Wealth tax---

----Penalty---Delay in furnishing returns---Limitation for imposing penalty-- Period of two years applies only to the initial order levying penalty---Initial order passed within prescribed period---Appeal from order---Fresh order passed on remand after prescribed period---Not barred by limitation---Indian Wealth Tax Act, 1957, S.18(5)(b).

A perusal of section 18(5)(b) of the Wealth Tax Act, 1957, shows that penalty can be imposed within two years from the end of the financial year in which the proceedings in the course of which action for imposition of penalty has been initiated are completed. The question, therefore, arises whether section 18(5)(b) contemplates passing of the order imposing penalty under section 18(1)(a) in the first instance or it envisages a final order within the prescribed period of limitation final in the sense of the order being passed by the highest authority in the hierarchy of appellate authorities, and where the matter is brought before the Court, then after the orders passed by the Court are complied with. If section 18(5)(b) is literally construed as applying the time-limit of two years in all such cases, full effect cannot be given to the hierarchical scheme for the correction of penalty orders. Moreover, a construction, which accords with reason and justice must be preferred to one which would completely defeat the intention of the Legislature without advancing the object of the provision. If it were held that not only the original order imposing the penalty must be passed within the prescribed period of limitation, but that all further proceedings, including those initiated by the assessee by way of appeal, etc., must be completed before the expiration of two years, it would be well-nigh impossible to impose penalty because the right of two appeals one after another and the right to make an application for reference to the High Court has been invested by the Act itself and the order imposing penalty can be successfully defeated by filing one appeal after another, so that the period of limitation of two years expires before the proceedings are finalised. Hence, in computing limitation for purposes of section 18(5)(b), the period taken in the decision of the first appeal, second appeal, reference and any other proceedings, which may be instituted under Article 226 of the Constitution of India has to be excluded.

Held, that the Tribunal was not right in holding that the fresh orders passed by the Wealth Tax Officer in pursuance of the directions of the Appellate Assistant Commissioner were barred by limitation under section 18(5) of the Wealth Tax Act, 1957.

Director of Inspection of Income-tax (Investigation) v. Pooran Mail and Sons (1974) 96 ITR 390 (SC) applied.

Muhammad Shafi Khan v. CWT (1983) 144 ITR 489 (MP) fol.

Addl. CIT v. Ganapathi Rao (N.V.) (1978) 115 ITR 277 (AP)., Addi. CIT v. Panicker (K.S.G.), Kerala Produce Exporting Co. (1974) 97 ITR 525 (Ker.); Bhagirathi Devi Jalan (Sint.) v. CIT (1978) 112 ITR 534 (Cal.); CIT v. Ram Baran Ram Nath (1976) 104 ITR 691 (All.) and Vasani & Co. v. CIT (1978) 112 ITR 819 (Guj.) ref.

R.P. Sawhney for the Commissioner.

S.C. Nagpal for the Assessee.

JUDGMENT

A.P. CHOWDHRI, J.---This is a reference under section 256(1) of the Income Tax Act, 1961 (section 27(1) of the Wealth Tax Act, 1957), at the instance of the Revenue.

The brief facts of the case are that the Wealth Tax Officer made assessments relating to the years 1964-65 to 1969-70 of the assessee by a consolidated order, dated May 29, 1973. He initiated penalty proceedings under section 18(1)(a) of the Wealth Tax Act, 1957 (hereinafter referred to as "the Act"), and by order, dated March 16, 1976, imposed various amounts as penalty for late filing of the returns. The assessee preferred an appeal. By order, dated August 13, 1976, the Appellate Assistant Commissioner of Wealth Tax set aside the impugned orders and remanded the case with a direction to decide the same afresh after affording a reasonable opportunity of being heard to the assessee. In compliance with the order of remand, the matter was decided afresh by order Annexure "A" dated March 15, 1978. The assessee made an application for rectification of the order, pointing out that penalty had to be calculated at the rates laid down before the amendment, which came into force from April 1, 1969. The said application for rectification was allowed and the amount of penalty was revised by order, Annexure `B', dated March 30, 1978. The assessee preferred an appeal before the Appellate Assistant Commissioner. The order of the Wealth Tax Officer was set aside and it was held that the penalty had been imposed after the expiry of the period of limitation and thus the order imposing the penalty was void ab initio and without jurisdiction. The Revenue challenged the order before the Income Tax Appellate Tribunal, Amritsar Bench. Those appeals were dismissed by order Annexure "E", dated December 7, 1979. The question referred to this Court is:

"Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the fresh orders passed by the Wealth Tax Officer in pursuance of the directions of the Appellate Assistant Commissioner were hit by the limitation provided in section 18(5) of the Wealth Tax Act, 1957?"

