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Hira Singh v. Commissioner Of Wealth-Tax, Patiala, And Another.
Factual and Procedural Background
The petitioner filed returns of net wealth for the wealth-tax assessment years 1970–71 and 1971–72 in the status of a Hindu Undivided Family (HUF) under s.14(1) read with s.18 of the Wealth-tax Act for the first time on 18 July 1972. No notice under s.14(2)/17 was issued by the Wealth-tax Officer (WTO) at that time. In those two returns the petitioner showed agricultural land as his net wealth; the opinion records a figure of 21 acres 6 kanals in one place and 24 acres 6 kanals in another part of the record for those years.
The WTO made an order-sheet noting on 17 June 1978 requesting, among other items, production of a sale deed for land sold to Rakha Land Colonisers, exact location of the land and that the petitioner should file wealth-tax returns for 1972–73, 1973–74 and 1974–75.
The petitioner filed returns for assessment years 1972–73 to 1975–76 under s.14(1) read with s.13 without any statutory notice under s.14(2)/17. In the annexures to those returns he described the land as follows: for 1972–73, 24 acres 6 kanals; for the remaining three assessment years, a reduced area of 9 acres 7 kanals 8 marlas on account of a partition said to have been effected by a civil court decree dated 22 May 1972.
The WTO issued a consolidated common assessment order dated 21 August 1975 for all six assessment years (1970–71 to 1975–76). The WTO accepted the area figures given by the petitioner but assessed the capital value of the land at figures higher than those returned and, on 21 August 1975, initiated penal action under s.18(1)(a)/18(2). By an order dated 31 December 1977 the WTO imposed penalties under s.18(1)(a).
On 5 July 1978 the petitioner applied to the Commissioner of Wealth-tax (CWT) under s.18B for waiver of the penalties. The Commissioner waived penalties for assessment years 1970–71 and 1971–72 but refused relief for 1972–73 to 1975–76 by order dated 25 December 1980, on the ground that declarations for those years were not voluntary despite being made prior to issuance of notice under s.14/17 and therefore did not satisfy s.18B. The petitioner challenged that refusal by writ petition.
Legal Issues Presented
- Whether, on the facts of the case, the provisions of section 18B(1)(i)(a) of the Wealth-tax Act are attracted in respect of the assessment years 1972–73 to 1975–76 — i.e., whether the petitioner had, prior to issue of a notice under s.14(2), voluntarily and in good faith made full and true disclosure of his net wealth so as to entitle him to waiver or reduction of penalty under s.18B.
Arguments of the Parties
Respondent's Arguments
- The respondent's learned counsel argued that punctuation in s.18B should not be relied upon for interpretation and that the words "voluntarily and in good faith" qualify the filing of the returns themselves. In other words, those words also refer to the act of filing, not solely to the quality of the disclosure.
- It was contended that an assessee who files returns only at the instance of the WTO cannot claim that such filing was voluntary and in good faith; an assessee "cannot sit on the fence" and obtain relief where returns were filed after being asked to do so by the WTO.
- Reliance was placed on Hakam Singh v. CIT [1980] 124 ITR 228 (All) in support of the above contention.
Petitioner's Arguments
The opinion does not contain a detailed account of the parties' legal arguments advanced by the petitioner beyond the fact of challenge to the Commissioner's refusal; the petition itself sought quashing of the refusal to waive penalties for 1972–73 to 1975–76 on the basis that the returns were voluntarily filed prior to issue of notice and satisfied the conditions of s.18B.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Madhnkar Manilal Modi v. CWT, [1978] 113 ITR 318 (Guj.) | Interpreted s.18(2A) (now s.18B): the word "voluntarily" must be read with "made full disclosure of his net wealth"; a return filed at the instance, suggestion or behest of the WTO (other than by a statutory notice under s.14(2)) may still be voluntary; relief is not confined to first-time filers. | The court expressed respectful agreement with these observations and applied the same interpretative approach to s.18B, holding that the Commissioner's interpretation was incorrect in light of this authority. |
| B. Anjanappa v. CWT, [1980] 124 ITR 433 (Karnataka) | Held that s.18(2A) applies where returns are filed beyond time without reasonable cause; "voluntarily" means "without compulsion" and "good faith" means "with due care and caution"; if no deliberate misstatement or omission is shown, the condition is satisfied. | The court noted and relied on the similar view expressed in this decision to support its interpretation that voluntary and good-faith full disclosure satisfies s.18B. |
| Hakam Singh v. CIT, [1980] 124 ITR 228 (All.) | Support for the proposition that returns filed under compulsion or apprehension (for example, after seizure in a raid) may not be considered voluntary for the purposes of relief provisions. | The court found the facts of Hakam Singh distinguishable (there, books were seized and the return was filed under apprehension). The court therefore did not accept Hakam Singh as controlling for the present facts. |
Court's Reasoning and Analysis
The court began by stating the material text of s.18B(1)(i)(a), which permits the Commissioner to reduce or waive penalties under s.18(1) for failure to furnish returns if he is satisfied that the person had, prior to the issue of a notice under s.14(2), voluntarily and in good faith made full and true disclosure of his net wealth and cooperated in any inquiry and paid or arranged payment of tax/interest.
