Ray, J.:— The question in this reference is as follows:
“Whether on the facts and in the circumstances of the case the Income-tax authorities were justified in imposing a penalty on the assessee under sec. 28(1)(c) of the Income-tax Act?”
2. The assessee is a partner in the firm of Messrs Haji Sk. Md. Hussain Md. Jan of Calcutta. The Income-tax Officer making the assessment of the assessee discovered an undisclosed bank account of the assessee with the Central Bank of India Ltd. at Bettiah in Bihar. The Income-tax Officer on scrutiny found that the assessee had made a cash deposit of Rs. 87,000 on 21 November 1946 in the said bank. The assessee on being asked to explain the source of the deposit stated that during the communal riots in Bihar in the year 1946 all his relations became panicky and they entrusted with him whatever cash they had for safe custody. The assessee said that he deposited the amounts received from his said relations in a fixed deposit account in the joint names of the assessee and his minor sons. It was also said that he held the money on behalf of his relations as trustee. The Income-tax Officer did not accept the explanation of the assessee and held that the sum of Rs. 87,000 represented the income of the assessee from an undisclosed source. The Income-tax Officer added the amount with the total income of the assessee in his personal assessment. The assessee preferred an appeal to the Appellate Assistant Commissioner and a second appeal to the Tribunal. The Tribunal held that the authorities were justified in treating the amount as the assessee's income from undisclosed source. Thereafter the Income-tax Officer started proceedings under sec. 28(1)(c) of the Income-tax Act for imposition of penalty for concealing income and deliberately furnishing inaccurate particulars thereof. The Income-tax Officer imposed a penalty of Rs. 66,000. The Appellate Assistant Commissioner on appeal reduced the amount of penalty by Rs. 22,000. The Appellate Assistant Commissioner held that the penalty which was imposed was 150 per cent of the tax sought to be evaded and he imposed penalty by 100 per cent and reduced the penalty from Rs. 66,000 to Rs. 44,000. On second appeal the Tribunal took the view that the Appellate Assistant Commissioner had misdirected himself in the decision of the case. The Tribunal expressed the view that the onus was on the Department to show that the amount of the cash said to have been concealed by the assessee was of a revenue nature assessable as income and the assessee concealed it or deliberately furnished false particulars in regard thereto. The Tribunal held that the onus was not discharged by the Income-tax authorities merely by showing that the explanation given by the assessee in the assessment proceedings was found to be false and unacceptable.
3. It appears from the order under Sec. 28(1)(c) made by the Income-tax Officer that the assessee was asked to explain the deposit of Rs. 87,000 in assessment proceedings under sec. 34. The Income-tax Officer further in passing the order stated that the assessee furnished written statements from his relations which confirmed the assessee's version. The Income-tax Officer also stated that the ladies were requested to furnish the Income-tax Officer with particulars, namely, the source from which the amount was advanced and the dates of amount and also the dates on which the amounts were received back by them. No oral evidence was given by the ladies but they sent letters to the effect that the sums advanced were out of cash gifts received by them at the time of their marriage and on other ceremonial occasions and out of savings from allowances given by their husbands. The Income-tax Officer further said that in response to the notice under sec. 28(3) the assessee repeated his claim that the sum of Rs. 87,000 did not belong to him, but to his relatives, and Md. Zahir one of his cousins, from whom a sum of Rs. 18,500 was shown to have been received was examined under Section 37 of the Income-tax Act in the presence of the authorised representative of the assessee and Md. Zahir denied the fact of having advanced the money to the assessee.
4. Counsel on behalf of Revenue contended first that the proceedings under sea 28 of the Income-tax Act were a part of the assessment proceedings, secondly that the imposition of penalty under sec. 28 of the Act was additional tax, and thirdly, that it would appear from the assessment proceedings in the present case that the assessee had concealed part of his income and that evidence would be sufficient or in the alternative that evidence would be material and in the absence of anything to the contrary being shown by the assessee would be sufficient to sustain the penalty.
5. In the case of The Commissioner Of Income-Tax, Ahmedabad v. Messrs Gokuldas Harivallabhdas, Nadiad*, reported in 1958-34 ITR 98 : (AIR 1959 Bom 96), Chagla C.J said that proceedings Linder sec. 28(1)(c) were in the nature of penal proceedings and the Department was to establish that the assessee was guilty of concealment of the particulars of income. It was observed that the offence under section 28 was not that the assessee was charged with having given false explanation but that the assessee gave inaccurate particulars about his income. It was also observed in that decision that it was not possible to infer from the falseness of the assessee's explanation that the receipt necessarily constituted an income of the assessee.
