section 2(m) of the Act in the course of the reassessment proceedings.

In the result these appeals are allowed, the judgment of the High Court is set aside and the questions referred to it are answered in the affirmative and in favour of the assessee.

The Department will pay the costs of the appellant-assessee, Hearing fee one set.

P.B, R.

Appeals allowed.

(I) 101 I.T.R. 24 (S.C.)

F

AHMED IBRAHIM SAHIGRA DHORAJI

COMMISSIONER OF WEALTH TAX, GUJARAT

April 7, 1981

R. S. PATHAK

E.S. VENKATARAMIAH, JJ.

Wealth Tax Act, 1957

Section 2(m)

Finance Act, 1965

Section 68

Finance Act, 1965

section 68

section 68

Income Tax Act, 1922

Finance Act, 1965

section 68

section 2

section 68

Although the Finance Act

section 68

section 68

section 68

section 68

section 17

section 68

V. S. Desai

Shardul S. ShroJ

H. S. Parihar

S. T. Desai

P. A. Francis

A. Subhashini

VENKATARAMIAH

section 29(1)

Wealth-tax Act, 1957

section 27

section 68

Finance Act, 1965

section 2(m)

Wealth-tax Act, 1957

section 68

section 3

Income-tax Act

section 68

Finance Act, 1965

section 4

Income-tax Act, 1961

section 16(3)

section 68

Finance Act, 1965

Abdul Razack & Co.

Bombay

section 68

Income-tax Act

Income-tax Act, 1961

section 2(m)

(1966] 2 SCR 688

section 27

December 21, 1972

section 29( l)

section 2(m)

section 68

section 68

March I, 1965

Jncome-tax Act, 1922

Income-tax Act, 1961

31st day of May, 1965

India

28th day of February, 1965

1st day of June, 1965

1st day of April, 1965

Indian Income-tax Act, 1922

Income-tax Act, 1961

Business Profits Tax Act, 1947

Companies (Profits) Surtax Act

Section 68( I)

section 68(2)

Income-tax Act, 1901

March 1, 1965

section 68(2)

Section 68(3)

section 68

Indian Income-tax Act 1922

Income-tax Act, 1961

section 68

section 68

section 68

section 68(5)

section 68

section 68

section 68

section 68

Section 68

Section 68

Section 68(3)

Section 68(5)

section 68(7)

Parliament

section 68

section 68

Income-tax Act, 1961

section 68(2)

section 68

section 68

section 3

Indian Income-tax Act, 1922

section 4

Income-tax Act, 1961

section 68

Indian Income-tax Act, 1922

Income-tax Act, 1961

Income-tax Act

section 68

section 68

section 68

section 68

section 08

Section 3

Indian Income-tax Act, 1922

section 4

Income-tax Act

Income-tax Act

Subba Rao

section 68

(1964] 3 S.C.R. 191

Venkataramiah

section 68

section 68

section 68

section 68(3)

Section 68

section 68

section 68

Indian Income-tax Act, 1922

Income-tax Act, 1961

section 68

section 17

Kerala High Court

section 68

section 68

section 68

section 2(m)

High Court of Bombay

section 68

Finance Act, 1965

section 4

Supreme Court

High Court of Gujarat

section 68

Gujarat High Court

section 68

section 68

Bombay City

Finance Act, 1953

Income-tax Act

[1960] 3 SCR 873

section 68

section 2(m)


COMMISSIONER OF WEALTH TAX, AMRITSAR

SURESH SETH

April 7, 1981

[ R.S. PATHAK AND E.S. VENKATARAMIAH, JJ.]

Wealth Tax Act, 1957-Scope of section 18(1) (a) of the Act-Whether the offenre relating to the omission to file the Wealth Tax Returns was a continuing offence--Penalty has to be computed in accordance with the law in force on the last day on which the return in question has to be filed-The 1964 and 1969 Amendments to the Wealth Tax Act has no retrospective effect.

