1. As the above appeals are inter-connected and raise common contentions, they are consolidated and disposed of by a common order.
2. For the assessee's failure to file his returns of net wealth for the above assessment years, within the time allowed under Section 14(1) of the Wealth-tax Act, 1957 ('the Act') the WTO initiated proceedings under Section 18(1 )(a) of the Act and called upon the assessee to show cause why penalties should not be imposed under that section. For the assessment years 1958-59 to 1960-61, the returns were filed by the assessee only after the WTO took action under Section 17 of the Act and called upon the assessee to file the returns. For the assessment year 1961-62, the return was filed only after the WTO took action under Section 14(2) and called upon the assessee to file his return. The returns for the above years were due on 30-6-1958, 30-6-1959, 30-6-1960 and 30-6-1961, respectively. Notices calling for the returns of net wealth for all those years were served on the assessee on 20-1-1962 and the returns were actually filed on 26-10-1962. In response to the show-cause notices issued under Section 18(1)(a), the assessee raised various contentions which were negatived by the WTO as he found that they were without any substance. Ultimately, he found that the assessee had committed the defaults without reasonable cause and imposed penalties of Rs, 4,849, Rs. 8,444, Rs. 9,290 and Rs. 4,891 respectively for each of the years.
3. Aggrieved by the above orders, the assessee filed appeals before the AAC and contended that the orders of penalty were illegal and, in any case, the penalties levied were excessive and unreasonable. The assessee contended that he had reasonable cause for not filing the returns within time as he was a student at the material time; his affairs were being looked after by a kamdar whose eye-sight had failed and there were also appeals pending against the assessments which were made against the assessee. It was further contended that the penalties, if at all leviable, should have been levied with reference to the tax that remained to be payable after adjusting the tax on provisional assessments paid by the assessee. The AAC held that the assessee had not shown reasonable cause for not filing the returns within time and that the penalties were properly levied. However ,he accepted the contention of the assessee that the penalties should be worked out after giving credit for the tax paid by the assessee on the basis of provisional assessments. However, he gave this relief only for the assessment years 1958-59 and 1959-60. For the assessment years 1960-61 and 1961-62, even this relief was not granted by the AAC.4. The assessee has come before us in second appeal against the penalties sustained by the AAC. Several contentions have been raised before us against the levy of the impugned penalties. Firstly, it is contended that the assessee had reasonable cause for not filing the returns within time and that no penalty should have been imposed for such failure. Secondly, it was contended that the imposition of penalty in accordance with the provisions of Section 18(1)(o), after its amendment by the Wealth-tax (Amendment) Act, 1964, with effect from 1-4-1965, was illegal as the default was committed very much prior to that amendment, and if at all a penalty was leviable, it should have been levied in accordance with the law, as it stood at the time of the alleged offence. Thirdly, it was contended that the returns have been filed under Section 15 of the Act and not under Section 1.4 and, therefore, no penalty should have been levied.
5. Taking the first contention of the assessee for consideration, it is the case of the learned counsel that the assessee was bona fide under the belief that no part of the wealth which has been assessed on him belonged to him individually and that the jagir compensation, the residential house, etc., belonged to a HUF. This was also the contention taken up by the assessee in appeal against the quantum assessments. The assessee, at no time, considered these assets as belonging to him individually and, therefore, did not consciously omit to file a return of these assets in his individual capacity. Secondly, the assessee who was very young at the material time was not looking after his affairs but was actually studying in the Mayo College, Ajmer and his affairs were being looked after by a kamdar who, during the material time, was unable to attend to his duties owing to failing eye-sight. It is submitted that for these reasons, the assessee had reasonable cause for not filing his individual returns of net wealth.
6. It is seen from the records, as also from the quantum appeals in this case, which we have heard and disposed of separately, that the assessee has all along taken up the stand that the jagir compensation bonds, the residential house, etc., did not belong to him as an individual but the impartible estate represented by these assets bore the character of joint family property and he was not assessable in respect of them, as an individual. Though we have held against the assessee on these contentions, it could not be said that the assessee knew all along that these were his individual assets. His failure to return them as his individual assets could not be held to be failure without reasonable cause. The question of the assessee's status was fraught with considerable doubt and difficulty and even the decision given by us is after considering various authorities cited for and against the assessee's case. In these circumstances, it would be difficult to hold that the assessee did not have reasonable cause for not returning these assets as belonging to him, as an individual.