6. The view expressed by the Bombay High Court in the case of Gokuldas Harivallabhadas, 1958-34 ITR 98 : (AIR 1959 Bom 96) has not been accepted by the Allahabad High Court. The decisions of the Allahabad High Court are Lalchand Gopal Das v. Commissioner of Income tax, U.P & V.P reported in 1963-48 ITR 324 (All), Haji Abdul Rahaman v. Commissioner of Income-tax U.P, reported in (1965) 56 ITR 172 (All), and Mohan Ram Kumar v. Commissioner of Income Tax, U.P, reported in (1966) 59 ITR 135 (All). In Lal Chand's case, (1963) 48 ITR 324 (All) the Allahabad High Court observed that there was no essential difference between tax and penalty and it was not correct that penalty proceedings required a different stricter standard of evidence than assessment proceedings. The Allahabad High Court further observed that since the nature of a receipt was within the personal or special knowledge of the assessee, the onus lay upon the assessee to prove it and that the onus was of proving the real nature of the receipt and not of proving that it was not income. In Lal Chand's case, 1963-48 ITR 324 (All) the Allahabad High Court also observed that there was nothing to prevent the authorities from holding that the materials produced in the assessment proceedings were sufficient to justify the finding of concealment of particulars and reference was made to an earlier decision of the Allahabad High Court in Dwarka Prasad Sheokaran Das v. Commissioner of Income-Tax reported in 1953-24 ITR 410 : (AIR 1954 All 123) where it was said that the materials in the assessment proceedings were also materials in the penalty proceedings. In Lal Chand's case, 1963-48 ITR 324 (All) it was also observed that the observation of the Bombay High Court in the case of Gokul Das Harivallabhdas, (1958) 34 ITR 98 : (AIR 1959 Bom 96) that proceedings under sec. 28 of the Income Tax Act were penal proceedings was assumed by the Court and such an assumption was doubtful. Reliance was placed on the decision of the Supreme Court in C.A Abraham v. Income Tax Officer, reported in 1961-41 ITR 425 : (AIR 1961 SC 609) in support of the proposition that additional tax imposed on an assessee for his contumacious conduct was designated as penalty and therefore there was no difference between tax and penalty. There is an observation in the other Allahabad decision in Haji Abdul Rahaman's case, 1965-56 ITR 172 (All) that concealment is proved when it is proved that there was income and that it was not disclosed in the return. Another decision of the Allahabad High Court in the case of Mohan Ram Kumar, (1966) 59 ITR 135 (All) was to the effect that it was open to the Department where the explanation of the assessee was found to be false to treat the receipts appearing in the account books of the assessee as income from undisclosed source and that if the explanation offered by the assessee was false it was possible to hold that there was material justifying the imposition of penalty.
7. The Madras High Court in the decisions in P.K Kalaswami Nadar v. Commissioner of Income-tax, Madras, reported in (1962) 46 ITR 1056 (Mad). M. Hussain Ali & Sons v. Commissioner of Income Tax Madras, reported in (1965) 58 ITR 787 (Gnanambika Mills Ltd. v. Commissioner Of Income-Tax, Madras., Madras reported in (1965) 58 ITR 802 (Mad) and A.V Thomas & Co. (India) Ltd. v. Commissioner of Income Tax, Madras, reported in 1966-59 ITR 499 (Mad) dealt with the question as to whether proceedings under sec. 28 of the Income-tax Act are penal proceedings. In Kalaswami Nadar's case 1962-46 ITR 1058 (Mad) the Madras High Court expressed concurrence with the views of the Bombay High Court in the case of Gokuldas Hari-vallabhdas, 1958-34 ITR 98 : (AIR 1959 Bom 96) regarding the nature of the penalty proceedings under the Income-tax Act. The concurrence was with regard to the proposition that proceedings under S. 28(1)(c) of the Income Tax Act were in the nature of penal proceedings and the onus of proof was upon the Department and the onus to prove was not discharged by reason only of the fact that the assessee gave a false explanation in regard to the income alleged to have been concealed. It should be stated here that the Madras High Court made observations as to the degree or quantum of proof that was needed and it was said that the penal proceedings under the Income-tax Act were more in the nature of criminal proceedings than civil proceedings and the facts should establish a high degree of probability of the assessee being guilty of the charge. It was also said that the Department was not precluded from relying upon the finding of the assessment proceedings to establish prima facie that the cash credits had represented the income of the assessee. In the other two decisions of the Madras High Court reported in 1965-58 ITR 787 (Mad) and 1965-58 ITR 802 (Mad) it was observed that the findings in assessment proceedings were not conclusive in penalty proceedings but they might be relevant or be prima facie evidence for levy of the penalty. It was also said that the penal character of the proceedings in Section 28 of the Income-tax Act implied a strict construction and that the burden of proof was on the Department to prove beyond doubt that there had been a concealment or deliberate furnishing of inaccurate particulars of the income. In the case of A.V Thomas & Co. 1966-59 ITR 499 (Mad) the Madras High Court observed that penalty proceedings were not criminal proceedings and that the onus of proof of non-concealment lay on the assessee. The previous decisions of the Madras High Court were referred to. In the case of A.V Thomas & Co., 1966-59 ITR 499 (Mad) the Madras High Court held that there was no wilful or intentional concealment of income on the part of the assesses in the facts of that case.