The assessee-respondent filed his Wealth Tax returns for the assessment years 1964-65 and 1965-66 on March 18, 1971, while he was required by section 14(1) of the Act to file the return for the assessment year 1964-65 on or before June 30, 1964 and the return for the assessment year 1965-66 on or before June

30, 1965. The Wealth Tax Officer completed the assessment for the said years on March 22, 1971 and also commenced proceedings for levying penalty under section 18(1) (a) of the Act for the late submission of returns. The Wealth Tax Officer levied the penalties for different periods at different rates, as provided by the 1964 and 1969 Amendments, treating the failure to file the return in time as a "continuing offence"_ The orders levying penalties were upheld in appeal by the Appellate Assistant Commissioner and the Income Tax Appellate Tribunal, Amritsar Bench, Amritsar. A consolioated reference made by the Tribunal at theinstance of the assessee was answered by the High Court of Punjab in favour of the assessee after rejecting the contention of the department that the default or failure to file the return in time was a continuing default and that the penalty had to be computed for the period prior to April I, 1965 in accordance with section 18 as it stood prior to its amendment by the Wealtli-tax (Amendment) Act, 1964, for the period between April 1, 1965 to March 31, 1969 in accordance with section 18 of the Act as amended by the Wealth-tax (Amendment) Act, 1964 and for the period between April I, 1969 to March 18, 1971 (on which date the returns were filed) in accordance with section 18 of the Act as amended by the Finance Act, 1969. Aggrieved by the decision of the High Court, the Department has filed these appeals under Article 136 of the Constitution.

Dismissing the appeals, the Court

HELD 1:1. Where the default complained of is one falling under section 18(1) (a) of the Wealth Tax At, 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 H filed. Neither the amedment made in 1964 nor the amendment made in 1969 has retrospective effect. [ 434 C-D)

1 :2. Section 18 of the Wealth Tax Act does not require the assessee to file a 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

dak on which it is filed.

The default, if any committed is committed-on the last date allowed to fil~ the return. The default cannot be one committed every month thereafter. [433 G-H, 434 A]

l :3. The words "for every month during which tt>e 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; The principle underlying section 6 of the General Clauses Act is clearly applicable to these cases. [ 434 B-C]

2:1. A liability in law ordinarily arises out of an act of commission or an act of omission. When a person does an act which Jaw prohibits him from doing it and attaches a penalty for doing it, he is stated to have committed an act of commission which amounts to a wrong in the eye of Jaw. Similarly when a person omits to do an act which is required by law to be performed by him and attaches a penalty for such omission, he is said to have committed an act of omission which is also a wrong in the eye of law. Ordinarily a wrongful act or failure to perform an act required by law to be done becomes a completed act of commission or of omission, as the case may be, as soon as the wrongful act is committed in the former case and when the time prescribed by law to perform an act expires in the latter case and the liability arising thereform gets fastened as soon as the act of commission or of omission is completed. The extent of that liability is ordinarily measured according to the law in force at the time of such completion. In the case of acts amounting to crimes the punishment to be imposed cannot be enhanced at all under our Constitution by any subsequent legislation by reason of Article 20(1) of the Constitution which declares that no person shall be subjected to a penalty greater than that which might have been inflicted under the law in force at the time of the comission of the offence. In other cases, however, even though the liability may be enhanced it can only be a subsequent law (of course subject to the Constitution) which either by express words or by necessary implication provides for such enhancement. (429 G-H, 430 A-DJ

2:2. The distinctive nature of a continuing wrong is that the law that is violated makes the wrongdoer continuously liable for penalty. A wrong or default which is complete but whose effect may continue to be felt even after its completion is, however, not a continuing wrong or default. [ 430 D-E]

2:3. The court should not be eager to hold that an act or omission is a continuing wrong or default unless there are words in the statute concerned which make out that such was the intention of the legislature. In the instant case whenever the question of levying penalty arises what has to be first considered is whether the assessee has failed without reasonable cause to file the return as required by law and if it is held that he has failed to do so then penalty has to be levied in accordance with the measure provided in the Act. When the default is the filing of a delayed return the penalty may be correlated to the time lag between the last day for filing it without penalty and the day on which it is filed and the quantum of tax or wealth involved in the ; case for purposes of determining the quantum of penalty but the default however is only one which takes place on the expiry of the last day for filing the return without penalty and not a continuing one. The default in question does not, however, give rise to a fresh cause of action every day. [430 E-Hl