7. Another legal contention raised by the assessee also presents considerable difficulty. The amendment to Section 18(1)(a) which was made with effect from 1-4-1965 fixed the quantum of penalty leviable at two per cent of the tax payable, for each month of default, subject to a maximum of 50 per cent of the tax. Prior to this amendment the penalty imposable was a maximum of one and a half times of the tax payable and no minimum limit was specified. * Besides, the section prior to its amendment, required that the WTO should obtain the previous approval of the IAC before imposing a penalty. The section, as amended, has done away with that requirement. It is the case of the assessee's counsel that the default was committed long before the amendment of the Wealth-tax (Amendment) Act, and the returns for all the years ,were also filed long before the amendment, having been filed on 26-10-1967. The default had ceased thereafter. According to him, the law applicable, if at all any penalty was leviable, was the law as it stood prior to its amendment as the amendment was not a purely procedural one. The requirement that the previous approval of the IAC should be taken before the imposition of penalty was a condition precedent and could not have been waived by the WTO. Though the penalty could have been levied in accordance with the amended quantum, according to the learned counsel the requirement of the previous approval of the IAC could not have been waived.
8. Though it could be argued with considerable force that the requirement of the previous approval of the IAC was part of the procedure for the imposition of penalty, the objection raised by the learned counsel for the assessee is not entirely free from doubt or difficulty. Taking along with the fact that the assessee had reasonable cause for his failure to file his individual returns of net wealth, as stated above, the circumstances would clearly go to show that the imposition of penalty for these years was not justified. Accordingly, we hereby cancel the penalties levied for these four years.
10. Coming to the two appeals filed by the WTO, they are against the reduction in the quantum of penalty granted by the AAC for the assessment years 1958-59 and 1959-60. In view of our finding above, that the penalties for these years were not validly levired, these appeals must fail and are dismissed.
1. I have perused the order of my learned brother. As for the contention of the assessee that he carried a bona fide doubt as to whether he should have filed the returns, I am of the opinion that there was no such scope for doubt. We have held in the quantum assessment proceedings, that throughout this period the assessee was a bachelor and had no family of his own. There was, therefore, no question of his having any joint family and ascribing the property to the same. His status, therefore, could only be that of individual. He also could not throw the blame on his kamdar as he was 25 years of age.
It is also highly doubtful if he was in those days studying in school.
2. However, it is on another ground that I am unable to take exception to the conclusion arrived at by my learned brother. The law as it then stood, required the WTO to obtain the previous approval of the IAC before imposing penalty. None such was taken, perhaps on the ground that in the meanwhile, the law had been amended and such prior sanction was done away with. The position, however, is not free from difficulty, and, therefore, the assessee gets the benefit : 1. In all these cases the difference of opinion between the learned Members of the Jaipur Bench of the Tribunal was : Whether, on the facts and in the circumstances of the case, the assessee was prevented by reasonable cause in not filing the returns of net wealth for the assessment years 1958-59 to 1961-62 within the time allowed under Section 14(1) of the Wealth-tax Act, 1957 or not Originally the question framed used the words 'sufficient cause' but later on the Members of the Jaipur Bench substituted the word 'reasonable' for the word 'sufficient' so as to bring out the intention of the learned Members more clearly.
2. Before I go to the facts of the case, it is necessary to give briefly the background that led to the difference of opinion between the Members. For the assessee's failure to file his returns of net wealth for the assessment years 1958-59 to 1961-62 within the time allowed under Section 14(2) the WTO initiated proceedings under Section 18(1)(a) and called upon the assessee to show cause why penalties should not be imposed under that section. For the assessment years 1958-59 to 1960-61 the returns were filed only after initiation of action under Section 17 by the WTO. For the assessment year 1961-62 the return was filed after the WTO issued notices under Section 14(2). The returns for the above years were due on 30-6-1958, 30-6-1959, 30-6-1960 and 30-6-1961, respectively. The returns were filed on 26-10-1962 for all the years. After considering the reply given to the show-cause notice issued under Section 18(1)(a), the WTO levied penalties holding that there was no reasonable cause preventing the assessees from filing the returns of wealth in time of Rs. 4,849, Rs. 8,444, Rs. 9,290 and Rs. 4,891, respectively. The assessee preferred appeals before the AAC and contended that the levy of penalties was illegal and also pleaded that there was a reasonable cause for not filing the returns within the time. I shall not at the stage refer to the reasonable cause that was pleaded before the authorities, which the authorities have not recognised as such. The AAC accepted the contention of the assessee that the penalty should be worked out after giving credit for the tax paid by the assessees on the basis of provisional assessments. That was the relief given only for two assessment years 1958-59, and 1959-60.