8. The Gujarat High Court in the decision of Commissioner of Income-tax Gujarat v. L.H Vora, reported in 1965-56 ITR 126 (Guj) expressed agreement with the view of the Bombay High Court in the case of Gokuldas Harivallabhdas, 1958-34 ITR 98 : (AIR 1959 Bom 96) and further observed that the Supreme Court in the decision of C.A Abraham's case, 1961-41 ITR 425 : (AIR 1961 SC 609) did not disapprove of the principles laid down in the case of Gokuldas Harivallabhdas 1958-34 ITR 98 : (AIR 1959 Bom 96). The Gujarat High Court did not agree with the view of the Allahabad High Court expressed in the case of Lal Chand Gopal Das, reported in 1963-48 ITR 324 (All). The Gujarat High Court at page 150 of the report 1965-56 ITR 126 (Guj) said that the burden was upon the Department to prove that the amount added in the assessment was the assessee's income and that income was concealed or false particulars about it were given by the assessee. It was also said that mere falsity of an explanation given in assessment proceedings did not necessarily mean that the disputed amount represented income.
9. The Patna High Court in the case of Murlidhar Tejpal v. Commissioner Of Income-Tax, Patna., reported in 1961-42 ITR 129 (Pat), affirmed the view of the Patna High Court in the case of Khemraj Chaganlal v. Commissioner of Income-tax B & O; reported in 1960-38 ITR 523 : (AIR 1960 Pat 252) that the mere fact that the assessee was not able to establish by satisfactory evidence the source of the income did not mean that the explanation was false or that the assessee had been guilty of deliberate suppression within the meaning of sec. 28(1)(c) of the Income-tax Act. The Patna High Court in the case of Commissioner of Income Tax v. Mohan Molla reported in 1964-54 ITR 499 (Pat) expressed the view that proceedings under sec. 28 of the Income-tax Act were penal proceedings and the onus was upon the Income-tax Department to show that the assessee was guilty of concealment of the particulars of his income or deliberately furnishing of inaccurate particulars of such income.
10. Counsel on behalf of Revenue relied on the decisions of the Allahabad High Court and of the Madras High Court and also placed reliance on the decision of the Supreme Court in 1961-41 ITR 425 : (AIR 1961 SC 609) in support of the proposition that proceedings under sec. 28 of the Income-tax Act were Dart of the assessment proceedings and also that the penalty imposed under sec. 28 of the Income Tax Act was additional tax in Abraham's case, 1961-11 ITR 425 : (AIR 1961 SC 609). the question for consideration was that if in the process of assessment of the income, profits or gains of a firm which had discontinued its business any liability such as payment of penalty under sec. 28 of the Income-tax Act or under sec. 25(2) or of penal interest under sec. 18A was incurred that penalty or interest might also be imposed by virtue of the provisions contained in sec. 44 of the Income Tax Act notwithstanding the discontinuance of the business. The Supreme Court said that the provisions of Chapter IV of the Indian Income Tax Act as far as may be were to apply to assessment and the expression “assessment” was held by the Supreme Court to include the several heads of liability embraced in Chapter IV. In Abraham's case, 1961-41 ITR 425 : (AIR 1961 SC 609) the Supreme Court agreed with the decision of Andhra High Court in Mareddy Krishna Reddy v. Income Tax Officer, Tenali, reported in 1957-31 ITR 678 : (AIR 1957 Andh Pra 368) that section 28 of the Income Tax Act penalised defaults made in furnishing the return of the total income and in concealing the particulars of income or deliberately furnishing inadequate particulars of such income and such defaults relate to the process of assessment and sec. 28 is a provision enacted for facilitating the proper assessment of taxable income and applies to assessment made under Chapter TV. The Supreme Court in Abraham's case, 1961-41 ITR 425 : (AIR 1961 SC 609) did not deal with the question of onus of proof in proceedings under sec. 28 of the Income Tax Act nor did the Supreme Court deal with the aspect of penal proceedings in sec. 28 of the Income Tax Act. Penalty may be in relation to assessment but assessment is not penalty Further penalty connotes that there is commission of an offence and a fortiori that offence is to be proved by the party who charges the other party with the offence.
