The Judgment of the Court was delivered by
Puttaswamy, J.:— In this petition under article 226 of the Constitution, the petitioner has challenged the constitutional validity of section 18(2A)(b) of the Karnataka Agricultural Income-tax Act of 1957 (Karnataka Act No. 22 of 1957) (the Act), and order No. GIR No. 92/79-80 dated December 19, 1981 (Annexure-A), made by the Agricultural Income-tax Officer thereunder.
2. For the assessment year 1979-80, the petitioner filed his return under section 18 of the Act before the Agricultural Income-tax Officer disclosing taxable income for the said year along with the treasury receipt for having paid a sum of Rs. 5,532 being the taxes due thereon to the State. On September 20, 1980, the Agricultural Income-tax Officer completed the assessment for the aforesaid year in which he held that the petitioner was liable to pay a sum of Rs. 21,411 as taxes. On the aforesaid basis, the Agricultural Income-tax Officer on August 31, 1982, issued a show-cause notice to the petitioner proposing to levy a penalty of Rs. 1,587.90 on the shortage of tax paid, to which he did not reply and file objections. On December 19, 1983, the Agricultural tncome-tax Officer made an order imposing a penalty of Rs. 1,587-90 under section 18(2A)(b) of the Act against the petitioner.
3. The petitioner has urged that section 18(2A)(b) of the Act had conferred unguided, uncanalised, uncontrolled and arbitrary powers to levy penalty and the same was violative of article 14 of the Constitution. The petitioner has urged that the order made on the assumption that the levy was compulsive, was illegal.
4. The respondents have resisted the petition.
5. Sri Kishore Mallya, learned advocate, has appeared for the petitioner n this and certain other connected cases that were heard today. We also heard Sriyuths G. Sarangan, S.P Bhat, R. Daiveekan, K.A Hemaraj, earned advocates appearing for the petitioners, in the connected cases. Sri S. Rajendra Babu, learned Government advocate, has appeared for the espondents in this and the connected writ petitions.
6. Sri Mallya contends that section 18(2A)(b) of the Act has conferred Inguided,???uncanalised, uncontrolled and arbitrary powers to levy penalty and was, therefore, violative of article 14 of the Constitution.
7. Sri Babu, refuting the contention of Sri Mallya, contends that the mpugned provision does not suffer from the vice of excessive delegation and was not violative of article 14 of the Constitution.
8. Section 18(2A) incorporated by the Karnataka Agricultural Income-tax (Amendment) Act, 1976 (Karnataka Act No. 29 of 1976), from April 1, 1975, reads thus:
“(2A)(a) Before any person submits any return under sub-section (1) or sub-section (2), he shall, in the prescribed manner, pay in advance the full amount of tax payable by him on the basis of such return and shall furnish along with the return satisfactory proof of the payment of such tax. After the assessment is made under section 19, the amount of tax so paid shall be deemed to have been paid towards the tax so assessed and excess amount, if any, paid shall be refunded to such person.
(b) If, after the assessment under section 19, it is found that the tax paid under clause (a) was less than the tax payable by more than twenty-five per cent., the Agricultural Income-tax Officer may direct such person to pay in addition to the tax by way of penalty, a sum calculated at ten per cent, of the amount of tax so paid short:
Provided that in the case of a person whose total agricultural income as determined by the Agricultural Income-tax Officer is less than ten thousand rupees, the penalty imposed shall not exceed fifty rupees.”
9. Section 18(2A)(a), that also is not in challenge, provides for paymenl of tax admitted by the assessee on the basis of the return filed by him under the Act. The section then.provides that the tax earlier paid shall be deemed to have been paid towards the taxes finally assessed under the Act.
10. section 18(2A)(b) provides for levy of penalty only after the final assessment is made under section 19 of the Act on the return filed under section 18 of the Act and only if the circumstances or factors enumerated therein exist and not in all cases and as a matter of course. The first and foremost requirement is that the difference between the tax paid and the tax assessed or tax payable in pursuance of the final assessment should be more than 25 per cent. The proviso to the section deals with cases of small assessees whose income determined under section 19 of the Act does no exceed rupees ten thousand and in whose cases the levy of penalty cannot’ exceed Rs. 50. One more aspect, to which we will refer at a later stage ii??? some detail, empowers the authority to consider the cause shown, drop o??? levy penalty with due regard to all the facts and circumstances of eacl??? case.
