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Madhukar Manilal Modi v. Commissioner Of Wealth-Tax, Gujarat-V, And Another
Structured Summary of the Opinion (P.D. Desat, J.)
Factual and Procedural Background
The petitioner is the karta of the Hindu undivided family of Madhukar Manilal Modi, assessable to wealth-tax under the Wealth-tax Act, 1957. Returns for three assessment years were filed on the following dates and assessed on the dates shown in the table contained in the opinion:
- Assessment year 1969–70: return filed 19-9-1973; assessment order dated 29-12-1973.
- Assessment year 1970–71: return filed 19-9-1973 (same as above); assessment order dated 29-12-1973.
- Assessment year 1971–72: return filed 29-11-1971; assessment order dated 24-9-1973.
It appears that the 1971–72 return was filed earlier than the returns for the previous two assessment years, and the returns for 1969–70 and 1970–71 were filed on the same date. The petitioner admittedly failed to furnish the returns within the time allowed and thus was liable to penalty under section 18 unless reasonable cause was shown.
On July 20, 1974 the petitioner applied to the Commissioner for waiver of the minimum penalty for all three assessment years; on January 20, 1975 he presented a supplementary statement asserting that the conditions for relief were present. By order dated February 18, 1975 the Commissioner waived the minimum penalty for 1971–72. By a separate order dated February 19, 1975 the Commissioner refused to waive or reduce the penalty for assessment years 1969–70 and 1970–71. The petitioner challenged the February 19, 1975 order in this petition.
Legal Issues Presented
- Whether the Commissioner legitimately refused to exercise the discretion conferred by section 18(2A) of the Wealth-tax Act, 1957, in relation to the returns for assessment years 1969–70 and 1970–71.
- How the statutory condition in section 18(2A)(a) that the assessee must have "prior to the issue of notice under section 14(2), voluntarily and in good faith, made full disclosure of his net wealth" is to be interpreted—specifically, whether "voluntarily" must be read as referring to the timing or circumstances of filing the return.
- Whether the relief under section 18(2A) is limited to "new assessees" or first-time filers.
Arguments of the Parties
Petitioner's Position
- The petitioner applied under section 18(2A) seeking waiver of the minimum penalty for late filing for all three assessment years, asserting (by his supplementary statement) that all the statutory conditions for grant of relief were present.
- Implicit in his petition is the contention that the Commissioner should exercise the discretion under section 18(2A) in his favour for the two years in question (1969–70 and 1970–71) because the statutory conditions were satisfied.
Commissioner's Reasons for Refusal
- The Commissioner refused to waive or reduce penalty for 1969–70 and 1970–71 on three stated grounds: (1) the returns for those years were filed only after the assessee was asked during the course of assessment proceedings for 1971–72 to file them, and were therefore not voluntary returns; (2) the assessee was not a "new assessee" when he filed those returns; and (3) on that basis the case was not fit for waiver or reduction of the penalty under the Act.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Julius v. Lord Bishop of Oxford, [1880] 5 App Cas 214 | The principle that when a power is conferred on a public officer to be used for the benefit of identified persons under prescribed conditions, the authority must exercise that power when the statutory conditions are satisfied; the court may require exercise of the discretion and issue mandamus where there is omission to exercise it or there has been misconception of statutory scope. | The court invoked this principle to hold that if the statutory conditions in section 18(2A) are satisfied, the Commissioner has no option to refuse to exercise the discretion; refusal based on a misconstruction of the statute permits the court to direct reconsideration (mandamus) and require the Commissioner to determine the matter afresh according to law. |
Court's Reasoning and Analysis
The court set out the relevant statutory framework: section 14(1) requires returns by June 30 of the assessment year; section 14(2) permits the Wealth-tax Officer to serve a notice requiring a return within a specified period; section 14(3) allows extension; section 18 prescribes penalty for failure to furnish returns; and section 18(2A) empowers the Commissioner to reduce or waive the minimum penalty if satisfied of specified conditions, and section 18(2B) makes an order under 18(2A) final.
From a combined reading, the court distilled the legal position that the Commissioner may reduce or waive the minimum penalty under section 18(2A) only if three conditions are satisfied:
- The assessee must have, prior to the issue of notice under section 14(2), voluntarily and in good faith made full disclosure of his net wealth (section 18(2A)(a)).
- The assessee must have co-operated in any enquiry relating to the assessment of the wealth (section 18(2A)(b)).
- The assessee must have paid or made satisfactory arrangements for payment of any tax or interest payable in consequence of an order under the Act for the relevant year (section 18(2A)(c)).