11. The decisions cited in support of the rival contentions establish that the assessment proceedings are not binding on the Income-tax authorities in proceedings under sec. 28 of the Income-tax Act. It is true that materials disclosed in assessment proceedings can be taken into consideration but such materials do not constitute res judicata. The Bombay. Gujarat and Patna decisions are of the view that proceedings under sec. 28 of the Income-tax Act are penal proceedings and are of the nature of criminal proceedings. The Madras High Court in the decision reported in 1962-40 ITR 1056 (Mad) expressed concurrence with the Bombay decision. The other decisions of the Madras High Court did not express the view that proceedings under sec. 28 of the Income Tax Act are of the nature of criminal proceedings. The Allahabad decisions expressed the view that proceedings under sec. 28 of the Income-tax Act are not of the nature of criminal proceedings. The views expressed in all the aforesaid decisions are that the onus is upon the Department to establish that the assessee is guilty of violation of provisions contained in section 28 of the Income Tax Act. The onus that is cast upon the Income-tax authorities is to prove that the assessee has concealed the particulars of his income or deliberately furnished inaccurate particulars of such income. The gist of the matter is as Chagla C.J said, that in the assessment proceedings it is open to the Department to take the view that if a certain receipt appears in the books of account of the assessee and the assessee is not in a position to give an explanation in regard to that receipt, that receipt constitutes an income from undisclosed source, but in proceedings under sec. 28(1)(c) the assessee is not charged with having given a false explanation and the gist of the offence is that the assessee has concealed the particulars of his income or furnished inaccurate particulars of such income and the Department must establish that the receipt constitutes income. In the case of Gokuldas Harivallabdas, 1958-34 ITR 98 : (AIR 1959 Bom 96) the only evidence on record was the explanation given by the assessee and that explanation was found to be false. Chagla C.J said that if the false explanation were wiped off there was no evidence to hold that it was income. In equating falseness of the explanation with the finding that the receipt constitutes income is to hold that the offence is of giving a false explanation and to sub-sec. 28 of its true content, namely, that the assessee has concealed the particulars of income or furnished inaccurate particulars of income. In other words there must be evidence to hold that there was income and there must also he evidence to hold that the assessee has concealed the particulars of the income or deliberately furnished inaccurate particulars. Evidence must be oral or documentary. The onus was on the Department to prove that the assessee concealed the particulars of his income or deliberately furnished inaccurate particulars of income. There are two ingredients in that offence. First, there is to be proved concealment or deliberate furnishing of inaccurate particulars. Secondly, it is to be proved that the concealment or deliberate inaccuracy is with regard to income. To my mind the principles laid down by Chagla C.J in the case of Gokuldas Harivallabdas, 1958-34 ITR 98 : (AIR 1959 Bom 96) correctly express the character of proceedings under sec. 28(1)(c) of the Indian Income Tax Act. With respect, I am unable to agree with the contrary views because both on logic and principle where penalty is imposed the proceedings are criminal in nature and the offence is to be proved before the person is penalised. Assessment proceedings may result in penalty proceedings but these are two distinct and separate proceedings, if it be held that assessment proceedings are adequate material to establish the offence or if it be held that the assessee is to displace the materials in assessment proceedings, the penalty proceedings, will become an idle formality.
12. In assessment proceedings the assessee is asked to explain receipt of money and if he fails to explain that receipt the assessee is assessed to that receipt as income from undisclosed source. In proceedings under sec. 28(1)(c) of the Indian Income Tax Act it is the Income Tax Department which has to prove first, that the monies are income and secondly, that the assessee concealed or deliberately furnished inaccurate particulars of income. In the present case the Appellate Tribunal correctly held that the Income-tax Officer must find materials apart from falsity of the assessee's explanation to support the finding that the receipt from undisclosed source was income in nature. In my opinion, there was no justification for the Income-tax authorities in the facts and circumstances of the case to impose a penalty on the assessee. The question is therefore answered in the negative the assessee is entitled to costs of the Reference Certified for 2 counsel.
D. Basu, J.:— Agreeing with the judgment pronounced by my Lord. I would like to add a few words on the questions of law which arise out of this Reference.
13. The question of law relates to the interpretation of sub-sec. (1) of sec. 28(1)(c) of the Income-tax Act, 1922, the material portion of which reads ac follows:
“If the Income-tax Officer……. in the course of any proceedings under this Act is satisfied that any person—
(c) has concealed the particulars of his income or deliberately furnished inaccurate particulars of such income, he … may direct that such person shall pay by way of penalty …… in the cases referred to in clauses (b) and (c) in addition to any tax payable by him, a sum not exceeding one and a half times the amount of the income-tax and super-tax, if any, which would have been avoided if the income as returned by such person had been accepted as the correct income ……”
14. The questions that arise for our determination are:—
(i) Whether a proceeding to impose the additional tax under the foregoing provision is a ‘penal proceeding’?