We have heard Mr. R.P. Sawhney, learned counsel for the Revenue, and Mr. S.C. Nagpal, learned counsel for the Assessee.

There is no dispute that the relevant provision governing the present case is section 18(5)(b) of the Act, which is in the following terms:

"(5) No order imposing a penalty under this section shall be passed---

(b) in any other case, after the expiration of two years from the end of the financial year in which the proceedings, in. the course of which action for imposition of penalty has been initiated, are completed.

Explanation.---In computing the period of limitation for the purposes of this section,---

(i) any period during which the immunity granted under section 22H remained in force;

(ii) the time taken in giving an opportunity to the assessee to be reheard under the proviso to section 39; and

(iii) any period during which a proceeding under this section for the levy of penalty is stayed by an order or injunction of any Court,

shall be excluded."

The contention of Mr. Sawhney is that where the initial order imposing the penalty is passed within the period of limitation laid down in the above provision, subsequent reopening of the matter and a fresh decision in accordance with the orders of the appellate authority or under orders of the Court will not render the order as having been passed after the period of limitation. It was vehemently contended by Mr. Sawhney that, if the above provision were construed to mean that all proceedings, including proceedings in the first appeal, second appeal, reference under section 256(1) to the High Court and ultimate decision of the Supreme Court must be completed within the period of two years laid down, it will be impossible to impose a penalty in any case. The assessee on whom such a penalty is imposed would then be able to frustrate the order imposing the penalty by filing one appeal after another till the period of limitation expires.

The contention of Mr. S.C. Nagpal, on the other hand, is that, even after the remand, a period of about 15 days was available to the Wealth Tax officer and without any justification he failed to complete the proceedings relating to imposition of penalty within the limitation prescribed in the above provision. He has relied on certain decisions to be noted a little later.

A reading of the relevant provision set out above shows that penalty can be imposed within two years from the end of the financial year in which the proceedings in the course of which action for imposition of penalty has been initiated are completed. Coming back to the fads of the present case, the proceedings in the course of which action for imposition of penalty was initiated were completed on May 29, 1973. The end of the financial year 1973 74 would bring us to March 31, 1974. The law permits a period of two years limitation, i.e. April 1, 1974 to March 31, 1976. The limitation was thus available up to March 31, 1976. The order in question was passed on March 16, 1976, i.e. within the period of limitation. Against that order, the assessee preferred an appeal and the appellate authority set aside the order of the Wealth Tax Officer and remanded the case with a direction to decide the same afresh after giving the assessee an opportunity of being heard. It was in compliance with that order that the matter was decided afresh on March 15, 1978. This was rectified by a later order dated March 30, 1978. The question, therefore, arises whether section 18(5)(b) contemplates passing of the order imposing penalty under section 18(1)(a) of the Act in the first instance or it envisages a final order within the prescribed period of limitation, final in the sense of the order being passed by the highest authority in the hierarchy of appellate authorities, and where the matter is brought before the Court, then after the orders passed by the Court are complied with. In our view, the only reasonable interpretation is that the period taken in the decision of first appeal, second appeal, reference and any other proceedings which may be instituted under Article 226 of the Constitution of India has to be excluded, for, otherwise, the provisions relating to imposition of penalty would be rendered nugatory. We find support for this view in Muhammad Shafi Khan v. CWT (1983) 144 ITR 489(MP). It was held by a Division Bench of the Madhya Pradesh High Court that the bar of limitation speed in section 18(5) of the Act would apply to the first or initial order to be passed by the Wealth Tax Officer. When the order passed by the Wealth Tax Officer is pending for consideration before the appellate authorities and those authorities remand the matter for deciding it afresh, the bar of limitation made under section 18(5) would not apply to the penalty proceedings which would ensue pursuant to the remand order. Our conclusion finds further support from the observations of the Supreme Court in Director of Inspection of Income-tax (Investigation) v. Pooran Mall and Sons (1974) 96 ITR 390. This was a case under section 132(5) of the Income Tax Act, 1961. It was observed as under (at page 394):

"Even if the period of time fixed under section 132(5) is held to be mandatory that was

satisfied when the first order was made.