11. The object with which section 18(2A)(b) has been enacted cannot be gathered from the Statement of Objects and Reasons accompanying the Bi]??? that ultimately became the Act or the Notes on Clauses of the Bill also But from the scheme and object of the provision, it appears to us that the legislative intent in enacting the same is to deter persons from??? wild returns (and for the State) to recover a reasonable compensation by way of penalty on the amount which had been found due to the State but has been earlier withheld by the assessee. We cannot say that those objects or principles are in any way unreasonable, arbitrary or unjust or suffer from the vice of excessive delegation or violate any articles of the Constitution at all.
12. We are of the view that every one of the factors earlier analysed by us, each one by itself and in any event all of them cumulatively, have clearly laid down the policy or principles for the exercise of power by the authority. The power conferred is not unguided, uncanalised and uncontrolled. The power conferred is neither unreasonable nor arbitrary. Even the quantum of penalty leviable that is at the rate of 10 per cent, of the difference of tax cannot be characterised as grossly disproportionate to the amount withheld and ultimately found due to the State. We are clearly of the view that the unalterable rate is not excessive and unreasonable. We are of the view that on the application of the principles that are now well settled, we cannot hold that section 18(2A)(b) of the Act suffers from the vice of excessive delegation and, therefore, violative of article 14 of the Constitution. We see no merit in this contention of Sri Mallya and we reject the same.
13. Learned counsel for the petitioner in this and other cases contend that the Agricultural Income-tax Officers, taking the view that the levy of penalty was compulsive, had mechanically imposed the same without exercising the power of discretion conferred on them in manifest violation of section 18(2A)(b) of the Act and contrary to the ruling of the Supreme Court in Hindustan Steel Ltd. v. State Of Orissa†., [1972] 83 ITR 26 and the rulings of this court in Sri Manilal Monaji Somayya v. CTO, [1973] 32 STC 541 (Mys) and Elestone Estate & Industries Ltd. v. State Of Karnataka, [1983] 54 STC 341 (Kar).
14. Sri Babu sought to justify the orders impugned in this and the other cases.
15. The order made by the Agricultural Income-tax Officer and impugned by the petitioner reads thus:
“GIR No. 92/79-80
Office of the Agricultural Income-tax Officer, Hassan, dated 19-4-1983.
Assessment year:
1979-80
Name & Address of the assessee:
Sri M.P Laxtnan, s/o late M. Putte-gowda, Malavally Estate, Saklespur Post.
Order under section 18(2A)(b) of the KAIT Act—1957.
16. The assessee was assessed to a tax of Rs. 21,411-00 for the assessment year 1979-80, vide this office order dated September 29, 1980, and the tax paid in advance was Rs. 5,532-00. Thus, it is seen that the tax paid under clause (a) of section 18(2A) was less than the tax payable by more than 25%. Thus, he has committed an offence punishable under section 18(2A)(b) of the KAIT Act, 1957. Therefore, a notice under section 18(2A)(b) of the KAIT Act, 1957, was issued on December 31, 1982, and the same was served on January 20, 1983, directing him to show cause as to why a penalty of Rs. 1,587-90 being 10% of the tax paid short should not be levied. So far, the assessee has not responded to the said notice.
17. Therefore, it is considered that the assessee has no objection for the proposed levy of penalty. Hence, in exercise of the powers vested in me under section 18(2A)(b) of the KAIT Act, 1957, I hereby levy a penalty of Rs. 1,587-90 which is to be paid into the State Bank of Mysore, Saklespur, on or before 19-12-81.
Sd. (K.A Uthappa)
Agricultural Income-tax Officer,
Hassan.”
18. In the other cases also, the orders made by the other Agricultural Income-tax Officers are almost on the same lines.
19. What is apparent from the above and the other orders is that the Agricultural Income-tax Officers taking the view that when the difference between the tax paid and tax payable on the final assessment was more than 25%, the levy of penalty was automatic and compulsive, have levied penalty against the petitioner and others. In other words, the Agricultural Income-tax Officers are of the view that section 18(2A)(b) of the Act did not confer on them any discretion. Whether this view is correct or not is the first question that calls for our examination. But before examining that, we consider it appropriate to deal with another contention urged by Sri Mallya touching on the construction of section 18(2A)(b) of the Act.