The court reviewed earlier judicial pronouncements. It agreed with the Division Bench decision in Madhnkar Manilal Modi v. CWT that the word "voluntarily" must be read in conjunction with "made full disclosure of his net wealth" and does not rigidly qualify only the act of filing the return. The court noted the legislative history that s.18B in substance corresponds to the earlier cl. (2A) of s.18 and that the language is "in pari materia".
The court also cited the Karnataka High Court decision in B. Anjanappa v. CWT to the effect that s.18(2A) (and thus s.18B) applies where a late return without reasonable cause nevertheless contains a voluntary and good-faith full disclosure. The court accepted the definitions used there: "voluntarily" meaning without compulsion, and "good faith" meaning with due care and caution, and that absence of deliberate misstatement or omission indicates satisfaction of the condition.
The respondent's submission — that the punctuation of s.18B should be ignored and that "voluntarily and in good faith" qualify the filing of returns so that returns filed at the WTO's instance cannot be voluntary — was expressly considered. The court rejected that submission and held that the proper inquiry is whether the assessee made full and true disclosure of his wealth in good faith and voluntarily prior to issuance of a notice under s.14(2). Filing a return at the instance of the WTO (other than following a statutory notice) does not, by itself, disentitle an assessee from relief under s.18B.
The court distinguished Hakam Singh on its facts: there were seizures and a raid in that case leading to filing under apprehension, whereas in the present case the returns were filed prior to any notice, and the particulars of land were consistently disclosed and accepted as to area by the WTO (disagreement existed only as to valuation). Given the consistent disclosures, the court concluded that the Commissioner had misinterpreted s.18B in refusing waiver for 1972–73 to 1975–76.
Holding and Implications
The writ petition is accepted and the impugned order is quashed insofar as it relates to the assessment years 1972–73 to 1975–76.
Consequential directions and immediate effects:
- The court quashed the Commissioner's refusal to waive penalties for the assessment years 1972–73 to 1975–76 and directed the Commissioner to decide the applications relating to those years afresh, taking into account the court's observations on the proper interpretation of s.18B.
- The court awarded costs (counsel fee) of Rs. 300 to the petitioner.
Broader implications: the court applied and endorsed prior High Court decisions (Madhnkar Manilal Modi and B. Anjanappa) for the interpretation that "voluntarily and in good faith" qualify the quality of the disclosure rather than strictly the mere fact of filing a return; it held that filing at the instance of the WTO (other than pursuant to a statutory notice) does not automatically disqualify an assessee from relief under s.18B. The opinion does not purport to lay down a novel statutory principle beyond affirming and following those precedents; its direct, operative effect is the remittal for fresh consideration by the Commissioner for the years specified.
R.N Mittal, J.:— Briefly, the facts are that the petitioner submitted his returns of net wealth for the wealth-tax assessment years 1970–71 and 1971–72 in the status of an HUF to the WTO under s. 14(1) read with s. 18 of the W.T Act (hereinafter referred to as “the Act”), for the first time on 18th July, 1972. No notice under s. 14(2)/17 of the Act was issued to him by the WTO at that time. In the two returns, he showed his agricultural land measuring 21 acres 6 kanals as his net wealth. The WTO on 17th June, 1978, made the following noting on the order sheet:
“The rates applied for 1970–71 and 1971–72 assessment years in respect of land are very low; asked to produce the following information:
(i) Sale deed of land sold to Rakha Land Colonisers.
(ii) Exact location of land
(iii) * * *
(iv) To file wealth-tax returns for 1972–73, 1973–74 and 1974–75………”
2. The petitioner filed the returns of net wealth under s. 14(1) read with s. 13 for the assessment years 1972–73, 1973–74, 1974–75 and 1975–76 without the issuance of any statutory notice under s. 14(2)/17 of the Act. In the annexures to the returns, he showed his agricultural land as measuring 24 acres 6 kanals for the assessment year 1972–73 and for each of the remaining three assessment years as measuring 9 acres 7 kanals 8 marlas. In the latter years, he showed a lesser area with himself as a partition had taken place between him and his major sons on the basis of the decree dated 22nd May, 1972, passed by a civil court.