The court then examined the Commissioner's stated reasons for refusing to exercise his discretion. First, the Commissioner treated the returns for 1969–70 and 1970–71 as not "voluntary" because they were filed only after the assessee was asked, during the course of assessment proceedings for 1971–72, to file them. The court concluded that the Commissioner misdirected himself in law by reading the word "voluntarily" in section 18(2A)(a) as requiring that the return must have been filed without any prompting other than a section 14(2) notice. The court explained that the statutory phrase must be read as a whole: "voluntarily and in good faith" qualifies "made full disclosure of his net wealth," and the statute separately requires that disclosure have been made prior to the issue of a section 14(2) notice. Thus "voluntarily" was not to be read as imposing an additional requirement that the return must have been filed without any suggestion, advice, or request from the assessing officer outside the formal section 14(2) notice.
Second, the Commissioner relied on the assessee not being a "new assessee." The court found this reasoning equivocal and held that section 18(2A) contains no restriction limiting relief to first-time filers or "new assessees"; imposing such a condition would amount to adding a new requirement not present in the statute. Consequently, the Commissioner misdirected himself in law in taking that view.
Because the Commissioner's refusal flowed from a misconstruction of the statutory scope of his power (an apparent legal error), the court treated the discretion as not having been properly exercised. The court relied on the principle (from Julius v. Lord Bishop of Oxford) that where a statutory discretion is to be used for the benefit of identified persons and the statutory conditions are satisfied, the authority must exercise the discretion; failure or refusal to do so because of misapprehension of the law warrants corrective action by the court.
Accordingly, the court concluded that the petitioner was entitled to relief: the Commissioner's order refusing relief for the two assessment years must be reconsidered and determined afresh in accordance with law and the court's observations.
Holding and Implications
HOLDING: The court made the rule absolute. It held that the Commissioner misdirected himself in law in refusing to exercise the discretion conferred by section 18(2A) and directed the Commissioner to take up the petitioner's application under section 18(2A) for reconsideration and to determine it afresh in accordance with law and in light of the observations in the judgment. The Commissioner was ordered to pay the costs of the petition to the petitioner.
Implications:
- Direct effect on the parties: The petition succeeds; the Commissioner's February 19, 1975 order refusing waiver or reduction of penalty for assessment years 1969–70 and 1970–71 is set aside to the extent that the Commissioner must reconsider the application and determine it afresh. The Commissioner must pay the petitioner's costs.
- Broader implications: The opinion corrects the Commissioner's legal interpretation of section 18(2A) (specifically the meaning of "voluntarily" and that relief is not restricted to "new assessees") and instructs that a misconstruction of statutory discretion warrants reconsideration. The opinion itself does not purport to announce any novel statutory principle beyond applying established law on the exercise of statutory discretion.
P.D Desat, J.:— The petitioner is the karta of Madhukar Manilal Modi, Hindu undivided family, which is assessable to wealth-tax under the provisions of the Wealth-tax Act, 1957 (hereinafter referred to as “the Act”). The following table furnishes the particulars with regard to the returns filed by him for three different assessment years and the assessment orders passed pursuant thereto:
Sr. No. Assessment year Date of filing of return Date of the assessment order 1 2 3 4 1. 1969–70 19-9-1973 29-12-1973 2. 1970–71 -do- do- 3. 1971–72 29-11-1971 24-9-1973
2. It would appear from the particulars set out in the above table that the return for assessment year 1971–72 was filed earlier than the returns for the previous two assessment years and that the returns for the previous two assessment years were filed on the same date. The Act provides penalty for failure, without reasonable cause, to furnish the return within the time allowed and the minimum and maximum limits of penalty have been laid down. The Act, however, empowers the Commissioner of Wealth-tax to reduce or waive, in his discretion, the amount of minimum penalty imposable on his being satisfied about the existence of certain conditions. The petitioner admittedly failed to furnish the returns within the time allowed and he was, therefore, liable to be visited with penalty for late filing of returns in respect of all the three assessment years unless reasonable cause was shown. Under the circumstances, on July 20, 1974, the petitioner made an application to the Commissioner praying that the minimum penalty imposable upon him in respect of all the three assessment years should be waived in the circumstances of the case. On January 20, 1975, the petitioner presented a supplementary statement in which he claimed that he was entitled to the relief that he had sought inasmuch as all the conditions for the grant of relief were present in the case. The Commissioner by his order dated February 18, 1975, waived the minimum penalty imposable on the assessee in respect of the late filing of return for the assessment year 1971–72. However, by an order dated February 19, 1975, the Commissioner refused to waive or reduce the penalty imposable on the petitioner for late filing of the returns for the assessment years 1969–70 and 1970–71. In the present petition, the petitioner has challenged this order of the Commissioner of Wealth-tax dated February 19, 1975, refusing to waive or reduce penalty.
