I Have Heard Senior Counsel Sri v. P.k.r. Menon, Senior Standing Counsel Appearing For The Respsondents. Both Sides Have Furnished Argument Notes And I Have Gone

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR TUESDAY, THE 6TH MARCH 2007 / 15TH PHALGUNA 1928 OP.No. 12139 of 2001(I) ------------------------------ PETITIONER: ------------------- T.K.SHAHAL H. MUSALIAR,S/O.LATE A. THANGAL KUNJU MUSALIAR, BELAIRE, KILIKOLLOOR, QUILON 691 004. BY ADV. SRI.V.RAMACHANDRAN(SR) SRI.HARUN-AL-RASHID SRI.P.K.MUHAMMED RESPONDENTS: ---------------------- 1.COMMISSIONER OF INCOME TAX, TRIVANDRUM. 2.INCOME TAX OFFICER, A WARD, QUILON. BY ADV. SRI.P.K.R.MENON(SR.),SC FOR IT SRI.GEORGE K. GEORGE, SC FOR IT THIS ORIGINAL PETITION HAVING BEEN FINALLY HEARD ON 06/03/2007, ALONG WITH OP NO. 12259 OF 2001 OP NO. 12153 OF 2001 THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ORDER ON CMP. NO.19479/2001 IN OP. NO.12139/2001 DISMISSED 06.03.2007SD/- C.N.RAMACHANDRAN NAIR, JUDGE APPENDIX PETITIONER'S EXHIBITS EXT.P1:- COPY OF THE ORDER OF THE MINISTRY OF FINANCE IN NO.74(8)/(29) IP 57,DT.25TH SEPTEMBER , 1957. EXT.P2:- COPY OF THE LETTER FROM THE COMMISSIONER OF INCOME TAX C.NO.661-25(1)/57, DT.12TH NOVEMBER 1957. EXT.P3:- COPY OF THE CERTIFICATE SHOWING DEMANDS NO.12 TO 22 IN RE:PENALTY U/S. 221 ASST.YEAR 1950-51 & 51-52, PENALTY U/S 28(1) (C) ASST.YEAR 1953-53, INTEREST U/S 18A(9) , ASST.YEAR 1952-53, PENALTY U/S 41 (1) © OF THEINCOME TAX ACT; ASST.YEAR 1122, 1123,1124 (M.E.) EXT.P4:- COPY OF THE NOTICE IN FORM I.T.C. P.17 ISSUED BY THE TAX RECOVERYOFFICER, DT.18TH JUNE 1976 T.R. NO.25/58. EXT.P5:- COPY OF THE PENALTY ORDERS UNDER SEC. 28(1) © A.Y. 1950-51, AND 1951-52AND PENALTY UNDER SEC. 28 (1) (b) FOR A.Y 1952-53. EXT.P6:- COPY OF THE WAIVER PETITIONERS FILED BEFORE THE COMMISSIONER OFINCOME TAX, TRIVANDRUM UNDER SEC. 28 (1) © A.Y. 1950, 51 51-52 AND UNDER SEC. 28(1)(b) A.Y. 1952-63. EXT.P7:- COPY OF THE ORDERS OF THE COMMISSIONER OF INCOME TAX. /TRUE COPY/ tss C.N.RAMACHANDRAN NAIR,J. ---------------------------------------------------- O.P. NOs.12139, 12153 & 12259 OF 2001 ----------------------------------------------------- Dated this the 6th day of March, 2007 JUDGMENT The common petitioner in the three connected cases as legal heirof the deceased A. Thangal Kunju Musaliar is challenging penaltylevied under Section 41(1)(c) of the Travancore Income Tax Act for theassessment years 1950-51 and 1951-52 and the penalty levied underSection 28(1)(c) and Section 18A (9) of the Income Tax Act, 1922 forthe assessment year 1952-53. 2. The assessee died in February, 1966. However, prior to hisdeath, the assessee has gone for two settlements with the department.In fact the demands of income tax were raised based on settlement andaccording to counsel for the petitioner, the total tax payment exceedstotal tax liability and petitioner and other legal heirs of late assessee areentitled to refund. However, penalty levied for the above three yearsand confirmed in revisions are still outstanding. 3. I have heard Senior Counsel Sri. V. Ramachandran whoappeared for the petitioner along with Sri. Harun-Al-Rashid and Sri. P.K.R. Menon, senior standing counsel appearing for the respsondents.Both sides have furnished argument notes and I have gone through thesame also. 2. The assessee died in February, 1966. However, prior to hisdeath, the assessee has gone for two settlements with the department.In fact the demands of income tax were raised based on settlement andaccording to counsel for the petitioner, the total tax payment exceedstotal tax liability and petitioner and other legal heirs of late assessee areentitled to refund. However, penalty levied for the above three yearsand confirmed in revisions are still outstanding. 3. I have heard Senior Counsel Sri. V. Ramachandran whoappeared for the petitioner along with Sri. Harun-Al-Rashid and Sri. P.K.R. Menon, senior standing counsel appearing for the respsondents.Both sides have furnished argument notes and I have gone through thesame also. 4. The main ground of challenge against levy of penalty is that itis against settlement arrived at between the assessee and the departmentwhereunder the department agreed not to levy any penalty or launchprosecution. Even though counsel for the petitioner contended that theDepartment is barred from violating the terms of settlement, standingcounsel for the respondents submitted that assessee and his legal heirsdid not remit the tax in terms of settlement, and therefore terms ofsettlement are not binding on the department. I find that theCommissioner