3. The WTO passed a consolidated common assessment order on 21st August, 1975, copy annex. P-2, for all the six assessment years, that is, from 1.970-71 to 1975–76. He accepted the figures of the area of agricultural land disclosed by the petitioner but for each year he estimated the capital value at a figure higher than the one shown by the petitioner. On 21st August, 1975, the WTO also initiated penal action under s. 18(1)(a)/18(2) of the Act for the late filing of the net wealth returns for the six assessment years. He, vide his order dated 31st December, 1977, imposed various penalties under s. 18(1)(a) of the Act for the late filing of the returns. On 5th July, 1978, the petitioner made a petition under s. 18B of the Act, copy annexure P-1, to the CWT, respondent No. 1, for waiver of the penalties imposed by the WTO by exercising his powers vested in him under the said section. The respondent waived the penalties for the assessment years 1970–71 and 1971–72 but declined to give the relief for the remaining assessment years, vide his order dated 25th December, 1980, copy annex. P-1, on the grounds that the declaration of wealth was not voluntary even though it was prior to the issuance of a notice under s. 14/17 of the Act and that the condition of s. 18B of the Act was not satisfied. The petitioner has impugned the order through this writ petition.
4. The question that arises for determination is as to whether, in the facts and circumstances of the case, the provisions of s. 18B(1)(i)(a) of the Act are attracted for the assessment years 1972–73 to 1975–76. In order to determine the question, it is necessary to read the relevant part of the section which is as follows:
“18B. (1) Notwithstanding anything contained in this Act, the Commissioner may, in his discretion, whether on his own motion or otherwise,—
(i) reduce or waive the amount of penalty imposed or imposable on a person under clause (i) of sub-section (1) of section 18 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), has, prior to the issue of a notice to him under sub-section (2) of section 14, voluntarily and in good faith, made full and true disclosure of his net wealth, and………….
and also has co-operated in any inquiry relating to the assessment of his net wealth and has either paid or made satisfactory arrangements for the payment of any tax or interest payable in consequence of an order passed under this Act in respect of the relevant assessment year.
Explanation.—For the purposes of this sub-section, a person shall be deemed to have made full and true disclosure of the particulars of his assets or debts in any case where the excess of net wealth assessed over the net wealth returned is of such a nature as not to attract the provisions of clause (c) of sub-section (1) of section 18.”
5. The section came up for interpretation before a Division Bench of the Gujarat High Court in Madhnkar Manilal Modi v. CWT, [1978] 113 ITR 318. The facts of that case were that for the assessment year 1971–72, the assessee filed his return of net wealth under s. 14(1) of the W.T Act on 29th November, 1971. For the assessment years 1969–70 and 1970–71, the returns were filed only on 19th September, 1973, a few days before the assessment for 1971–72 was completed. The ITO imposed penalty for late filing of returns for all the three assessment years. No notice under s. 14(2) had been served for late filing of returns. He made an application to the Commissioner under s. 18(2A) praying that the amount of minimum penalty imposable on him in respect of all the three assessment years be waived. The latter waived the minimum penalty imposable on him for late filing of the return for the assessment year 1971–72, but refused to waive the penalty for the assessment years 1969–70 and 1970–71, on the grounds 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, therefore, those returns could not be said to be voluntary returns and that the assessee was not a new assessee when he filed the returns for the assessment years 1969–70 and 1970–71 and, therefore, the case was not a fit one to waive or reduce the penalty imposable under the Act. The petitioner challenged the order in the High Court. It was observed by the learned Bench as under (headnote):
“Firstly, that the Commissioner completely misdirected himself in law in reading into section 18(2A) the condition, that the assessee had not voluntarily filed returns for the two assessment years in question since he did so only after he was asked to do so during the course of the assessment proceedings for the assessment year 1971–72. Though section 18(2A)(a) uses the word ‘voluntarily’, the said word has to be read with the expression ‘made full disclosure of his net wealth’. The condition which the legislature has imposed is that in cases where an assessee has, prior to the issue of notice to him under section 14(2), 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 the return.
Secondly, by the mere fact that 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.
Thirdly, there is nothing in section 18(2A) which restricts the relief to 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.”
6. I am in respectful agreement with the above observations. It may be mentioned that the provisions of s. 18B were included first in s. 18 as cl. (2A). Later, by the T.L (Amend.) Act, 1975, cl. (2A) of s. 18 was deleted and an independent s. 18B was introduced. The language of s. 18B is in pari materia with that of cl. (2A) of s. 18.