2:4. Where the wrong complained of is the omission to perform a positive duty requiring a person to do a certain a; t the test to determine whether such a wrong is a continuing one is whether the duty in question is one which requires him to continue to do that act. Breach of a covenant to keep the premises in good repair, breach of a continuing guarante~, obstruction to a right of way, obstruction to the right of a person to the unobstructed flow of water, refusal by a man to maintain his wife and children whom he is bound to maintain under law and the carrying on of mining operations or the running of a factory without complying with the masures intended for the safety and well-being of workmen may be illustrations of continuing breaches or wrongs giving rise to civil or criminal liability, as the case may be, de die in diem. [433 A-D]

Hole v. Chard Union, [1894] l Ch. D. 293, quoted with approval.

State v. A. Bhiwandiwalla, A. I. R. 1955 Born. 161 ; The State v. Kunja Behari Chandra and Ors. A. I. R. 1954 Patna 37 J, approved,

Balkrishna Sava/ram Pujari and Ors. v. Shree D:iyaneshwar Maharaj Sansthan and Ors,, [1959] Supp. 2 S; C.R. 476, referred to.

CIVIL APPELLATE JURISDICTION: Civil Appeal Nos; 768-769 of 1978.

Appeals by Special Leave from the Judgment and Order dated 28.1.1977 of the Punjab and Haryana High Court in Income Tax F Reference No. 29 of 1975.

B. B. Ahuja and Miss A. Subhashini for the Appellant.

G. C. Sharma, E. D. Helms, R. S. Sh[lrma and K. B. Rohtagi for the Respondent.

The Judgment of the Court was delivered by

VENKATARAMIAH, J. The Commissioner of Wealth Tax, Amritsar has filed the above appeals by special leave against the H ljudgment of the High Court of Punjab and Haryana in a reference made under section 27(1) of the Wealth-tax Act, 1957 (hereinafter

A referred to as 'the Act') answering in favour of the assessee the following two questions :

"I. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the offence relating to the omission to file the Wealth- B tax returns was a continuing offence ?

2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law upholding the penalties of Rs. 5382/- and Rs. 7759/- levied by the department on the assessee under section 18(l)(a) of the Wealth-tax Act, C 1957, for the assessment years 1964-65 and 1965-66 respectively ?"

The assessee, the respondent in these appeals filed his wealthtax returns for the assessment years 1964-65 and 1965-66 on March 18, 1971 while he was required by section 14(1) of the Act to file the D return for the assessment year 1964-65 on or before June 30, 1964 and the return for the assessment year 1965-66 on or before June 30,

1965. The Wealth-tax Officer completed the assessments for the aforementioned years on March 22, 1971 determining the total wealth at Rs. 1,45,800/- for the assessment year 1964-65 as against the declared wealth of Rs. 1,38,550/- and at Rs. 1,65,200/- for the assessment E year 1965-66 as against the declared wealth of Rs. l ,59,127/- and also commenced proceedings for the levying penalty under section 18(1)(a) of the Act for late submission of returns.

Ultimately the penalties were levied as follows :

"Assessment year 1964-65 :

(i) For the period from 1.7.64 to 31.3.69:

Penalty at 2% p.m. subject to maximum of 50% of the wealth-tax payable under section 18(1)(a) before its amendments on 1.4.69 by the Finance Act, 1969: Rs. 115/-

(ii) For the period from 1.4.69 to 18.3:71 Penalty at l /2 % of the net wealth for each month of the default under section l 8(l)(a} as amended by the Finance Act, 1969 : Rs. 5,267/-

Rs. 5,382/-

Assessment year 1965-66 :

(i) For the period from I. 7.65 to 30.3.69

Penalty at 2% p.m. subject to maximum of 50% of the wealth-tax payable under section 18 (I )(a) before its amendment on

J.4.69 by the Finance Act, 1969 : Rs. 163/- B

(ii) For the period from 1.4.69 to 18.3.71 Penalty at I /2% of the net wealth for each month of default under section 8(1 )(a) as amended on 1.4.69 by the Finance Act, 1969: Rs. 7,596/-

