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Rasiklal Ranchhodbhai Patel v. Commissioner Of Wealth-Tax, Gujarat-Iv.
Factual and Procedural Background
The three special civil applications before the court involved substantially similar facts and related petitioners; the court therefore disposed of all three by a common judgment. The petitioner in Special Civil Application No. 1518 of 1975 had been assessed to income-tax and wealth-tax over several years. For the assessment year 1971-72, the petitioner filed a wealth-tax return on 10 June 1971 showing Rs. 45,122.17 as a fixed deposit with N. R. Patel & Co., accompanied by a certificate dated 31 March 1971 issued by Messrs. Nalinbhai R. Patel & Co.; the WTO issued a receipt for the submission. An order by the WTO in respect of AY 1971-72 was passed on 23 December 1971.
When preparing the return for assessment year 1972-73, the petitioner's tax consultant noticed a discrepancy in the earlier certificate; the petitioner then filed a revised return for AY 1971-72 on 9 August 1972 and, on 14 August 1972, applied under section 18(2A) for condonation of the mistake. On 6 September 1974 the petitioner applied to the Commissioner of Wealth-tax (CWT) under s. 18(2A) seeking waiver of penalty. On 31 March 1975 the CWT issued an order stating that the conditions of s. 18(2A) were satisfied and reducing the minimum penalty leviable under section 18(1)(a) to Rs. 7,500.
The provisions of section 18 of the Wealth-tax Act, 1957 (as recited in the opinion) set out circumstances in which penalty may be imposed for concealment or furnishing inaccurate particulars and prescribe a minimum and maximum penalty (including that in clause (iii) the penalty "shall not be less than, but shall not exceed twice, the amount representing the value of any assets..." ). Section 18(2A) permitted the Commissioner, in his discretion, to reduce or waive the minimum penalty under clause (iii) of sub-s. (1) if certain conditions (disclosure in good faith before detection, cooperation, payment or arrangements for tax/interest) were satisfied.
Legal Issues Presented
- Whether the Commissioner's order dated 31 March 1975, which stated only that "the conditions of section 18(2A) are satisfied" and "Looking to this fact and other facts of this case" (reducing the minimum penalty to Rs. 7,500), contained sufficient reasons as required of a quasi-judicial order.
- Whether the failure to disclose adequate reasons in the Commissioner's quasi-judicial order amounted to a breach of the rule of audi alteram partem and, if so, whether the order should be struck down and the special civil applications allowed.
Arguments of the Parties
The opinion does not contain a detailed account of the parties' legal arguments.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Woolcombers of India Ltd. v. Woolcombers Worker's Union, AIR 1973 SC 2758 | Authorities exercising judicial or quasi-judicial functions must give reasons in support of their conclusions; reasons prevent unconscious unfairness, promote appearance of justice, and assist appellate scrutiny. | Cited to establish the necessity of giving substantive reasons in quasi-judicial orders and to show why a mere conclusion without supporting reasons is inadequate. |
| Siemens Engineering and Manufacturing Co. of India Ltd. v. Union of India, AIR 1976 SC 1785 | Where an authority makes an order in exercise of a quasi-judicial function, it must record its reasons; the requirement to give reasons is a basic principle of natural justice akin to audi alteram partem. | Relied upon to reinforce that administrative/quasi-judicial authorities must give clear and explicit reasons and that mere pretence of compliance is insufficient. |
| N. M. Desai v. Testeels Ltd. (C.A. No. 245 of 1970 decided 17-12-75 (SC)) | Part of the line of Supreme Court decisions establishing that quasi-judicial orders must be supported by reasons. | Referenced as part of the established judicial line affirming the requirement of reasons for quasi-judicial decisions. |
| Union of India v. M. L. Capoor, AIR 1974 SC 87 | Characterised inadequate explanation in an administrative order as an "apology for reasons" where required reasons were not properly recorded. | Used to describe the Commissioner's phrasing ("Looking to this fact...") as an insufficient apology for reasons that must be recorded. |
| Smt. Maneka Gandhi v. Union of India, AIR 1978 SC 597 | Withholding reasons for administrative action (e.g., impounding a passport) violates audi alteram partem and statutory procedure; denial of reasons can amount to denial of opportunity of hearing. | Utilised as the latest authority in the line to treat a failure to give substantial reasons as a breach of the rule of natural justice, supporting setting aside the Commissioner's order. |
Court's Reasoning and Analysis
The court's analysis proceeded in the following steps, based solely on the opinion text:
- Nature of the Commissioner's act: The Commissioner exercised a discretionary power under s. 18(2A) of the Wealth-tax Act to reduce or waive the minimum penalty under sub-s. (1) of s. 18; such exercise of discretion was characterised as a quasi-judicial act, and therefore subject to requirements applicable to quasi-judicial authorities.