For the other years even this relief was denied. Thus, the penalties were partly reduced for the first two years and confirmed for the other two years. The matter then came before the Tribunal by way of further appeals. Before the Tribunal again objection was taken on questions of law as well as on facts. On question of law the point taken "Up was that Section 18(1 )(a) was amended by the Wealth-tax (Amendment) Act, 1964 with effect from 1-4-1965 and the levy of penalties in accordance with the earlier provision was invalid. The section before amendment provided that .the WTO should obtain the previous approval of the IAC before imposing the penalty. The section as amended has done away with this requirement. Since the previous approval of the IAC was not obtained the levy of penalties without obtaining the approval of the IAC was illegal. On the question of reasonable cause the same contentions as were urged before the lower authorities were reiterated.
3. The learned Accountant Member was of the opinion that the assessee was entitled to succeed on both the counts. He accepted the assessee's plea that there was a reasonable cause that prevented the assessee from filing returns of his wealth within the time allowed. He also accepted the plea of the assessee on the question of law. But the learned Judicial Member did not agree with the learned Accountant Member about the existence of reasonable cause. He, thus, differed with the learned Accountant Member's view in this question of reasonable cause but agreed with him on the legal point. The matter was then taken up by way of reference to the Rajasthan High Court at the instance of the revenue on the legal issue. By its judgment dated 19-12-1983 the Rajasthan High Court answered the question regarding the jurisdiction in favour of the revenue and against the assessee. It held that the WTO was justified in levying the penalties and there was no illegality about it. Then it noted that there was a difference of opinion between the Members as to the existence of a reasonable cause. To resolve that difference, the High Court directed the President to refer the difference of opinion to a Third Member as provided for in the statute. It was pursuant to this direction that the Members have framed the difference of opinion as above, referred to the President, who is pleased to nominate me as the Third Member, for my opinion.
4. Now I have heard the parties at great length, perused the records and I am of the opinion that in this case the more appropriate view would be to hold that the assessee had a reasonable cause for belatedly filing the returns of wealth. At the relevant time the assessee was a student. He is the fourth son of late Maharaja Umed Singh, a former ruler of the Jodhpur Estate. On the death of Maharaja the eldest son, late Maharaja Hanumant Singh, the assessee's brother, succeeded to the Jodhpur Estate. Maharaja Hanumant Singh in accordance with the custom obtaining in the royal family of Jodhpur gave to each of his four younger brothers including the assessee certain villages and a residential house for their maintenance. The legitimate question that arose for the purpose of wealth-tax and also income-tax was whether these villages and the residential house received for maintenance from the eldest brother constituted individual property or joint family property. The view that prevailed till it was decided authoritatively by an appropriate authority was that these properties formed impartible estate. In July 1954, the jagir lands were resumed by the Government of Rajasthan and jagir compensation bonds were issued to the assessee in April 1960. What was undecided insofar as the assessee was concerned and the point under which the assessee was labouring was whether the compensation bonds and residential house constituted joint family property or individual property. This is one major issue, which remained unsettled for a long time till the matter reached the Tribunal before the Jaipar Bench and decided by it by its order dated 18-1-1972 not without difficulty and not without an elaborate discussion of the relevant law concerning the law of primogeniture, impartible estate and succession to the impartible estate with special reference to such lands given for the maintenance. The third point was the assessee being a student at the relevant time and belonged to a royal family allowed his matters to be looked after by a kamdar, who developed a very bad eyesight almost becoming blind for which reason he allowed these matters to lie not because it paid to delay the returns but because the question of status was difficult to decide. It is these matters that were projected before the WTO as well as the AAC and the Tribunal in support of the view that the aggregate effect of these circumstances, had been the cause for the delay in the filing of the returns. While the WTO and the AAC rejected them, the learned Accountant Member accepted it. In this context I would like to quote from the order of the learned Accountant Member : 6. It is seen from the records, as also from the quantum appeals in this case, which we have heard and disposed of separately, that the assessee has all along taken up the stand that the jagir compensation bonds, the residential house, etc., did not belong to him as an individual but the impartible estate represented by these assets bore the character of joint family property and he was not assessable in respect of them, as an individual. Though we have held against the assessee on these contentions, it could not be said that the assessee knew all along that these were his individual assets.