(ii) Upon whom does the onus)f establishing the ingredients of cl. (e), namely, the concealment or the deliberate submission of inaccurate particulars, lie?
15. Though there has been a great controversy amongst the different High Courts on both these points, it seems to me, with respect, that there need not have been so much controversy on questions which involve the basic principles of jurisprudence.
16. (i) That the proceeding for imposition of the Additional tax is a penal proceeding is writ large on the face of the section but it has been urged on behalf of the Revenue that what is imposed is nothing but an additional tax.
17. No doubt, this contention is founded on the words ‘in addition to any tax payable’ in the latter part of the sub-section, but it overlooks the words ‘by way of penalty’ in the earlier part of that very paragraph. A statutory penalty may take one of various forms e.g fine, forfeiture, confiscation and the like. In the instant case, the penalty is a monetary imposition in the nature of a fine, but, instead of specifying a fixed sum or enabling the Income-tax Officer to impose an ad hoc sum in each particular case, the Legislature has in the instant case, specified a percentage of the amount of tax which was sought to be avoided by the assessee by resorting to the practices which the Legislature condemns in the sub-section, and this sum will be recovered from the assessee, as if it was added to the income-tax otherwise payable by him. In this case, the measure of the penalty is the tax sought to be avoided and the procedure for recovery prescribed by the statute may be the same as that for recovery of the tax (vide s. 29): but these cannot change the essential nature of the imposition in question namely, that it is intended to be a punishment for the acts referred to in clauses (a)-(c) of the sub-section.
18. As explained in the Irish case of R. v. Kildare JJ., (1895) 2 IR 577, ‘penalty’ means a sum of money recoverable in a summary manner, for breach of some statutory provision. In the same strain, the Bombay High Court has held in Kuberdas v. State of Bombay, AIR 1960 Bom 459 that a penalty is provided for by a statute to punish a contravention of a statute or the doing of something which is prohibited by the statute vide Halsbury's Laws of England, Vol. 10 p. 389. In order to enforce the mandatory provisions of a statute, the Legislature may impose sanctions of either of two kinds—
(a) declare it as an offence under the general law of crimes and make the person guilty of such offence punishable judicially;
(b) alternatively, or additionally, it may provide that the contravention will be punishable extra-judicially, by the prescribed administrative authority.
19. That latter is a case of statutory penalty, but, it has affinity to a criminal offence in the following respects:—
(a) There is an offence in the broader sense, namely, a contravention of the mandate of the law;
(b) There is a punishment provided for such offence and the charge for which the punishment is awarded is that the statute has been contravened, either by doing what was prohibited (Cripps v. Durden, (1777) 2 Cowp. 640) or by omitting to do what was required to be done by the statute (Llewellyn v. Glamorgan Vale, Ry., (1889) 1 Q.B 473).
20. Loosely speaking, the word ‘offence’ is used to refer to what is punishable as a ‘crime’ on prosecution before a court of law, but in the case of what is popularly known as a ‘statutory offence’, there is nevertheless an offence which is punishable by the law, though by a different tribunal. In the case of more serious statutory offences, the statute may provide for punishment by a Court as well. We may now profitably refer to the observation of the Court of Appeal in Huntington v. Attrill, (1893) A.C 150:—
“penal’ comprises ‘not only prosecutions and sentences for crimes and misdemeanour, but all suits in favour of the State for the recovery of pecuniary penalties for any violation of statutes for the protection of its revenue or other municipal laws, and all judgments for such penalties.”
21. The foregoing proposition has been ensured in India by adopting the definition of an ‘offence’ in sec. 3(38) of the General Clauses Act, 1897, as follows:—
“‘Offence’ shall mean any act or omission made punishable by any law for the time being in force.”
22. As will appear from the majority Judgment in the Supreme Court decision in Thomas Dana Petitioner v. State Of Punjab, AIR 1959 SC 375, it is because of the fact that the word ‘offence’ would ordinarily include a crime as well as a statutory offence punishable by an authority other than a Court that the words ‘punished and prosecuted’ were introduced in Article 20(2) of the Constitution to make it clear that the immunity from double jeopardy would be available only where a person was sought to be punished for the same offence twice by prosecution before a court of law.