3. Before considering the case on merits, it would be convenient to refer to the relevant statutory provisions. Section 14, sub-section (1), provides that every person, if his net wealth or the net wealth of any other person in respect of which he is assessable under the Act on the valuation date was of such an amount as to render him liable to wealth-tax under the Act, shall, before the 30th 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 that valuation date.
4. Sub-section (2) provides that if the Wealth-tax Officer is of the opinion that any person is assessable under the Act, whether in respect of his net wealth or the net wealth of any other person, then, notwithstanding anything contained in sub-section (i), he may serve a notice upon such person requiring him to furnish within such period, not being less than thirty days, as may be specified in the notice, a return in the prescribed form and verified in the prescribed manner, setting forth along with such other particulars as may be required by the notice, the net wealth of such person as on the valuation date mentioned in the notice. Sub-section (3) empowers the Wealth-tax Officer to extend the date for the delivery of the return under the section if he is satisfied that it is necessary so to do. Section 18 provides for penalty for failure to furnish returns, etc. The relevant part of section 18 may be set out in extenso:
“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—
(a) has without reasonable cause failed to furnish the return which he is required to furnish under sub-section (1) 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 (1) of section 14 or by such notice, as the case may be; or……
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 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 ……
(2A) Notwithstanding anything contained in clause (i) or clause (iii) of sub-section (1), the Commissioner may, in his discretion,—
(i) reduce or waive the amount of minimum penalty imposable on a person under clause (i) of sub-section (1) for failure, without reasonable cause, to furnish the return of net wealth which such person was required to furnish under sub-section (1) of section 14, or…… if he is satisfied that such person—
(a) in the case referred to in clause (i) of this sub-section has, prior to the issue of notice to him under sub-section (2) of section 14, voluntarily and in good faith, made full disclosure of his net wealth;……
(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.
(2B) An order under sub-section (2A) shall be final and shall not be called in question before any court of law or any other authority”
5. On a combined reading of these provisions the following position of law emerges in so far as it is relevant for the purposes of the present case. Every person liable to wealth-tax has to furnish to the Wealth-tax Officer, before the 30th day of June of the corresponding assessment year, a return in the prescribed form and verified in the prescribed manner setting forth the net wealth as on the valuation date. Besides, if the Wealth-tax Officer is of the opinion that any person is assessable under the Act, then, he may serve upon such person a notice requiring him to furnish within such period, not being less than thirty days, as may be specified in the notice, a return in the prescribed form and verified in the prescribed manner, setting forth the net wealth of such person as on the valuation date mentioned in the notice. If the Wealth-tax Officer, Appellate Assistant Commissioner, Commissioner or Appellate Tribunal in the course of any proceedings under the Act is satisfied that any person has without reasonable cause failed to furnish the return which he is required to furnish under sub-section (1) of section 14 or by notice given under sub-section (2) of section 14, or has without reasonable cause failed to furnish it within the time allowed and in the manner required by sub-section (1) of section 14 or by such notice, as the case may be, he or it may, by order in writing, direct that such person shall pay by way of penalty an amount computed in accordance with the provisions of the Act. The Commissioner, however, in his discretion, may reduce or waive the amount of minimum penalty imposable on a person for failure, without reasonable cause, to furnish the return of net wealth which such person was required to furnish under sub-section (1) of section 14, if he is satisfied that such person has, prior to the issue of notice to him under sub-section (2) of section 14, voluntarily and in good faith, made full disclosure of his net wealth and has co-operated in any enquiry relating to the assessment of the wealth represented by such assets and has either paid or made satisfactory arrangements for payment of any tax or interest payable in consequence of an order passed under the Act in respect of the relevant assessment year.
6. Now, in the present case, it is not in dispute that no notice under section 14(2) was served upon the petitioner. It is also not in dispute that the petitioner failed to furnish a return to the Wealth-tax Officer in respect of of the three assessment years in question within the time limited by law. Penalty was, therefore, imposable upon him under the relevant provisions of law unless reasonable cause was shown. Under these circumstances, the petitioner approached the Commissioner under section 18(2A) requesting that he should, in his discretion, waive the amount of minimum penalty imposable upon him. The Commissioner acceded to the request of the petitioner in so far as it related to the assessment year 1971–72. He, however, rejected the request of the petitioner in so far as it related to assessment years 1969–70 and 1970–71. The grounds on which the request was rejected were (1) that the returns for the assessment years 1969–70 and 1970–71 were filed only after the assessee was asked, during the course of the assessment proceedings for the assessment year 1971–72, to file those returns and those returns were, therefore, not voluntary returns, (2) that the assessee was not a new assessee when he filed the returns for the assessment years 1969–70 and 1970–71, and (3) that, therefore, this was not a fit case to waive or reduce the penalty imposable under the Act. The question which arises is whether on the grounds aforesaid, the Commissioner could have legitimately refused to exercise discretion vested in him under section 18(2A).