- Requirement to give reasons: The court relied on a line of Supreme Court decisions (including Woolcombers, Siemens, N.M. Desai, Union of India v. M. L. Capoor, and Maneka Gandhi) which establish that quasi-judicial authorities must give substantive reasons in support of their orders. The opinion quotes from these authorities to explain why reasons are necessary (to prevent arbitrariness, to show the appearance of justice, and to assist appellate review).
- Insufficiency of the Commissioner's order: The Commissioner's order of 31 March 1975 merely states that "the conditions of section 18(2A) are satisfied" and, in the terms used, "Looking to this fact and other facts of this case, I reduce the minimum penalty... to Rs. 7,500." The court found that this formulation supplies no meaningful disclosure of how the Commissioner's mind operated in law under s. 18(2A).
- Specific deficiencies identified: The opinion notes that the order does not explain (a) why the Commissioner decided not to waive the minimum penalty altogether, and (b) why the Commissioner fixed the penalty at Rs. 7,500 when the minimum penalty shown by the order was Rs. 58,390. The reasons for selecting the reduced figure and the exercise of discretion do not emerge from the order itself.
- Conclusion on natural justice breach: Because the order lacks substantial reasons, the court concluded that there was a breach of the rule of audi alteram partem (failure to give adequate reasons is treated as a breach of this rule). Consequently, the Commissioner's order must be struck down.
- Relief and procedural direction: The court allowed each special civil application, struck down the Commissioner's order for lack of reasons, awarded costs to the petitioner (to be paid by the respondent-Commissioner), and left it open to the Commissioner to pass an appropriate fresh order after considering all facts and what is stated in the judgment.
Holding and Implications
Holding: The special civil applications are allowed and the Commissioner's order dated 31 March 1975 is struck down for failure to record adequate reasons; the rule is made absolute with costs.
Immediate consequences and directions:
- The respondent-Commissioner in each of the three special civil applications is ordered to pay the costs of the petitioner.
- The Commissioner's order reducing the minimum penalty to Rs. 7,500 is set aside on the ground that it does not disclose sufficient reasons supporting the exercise of discretion under s. 18(2A).
- It is open to the Commissioner to pass an appropriate fresh order after taking into consideration all the facts and the statements in this judgment; the opinion thus requires a reasoned reconsideration rather than permanently precluding the Commissioner from exercising discretion.
Broader implication stated in the opinion:
The court emphasises the settled requirement (as reflected in Supreme Court authority) that failure to give substantial reasons in quasi-judicial orders is a breach of the rule of natural justice (audi alteram partem). The opinion treats such failure as a necessary ground for setting aside administrative/quasi-judicial orders that do not disclose how the decision-maker's mind operated in law.
1. The facts in each of these special civil applications are more or less the same and the petitioner in each of these three special civil applications are also inter-related and the facts of one are on the same lines as the facts of the other two petitions. We will, therefore, dispose of all the three matters by this common judgment. The petitioner in Special Civil Application No. 1518 of 1975, has been assessed to income-tax and wealth-tax and is being assessed under those Acts for the last several years. The wealth-tax return for the assessment year 1971-72 was filed by the petitioner on June 10, 1971. In that return, the petitioner had shown a sum of Rs. 45,122.17 as the amount lying as fixed deposit with N. R. Patel & Co. This return was submitted to the WTO concerned, and along with the said return, the petitioner had also filed a certificate issued by Messrs. Nalinbhai R. Patel & Co. dated 31st March, 1971, showing the amount of the deposit. In token of the submission of the return along with the said certificate, the WTO concerned issued the necessary receipt. It is the case of the petitioner that the petitioner did not know at that time that there was a mistake in the certificate issued by N. R. Patel & Co., and without being aware of the mistake in the certificate, the return was submitted along with that certificate. An order was passed by the WTO on December 23, 1971, in respect of the assessment year 1971-72. Thereafter, in due course of time, the return for the assessment year 1972-73 was required to be filed and, at that time, a certificate issued by N. R. Patel & Co. in respect of the deposit amount lying to the credit of the petitioner in the books of account of that firm was required to be filed. When that certificate was checked, a discrepancy was noticed by the tax consultant of the petitioner and then it was realised that a revised return for assessment year 1971-72, should be filed. On August 9, 1972, the petitioner filed the revised return for the assessment year 1971-72, on realising the mistake which had been committed in the earlier return. On August 14, 1972, the petitioner applied under s. 18(2A) for condonation of the mistake and thereafter, on September 6, 1974, the petitioner applied to the CWT concerned under s. 18(2A) of the W.T. Act for waiver of the penalty because, according to the petitioner, the conditions required for the exercise of discretion were satisfied in that particular case. On March 31, 1975, the CWT passed an order in the following terms :
"I have carefully considered the facts and circumstances of this case and also the submission made before me. I find that the conditions of section 18(2A) of the Wealth-tax Act are satisfied in this case. Looking to this fact and other facts of this case, I reduce the minimum penalty leviable under section 18(1)(a) to Rs. 7,500."
