Southern Publications Private Ltd. Vs. Commissioner of Income-tax, Tamil Nadu-ii. - Court Judgment

BALASUBRHAMANAYAN J. - This writ petition is to quash a penalty under s. 273(b) of the I.T. Act, 1961. The section empowers the ITO to levy penalty on nay person who fails without reasonable cause to file an advance tax estimate in time. The petitioner in this case should have filed his estimate on or before 15th December, of the relevant year, namely, 1972. But the petitioner did not do so. The estimate happened to be filed six days later.

The time-limit for filing an advance tax estimate is laid down by s. 212. No grace days are permitted. Nor does the Act empower the ITO or nay other authority to condone the delay even on sufficient cause shown. The obligation to file the estimate is inexorable absolute. Since the petitioner did not file the estimate in time, the ITO levied a penalty of Rs. 7,675. The penalty was confirmed by the Commissioner in revision.

In this writ petition, Mr. K. C. Rajaapa for the petitioner urged that the penalty action under s. 273 of the Act is a power coupled with a duty. He contended that in this case there had been a failure on the part of the ITO and Commissioner to do their duty. He cited the well-known case of Julius v. Bishop of Oxford [1880] 1 App. Cas 214 , generally, to emphasize how a power in certain circumstance, must be construed as a duty.

It seems to us that Julius v. Bishop of Oxford, is a wrong way to begin the discussion. This case, in out opinion, has to be approached in a different fashion. For, the question is not so much about the nature of the power as about the manner of suits exercise. Accordingly, we must proceed to consider not only how the ITO and the Commissioner understood the penalty provisions, but also how they addressed themselves to the facts and how on these facts they thought this was a case for penalty.

Section 273(b) is a simply-worded enabling provision. It empowers the ITO to levy penalty on any assessee who has failed to furnish an advance tax estimate 'without reasonable cause'. The ITO who levied the penalty in this case would, however, seem to think that a mere non-filing of the estimate would do, without more, to warrant a penalty. This is what he has written in his penalty order :

'The assessee ought to have filed an estimate of its current income in time. Failure to do so attract liability to penalty. The assessee has failed to explain why an estimate was not filed before the last instalment was due. The estimate has actually been filed on 21-2-1972, which is belated. I shall levy a penalty of Rs. 7,675.'

The officer has misunderstood both the gist of the offence and the placement of the onus under the section. The offence is not just a default; it must be a default without reasonable cause. The onus is not on the assessee to show that there was a reasonable cause for his default; the onus, on the contrary, is on the officer to show that the assessees default was without a reasonable cause. There is quite a difference between the two.

In the curse of the penalty proceedings the petitioner offered an explanation as to why the advance tax estimate could not be filed in time. The ITO remarked that the explanation was 'not completely satisfactory'. The Commissioner, in revision, dealt with the explanation is some detail, but he too observed that there were 'no merits' in it. These remarks too, in our opinion, exhibit a poor grasp of the part which the laws assigns to an assessees explanation in penalty proceedings.

The explanation which the petitioner had offered for not filing the estimate in time was submitted in the course of the penalty proceedings. It was sent in reply to a show-cause notice issued by the ITO. The penalty notice and the reply are both in accordance with the usual procedure in penalty cases. Section 274 envisages something like this procedure as vital to the penalty proceedings. It says that penalty cannot be levied without hearing the assessee or without giving him a reasonable opportunity in that regard. The section stress the due process or the natural justice of penalty. But this is about all that s. 274 ensures. The officers show-cause notice and the assessees reply, important though they are from the point of view of procedure, do not, however, add anything to or take away anything from the statutory conception of penalty under s. 273. The officer, for instance, cannot seek to impose a penalty under s. 273 by merely conforming to the formalities of procedural due process under s. 274. He can levy penalty with justification only if he complies with the substantive provisions of s. 273. That section, as we earlier indicated enjoins that the ITO must be satisfied, on the materials before him, that the default of the assessee was without reasonable cause. The implication is that where there are no such materials, he cannot levy any penalty either. What is more, he cannot make up for the deficiency in the evidence before him, by calling for an explanation from the assessee and then rejecting it either summarily or by picking holes in it. Section 273 does not empower the officer to levy penalty if the assessee offers no explanation for no filing the estimate in time. Nor can the officer do so by rejecting the explanation, where one is offered, on the ground that he considers it unsatisfactory. We have in the I.T. Act, a few sections wherein the ITOs action in one direction or another is made to depend on the absence of an explanation from the assessee, or on the officers rejection of the assessees explanation as unsatisfactory. See ss. 68, 69, 69A, 69B and 69C. Section 273, however, is not similarly constituted.