23. As pointed out by Subba Rao J. in (1957) 31 ITR 678 : AIR 1957 Andh-Pra 368 the statutory offence in the instant case is a contravention of the requirements of S. 22 and 23 that the assessee must furnish a return and that with correct particulars of his income. If he conceals the particulars or deliberately furnishes inaccurate particulars, the offence under Section 28(1)(c) is constituted and then only is the penalty prescribed therein attracted. It would be pertinent in this connection to point out that the failure to furnish a return or the making of a false declaration is also a criminal offence, punishable W a criminal court, under Sections 51-52 of the Act, but sub-section (4) of section 28 provides:
“No prosecution for an offence against this Act shall be instituted in respect of the same facts on which a penalty has been imposed under this section.”
24. It is clear that the contraventions referred to in sec. 28(1) may give rise both to a criminal offence as well as a statutory offence; but if a penalty has been imposed under sec. 28, no prosecution before the criminal court shall again lie in respect of the same offence. It may safely be concluded that the ‘additional tax’ imposed by sec. 28(1) is nothing but a punishment for a statutory offence and that instead of judicial punishment, the section prescribes for a penalty being awarded by the Revenue authority.
25. It has nevertheless been asserted in some High Court decisions that though the imposition under Sec. 28(1) may be a ‘penalty’, the proceeding to make such imposition is not a penal or criminal proceeding Nobody can of course, contend that the proceeding for imposition of a penalty under the Income-tax Act is ‘Criminal proceeding’, for that expression, as the Privy Council explained in A.W Meads v. The King, AIR 1948 P.C 156 refers to those proceedings which are capable of being instituted under the ‘ordinary criminal law of the land’ and does not, accordingly, include proceedings for awarding punishments prescribed by any other law, such as the military law (ibid.) or a revenue law, even though such punishment may include death or imprisonment or the like as may be awarded under the ordinary criminal law.
26. But though the proceeding for imposition of the penalty under sec. 28(1) of the Income-tax Act cannot be regarded as a ‘criminal proceeding’, there is no reason why it cannot be regarded by law as ‘quasi-criminal’ in the sense that it would partake of some of the characteristics of a criminal proceeding even though the punishment is not going to be awarded by a criminal court after a trial, and that is what is meant by a ‘penal proceeding’. That follows from the essential characteristic of a statutory penalty viz., that it is intended to be punishment for the violation of a lav.’.
27. It is in the above sense that it has been held, in England, that “a penal law is a statute which imposes a penalty: Spencer v. Swannell, 7 L.J Ex. 75 and that an action for treble damages imposed by a statute is a penal action: Jones v. Jones, (1889) 58 L.J.Q.B 178 and so also an action to recover the penalty imposed by a statute by way of double the value of goods fraudulently removed to avoid distress for rent: T.W Hobb and company Ltd. v. Hudson, (1890) 59 L.J.Q.B 562. More akin is the decision of the House of Lords in Fattorini Ltd. v. Inland Rev Commrs. (1942) 11 I.T.R 50 (65) (HL) that a proceeding to impose the penalty under Section 21 of the Finance Act, 1922, is ‘penal’ in character.
28. It may be portinent, in this context, to quote a few words from Salmond on Jurisprudence. 10th Edn., p. 124:
“…… Legal proceedings have been divided into five distinct classes, namely, (1) actions for specific enforcement; (2) actions for restitution; (3) actions for penal redress; (4) penal actions, and (5) criminal prosecutions, it must now be observed that the last three of these contain a common element which is absent from the others, namely, the idea of punishment. In all these three forms of procedure the ultimate purpose of the law is in whole or in part the punishment of the defendant. This is equally so, whether he is imprisoned, or compelled to pay a pecuniary penalty to a common informer, or is held liable in damages to the person injured by him. All these proceedings, therefore, may be classed as penal, and as the source of penal liability…… It will be noted that all criminal proceedings are at the same time penal, but that the converse is not true…”
29. At another place, the learned author says (pp. 121-2., ibid):
“Sanctioning rights may be divided into two kinds with reference to the purpose of the law in creating them. This purpose is either (1) the imposition of a pecuniary penalty upon the defendant for the wrong he has committed, or (2) the provision of pecuniary compensation to the plaintiff for the wrong he has suffered……
The first of these kinds is rare in modern English law……But it is sometimes the case even yet, that the law creates and enforces a sanctioning right which has in it no element of compensation to the person injured but is appointed solely as a punishment for the wrongdoer. For example, a statute may make provision for a pecuniary penalty payable to the State or to a common informer and recoverable in civil proceedings. We have already discussed these ‘penal actions.’”
