R.A Sharma, J.:— A Division Bench has referred these two petitions to a Full Bench “to decide as to the meaning of the word ‘voluntarily’ in section 273A of the Income-tax Act, 1961, and section 18B of the Wealth-tax Act, 1957, and in particular to decide whether a disclosure subsequent to search and seizure is necessarily a non-voluntary disclosure”.

2. The petitioners in both the writ petitions have challenged the orders passed by the Commissioner of Income-tax under section 273A of the Income-tax Act (hereinafter referred to as “the Act”) rejecting their applications for waiver of penalty. Learned counsel for both the parties have stated that sections 271 and 273A, as they were before April 1, 1989, on which date they were amended, will apply to the present cases, because the petitioners in both the cases have made the disclosure and applications for waiver of penalty before the said date. The relevant parts of unamended sections 271 and 273A are reproduced below:

“271. Failure to furnish returns, comply with notices, concealment of income, etc.— (1) If the Assessing Officer or the Deputy Commissioner (Appeals) or Commissioner (Appeals) in the course of any proceedings under this Act, is satisfied that any person—

(a) has failed to furnish the return of total income which he was required to furnish under sub-section (1) of section 139 or by notice given under sub-section (2) of section 139 or section 148 or has failed to furnish it within the time allowed and in the manner required by subsection (1) of section 139 or by such notice, as the case may be, or

(b) has failed to comply with the notice under sub-section (1) of section 142 or sub-section (2) of section 143, or fails to comply with a direction issued under sub-section (2A) of section 142, or

(c) has concealed the particulars of his income or furnished inaccurate particulars of such income,

he may direct that such person shall pay by way of penalty,—”

273A. Power to reduce or waive penalty, etc., in certain cases.— (1) Notwithstanding anything contained in this Act, the Chief Commissioner or Commissioner may, in his discretion, whether on his own motion or otherwise,—

(i) reduce or waive the amount of penalty imposed or imposable on a person under clause (i) of sub-section (1) of section 271 for failure, without reasonable cause, to furnish the return of total income which he was required to furnish under sub-section (1) of section 139; or

(ii) reduce or waive the amount of penalty imposed or imposable on a person under clause (iii) of sub-section (1) of section 271; or

(iii) reduce or waive the amount of interest paid or payable under sub-section (8) of section 139 or section 215 or section 217 or the penalty imposed or imposable under section 273,

if he is satisfied that such person—

(a) in the case referred to in clause (i), has, prior to the issue of a notice to him under sub-section (2) of section 139, voluntarily and in good faith made full and true disclosure of his income;

(b) in the case referred to in clause (ii), has, prior to the detection by the Assessing Officer, of the concealment of particulars of income or of the inaccuracy of particulars furnished in respect of such income, voluntarily and in good faith, made full and true disclosure of such particulars;

(c) in the cases referred to in clause (iii), has, prior to the issue of a notice to him under sub-section (2) of section 139, or where no such notice has been issued and the period for the issue of such notice has expired, prior to the issue of notice to him under section 148, voluntarily and in good faith made full and true disclosure of his income and has paid the tax on the income so disclosed,

and also has, in all the cases referred to in clauses (a), (b) and (c), cooperated in any enquiry relating to the assessment of his income and has either paid or made satisfactory arrangements for the payment of any tax or interest payable in consequence of an order passed under this Act in respect of the relevant assessment year.

Explanation 1.— For the purposes of this sub-section, a person shall be deemed to have made full and true disclosure of his income or of the particulars relating thereto in any case where the excess of income assessed over the income returned is of such a nature as not to attract the provisions of clause (c) of sub-section (1) of section 271.”

3. Full and true disclosure of income/particulars made voluntarily and in good faith by the assessee is a condition precedent for waiver of penalty under section 273A. The question as to what is the meaning of the word “voluntarily” is no more res integra. It has been decided by the courts from time to time in various cases. It is not necessary to cite all those cases in this judgment and it would be sufficient for our purpose to refer to and deal with the following cases only which represent the different shades of opinion.

4. In Moot Chand Mahesh Chand v. CIT, [1978] 115 ITR 1 (All), this court has held that disclosure made after the concealed income was detected and enquiry in connection therewith was being made, cannot be said to be voluntary.

5. In Jahhodia Brothers v. CIT, [1978] 115 ITR 61, this court held that even if the disclosure of income is made by the assessee during the pendency of the assessment proceedings, it can still be treated to have been made voluntarily, if it was made not due to any compulsion or any order passed by the competent authority.