7. Similar view was taken by the Karnataka High Court in B. Anjanappa v. CWT, [1980] 124 ITR 433. It was observed therein that s. 18(2A) would apply to a return which was filed beyond time without reasonable cause. If in such a return the assessee had “voluntarily and in good faith, made full disclosure of his net wealth”, the condition mentioned in cl. (a) stood satisfied. The expression “voluntarily” means “without compulsion” and “good faith” means “with due care and caution”. If the return filed by the assessee did not show that he deliberately furnished wrong particulars about his wealth or deliberately omitted to include all the items of taxable wealth, then he should be considered as having satisfied the above condition.
8. The learned counsel for the respondents has argued that the punctuation under s. 18B is not to be taken into consideration for the purpose of interpreting the section. According to him, the words “voluntarily and in good faith” also qualify the filing of the returns. He urges that the assessee cannot sit on the fence and by filing the returns after having been asked by the WTO to do so, he cannot be allowed to say that he was done so voluntarily and in good faith. In support of his contention, he has placed reliance on Hakam Singh v. CIT, [1980] 124 ITR 228 (All).
9. I regret my inability to accept this contention. The words “voluntarily and in good faith”, in my view, qualify the words “made full and true disclosure” of his net wealth. Merely because a WTO asks a wealth-tax assessee to file the returns, it cannot be said that the latter is not entitled to the benefit of s. 18B. What is to be seen is whether an assessee has made a full and true disclosure of his wealth in good faith, voluntarily and before the issuance of a notice under s. 14(2). If he has done so, his case is covered by s. 18B. Filing of the return at the instance of the WTO may not be sufficient to hold otherwise. The facts of Hakam Singh's case, [1980] 124 ITR 228 (All), are distinguishable. In that case, the books of account of the assessee had been seized in a raid by the I.T department and, thereafter, the assessee filed the return under an apprehension that he was likely to be dealt with under the penal provisions of the I.T Act. It may be mentioned that the learned Bench did not disagree with the observations in Madhukar Manilal Modi's case, [1978] 113 ITR 318 (Guj), which was taken into consideration by it. The facts of the present case are similar to those of Madhukar Manilal Modi's case. In the present case, in the returns for the assessment years 1970–71 and 1971–72, the petitioner had shown his land as 24 acres 6 kanals. In the return for the assessment year 1972–73, again, he showed the same area. In the returns of later assessment years, he showed his land as 9 acres 7 kanals 8 marlas for the reason that the land shown earlier had been partitioned between him and his major sons on the basis of a decree of the civil court dated 22nd May, 1972. The WTO accepted the area disclosed by the petitioner in all the returns as correct. However, he assessed the value of the land as more than what was given by the petitioner and imposed penalties on him under s. 18(1)(a). The Commissioner, Patiala, in the application under s. 18B, waived the penalties for the assessment years 1970–71 and 1971–72, but refused to do so for the subsequent assessment years. It is not disputed that the petitioner had correctly disclosed the particulars of the land in the returns and that the returns were filed before the issuance of the notice under s. 14(2)/17. The value of the land has always posed difficulties. The wealth-tax on agricultural land has now been abolished. The budget speech of the Minister of Finanee made on 18th June, 1980, in Parliament, in this regard, is as follows (123 ITR (St.) at p. 21):
“At present, agricultural property is included in the taxable wealth for the purposes of the levy of wealth-tax. At the time when agricultural property was brought within the tax net, it was hoped that it would be a potent instrument for mobilising resources from the affluent section of agriculturists. But our experience of over the last decade has been most disappointing. The amount realised as wealth-tax on agricultural property has generally been less than Rs. 1 crore per annum. The valuation of agricultural land has posed difficulties leading to complaints of harassment. As this tax has clearly failed to achieve its original objective, I propose to discontinue the levy of wealth-tax on agricultural property except in the case of owners of tea, coffee, rubber and cardamom plantations. I am sure that this measure will be widely welcomed by our farmers.”
10. The Wealth-tax Commissioner refused to waive the penalties regarding the assessment years from 1972–73 to 1975–76, on the ground that the declaration of wealth was not voluntary by the assessee as the returns were filed at the instance of the WTO. In my view, he has not correctly interpreted s. 18B. Therefore, the impugned order is liable to be quashed.
11. For the aforesaid reason, I accept the writ petition with costs and quash the impugned order so far as it relates to the assessment years 1972–73 to 1975–76, and direct the Commissioner to decide the applications relating to the said assessment years afresh after taking into consideration the above observations. Counsel fee Rs. 300.
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