Rs. 7,759/-

The above orders levying penalties were upheld in appeal by the Appellate Assistant Commissioner an.d the Income-tax Appellate Tribunal, Amritsar Bench, Amritsar. At the instance of the assessee a consolidated reference was made by the Income-tax Appellate Tribunal to the High Court referring the above two questions for its opinion. The High Court answered the said questions in favour of the assessee after rejecting the contention of the department that the default or failure to file the return in time was a continuing default and that the penalty had to be computed for the period prior to April l, 1965 in accordance with section 18 as it stood prior to its amendment by the Wealth-tax (Amendment) Act, 1964, for the period between April I, 1965 to March 31, I 969 in accordance with section 18 of the Act as amended by the Wealth-tax <Amendment) Act, 1964 and for the period between Aprill, 1969 to March J8, 1971 (on which date the returns were filed) in accordance with sec. 18 of the Act as amended by the Finance Act, 1966. Aggrieved by the decision of the High Court, the Department has filed these appeals under Article 136 of the Constitution. .

Before dealing with the contentions of the parties, it is appro- G priate to set out the provisions of the Act which have a bearing on the question involved in the present appeals as they stood during the relevant periods :

Prior to April 1, 1965, sub-sections (1) and (3) of section 14 . ff of the Act stood as follows :-

"14. Return of wealth-(1) Every person whose net wealth on the valuation date was of such amount as to render him liable to wealth-tax under this Act shall, before the thirtieth day of June of the corresponding assessment year, furnish to the Wealth-tax Officer a return in the prescribed form and verified in the prescribed manner setting forth his net wealth as on the valuation date;

(2) ................. .

(3) The Wealth-tax Officer may, if he is satisfied that it is necessary so to do, extend the date for the delivery of return under this section."

Afur April I, 1965:

"14. (l) Every person, if his net wealth or the net wealth of any other person in respect of which he is assessable under this Act on the valuation date was of such an amount as to render him liable to wealth-tax under this Act, shall, before the thirtieth day of June of the corresponding assessment year, furnish to the Wealth-tax Officer a return in the prescribed form and verified in the prescribed manner setting forth the net wealth as on the valuation date.

(2) ............. ..

(3) The Wealth-tax Officer may, if he is rntisfied that it is necessary so to do, extend the date for the delivery of the return under this section .. " ' ,, r

Section 15 of the Act which has not undergone any change since the commencement of the Act reads :

"15. Return after due date and amendment of return- If any person has not furnished a return within the time allowed under section 14 or having furnished a return under that section discovers any omission or a wrong statement therein, he may furnish a return or a revised return, as the case may be, at any time before the assessment is made."

The relevant parts of section 18 of the Act as they stood

durig the three periods referred to above read as follows :-

Prior to April 1, 1965

"18. (I) 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 of his net wealth which he is required to furnish under sub-section (I) or sub-section. (2) of section 14 or section 17 or has without reasonable cause failed to furnish it within the time allowed and in the manner required; or

(b)

(c)

he or it may, by order in writing, direct that such person D shall pay by way of penalty-

(i) in the case referred to in clause (a), in addition to the amount of wealth-tax payable by him, a sum not exceeding one and a half times the amount of such tax, and ......... "

Between April 1, 1965 and March 31, 1969

"18. (I) 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 of his net wealth which he is required to furnish under sub-section (a) of section 14 or by notice given under sub-section (2) of section 14 or section 17 or has without reasonable cause failed to furnish it within the time allowed and in the manner required by sub-section (!) of section 14 or by such notice, as the case may be; or

(b) ................. .

(c) ................ ..

he or it may, by order in writing, direct that such person shall pay by way of penalty-

(i) in the cases referred to in clause (a), in addition to the amount of wealth-tar, if any, payable by him, a sum equal to two per cent of the tax for every month during which the default continued, but not exceeding in the aggregate fifty per cent of the tax; ........ .

Afier April 1, 1969 and as on March 18, 1971 on whilh date the returns were flied.