of Income tax in the revision petitions has consideredthis objection. He has in fact relied on earlier judgment of this Court inthe same matter in the Writ Petitions filed by some other legal heirs ofthe assessee whereunder this Court held as follows: We are not satisfied with by reason of Ext. D2settlement the revenue is precluded from recoveringarrears of income-tax due for the period covered bythe settlement under the provisions of the Income-taxAct, 1961. As the terms of the settlement binding on the assessee have been broken by him, the revenuecannot be held to be bound by the terms of thesettlement binding on them. From the above, it is clear that the issue stands settled by decision ofthis Court and this Court gave a clear-cut finding that since assesseeand his legal heirs failed to comply with the terms of settlement,department is not bound by the settlement. In the circumstances, levyof penalty is tenable as the assessee during his life-time and his legalheirs thereafter failed to settle the arrears of tax in terms of settlementbut made payments only after decades of settlement and that too incoercive proceedings. 5. The next ground of challenge is that assessee was sick and bed-ridden and consequently he was not in a position to receive notice and effectively represent against levy of penalty. On facts, theCommissioner clearly found that penalty was levied after issuingdetailed notice and after giving opportunity to the late assessee. I donot think petitioner as legal heir is entitled to contest penalty on theground that assessee was not heard which case the assessee did nothave during his lifetime. In fact, on going through the penalty orders, I find penalty itself is levied based on additional income conceded by theassessee in settlement proceedings after department conclusivelyestablished escapement of income based on which assessments weremade. Therefore the challenge against levy of penalty on the groundof violation of natural justice is not tenable. effectively represent against levy of penalty. On facts, theCommissioner clearly found that penalty was levied after issuingdetailed notice and after giving opportunity to the late assessee. I donot think petitioner as legal heir is entitled to contest penalty on theground that assessee was not heard which case the assessee did nothave during his lifetime. In fact, on going through the penalty orders, I find penalty itself is levied based on additional income conceded by theassessee in settlement proceedings after department conclusivelyestablished escapement of income based on which assessments weremade. Therefore the challenge against levy of penalty on the groundof violation of natural justice is not tenable. 6. The next ground of challenge is on limitation. Counsel for thepetitioner relied on the decision of the Supreme Court inUPADHYAYA V. SHANABHAI P. PATEL, (1987) 166 ITR 163 andcontended that there is inordinate delay in completion of penaltyproceedings for the relevant assessment years and therefore levy ofpenalty is arbitrary, and barred by limitation. I am unable to accept thiscontention for the reason that no time bar is provided under theTravancore Income Tax Act or under the Income Tax Act, 1922 forlevy of penalty for concealment of income. Moreover, the enquiryconducted, detection of massive suppressed income, dispute inassessment through appeal, and final settlement was based onadditional income offered by the late assessee would show beyonddoubt 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 penaltyproceedings is so unreasonable to affect its validity. Therefore thechallenge against penalty proceedings on the ground of limitation isalso rejected. 7. The last ground of challenge is against the merits of the case.Senior counsel for the petitioner pointed out that onus of proof ofconcealment of income is on the department and until amendment wasintroduced in the 1961 Act in Section 271 (1) (c) of the Act, no penaltycould be levied under Section 41(1)(c) of the Travancore Income TaxAct or Section 28(1)(c) of the Income Tax Act, 1922 withoutmens rea. establishing He has relied on the decisions of the SupremeCourt in ANANTHARAM VEERASINGHAIAH & CO. V.COMMISSIONER OF INCOME TAX, A.P., (1980) 123 I.T.R. 457,COMMISSIONER OF INCOME TAX, MADRAS V. KHODAYESWARSA AND SONS, (1972) 83 I.T.R. 369 and COMMISSIONEROF INCOME TAX V. ANWAR ALI, (1970) 76 ITR 696 andmens rea contended that without establishing Department is not entitled to levy penalty for concealment of income whether it be under theTravancore Income Tax Act or under the Income