High Court Of Kerala
T.K. Shahal H. Musaliar vs. CIT & Anr.
Sections 18A(9), 28(1)(c), Travancore Income-tax Act, Section. 41(1)(c)
Asst. Years 1950-51, 1951-52, 1952-53
C.N. Ramachandran Nair, J.
Original Petition Nos. 12139, 12153 & 12259 of 2001
6th March, 2007
Ramachandran & Harun-Al-Rashid, for the Petitioner : P.K.R. Menon & George K. George, for the Respondents
C.N. Ramachandran Nair, J. :
The common petitioner in the three connected cases as legal heir of the deceased A. Thangal Kunju Musaliar is challenging penalty levied under s. 41(1)(c) of the Travancore IT Act for the asst. yrs. 1950-51 and 1951-52 and the penalty levied under s. 28(1)(c) and s. 18A(9) of the IT Act, 1922 for the asst. yr. 1952-53. The assessee died in February, 1966. However, prior to his death, the assessee has gone for two settlements with the Department. In fact the demands of income-tax were raised based on settlement and according to counsel for the petitioner, the total tax payment exceeds total tax liability and petitioner and other legal heirs of late assessee are entitled to refund. However, penalty levied for the above three years and confirmed in revisions are still outstanding. I have heard senior counsel Sri V. Ramachandran who appeared for the petitioner along with Sri Harun-Al-Rashid and Sri P.K.R. Menon, senior standing counsel appearing for the respondents. Both sides have furnished argument notes and I have gone through the same also.
4. The main ground of challenge against levy of penalty is that it is against settlement arrived at between the assessee and the Department whereunder the Department agreed not to levy any penalty or launch prosecution. Even though counsel for the petitioner contended that the Department is barred from violating the terms of settlement, standing counsel for the respondents submitted that assessee and his legal heirs did not remit the tax in terms of settlement, and therefore terms of settlement are not binding on the Department. I find that the CIT in the revision petitions has considered this objection. He has in fact relied on earlier judgment of this Court in the same matter in the writ petitions filed by some other legal heirs of the assessee whereunder this Court held as follows :
“We are not satisfied that by reason of Ext. D2 settlement the Revenue is precluded from recovering arrears of income-tax due for the period covered by the settlement under the provisions of the IT Act, 1961. As the terms of the settlement binding on the assessee have been broken by him, the Revenue cannot be held to be bound by the terms of the settlement binding on them.” From the above, it is clear that the issue stands settled by decision of this Court and this Court gave a clear-cut finding that since assessee and his legal heirs failed to comply with the terms of settlement, Department is not bound by the settlement. In the circumstances, levy of penalty is tenable as the assessee during his lifetime and his legal heirs thereafter failed to settle the arrears of tax in terms of settlement but made payments only after decades of settlement and that too in coercive proceedings. The next ground of challenge is that assessee was sick and bedridden and consequently he was not in a position to receive notice and effectively represent against levy of penalty. On facts, the CIT clearly found that penalty was levied after issuing detailed notice and after giving opportunity to the late assessee. I do not think petitioner as legal heir is entitled to contest penalty on the ground that assessee was not heard which case the assessee did not have during his lifetime. In fact, on going through the penalty orders, I find penalty itself is levied based on additional income conceded by the assessee in settlement proceedings after Department conclusively established escapement of income based on which assessments were made. Therefore the challenge against levy of penalty on the ground of violation of natural justice is not tenable.