"18. (I) 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 sub-section (I) of section 14 or by notice given under sub-section

(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 sub-section (I) of section 14 or by such notice, as the case may be; or

(b)

(c) .................... .

he or it may, by order in writing, direct that such person shall pay by way of penalty-

(i) in the cases referred to in clause (a), in addition to the amount of wealth-tax, if any, payable by him, a sum, for every month during which the default continued, equal to one-half per cent of-

(A) the net wealth assessed under section 16, as reduced by the amount of net wealth on which in accordance with the rates of wealth tax specified in Paragraph A of Part I of the Schedule or Part II of the Schedule, the wealth-tax chargeable is nill; or

(B) the net wealth assessed under section 17, where assess

ment has been made under that section, as reduced by-

(I) the net wealth, if any, assessed previously under sec- A tion 16 or section 17 or

(2) the amount of net wealth on which in accordance with the rates of wealth-tax specified in Paragraph A of Part I of the Schedule or Part II of the Schedule, the wealthtax chargeable is nil,

whichever is greater, but not exceeding, in the aggregate, an amount equal to the net wealth assessed under section 16, or, as the case may be, the net wealth assessed under section 17, as reduced in either case in the manner aforesaid; ............ "

Now let us analyse the above provisions of law.

Section 14 of the Act which has not undergone any material change from the commencement of the Act in so far as the question involved in these appeals is concerned requires a person the value of whose wealth is such as would attract the liability to pay tax to file a return of his wealth as on the valuation date in the prescribed manner before the Wealth-tax Officer on or before the thirtieth of June of the assessment year or on or before any date upto which the Wealth-tax Officer has extended the time to file the return.

Section i 5 of the Act, however, enables such a person to file a return at any time before the assessment is made. The distinction between section 14 and section 15 of the Act lies in the fact that whereas under section 14 a duty is imposed on the assessee to file a return within the prescribed date, section 15 enables him to file a return before the assessment is made even though the last date prescribed by section 14(1) is over.

Section 18 of the Act deals with three types of penalties for certain specified acts or omissions on the part of the assessee referred to in clauses (a), (b) and (c) of sub-section (I) thereof.

We are concerned in this case with the question of levy of penalty in respect of omissions referred to in clause (a) of section 18(1) of the Act. There are four kinds of omissions referred to in that clause-(i) failure to furnish the return which the assessee is required to furnish under sub-section (i) of section 14; (ii) failure to furnish the return as required by a notice issued under section 14(2) or section 17, (iii) failure to furnish the return as required by section 14(1) within the time allowed and in the prescribed manner and (iv) failure to furnish the return as required by a notice issued under section 14(2) or section 17 within the time allowed and in the prescribed manner.

Each one of these omissions expose the assessee to the \evy of penalty unless reasonable cause is shown for not performing

the duty. In clause (i) of section 18(1) of the Act, the penalty leviable for any of the omissions referred to in section 18(l)(a) is set out but the measure of penalty imposable has varied from time to time. Prior to April 1, 1965 the penalty imposable was a sum

~'iTot exceeding one and a half times the amount of wealth tax payable by the assessee during the assessment year in question.

Within the outer limit referred to above, the officer concerned or the Tribunal as the case may be could impose any amount as penalty having regard to all the relevant circumstances of the case including perhaps the time that had elapsed from the last day allowed to file the return.

Between April J, 1965 and March 31, 1969 the measure of penalty was regulated by section J 8 of the Act as amended in 1964. During that period the penalty imposable was a sum equivalent to two per cent of the tax for every month during which the default continued but not exceeding in the aggregate fifty per cent of the tax. The penalty leviable during this period was less onerous than it was before April l, 1965. Then came the amendment made by the Finance Act of 1969.

After April l, 1969 by_ reason of the amendment introduced by the Finance Act of 1969 the penalty imposable was altered to a sum for every month during which the default continued equal to.one-half per cent of the net wealth calculated in accordance with the amended provisions in section 18. The penalty leviable during this period was more drastic than what it was before.

One significant difference between the law as it existed prior to April I, 1965 and the law as it existed during the subsequent l\yo periods is that whereas during the period prior to April I, 1965 there was no specific reference in clause (i) of section 18 (a) to the time lag between the last date on which the return had to be filed and the date on which it was actually filed, the said factor was expressly required to be taken into consideration after April I, 1965 while determining the penalty payable by the assessee.