30. In India, similarly, it has been held in a number of decisions that a proceeding to impose any of the penalties prescribed by section 167(8) of the Sea Customs Act, such as fine or confiscation, is a ‘penal proceeding’, even though the punishment is awarded by a revenue authority and not a criminal Court. It would be profitable to reproduce the observations of the Supreme Court in the case of Amba Lal v. Union of India, AIR 1961 SC 264 (266):
“This Court has held that a customs officer is not a judicial tribunal and that a proceeding before him is not a prosecution but it cannot be denied that the relevant provisions of the Sea Customs Act and the Land Customs Act are penal in character the appropriate customs authority is empowered to make an inquiry in respect of an offence alleged to have been committed by a person under the said Acts……decide whether an offence is committed, make an order of confiscation of the goods in respect of which the offence is committed and impose penalty on the person concerned……To such a situation, though the provisions of the Code of Criminal Procedure or the Evidence Act may not apply except in so far as they are statutorily made applicable, the fundamental principles of criminal jurisprudence and of natural justice must necessarily apply. If so, the burden of proof is on the customs authorities and they must bring home the guilt to the person alleged to have committed a particular offence under the said Acts by adducing satisfactory evidence…”
31. Similar observations are to be found in Gian Chand v. State of Punjab, AIR 1962 SC 496.
32. Once it is held that a proceeding is penal or quasi-criminal in character, the following basic incidents of a criminal proceeding, inter alia, are attracted to it;
(i) An offence must be created by a statute by prohibiting an act or conduct, the violation of which would constitute the offence.
(ii) The person sought to be punished must be informed of the charge containing the ingredients or particulars of such offence,
(iii) In accordance with the principles of natural justice, the person charged must have a reasonable opportunity of meeting such charge [cf. F.N Roy v. Collector of Customs, Calcutta, AIR 1957 SC 648 (651)].
(iv) Subject to statutory exceptions, the onus of establishing the ingredients of the authority seeking to punish the person and the penalty cannot be awarded unless this onus is discharged [AIR 1962 SC 496 : AIR 1961 SC 364 ibid).
33. In the case before us, it is the question of onus which has been raised is connection with the nature of the proceeding under section 28(1) of the Income-tax Act, and this I shall deal with separately.
34. The question of onus in a ‘penal proceeding’ for the imposition of a statutory penalty has been fully explained by me in my judgment in the Division Bench decision in this Court in Mangala Prasad v. Manerikar, 68 Cal WN 383 (392 et seq) : (AIR 1965 Cal 507 at pp. 512-513) and I need only refer to the observations made therein as a part of my judgment in the iastant case.
35. Nevertheless, I shall summarise those points herein:
(i) The ‘golden thread’ running through the web of the English law,’ as Vicount Sankey said in Woolmington v. Director of Public Prosecutions, (1935) A.C 462 (481-2), is that “it is the duty of the prosecution to prove the prisoner's Guilt” (ibid) or that “a criminal charge has to be established by the prosecution” (Lawrence v. The King, (1933) A.C 699 (707)).
(ii) The above golden rule of criminal Jurisprudence is attracted to any ‘penal proceeding’ as has been held in English in Fattorini's case, 1942-11 ITR 50 (HL) and in India in Ambalal's case, AIR 1961 SC 264 both referred to earlier, unless excluded by a clear statutory provision.
36. Since Fattorini's case, 1942-11 ITR 50 (HL) relates to income-tax, I am tempted to reproduce the relevant observations of Lord Wright in that case (at p. 65 of 1942-11 ITR 50 (HL)). Section 21 of the Finance Act, 1922, provided:
“With a view to preventing the avoidance of payment of super-tax through the withholding from distribution of income of a company which would otherwise be distributed, it is hereby enacted as follows:
(i) Where it appears to the Special Commissioners that any company…. has not, within a reasonable time after the end of any year……… distributed to its members in such manner as to render the amount distributed liable to be included in the statements to be made by the members of the company of their total income for the purpose of super-tax, a reasonable part of its actual income from all sources…, the Commissioner may…… direct that for purposes of assessment to super-tax, the said income of the company shall…, be deemed to be the income of the members……”
37. The question was upon whom did the onus lie to prove the condition precedent for imposition of the penalty, namely, withholding some income from distribution. Holding that the onus lay upon the Revenue to establish this, Lord Wright said—
“I understand that paragraph to mean that the Board are treating the onus as of an ambulatory or shifting character, so that at a certain stage of the inquiry it finally shifts from the respondent to the appellant. I think that is wrong in law. The Crown set out to prove that the direction of the Board is justified because the appellant company has not distributed a reasonable part of its income within the meaning of section 21 of the Finance Act, 1927. It is obvious that the section is penal in character, and in my opinion the onus is finally on the Crown to prove its right to impose what is a very severe penalty. At the end of the day it is for the Crown to establish the facts necessary to show want of reasonableness on the part of the appellant. I cannot discover in the case as stated that there are facts found sufficient to justify the conclusion. Nor do I think the Board would have come to their conclusion if they had not taken the view as to onus expressed in paragraph 24. It was for the Crown to establish that the appellant company could have produced funds (it being accepted that the contract with the bank was not unreasonable) out of which to declare a dividend ‘without jeopardising the interests of the company or without making it impossible to acquire the shares which it desired to buy.” I accept this here as a correct statement of what would have been sufficient if established. The Board have not found that this has been proved. It seems to me that their conclusion in paragraph 25 was based upon their view as to the onus of proof. If the Board were wrong in that view, and I think they were, it follows that in law there was no evidence to support their finding of fact in paragraph 25.” In view of the above, we may, without more, come to the conclusion that the onus of establishing, in a proceeding under Section 28(1)(c) of the Income-tax Act, 1922, that the Assessee has (a) concealed the particulars of his income or (b) deliberately submitted inaccurate particulars, is upon the Revenue and not upon the Assessee.