At the relevant time, the provisions for penalty in the W.T. Act, 1957, were as follows :
"18. (1) 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 - .....
(c) has concealed the particulars of any assets or furnished inaccurate particulars of any assets or debts;
he or it may, by order in writing, direct that such person shall pay by way of penalty - .......
(iii) in the cases referred to in clause (c), in addition to any wealth-tax payable by him, a sum which shall not be less than, but which shall not exceed twice, the amount representing the value of any assets in respect of which the particulars have been concealed or any assets or debts in respect of which inaccurate particulars have been furnished."
2. Under s. 18(2A), notwithstanding anything contained in clause (i) or clause (iii) of sub-s. (1), the Commissioner may, in his discretion, reduce or waive the amount of minimum penalty imposable on person under clause (iii) of sub-s. (1), if he is satisfied that such person, (a) in the case referred to in clause (ii) of the sub-section, has, prior to the detection by the WTO of the concealment of particulars of assets or of the inaccuracy of particulars furnished in respect of the assets or debts in respect of which the penalty is imposable, voluntarily and in good faith made full and true disclosure of such particulars; (b) has co-operated in any enquiry relating to the assessment of the wealth represented by such assets; and (c) has either paid or made satisfactory arrangements for payment of any tax or interest payable in consequence of an order passed under this Act in respect of the relevant assessment year. The CWT has, in this order dated 31st March, 1975, stated that the conditions laid down in s. 18(2A) are satisfied. Therefore, this not a case in which it is necessary for us to go into the question whether the conditions are or are not satisfied. The only question is whether the order passed by him in these terms - "Looking to this fact and other facts this case" amounts to sufficient reasons which, according to the law as laid down by the Supreme Court, the Commissioner was bound to give in passing this quasi-judicial order. It is obvious that when the Commissioner exercised his discretion under s. 18(2A) of the W.T. Act, he acted in a quasi-judicial manner because, in exercise of his discretion, he can reduce or waive the amount of the minimum penalty imposable under sub-s. (1) of s. 18. The position in law has been made very clear by several decisions of the Supreme Court and we need only quote three recent decisions in this judgment. In Woolcombers of India Ltd. v. Woolcombers Worker's Union, AIR 1973 SC 2758, 2761, Dwivedi J., speaking for the Supreme Court, has observed :
"It may be observed that the first passage quoted by us states only the conclusion. It does not give the supporting reasons. The second passage quoted by us states merely one of the reasons. The other relevant reasons are not disclosed. The giving of reasons in support of their conclusions by judicial and quasi-judicial authorities when exercising initial jurisdiction is essential for various reasons. First, it is calculated to prevent unconscious unfairness or arbitrariness in reaching the conclusions. The very search for reasons will put the authority on the alert and minimise the chances of unconscious infiltration of personal bias or unfairness in the conclusion. The authority will adduce reasons which will be regarded as fair and legitimate by a reasonable man and will discard irrelevant or extraneous considerations. Second, it is a well-known principle that justice should not only be done but should also appear to be done. Unreasoned conclusions may be just but they may not appear to be just to those who read them. Reasoned conclusions, on the other hand, will have also the appearance of justice. Third, it should be remembered that an appeal generally lies from the decisions of judicial and quasi-judicial authorities to this court by special leave granted under art. 136. A judgment which does not disclose the reasons will be of little assistance to the court. The court will have to wade through the entire record and find for itself whether the decision in appeal is right or wrong. In many cases, this investment of time and industry will be saved if reasons are given in support of the conclusions. So it is necessary to emphasise that judicial and quasi-judicial authorities should always give the reasons in support of their conclusions."