Another ii.gnificant factor which requires to be borne in mind is that neither the Wealth-tax (Amendment) Act, 1964 nor the Finance Act, 1969 by which section 18 of the Act was amended expressly stated that the amended provisions of section 18 would be applicable to an assessee who had failed to file the return in respect of any preceding assessment year and the said default had continued after the amendment came into force except using the phrase "for every month during which the default continued", in that part of section 18 which prescribed the measure of penalty.

The contention of the Department is that whatever may have been the position of law before April I, 1965, on and after that date

the default committed by an assessee in not filing a return as required by section 14(1) of the Act amounted to a continuing wrong which attracted the penalty as provided by the law in force at the time when such default continued. In other words it is contended that in this case since the assessee who had to file a return after April I,

1965 for assessment year 1965-66 had not filed the same till March 13, 1971 penalty had to be computed for the period upto April 1, 1969 under the provisions of section 18 of the Act as it stood during that period and for the subsequent period additional penalty should be levied in accordance with section 18 as amended by the Finance Act, 1969.

Relying upon the decision of the Kerala High Court in Commissioner of Wealth-tax, Kera/a v. Smt. V. Pathummabi(') it is argued that amendments made in 1964 and 1969 brought about a qualitative change in the nature of the default contemplated under section 18 and that what could have been a completed default before Aprill, 1965 became a continuing default. Even assuming that this argument is correct it has to be held that the decision of the High Court in so far as the default committed by the assessee in not filing the return in respect of the assessment year 1964-65 is concerned is not erroneous. What remains to be considered is whether the decision in respect of the default committed by the assessee in not filing the return due on June 30, 1965 for the assessment year 1965-66 is liable to be interfered with.

To repeat, the relevant part of section 18 of the Act can be divided into two parts-the first part contained in clause (a) of section 18(1) setting out the gist of the default and the second part prescribing the measure of penalty. The former part has more or less remained the same from the commencement of the Act and it is only the latter part which has undergone changes.

The question is whether by reason of the changes in the latter part, there has been a change in the nature of the wrong referred to in section 18 (I) (a)•· of the Act.

A liability in law ordinarily arises out of an act of commission or an act of omission. When a person does an act which Jaw pro hi bits him from doing it and attaches a penalty for doing it, he is stated to have committed an act of commission which amounts to a wrong in the eye of law.

Similarly when a person omits to do an act which is required by law to be performed by him and attaches a penalty for such omission, he is said to have

(I) 108 J.T.R. 689.

committed an act of omission which is also a wrong in the eye of law.

Ordinarily a wrongful act or failure to perform an act required by law to be done becomes a completed act of commission or omission, as the case may be, as soon as the wrongful act is committed in the former case and when the time prescribed by law to perform an act expires in the latter case and the liability arising therefrom gets fastened as soon as the act of commission or of omission is completed. The extent of that liability is ordinarily measured according to the Jaw in force at the time of such completion. In the case of acts amounting to crimes the punishment to be imposed cannot be enhanced at all under our Constitution by any subsequent legislation by reason of Article 20 (I) of the Constitution which declares that no person shall be subjected to a penalty greater than that which might have been inflicted under the law in force at the time of the commission of the offence.

In other cases, however, even though the liability may be enhanced it can only be done by a subsequent Jaw (of course subject to the Constitution) which either by express words or by necessary implication provides for such enhancement. In the instant case the contention is that the wrong or the default in question has been altered into a continuing wrong or default giving rise to a liability de die in diem, that is, from day to day. The distinctive nature of a continuing wrong is that the law that is violated makes the wrong doer continuously liable for penalty.

A wrong or default which is complete but whose effect may continue to be felt even after its completion is, however, not a continuing wrong or default.

It is reasonable to take the view that the court should not be eager to hold that an act or omission is a continuing wrong or default unless there are words in the statute concerned which make out that such was the intention of the legislature. In the instant case whenever the question of levying penalty arises what has to be first considered is whether the assessee has jailed without reasonable cause to file the return as required by law and if it is held that he has failed to do so then penalty has to be levied in accordance with the measure provided in the Act.