His failure to return them as his individual assets could not be held to be failure without reasonable cause. The question of the assessee's status was fraught with considerable doubt and difficulty and even the decision given by us is after considering various authorities cited for and against the assessee's case. In these circumstances, it would be difficult to hold that the assessee did not have reasonable cause for not returning these assets as belonging to him, as an individual.
But the learned Judicial Member differed from this view. He held that there was no scope for a doubt. According to him, the assessee being a bachelor, there was no question of his having any joint family to think that property belonged to the joint family. He also held that the assessee could not throw the blame on his kamdar and it was highly doubtful whether in those days he was studying in the school. I am of the considered opinion that while the learned Judicial Member expressed doubts about the contentions raised on behalf of the assessee did not give a categorical finding. It was a fact admitted that at the relevant time he was a student. Merely because he was of 25 years of age, it does not stand to reason that he should entrust his matters to his kamdar. It is also an admitted fact that kamdar was losing his eye-sight and was in a very precarious condition. It is very easy to come to the conclusion that the assessee's status was that of an individual after a decision to that effect was reached after due consideration of the law on the subject. To ascribe this view to the assessee from beginning having due regard to the welter of the legal complications that were involved in this case which was not denied or could not be denied is rather very unfair. What we have got to see in a case of this nature is whether the assessee had a reasonable cause. The reasonable cause must be assessed not from the standpoint of the revenue but from the standpoint of the assessee. The reasonable cause must be a tangible one existing as such but should not be a pretence or a hypocritical statement. Another fact that is also relevant to consider at this juncture is the assessee paid the taxes due even before filing the returns of wealth. A total sum of Rs. 24,370 was claimed to have been paid before the assessment was over on a provisional basis as per the returns. It is also very significant to note that in the case of the assessee's brother the status claimed as that of an HUF was accepted by the Tribunal following the order of the Tribunal in the assessee's another brother's case Maharajadhiraj Himmat Singhji v. CWT [1984] 150 ITR 416 (Raj.). It is of much more interest to note that the view taken in the case of Maharajadhiraj Himmat Singhji (supra) was accepted by the High Court. In these circumstances, I find it difficult to agree that the conflict of status was not present either to the mind of the assessee or to the kamdar, who was attending to his affairs which acted as a reasonable cause for the delay in the filing of the returns. There was no contumacious conduct shown which would benefit the assessee by delaying the filing of the returns.
5. I may also refer to a decision of the Rajasthan High Court in the case of CIT v. Rawat Singh & Sons [1979] 120 ITR 65 in which case the High Court held that an order imposing penalty for failure to carry out a statutory obligation is the result of 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 his obligation. Sections 270 and 271 of the Income-tax Act, 1961 ('the 1961 Act') imposes penalty on contumacious or fraudulent assessees and the above principle applies to the imposition of penalty under these sections. By this judgment, the Rajasthan High Court laid down the rule that it is for the revenue to show that the assessee had deliberately acted in defiance of law or its conduct was contumacious or dishonest.