20. Sri Mallya contends that the terms “tax payable” occurring in section 18(2A)(b) of the Act refers to the tax payable on the return filed by the assessee under section 18(1) of the Act and does not refer to tax determined under section 19 of the Act.
21. We are of the view that the terms “tax payable” occurring in section 18(2A)(b) of the Act refers to the tax determined on the final assessment under section 19 of the Act and not to the tax payable under section 18 of the Act. We are of the view that the construction suggested by Sri Mallya is too literal and will result in rendering the provision otiose and the same must, therefore, be avoided. We see no merit in this contention of Sri Mallya and we reject the same.
22. section 18(2A)(b) of the Act authorising the levy of penalty on a person has to be construed strictly and in favour of the subject to the extent its language so permits. While conferring the power to levy penalty in the circumstances enumerated therein, the section very advisedly uses the permissive term “may”. Crazes on Statute Law (7th edition) succinctly brings out the distinction and difference between the terms “shall” and “may” in Part. II, Chapter 11—Effect of Statutes Creating Duties—in these words:
“Shall” and “may”
“This distinction is reflected in the use of the words ‘shall’ or ‘may’ in a statute. The meaning of these words in statutes conferring a power is the subject of constant and conflicting interpretation. ‘“May” does not mean “must”; “may” always means “may”. “May” is a permissive or enabling expression but there are cases in which for various reasons as soon as the person who is within the statute is entrusted with the power, it becomes his duty to exercise it
23. We are clearly of the view that having regard to the nature of power conferred and the context, the term “may” occurring in this section has to be construed as “may” only or permissive and not compulsive or as “must”. On this analysis itself, we hold that this section confers only a discretionary power to levy or not to levy penalty even when the circumstances referred to in that section exist.
24. In Hindustan Steel Ltd.'s case, [1972] 83 ITR 26, the Supreme Court considering the scope of levy of penalty under section 9(1) read with section 25(1)(e) of the Orissa Sales Tax Act of 1947, to a case of a dealer who had failed to get himself registered under that Act, explained the principles that should be applied in construing penal provisions in these words (page 29):
“Under the Act, penalty may be imposed for failure to register as a dealer: section 9(1) read with section 25(1)(a) of the Act. But the liability to pay penalty does not arise merely upon proof of default in registering as a dealer. An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding and penalty will not ordinarily be imposed unless the party obliged, either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute. Those in charge of the affairs of the company in failing to register the company as a dealer acted in the honest and genuine belief that the company was not a dealer. Granting that they erred, no case for imposing penalty was made out.”
25. We are of the view that these principles enunciated in this case should govern the construction of section 18(2A)(b) of the Act.
26. In Sri Manilal Monaji Somayya's case, [1973] 32 STC 541, a Division Bench of this court applied the principles enunciated in Hindustan Steel Ltd.'s case, [1972] 83 ITR 26 (SC), to sub-section (2) of section 12B of the Karnataka Sales Tax Act, 1957, which empowered the levy of penalty under that provision. In Elestone Estates and Industries Ltd.'s case, [1983] 54 STC 341, a Division Bench of this court consisting of Jagannatha Shetty & Rajasekharamurthy JJ., dealing with section 12B(3) of the Karnataka Sales Tax Act which empowered the levy of penalty, reviewing all the earlier cases and in particular the two cases noticed by us earlier, speaking through Jagannatha Shetty J., summarised the principles that should govern the construction of penal provisions in these words (page 343):
“The power conferred under section 12B(3) is penal in nature. The authority should exercise the power judicially and on a consideration of all the relevant circumstances. In each case, the authority must first examine after a reasonable opportunity to the party whether there was good or sufficient cause for the default committed and if not, whether the party has acted in conscious disregard of its obligation and acted deliberately in defiance of law. If the party is guilty of such conduct, then the authority must examine the question as to the amount to be levied as penalty. Section 12B(3) provides for the levy of maximum penalty. In the very nature of the power conferred, there cannot be any set formula to govern every case. Nor there could be any such formula to cover the defaults in different months of a single case. The power must be exercised reasonably depending upon the circumstances of each case.”