6. In Haham Singh v. CIT, [1980] 124 ITR 228, this court considered the meaning of the word “voluntarily” in detail and held that if the income is disclosed after the books of account had been seized at a raid it cannot be said to be voluntary, because it was made under constraint. The relevant extract from this decision is reproduced below (page 232):

“The question is whether a return, filed out of a sense of fear of penalty or prosecution, is voluntary. The Income-tax Act does not define the term ‘voluntarily’. The word ‘voluntary’ has been defined in Shorter Oxford Dictionary, Vol. 2, page 2371, as performed or done of one's own free will, impulse or choice not constrained, prompted or suggested by another, proceeding from the free unprompted or unconstrained will of a person. A return filed under the constraint of exposure to adverse action by the Income-tax Department, in our opinion, will not be voluntary within the meaning of section 273A. The action of the petitioners in filing the returns after the books of account had been seized at a raid was impelled by the compelling circumstance that the petitioner was likely to be dealt with under the penal provisions of the Income-tax Act. The action of the petitioner in filing the returns under such a constraint cannot be said to be voluntary. In Mool Chand Mahesh Chand v. CIT, [1978] 115 ITR 1 (All), the Income-tax Officer started investigation by asking for details in respect of several matters while conducting the assessment proceedings for the year 1969-70. Thereafter, the assessee filed returns for the years 1964-65 to 1970-71. It was held that since the investigation had started and concealed income had come to light, it was a case covered by the word ‘detection’ occurring in section 273A. It was further observed that in these circumstances the returns were filed after the assessee felt that the game was up because the investigation initiated by the Income-tax Officer exposed him to a situation that he had assessable income in respect of other years; it cannot be said that the filing of the return was voluntary. This decision shows that the term ‘voluntary’ under section 273A has been used to indicate an action free of any constraint. A return filed in order to save oneself from a possible penal action cannot be termed ‘voluntary’.”

7. In A.V Joy Alukkas Jewellery v. CIT, [1990] 185 ITR 638, the Kerala High Court after analysing the earlier cases decided by various courts, held that “voluntarily” means without compulsion. In this connection, the relevant extract from the said judgment is quoted below (page 646):

“The expression ‘voluntarily’ means without compulsion. This view is again reiterated in S.R Jadav Desai v. WTO, [1980] 121 ITR 531 (Kar) by the same High Court. It may be that the action of an assessee in filing the return after the books of account had been seized during a raid was impelled by the compelling circumstances and a fear that the assessee will be likely to be dealt with under the penal provisions of the Act. But it cannot be said as a principle of law that all returns filed after search will cease to be voluntary returns and that it cannot be considered as a voluntary disclosure.”

8. The Kerala High Court in the said case also explained the decision of this court in Hakam Singh v. CIT, [1980] 124 ITR 228 holding that this court has not laid down as a principle that the disclosure made after the search cannot be treated to be voluntary disclosure. The question as to whether the disclosure is or is not voluntary, has to be examined by the Department in each case. The relevant passage from the said Kerala judgment (see [1990] 185 ITR 638, 647) is as under:

“But, we do not understand the case as laying down as a principle that disclosure made after the search cannot be considered as voluntary disclosure. Under section 273A of the Act, the Commissioner of Income-tax will have to examine whether the disclosure made by the appellants in the case is bona fide and voluntary on the facts of each case. He has to examine the nature of the incriminating documents obtained after search and the period to which they relate. The gold ornaments seized and the books of account taken possession of by the Department may show no suppression or may show suppression for a year or two. The raid may wake up the sleeping partners to corrective actions. The orders in question which are the subject-matter of the appeals proceeded on the basis that the return filed is not voluntary in nature only on the ground that the same has been made after the search on January 23, 1985. Explanation 2 which was in force on October 1, 1984, to May 24, 1985, gives certain benefits if the disclosures are made within 15 days of the search. The disclosures in question were made on February 7, 1985, within 15 days of the search. It may be that, during the search, certain matters relating to particular assessment years might have come to the knowledge of the Income-tax Officer. The disclosure in question is not shown related to matters revealed from the search in space and time. Documents relating to a particular year might be in the possession of the officers. But the assessee, taking advantage of the provisions contained in section 273A of the Act, might have made a full disclosure, not only for any particular year to which the documents obtained from the search related but also for all earlier or subsequent years. If an assessee, in order to reduce his tax burden, transfers his assets to his near relatives, the motive for the transfer may be reduction of the income-tax burden. But, for that reason, the return will not cease to be voluntary. Similarly, by virtue of seizure of certain documents, the appellants might have decided to make a full disclosure of the income for earlier years also. The return and the disclosure will nevertheless be voluntary even though the intention of the appellants in so doing was only to save the penalty. Hence, the disclosure or the filing of the returns after the search by itself will not be decisive of the fact that the returns and disclosures are not voluntary.”