When the default is the filing of a delayed return the penalty may be correlated to the time Jag between the last day for filing it without penalty and the day on which it is filed aPd the quantum of tax or wealth involved in the case for purposes of determining the quantum of penalty but the default however is only one which takes place on the expiry of the last day for filing the return without penalty and not a continuing one. The default in question does not, however, give rise to a fresh cause of action every day.

Explaining the expression

"···

'a continuing cause of action' Lord Lindley in Hole v. Chard Union(1) A observed :

"What is a continuing cause of action ? Speaking accurately, there is no such thing; but what is called a continuing cause of action is a cause of action which arises from the repetition of acts or omissions of the same kind as that for which the action was brought."

In the same decision, Lord Justice A. L. Smith who concurred with the above view said :

"If once a cause of action arises, and the acts complained of are continuously repeated, the cause of action continues and goes on de die in diem. It seems to me that there was a connection in the present case between the series of acts before and after the action was brought; they were repeated in succession, and became a continuing cause of action.

They were an assertion of the same claim-namely, a claim to continue to pour sewage into the stream-and a continuance of the same alleged right. In my opinion, there was here a continuing cause of action within the meaning of the rule."

The distinction between a continuing offence and an offence which is not a continuing one is well brought out in the decision of the High Court of Bombay in State v. A. H. Bhiwandiwalla('). In that case,' the accused-respondent had been charged with two offences namely, (a) failure to apply for registration of his factory and to give notice of occupation and (b) running the factory without a licence issued under the Factories Act, 1948. The accused had a plea of limitation against the prosecution.

In that context the High Court observed : ·

"In civil law, we often refer to a continuing or recurring cause of action.

Similarly, even in criminal law the expression "continuing offence"is frequently used. As observed by Beaumount C. J. in-'Emperor v. Chhotalal Amarchand', AIR 1937 Born 1 (FB) the expression "continuing offence" is not a very happy expression. It assumes, says the learned Chief Justice-

(!) [1894] 1 Ch.D. 293.

(2) A.I.R. 1955 Born. 161.

" ...... that you can have a continuing offence in the sense in which you can have a continuing tort, or a continuing breach of contract, and I doubt, myself whether the assumption is well founded, having regard to the provisions of the_ Criminal Procedure Code as to the framing of charges and as to the charges which can be tried at one and the same trial.

It is quite clear that you could not charge a man with committing an offence 'de die in diem' over a substantial period."

Even so, this expression has acquired a well-recognised meaning in criminal law. If an act committed by an accused person constitutes an offence and if that act continues from day to day, then from day to day a fresh offence is committed by the accused so long as the act continues.

Normally and in the ordinary course an offence is committed only once. But we may have offences which can be committed from day to day and it is offences falling in this latter category that are described as continuing offences."

Accordingly the High Court of Bombay held in Bhiwandiwa/la' s case (supra) that the failure to apply for registration of the factory under the Factories Act and to give notice of occupation thereof was not a continuing offence but the running of the factory without a licence issued thereunder was a continuing offence.

Section 39 of the Indian Mines Act, 1923 which came up for consideration before the Patna High Court in The State v. Kunja Behari Chandra & Ors.(1) on which reliance was placed by the Revenue is a case of continuing offence.

Section 39 provided :

"39. Whoever contravenes any provision of this Act or of any regulation, rule or bye-law or of any order made thereunder for the contravention of which no penalty is hereinafter provided shall be punishable with fine which may extend to one thousand rupees, and in the case of a continuing contravention, with a further fine which may extend to one hundred rupees for every day on which the offender is proved to have persisted in the contravention after the date of the first conviction."

(1) A.I.R. 1954 Patna 371.

, -

In this case the 111nguage of the section itself made it obvious A tllat its violation resulted in a continuing offence.

The true principle appears to be that where the wrong complained of is the omission to perform a positive duty requiring a person to do a certain act the test to determine whether such a wrong is a continuing one is whether the duty in question is one which requires him to continue to do that act.