27. We are of the view that these principles, except to the extent of quantum of penalty leviable, govern the construction of section 18(2A)(b) of the Act.
28. On the application of the principles, enunciated in the above case, it follows that even when the difference in the tax exceeds 25 per cent., the authority has the power to levy or not to levy penalty. But that power like all such powers has to be exercised judicially with due regard to all the facts and circumstances of each case and cannot be exercised mechanically, casually or as a matter of course.
29. We are of the view that the Agricultural Income-tax Officers in this and other cases have imposed penalty as if that was compulsive and in any event as a matter of course or mechanically, which was plainly illegal. On this ground, the order impugned by the petitioners is liable to be quashed.
30. As noticed by us earlier, the Agricultural Income-tax Officer had very rightly issued show-cause notice to the petitioner before levying penalty which was not availed of by him. In this view, the petitioner cannot complain of violation of one of the basic components of natural justice, viz., audi alteram partem, the true scope and ambit of which is now well settled. We are, however, of the view that before imposing penalty under section 18(2A)(b) of the Act, the authority is bound to issue a show-cause notice, consider the cause shown by the assessee and make a speaking order to enable the assessee to challenge the same in appropriate legal proceedings that are available to him.
31. In several of the cases that were heard by us today along with this case, we find that the Agricultural Income-tax Officers in those cases have been solely guided by the reason or factors on which they completed their final assessments to levy penalty under section 18(2A)(b) of the Act. As pointed out in Hindustan Steel Ltd.'s case, [1972] 83 ITR 26 (SC) and Elestone Estate's case, [1983] 54 STC 341 (Kar), the factors or reasons on which the assessment was completed and the liability for payment of higher tax was made, cannot by itself be a sole ground to attract the levy of penalty under section 18(2A)(b) of the Act. In making an order under section 18(2A)(b) of the Act, the Agricultural Income-tax Officer is bound to consider the cause shown by the assessee, if any, and decide the same without being unduly bound by the assessments made by him except to the extent of difference of tax on which question only he is bound by his earlier assessment or determination under section 19 of the Act. In other words, he must decide the matter as if it is an independent and distinct proceeding under the Act.
32. An order levying penalty under section 18(2A)(b) of the Act, results in additional liability and serious civil consequences to an assessee. But unfortunately, such an order is not appealable or revisable under the Act and is made final, which naturally compels this court to entertain writ petitions almost as a matter of course and examine the validity of the orders impugned in such cases. We are of the considered opinion that an order made under section 18(2A)(b) of the Act should be made appealable under the Act. We do hope and trust that Government will examine this aspect immediately with earnestness and initiate all necessary steps to provide for an appeal under the Act.
33. On the foregoing discussion, it follows that there is no other alternative for us except to quash the impugned order and direct the Agricultural Income-tax Officer, respondent No. 1, to redetermine the matter. At this stage, Sri Mallya seeks for a reasonable time to’ file objections before the Agricultural Income-tax Officer and urge for dropping the proceedings. We are of the view that this request of Sri Mallya should be granted though the petitioner did not avail of the opportunity afforded to him by the Agricultural Income-tax Officer earlier. We also consider it proper to direct the petitioner to appear before the Agricultural Income-tax Officer on October 28, 1985, and take further orders from him for the further progress of the case. In the light of our above discussion, we make the following orders and directions—
(i) We dismiss this writ petition in so far as it challenges the validity of section 18(2A)(b) of the Act.
(ii) We quash the order impugned in this writ petition and direct the Agricultural Income-tax Officer, Hassan, respondent No. 1, to restore the proceedings to its original file and redetermine the same on receiving the objections, if any, to be filed by the petitioner within 30 days from this day, consider the cause, if any, shown by him, afford him an opportunity of hearing on October 28, 1985, if he appears on that day or on such other day to which date the case may be adjourned by the Agricultural Income-tax Officer and make a fresh order in accordance with law and the observations made in this order.
34. Writ petition is disposed in the above terms. But, in the circumstances of the case, we direct the parties to bear their own costs.
35. Let this order be communicated to the respondents within ten days from this day.