7. Before proceeding to deal with this question in the light of the facts of this case, it is worthwhile to recall that it is settled law that where a power is deposited with a public officer for the purpose of being used for the benefit of persons who are specifically pointed out, and with regard to him a definition is supplied by the legislature of the conditions upon which they are entitled to call for its exercise, that power ought to be exercised, and the court will require it to be exercised (see Julius v. Lord Bishop of Oxford, [1880] 5 App Cas 214.) In other words, if the conditions laid down for the exercise of discretion are satisfied, the authority has no discretion to refuse to exercise the discretion. The authority is under a statutory duty to exercise the discretion. If there is omission to exercise discretion, inter alia, on account of the failure on the part of the authority to genuinely address itself to the matter before it or due to misconception of the scope of its power under the statute, mandamus can issue directing such authority to re-hear and determine the matter afresh according to law.
8. Now, so far as section 18(2A) in its applicability to the present case is concerned, the following conditions have to be satisfied in order to enable the Commissioner to exercise his discretion: (1) there must have been full disclosure of net wealth voluntarily and in good faith, made prior to the issue of notice to the assessee under sub-section (2) of section 14; (2) the assessee must have co-operated in any enquiry relating to the assessment of the wealth represented by such assets; and (3) the assessee must have either paid or made satisfactory arrangements for payment of any tax or interest payable in consequence of an order passed under the Act in respect of the relevant assessment year. Once these three conditions are satisfied, there is no option, as earlier pointed out, to refuse to exercise discretion.
9. The Commissioner in the instant case has refused to exercise discretion because he believed that one of the conditions for the exercise of discretion was not satisfied. The condition which, according to the Commissioner, was not satisfied was that the assessee had not voluntarily filed returns for the two assessment years in question since he did so only after he was asked, during the course of the assessment proceedings for the assessment year 1971–72, to do so. In our opinion, the Commissioner completely misdirected himself in law in reading into section 18(2A) such a condition. Section 18(2A)(a) does use the word “voluntarily”. The said word, however, has to be read with the expression “made full disclosure of his net wealth”. In other words, the condition which the legislature has imposed is that in cases where an assessee has, prior to the issue of notice to him under subsection (2) of section 14, filed a return but has not done so within the time limited by law, he must satisfy the Commissioner that he has made full disclosure of his net wealth voluntarily and in good faith. The word “voluntarily”, therefore, has not to be read in the context of the filing of return. This concept has been taken care of by providing independently that such assessee should have filed the return prior to the issue of notice to him under sub-section (2) of section 14. Therefore, the Commissioner committed an apparent error of law in taking the view that he did. The question, therefore, whether the Commissioner was right in taking the view that the assessee having filed the returns for the two assessment years in question only after he was asked during the course of the assessment proceedings for the assessment year 1971–72 to do so, he could not be said to have filed the returns voluntarily, does not require further consideration, though we cannot help observing that merely because a return has been filed under the advice, suggestion or even at the behest (otherwise than by a notice under section 14(2)) of the Wealth-tax Officer, it does not cease to be a voluntary return.
10. The Commissioner also appears to have been impressed by the fact that the assessee was not a “new assessee” when he filed the returns for the two assessment years in question. The observation in the context in which it appears in the impugned order is equivocal and we are unable to comprehend its true import. If, however, it is suggested thereby that the relief under section 18(2A) would be available only to such assessees who file the returns for the first time, we must say that that view again is erroneous. There is nothing in section 18(2A) which restricts the relief to the assessees who file their returns for the first time. Imposition of such a condition would amount to addition of a new condition in the relevant statutory provision. Even on that ground, therefore, it must be held that the Commissioner misdirected himself in law in refusing to consider the request of the petitioner.
11. The foregoing discussion would show that in the present case, the Commissioner, upon an apparent misconstruction of the scope of his statutory power, has refused to exercise discretion vested in him by law. Under the circumstances, the petitioner is entitled to succeed. The Commissioner is directed to take up for reconsideration the petitioner's application under section 18(2A) and to determine it afresh in accordance with law and in the light of the observations made in this judgment. Rule is accordingly made absolute. The Commissioner will pay the costs of this petition to the petitioner.
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