Tax Act, 1922.Counsel for the Department on the other hand has relied on thedecisions of the Madras High Court in ARUNACHALAM CHETTIARV. COMMISSIONER OF INCOME TAX, 6 ITC 58 andCOMMISSIONER OF INCOME TAX, MADRAS V. J.K.A.SUBRAMANYA CHETTIAR, 110 ITR 602 and that of this Court inCOMMISSIONER OF INCOME TAX, KERALA II, ERNAKULAMV. K. MAHIM, 149 ITR 737, and contended that concealment is self-evident from the facts disclosed in the impugned orders and penalty isperfectly justified. On going through the impugned orders, particularlythe order in revision, I find that facts prove beyond doubt that assesseehad concealed income details of which were collected by thedepartment. In fact settlement itself was reached only because thedepartment got evidence about details of concealment. It is seen thatfor the assessment year 1950-51 (1122 ME), the original return filed bythe assessee disclosed income of Rs. 7864/-. However, assessment wascompleted 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 Govt.securities, fixed deposits, etc. The assessee himself later filed revisedreturn disclosing an income of Rs. 1,75,997/- as against originalincome returned of Rs. 7864/-. The total income assessed for 1950-51in terms of settlement was Rs. 14,42,098/-. It is seen that penaltylevied under Section 41(1)(c) for this year was only Rs. 40, 754/- andthat too only when the assessee and his legal heirs failed to settleliability in terms of the settlement. Therefore I do not find any groundto 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 theoriginal assessment completed was on an income of Rs. 91,242/-. Theassessment was revised under Section 47 of the Travancore IncomeTax Act because the assessee did not include his share income from aprivate limited company under his control, that is M/s. A. ThangalKunju Musaliar and Sons (P) Ltd. On reassessment, the income wasredetermined at Rs. 3,30,175/- which was confirmed in appeal by theTribunal. The assessment was ultimately settled at enhanced income ofRs.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, theassessee was levied a penalty of Rs. 5,70,814/- under Section 41(1)(c)of the Travancore Income tax Act. The facts disclose clear suppressionof income and without any justification the assessee did not include hisshare income from a private limited company which was under hiscontrol. The penalty levied is only a minimum penalty and thereforethere is no scope for interference with the penalty levied for the year1951-52 also. So far as the penalty levied for the year 1952-53 isconcerned, it is seen that original income returned by the late assesseewas Rs. 17,066/- and assessment was completed on an income of Rs.2,15,468/-. This assessment was again revised under Section 47 of theAct fixing the income at Rs. 5,18,968/- against the income conceded bythe assessee in revised return at Rs. 1,61,646/-. The income assessedunder the settlement was Rs. 5,18,968/- and the penalty levied forconcealment of income was Rs.2,12,135/-. Here again I do not findany scope for interference with the levy of minimum penalty foradmitted concealment of income by the late assessee. The last contention raised is only with regard to reduction ofpenalty. However, in view of settlement and payment of tax, instead ofreducing the penalty, it would be more beneficial to the assessee tocompletely waive the interest, which will otherwise run to lakhs ofrupees for non-payment of penalty for several decades. However suchrelief can be granted as in settlement only if the petitioner and otherlegal heirs of the assessee pay the penalty within a reasonable time.Even though along with argument notes the petitioner has produced anorder of the Chief Commissioner of Income tax dated 5.1.2000,waiving interest under Section 220(2A) of the Act on the penaltyamount, it is conceded that petitioner has not paid penalty andconsequently waiver of interest is not relevant or valid as of now. Inany case in order to give quietus to the issue, which is pending fordecades, I order complete waiver of interest if the entire arrears ofpenalty is paid at least on or before 30.4.2007. The assessing officer isdirected to consider payments of tax made by the petitioner and otherlegal heirs of late assessee and if any excess is there, the same will beadjusted towards penalty and balance only will be payable by the petitioner and other legal heirs, for which a statement will be given by the assessing officer within two weeks from the date of production of a copy of this judgement. OPs are disposed of as above. (C.N.RAMACHANDRAN NAIR)Judge