Following the judgment of the Supreme Court in Hindustan Steel Ltd. v.State of Orissa [1972] 83 ITR 26, the Rajasthan High Court rejected a reference filed by the Commissioner of Income-tax under Section 256(2) of the 1961 Act to direct the Tribunal to make a reference where a penalty levied under Section 271(1)(a) was cancelled by the Tribunal holding that the view taken by the Tribunal was a correct approach and there was no misdirection on the question of law. In other words, this decision insofar as the Rajasthan High Court is concerned is an authority for the proposition that it is for the revenue to prove mens rea or by whatever name that may be called. The assessee in this case pleaded before the authorities below consistently what according to him prevented from filing the return of wealth but the authorities have not proved that the explanation offered was incorrect, false or a subterfuge. That onus that was cast on the revenue by this decision does not seem to have been discharged.
6. The learned departmental representative pointed out that the question of status as being a reasonable cause on which so much reliance was placed was not taken up at any stage except before the Tribunal. That plea having been set up for the first time before the Tribunal could not have been present to the mind of the assessee.
Therefore, that plea should be held to be an afterthought. Though he laid greatest emphasis on this aspect but I have to go by what the facts found by the learned Members. In the order of the learned Accountant Member, this plea was mentioned and was accepted by him as existing acting as an impediment in the way of filing the returns of wealth in time. He then referred to a decision of the Gauhati High Court in Sewbalakram & Co. v. CIT [1984] 146 ITR 148 where the Gauhati High Court held that failure to file a return when no notice is issued is distinguishable from failure to file a return after a notice to file a return is served. The onus will be on the assessee to prove the reasonability or otherwise of his decision not to file the return by introducing evidence. If the cause was such as was within the special knowledge of the assessee then the department may discharge its burden by showing that the cause if worked true and reasonable would have been reflected in the accounts and the records and from the common course of human conduct and that it was not reasonable for the assessee to have failed to discharge his obligation to file the return. In this case the assessee was a registered firm with its principal place of business in Kohima. A notice under Section 139(2) of the 1961 Act was issued for the assessment year 1962-63 in December 1962. No return was filed.
Thereafter a notice under Section 274, read with Section 271(1)(a), of the 1961 Act was issued on 5-2-1963. The assessee filed the return on 13-4-1964 and explained that the return could not be filed earlier because of civil disturbances in Kohima. The ITO found that there was nothing on record to show that the conditions were disturbed and that no request for extension of time on that ground was made. The ITO levied penalty and when that order was confirmed by the Tribunal, on a reference the High Court held that the levy of penalty was justified because the assessee did not prove that it was affected by the disturbances during the relevant period. The point that was sought to be made by referring to this decision was that what was within the special knowledge of the assessee, he must prove. It is not for the department to prove what was within the special knowledge of the assessee. If there is a failure on the part of the assessee to prove what was within his special knowledge, he must take the consequences.
There cannot be any quarrel with this proposition. The assessee in this case contended what according to him was the reasonable cause.
Therefore, the department has to show that it was not correct or that it was wrong or false. That was not done in this case except the disbelief. In the case before the Gauhati High Court, the High Court found that the ITO found that there was nothing on record to show that the conditions around Kohima were disturbed, i.e., the department was able to counter the plea put forward by the assessee and could show it to be false. That was not the case here. This decision, therefore, in my opinion does not hold the revenue's case insofar as I am concerned as a Third Member. He also referred to a decision of the Full Bench of the Kerala High Court in the case of CIT v. Gujarat Travancore Agency [1976] 103 ITR 149. The Full Bench held in this case that the department must prove the mens rea before levying a penalty under Section 271(1 )(a) was not the correct view. Mere use of the expression 'without reasonable cause' cannot import a mental element or mens rea.
Before imposition of penalty under Section 271 what is required is that the officer must be satisfied not arbitrarily but judicially that the person has without reasonable cause failed to furnish the return. But the case relied upon by the assessee in Rawat Singh & Son's case (supra) which was delivered by the Rajasthan High Court which is the jurisdictional High Court and which is binding on me, seemed to me to take a different view. I should, therefore, follow what was laid down by the Rajasthan High Court. In this context I may also point out that penalties levied for subsequent years on the same assessee for more or less similar reasons were cancelled by the Tribunal. I am, therefore, of the opinion that on taking into account the totality of the circumstances the assessee had a reasonable cause for the delay in the filing of the return of wealth and that the view expressed by the learned Accountant Member is more appropriate and justified and I would express my agreement with that view.
7. Now the matter will go back to the original Bench which heard the appeals for decision according to majority opinion.