3. In Siemens Engineering and Manufacturing Co. of India Ltd. v. Union of India, AIR 1976 SC 1785, the question before the Supreme Court was in the context of the Tariff Act and the decision of the Assistant Collector of Customs in the context of the Tariff Act. In para. 6 of the judgment at page 1789, Bhagwati J., speaking for the Supreme Court, has dealt with this question of reasons having to be given. He has pointed out that the Assistant Collector, the Collector and the Government of India disposed of the proceedings before them without giving reasons. He observed (p. 1789) :
"It is now settled law that where an authority makes an order in exercise of a quasi-judicial function, it must record its reasons in support of the order it makes. Every quasi-judicial order must be supported by reasons. That has laid down by a long line of decisions of this court ending with N. M. Desai v. Testeels Ltd. (C.A.No. 245 of 1970 decided on 17-12-75 (SC))..... If courts of law are to be replaced by administrative authorities and tribunals, as indeed, in some kinds of cases, with the proliferation of administrative law, they may have to be so replaced, it is essential that administrative authorities and tribunals should accord fair and proper hearing to the persons sought to be affected by their orders and give sufficiently clear and explicit reasons in support of the orders made by them. Then alone administrative authorities and tribunals exercising their existence can carry credibility with the people by inspiring confidence in the adjudicatory process. The rule requiring reasons to be given in support of an order is, like the principle of audi alteram partem, a basic principle of natural justice which must inform every quasi-judicial process and this rule must be observed in its proper spirit and mere pretence of compliance with it would not satisfy the requirement of law."
4. In the instant case, the only reason that is found in the order of the CWT is "Looking to this fact", viz., that the conditions of s. 18(2A) are satisfied, and looking to the other facts of the case, the Commissioner reduced the minimum penalty leviable under s. 18(1)(a) to Rs. 7,500. To use the words of the Supreme Court in Union of India v. M. L. Capoor, AIR 1974 SC 87 at page 97, this is nothing else but an apology for reasons which are required to be recorded by the quasi-judicial authority. The latest decision in this line is to be found in the decision in Smt. Maneka Gandhi v. Union of India, AIR 1978 SC 597. In para. 64, at page 630, Bhagwati J. has observed :
"We have already pointed out that the Central Government was wholly unjustified in withholding the reasons for impounding the passport from the petitioner and this was not only in breach of the statutory provisions, but it also amounted to denial of opportunity of hearing to the petitioner. The order impounding the passport of the petitioner was, therefore, clearly in violation of the rule of natural justice embodied in the maxim audi alteram partem and it was not in conformity with the procedure prescribed by the Passport Act, 1967."
5. Therefore, the Supreme Court now treats a failure to give reasons, reasons which are substantial and not an apology for reasons, as necessary requirement for compliance with the principle of audi alteram partem. In the instant case, we find that the Commissioner has not disclosed how his mind worked in law under s. 18(2A), having come to the conclusion that the requirements of s. 18(2A) were satisfied. He had to make up his mind as to whether the minimum penalty should be waived or reduced. Why he decided not to waive, and if he decided to impose the penalty, why he decided upon the figure of Rs. 7,500 when the minimum penalty as shown by the order was Rs. 58,390 does not emerge from his order. It is to the order alone that we have to look for finding out whether the reasons have been properly set out in the order or not, and the order in each of these three cases is totally silent on this point.
6. Since the rule of audi alteram partem has been breached in this particular case by the the failure to supply the reasons so far as the Commissioner's order was concerned, the order must be struck down and in each of these cases, therefore, the special civil application will be allowed and the order passed by the Commissioner will be struck down as reasons in support of the order are not given, and the rule will be made absolute accordingly. The respondent-Commissioner in each of these three special civil applications will pay the costs of the petitioner. Rule is made absolute accordingly with costs. It will be open to the Commissioner to pass an appropriate order after taking into consideration all the facts and what has been stated in this judgment.
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