There may be cases where an assessee, when filing a reply to a penalty notice, might provide evidence against himself. In such cases, it may well be that the ITO could rely on those materials to sustain a penalty. In this case, however, that is not so. The petitioner is a newspaper organisation. It was incorporated as a public company in 1971. It started an evening daily in Tamil called 'Alai Osai', in August, that year. The trading by the end of that year only showed a loss of Rs. 69,120 and hence there was no liability to fule an advance tax estimate for the first year. And, even for the following year, other things remaining equal, the petitioner was reckoning only with the carry forward loss of the inaugural period. However, in the last quarter of that year, namely, October-December, 1972, the paper witnessed an unexpected spurt in its daily sales, owing, it is said, to certain changes in the political scene. The circulation explosion rocked the petitioners administrative departments to their very foundations. The petitioner had to strain every nerve to enable them to cope with the sales. Admits all these pre-occupations claiming priority of attention, the aspect of advance tax estimate was unfortunately over-looked.

This was the petitioners explanation which the ITO rejected our of hands, of the Commissioner found fault with. The Commissioner, in his order of revision, observed that the spectacular rise on the papers sales had begun even in October of the year. Hence, according to the Commissioner, the petitioner should have been in a position to file the estimate within time, by 15th December.

Mr. Jayaraman, learned standing counsel for the department, referred to this conclusion in the Commissioners order and submitted that it showed a proper sense of direction in the matter of levy of penalty under s. 273. We do not think so. The pertinent point made by the petitioner in its explanation was that the sudden rise in the papers circulation put the petitioners organization under tension and, in the process, made the petitioner miss the time-limit for filing the advance tax estimate. The Commissioner, however, did not advert to this aspect. In our judgment, the Commissioner has thereby ignored an important consideration relevant top the question of penalty under s. 271. For, here, is a new organization which had taken to a mass media as a source of income. The media of the press is notorious for its uper dictable ups and downs. While sudden winds of change may not effect old hands at the job, they might well overwhelm new entrants like the petitioner who could lose their bearings, occasionally, in the matter of priorities. It is, however, a measure of the petitioners attitude towards its fiscal obligations that within a matter of six days or so, the petitioner was able to collect its wits and prepare and file the estimate and also pay a sizeable advance tax of Rs, 40,000.

It is not our wish to reassess the factual situation, much less to sen-timentalise over any of its extenuating aspects. Our discussion of the material facts in the case is only intended to illustrate how evidence has got to be evaluated in the context of s. 273. Situations could be easily visualized. An assessee may set out to prove the existence of a reasonable cause for the default. That proff may not amount to much. It may fail as convicing proff of the existence of a reasonable cause. Even, so, that evidence such as it is, may yet possess enough weight to resist the ITO from drawing an inference that the default was without reasonable cause. A plausible explanation which falls short of proff of a positive fact may yet rule out a conclusion about the existence of the opposite.

The facts pleaded by the petitioner called forth a consideration from a single-minded perspective, namely, to find out whether the non-furnishing of the estimate was without a reasonable cause. What the ITO and the Commissioner, however, did was to proceed as though the petitioner was all the time on the defensive, and if the petitioners explanation was vulnerable to criticism, there was no escape to the petitioner from the penalty. The approach to the penalty action, as we have earlier shown, is singularly ill-fitted to the plain dictates of s. 273 of the I.T. Act.

We, accordingly, quash the penalty of Rs. 7,675 imposed on the petitioner by the ITO and confirmed by the Commissioner. In the circumstances of the case, however, there will be no order as to costs.