Breacl1 of a covenant to keep the permises in good repair, breach of a continuing guarantee, obstruction to a right of the way, obstruction to the right of a person to the unobstructed flow of water, refusal by a man to maintain his wife and children whom he is bound to maintain under law and the carrying on of mining operations or the running of a factory without complying with the measures intended for the safety and well-being of workmen may be illustrations of continuing breaches or wrongs giving rise to civil or criminal liability. as the case my be, de die in diem.

In Balkrishna Sava/arm Pujari & Ors. v. Shree Dayaneshwar Mcharrj Sansth::m & Ors.(1) Gajendragadkar, J. (as he then was) observed

"It is the very essence of a continuing wrong that it is an act which creates a continuing source of injury and renders the doer of the act responsible and liable for the continuance of the said injury. If the wrongful act causes an injury which is complete, there is no continuing wrong even though the clamage resulting from the act may continue.

If, however, a wrongful act is of such a character that the injury caused by it itself continue, then the act constitntes a continuing wrong.

In this connection it is necessery to draw a distinction between the injury caused by the wrongful act and what may be described at the effect of the said injury."

Section 18 of the Act with which we are concerned in this case, however, does not require the assessee to file a return during every month after the last day to file it is over.

Non-performance of any of the acts mentioned in section 18(J)(a) of Act gives rise to a single default and to a single penalty, the measure of which,

(l) (1959] Supp. 2 S.C.R. 476.

A 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.

The principle underlying section 6 of the General Clauses Act is clearly applicable to these cases.

It may be stated here that the majority of the High Courts in India have also taken the same view.

In the result we hold that where the default complained of is one falling under section 18(1 )(a) of the Act, 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 amendment made in 1969 has retrospective effect.

The appeals therefore fail and are dismissed with costs.

Hearing fee one set.

S. R.

Appeals dismissed.

~·

COMMISSIONER OF WEALTH TAX, AMRITSAR

SURESH SETH

April 7, 1981

R.S. PATHAK

E.S. VENKATARAMIAH, JJ.

Wealth Tax Act, 1957

section 18(1)

Amendments to the Wealth Tax Act

section 14(1)

March 22, 1971

section 18(1)

High Court of Punjab

section 18

section 18

section 18

Act as amended by the Finance Act, 1969

Article 136

section 18(1)

Section 18

section 18(1)

section 6

General Clauses Act

Article 20(1)

B. B. Ahuja

A. Subhashini

G. C. Sharma

E. D. Helms

R. S. Sh[lrma

K. B. Rohtagi

VENKATARAMIAH

High Court of Punjab and Haryana

section 27(1)

Wealth-tax Act, 1957

section 18(l)(a)

Wealth-tax Act

section 14(1)

section 18(1)(a)

section 18(1)(a)

Finance Act, 1969

Finance Act, 1969

section 18

Finance Act, 1969

section 8(1 )(a)

Finance Act, 1969

section 18

section 18

sec. 18

Act as amended by the Finance Act, 1966

Article 136

April 1, 1965

section 14

Section 15

section 14

section 18

section 14

section 17

March 31, 1969

section 14

section 14

section 17

section 14

April 1, 1969

March 18, 1971

section 14

section 14

section 17

section 14

section 16

section 17

section 17

section 16

section 17

Section 14

section 14

section 15

section 14

section 15

section 14(1)

Section 18

section 18(1)

section 14

section 14(2)

section 17

section 14(1)

section 14(2)

section 17

section 18(1)

section 18(l)(a)

April l, 1965

April l, 1969

section 18

section 18

Finance Act, 1969

section 18

section 18

section 18

section 14(1)

March 13, 1971

section 18

section 18

Finance Act, 1969

Kerala High Court

section 18

June 30, 1965

section 18

section 18(1)

section 18

Article 20

Lindley

A. L. Smith

High Court of Bombay

Factories Act, 1948

Beaumount

Criminal Procedure Code

Bhiwandiwa

Factories Act

Section 39

Indian Mines Act, 1923

Patna High Court

Section 39

Gajendragadkar

Section 18

section 18(J)(a)

section 6

General Clauses Act

India

section 18(1 )(a)