38. (iii) The only point left is whether the Revenue has discharged that onus in the instant case.
39. As to this, I fully agree with the finding of my learned brother that the Revenue has failed to discharge the onus, and I need only give my reasons in short.
40. In 1958, speaking through Chagla, C.J the Bombay High Court held that the onus referred to is not discharged by simply showing that the assessee's explanation as to a particular receipt is false, for this does not necessarily lead to the conclusion that he has conclealed true particulars or deliberately furnished untrue particulars. It is for the Revenue to show something more positive; because even though the claim of the Assessee that it is a non-assessable receipt of a particular kind may be false, the receipt may be a non-assess-able receipt of another kind; it is for the Revenue to exclude that possibility, in order to penalise the assessee (1958) 34 ITR 98 : (AIR 1959 Bom 96), on the charge of concealment or submission of false particulars.
41. The above decision of the Bombay High Court has not yet been overruled by the Supreme Court, but some High Courts (e.g, the Allahabad Court in (1962) 48 ITR 324 (All) have taken the view that the decision of the Bombay High Court is no longer good law inasmuch as the Supreme Court in (1961) 41 ITR 425 : (1961) 2 SCR 765 : (AIR 1961 SC 609), has held that the proceedings under section 28 are not ‘penal proceedings’. A proper reading of the observations of the Supreme Court in the light of the facts of that case, however, do not bear out this assumption and there is nothing in the Supreme Court decision which overrides the view taken by the Bombay High Court in 1958-34 ITR 98 : (AIR 1959 Bom 96).
42. The question that came up for decision before the Supreme Court in Abraham's case, (1961) 2 SCR 765 : (AIR 1961 SC 609) (ibid), was whether, if in the process of assessment, a firm had discontinued its business, penalties under sec. 28 or like sections of the Act could still be imposed notwithstanding the discontinuance of the business of the firm. The Court answered the question in the affirmative in view of the provisions of section 44. Section 44, however, uses the word ‘assessment’. Hence arose the question whether the imposition of penalty under section 28 could be said to be a part of the assessment proceeding. Their Lordships held in the affirmative, in these words:
“By section 28, the liability to pay additional tax which is designated penalty is imposed in view of the dishonest contumacious conduct of the assessee. It is true that this liability arises only if the Income-tax Officer is satisfied about the existence of the conditions which gave him jurisdiction and the quantum thereof depends upon the circumstances of the case. The penalty is not uniform and its imposition depends upon the exercise of discretion by the taxing authorities; but it is imposed as a part of the machinery for assessment of tax liability.”
43. As stated by me earlier, the mode of imposition or recovery of a penalty does not alter its character as a punishment for some misconduct and that is the very sense in which the foregoing observation has been made. It merely explains how the penalty under section 28 is to be imposed and recovered, as a part of the machinery of assessment. It does not say that the proceeding under section 28 is not a penal proceeding nor does it speak of onus. In fact, a later passage explains the penal nature of the imposition thus;
“But whereas in the present case, by the use of words capable of comprehensive import, provision is made for imposing liability for penalty upon taxpayers guilty of fraud, gross negligence or contumacious conduct, as assumption that the words were used in a restricted sense…… will not be lightly made.”
44. The observations of the Allahabad High Court in Lalchand's case at p. 333 of (1963) 48 ITR 324 (All) are thus, with respect, founded on a misreading of the judgment of the Supreme Court in Abraham's case, (1961) 2 SCR 765 : (AIR 1961 SC 609). For the same reason we are unable to agree with the Madras decisions of the same strain. On the question of fact, I agree with my learned brother that the Revenue has, in the instant case, failed to establish anything more than the failure on the part of the Assessee to explain the source of the disputed receipt or that the explanation offered by him is false. In the result, I agree with the answer proposed by my learned brother that the income-tax authorities were not justified in imposing the penalty on the assessee under Section 28(1)(c) of the Income-tax Act.
RSK/D.V.C
45. Reference answered.
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