Thereafter, if any direction is given under section 132(12) or by a Court in writ proceedings, as in this case, we do not think an order made in pursuance of such a direction would be subject to the limitations prescribed under section 132(5). Once the order has been made within ninety days the aggrieved person has got the right to approach the notified authority under section 132(11) within thirty days and that authority can direct the Income Tax Officer to pass a fresh order. We cannot accept the contention on behalf of the respondents that even such a fresh order should be passed within ninety days. It would make the subsections (11) and (12) of section 132 ridiculous and useless."

Again in Smt. Bhagirathi Devi Jalan v. CTT (1978) 112 ITR 534 (Cal.), Sit was held that the period of limitation prescribed under section 33B(2) of the Indian Income Tax Act, 1922, applies to the first order of revision passed by the Commissioner. It was further held that if the first order is passed within time and, thereafter; a direction is given by an appellate authority or by the Court in writ jurisdiction whereby the Commissioner has to dispose of the matter afresh, an order passed in pursuance of such direction would not be subject to the period of limitation prescribed by section 33B. In the same volume, at page 819, is another authority, Vasani & Co. v. CIT (1978) 112 ITR 819 (Guj.) Therein it was held that when the original authority once completed the order of imposition of penalty, the scope of section 275 of the Income Tax Act, 1961, was completely exhausted. It was further held that if section 275 were literally construed as applying the time-limit of two years in all cases, full effect cannot be given to the hierarchical scheme for the correction of penalty orders.

In the other set of decisions to which our attention was invited by Mr. S.C. Nagpal, learned counsel for the assessee, section 275 of, the Income Tax Act, 1961, came up for consideration. These authorities are- -

(1) Addl. CIT v. N.V. Ganapathi Rao (1978) 115 ITR 277 (AP);

(2) Addl. CIT v. K.S.G. Panicker, Kerala Produce Exporting Co. (1974) 97 ITR 525 (Ker);

(3) CIT v. Ram Baran Ram Nath (1976) 104 TTR 691 (All).

The main reasons, which prevailed with the learned Judges were:

(i) There was no limitation provided for the purpose of completion of penalty proceedings in the Indian Income Tax Act, 1922. In the Income Tax Act, 1961, section 275 had been enacted prescribing limitation. The obvious intention of the Legislature was to ensure completion of penalty proceedings, which are in the nature of quasi -criminal proceedings with the least possible delay.

(ii) Section 153(3) of the Income Tax Act, 1961, provides for exclusion of time in certain circumstances for the purpose of computation of limitation for assessment or reassessment proceedings. No such corresponding provision has been made under section 275. If the intention were to exclude such time, there was no difficulty in making a provision on the lines of section 153(3).

We are unable to accept the above reasoning. In our view, if section 18(5)(b) of the Act is literally construed as applying the time-limit of two years m all cases, full effect cannot be given to the hierarchical scheme for the correction of penalty orders. We are further of the view that a construction which accords with reason and justice must be preferred to one which would completely defeat the intention of the Legislature without advancing the object of the provision. If it were held that not only the original order imposing the penalty must be passed within the prescribed period of limitation, but all further proceedings, including those initiated by the assessee by way of appeal, etc. must be completed before the expiration of two years, it would be well nigh impossible to impose penalty because the right of two appeals one after another and the right to make an application for reference to the High Court has been invested by the Act itself. The order imposing penalty can thus be successfully defeated by filing one appeal after another so that the period, of limitation of two years expires before the proceedings are finalised. For these reasons, we hold that the Tribunal was not right in holding that fresh orders passed by the Wealth Tax Officer in pursuance of the direction of the Appellate Assistant Commissioner was hit by the limitation provided in section 18(5) of the Wealth Tax Act, 1957. We decide accordingly.

M.B.A./218/T.F.Order accordingly.