9. The Bombay High Court in Natwarlal Joitram Raval v. CIT, [1993] 115 CTR 518, after considering the case law on the issue including the aforementioned decisions of this court and the Kerala High Court, declared as follows (page 527):

“We are inclined to agree with the Kerala High Court that in every case the Commissioner of Income-tax must, having regard to the search, seizure or statements, determine whether or not the disclosure subsequently made is or is not voluntary, but we are also inclined to agree with the Allahabad High Court that where a disclosure is made consequent upon seizure of incriminating material relevant to the particular assessment year, the disclosure is made because adverse consequences under the Act are attracted. Such a disclosure is not voluntary.”

10. The Bombay High Court held that the Department has to consider the facts and circumstances of each case in order to find out whether the disclosure made by the assessee subsequent to the search is or is not voluntary and the test for deciding such a question is whether “disclosure was made consequent upon seizure of the incriminating material relevant to the particular assessment year”. If the answer to the said question is in the affirmative, the disclosure cannot be treated to be voluntary.

11. The Andhra Pradesh High Court in Sujatha Rubbers v. ITO, [1992] 194 ITR 355, the relevant extract of which is reproduced below, has taken a similar view (page 361):

“The word ‘voluntarily’, in the context of section 273A(1), therefore, has to be construed as filing of the return by the assessee without being prompted by the animus to avoid or pre-empt adverse exposure or penal action. The Commissioner, before rejecting the returns as not voluntary, must have material based upon which it is reasonable to infer that, in all probability, but for the filing of the ‘voluntary’ return, the assessee would have been subjected to penal action or adverse exposure. In other words, ‘out of fear, an assessee has made full disclosure’, by itself, without anything more, cannot be a ground for not exercising the discretion under section 273A. The fear must be traceable to the imminent or proximate exposure of the assessee to penal action but for the filing of the voluntary return under section 273A and, in order to enquire into this subjective element, there must be in existence objective facts warranting such an inference.”

12. In Tribhovandas Bhimji Zaveri v. Union of India, [1993] 204 ITR 368, the Supreme Court while considering the expression “voluntary” disclosure under the Voluntary Disclosure of Income and Wealth Act, 1976, has laid down as follows (page 376):

“Clearly, the object of the said Act is* to motivate the voluntary declaration of concealed income and with that object in mind the Schedule to the Act prescribes concessional rates of tax. A declaration of concealed income made after books of account or other documents or valuable assets have been seized cannot be said to be a voluntary disclosure; it is made because the books, documents and assets seized would disclose to the assessing authority the concealment of income.”

13. The position thus settled is that the word “voluntarily” in section 273A of the Act means out of free will without any compulsion. Disclosure of concealed income after the Department has seized the incriminating material with regard to the income so disclosed, cannot be voluntary disclosure, because it was made under the constraint of exposure to adverse action by the Department. But it cannot be held as a principle of law that the disclosure of income made after the search/raid cannot be voluntary. It is a question which has to be decided by the Department in each case on the basis of the material on the record. If on record there is incriminating material with regard to the disclosed income, the disclosure cannot be voluntary. But if the Department has no incriminating material with regard to the income disclosed, the disclosure is liable to be treated as voluntary having been made without any compulsion or constraint of exposure to adverse action by the Department. In a case where the assessee has disclosed not only the income regarding which the Department has incriminating material, but has also disclosed the income with regard to which no incriminating material was seized by the Department, the disclosure of the income with regard to which the Department has no incriminating material, is liable to be treated as voluntary. For example, if an assessee is having five accounts and the Department has incriminating material with regard to one of those accounts only, the disclosure of income relating to four accounts with regard to which the Department has no incriminating material, is voluntary, because it was made without any constraint or compulsion, even though the disclosure of the income relating to the account regarding which the Department has incriminating material, is liable to be treated as non-voluntary. Our answer to the question referred is as under:

(i) The word “voluntarily” in section 273A of the Act means out of free will without any compulsion. Voluntary disclosure of income means the disclosure of income out of free will without any compulsion/constraint.

(ii) As a principle of law it cannot be held that the disclosure of the concealed income after the raid or search cannot be voluntary. It is a question which has to be decided by the Department in each case on the basis of the material available on the record. The criteria for deciding this question is to find out as to whether the Department has any incriminating material with regard to the disclosed income. If the answer is in the affirmative, the disclosure cannot be said to be voluntary. But if the Department has no incriminating material with regard to the income disclosed, the disclosure is liable to be treated as voluntary even if it was made after raid/search.

14. The same principle will apply to disclosure made under section 18B of the Wealth-tax Act, 1957, because under the said section also the disclosure must be made voluntarily and in good faith.

15. Let the papers of these petitions be placed before the appropriate Bench for deciding them in accordance with law.