The next ground of challenge is on limitation. Counsel for the petitioner relied on the decision of the Supreme Court in R.K. Upadhyaya vs. Shanabhai P. Patel (1987) 62 CTR (SC) 17 : (1987) 166 ITR 163 (SC) and contended that there is inordinate delay in completion of penalty proceedings for the relevant assessment years and therefore levy of penalty is arbitrary, and barred by limitation. I am unable to accept this contention for the reason that no time bar is provided under the Travancore IT Act or under the IT Act, 1922 for levy of penalty for concealment of income. Moreover, the enquiry conducted, detection of massive suppressed income, dispute in assessment through appeal, and final settlement was based on additional income offered by the late assessee would show beyond doubt that penalty proceedings originally initiated had to wait till finalisation of assessments based on which penalty is ultimately levied. Therefore, it cannot be said that time taken for completion of penalty proceedings is so unreasonable to affect its validity. Therefore the challenge against penalty proceedings on the ground of limitation is also rejected. The last ground of challenge is against the merits of the case. Senior counsel for the petitioner pointed out that onus of proof of concealment of income is on the Department and until amendment was introduced in the 1961 Act in s. 271(1)(c) of the Act, no penalty could be levied under s. 41(1)(c) of the Travancore IT Act or s. 28(1)(c) of the IT Act, 1922 without establishing mens rea. He has relied on the decisions of the Supreme Court in Anantharam Veerasinghaiah & Co. vs. CIT (1980) 16 CTR (SC) 189 : (1980) 123 ITR 457 (SC), CIT vs. Khoday Eswarsa & Sons 1972 CTR (SC) 295 : (1972) 83 ITR 369 (SC) and CIT vs. Anwar Ali (1970) 76 ITR 696 (SC) and contended that without establishing mens rea, Department is not entitled to levy penalty for concealment of income whether it be under the Travancore IT Act or under the IT Act, 1922. Counsel for the Department on the other hand has relied on the decisions of the Madras High Court in Arunachalam Chettiar vs. CIT 6 ITC 58 and CIT vs. J.K.A. Subramania Chettiar 1978 CTR (Mad) 35 : (1977) 110 ITR 602 (Mad) and that of this Court in CIT vs. K. Mahim (1984) 39 CTR (Ker) 337 : (1984) 149 ITR 737 (Ker), and contended that concealment is self-evident from the facts disclosed in the impugned orders and penalty is perfectly justified. On going through the impugned orders, particularly the order in revision, I find that facts prove beyond doubt that assessee had concealed income details of which were collected by the Department. In fact settlement itself was reached only because the Department got evidence about details of concealment. It is seen that for the asst. yr. 1950-51 (1122 ME), the original return filed by the assessee disclosed income of Rs. 7,864. However, assessment was completed at Rs. 1,05,631 which was later revised to Rs. 2,05,663.
It is to be noted that the suppressed income represents interest on Government securities, fixed deposits, etc. The assessee himself later filed revised return disclosing an income of Rs. 1,75,997 as against original income returned of Rs. 7,864. The total income assessed for 1950-51 in terms of settlement was Rs. 14,42,098. It is seen that penalty levied under s. 41(1)(c) for this year was only Rs. 40,754 and that too only when the assessee and his legal heirs failed to settle liability in terms of the settlement. Therefore I do not find any ground to interfere with the penalty levied for 1950-51. For the year 1951-52 (1123 ME) the late assessee returned income of Rs. 34,236 and the original assessment completed was on an income of Rs. 91,242. The assessment was revised under s. 47 of the Travancore IT Act because the assessee did not include his share income from a private limited company under his control, that is M/s A. Thangal Kunju Musaliar & Sons (P) Ltd. On reassessment, the income was redetermined at Rs. 3,30,175 which was confirmed in appeal by the Tribunal. The assessment was ultimately settled at enhanced income of Rs. 10,22,339. In view of massive concealment of income, which was conceded by late assessee himself by filing a revised return at Rs. 1,92,742 and later assessed at Rs. 10,22,339 in settlement, the assessee was levied a penalty of Rs. 5,70,814 under s. 41(1)(c) of the Travancore IT Act. The facts disclose clear suppression of income and without any justification the assessee did not include his share income from a private limited company which was under his control. The penalty levied is only a minimum penalty and therefore there is no scope for interference with the penalty levied for the year 195152 also. So far as the penalty levied for the year 1952-53 is concerned, it is seen that original income returned by the late assessee was Rs. 17,066 and assessment was completed on an income of Rs. 2,15,468. This assessment was again revised under s. 47 of the Act fixing the income at Rs. 5,18,968 against the income conceded by the assessee in revised return at Rs. 1,61,646. The income assessed under the settlement was Rs. 5,18,968 and the penalty levied for concealment of income was Rs. 2,12,135. Here again I do not find any scope for interference with the levy of minimum penalty for admitted concealment of income by the late assessee.
The last contention raised is only with regard to reduction of penalty. However, in view of settlement and payment of tax, instead of reducing the penalty, it would be more beneficial to the assessee to completely waive the interest, which will otherwise run in to lakhs of rupees for nonpayment of penalty for several decades. However such relief can be granted as in settlement only if the petitioner and other legal heirs of the assessee pay the penalty within a reasonable time. Even though along with argument notes the petitioner has produced an order of the Chief CIT dt. 5th Jan., 2000, waiving interest under s. 220(2A) of the Act on the penalty amount, it is conceded that petitioner has not paid penalty and consequently waiver of interest is not relevant or valid as of now. In any case in order to give quietus to the issue, which is pending for decades, I order complete waiver of interest if the entire arrears of penalty is paid at least on or before 30th April, 2007. The AO is directed to consider payments of tax made by the petitioner and other legal heirs of late assessee and if any excess is there, the same will be adjusted towards penalty and balance only will be payable by the petitioner and other legal heirs, for which a statement will be given by the AO within two weeks from the date of production of a copy of this judgment. OPs are disposed of as above.
[Citation : 291 ITR 444]