K. L. SWAMY VS COMMISSIONER OF INCOME-TAX
2001 P T D 735
[239 I T R 386]
[Karnataka High Court (India)]
Before Tirath S. Thakur, J
K. L. SWAMY
versus
COMMISSIONER OF INCOME‑TAX and another
Writ Petition No. 1008 of 1992, decided on 19/06/1998.
Income‑tax‑--
‑‑‑Penalty ‑‑‑Concealment of income‑‑‑Waiver or reduction of penalty‑‑ Condition precedent‑‑‑Disclosure by filing return voluntarily and in good faith‑‑‑Meaning of expression "voluntarily and in good faith"‑‑‑Finding that disclosure had been made to avoid prosecution‑‑‑Disclosure was not voluntary or in good faith‑‑Rejection of application for waiver was valid‑ Indian Income Tax Act, 1961, Ss. 271(1)(c) & 273A.
Assessees are entitled to a waiver of penalty only if they had made a disclosure by riling their returns voluntarily and in good faith. The term "voluntary" has to be understood as anything done intentionally and without coercion, compulsion or constraint. Coercion may in turn by direct or positive as in cases where physical force is used to compel on act against one's will or it may be implied. That would not, however, mean that a mere legal obligation to do something should constitute a constraint of the kind, which would render any such action involuntary. It follows that the circumstances, conditions or constraints that make a disclosure under the Act "involuntary" must be constraints other than obligations that arise under the Act, requiring the assessee to take a particular action. The expression "good faith" means an act done honestly even if the same be tainted with negligence or mistake. Section 2(22) of the General Clauses Act, 1897, lends a similar meaning to the said expression. In order that a disclosure is termed as having been made in good faith, the same must be demonstrably honest. A disclosure which is made Linder the compulsion of a possible penalty or other proceedings cannot be termed honest or one made in good faith, the underlying object of any such disclosure being not to come clean on the subject but to avoid the adverse consequences that may follow a non disclosure.
The High Court does not exercis6 appellate powers in proceedings under Article 226 so as to re-appreciate the facts and the evidence involved in the determination by the authorities below and to substitute its own findings for those returned by such authorities. The High Court would be justified in interfering with a finding of fact only in cases where the finding is perverse in that there is no evidence to support the same or that no rational person could have arrived at the conclusion recorded by the authority on the basis of the available material. Short of perversity and patent irrationality in the decision recorded by the authority, the High Court would be reluctant to interfere with a finding which is essentially a finding of fact:
Held, that, in the instant case, it could not be said that the finding recorded by the Commissioner to the effect that the circumstances attendant upon the case, let no option for the petitioner but to make a disclosure to avoid prosecution and penalty proceedings was either without any evidence or so perverse or irrational as to constitute an outrageous defiance of logic. There was indeed no physical coercion used on the petitioners forcing them to file their returns, there may also have been no formal notice issued to the petitioners asking them to file such returns or threatening action against them in the event of their failure to do so. Yet, the compulsion of the circumstances that unfolded themselves consequent upon the search and seizure operations would itself constitute a constraint effective enough to render the filing of returns by them "involuntary". Just because the search and seizure operations were not conducted in the premises of any one of the petitioners who were brothers or just because the person through whom the petitioners were alleged to have paid the additional amount of Rs.25 lakhs for purchase of two estates, had denied any such payment, would not have been conclusive of the matter. The fact of the matter, however, was that they did not risk any such finding and made an enquiry into the matter academic by filing their returns in which they admitted the amount of Rs.25 lakhs as their income for the years 1980‑81 and 1985‑86. The disclosure made in the returns as actually tantamounted to an admission on the part of the petitioners to the effect that the amount disclosed was the additional consideration for the purchase of the estates by them and that the said payment was according to them assessable in their hands as a body of individuals and not as individuals. Having, thus, disclosed the amount and by necessary implication accepted its utilisation towards the purchase of the estates it was not possible for the petitioners to contend that any such disclosure or admission was made or accepted not because any such consideration had actually changed hands but with a view to buy peace with the Department and avoid a long term and expensive legal battle over the question. The petitioners were estopped from raising any such contention specially when the disclosure came after an initial denial of the making of the payments and only when T stood his ground offered himself for cross‑examination in support of his version that such a payment was made. The order rejecting the application for waiver of penalty was valid.
Hakam Singh v. CIT (1980) 124 ITR 228 (All.); Jadav Desai (S.R.) v. WTO (Sixth) (1980) 121 ITR 531 (Kar.); Rohitkumar & Co. v. F.J. Babdur, CIT (1991) 190 ITR 93 (Bom.) and Shantha Devi (Snit.) v. WTO (1980) 121 ITR 703 (Kar.) ref.
Ramabadran and Sarangan for Petitioner.
M.V. Seshachala for Respondent No. 1.
JUDGMENT
In this petition for a writ of certiorari the petitioners call in question the validity of an order passed by the respondent. Commissioner of Income tax under section 273A of the Income Tax Act, 1961, refusing to reduce or waive interest and penalty levied under sections 139(8), 217, 271(1)(a), 273(2)(b) and 271(1)(c) of the Income‑tax Act, for the assessment years 1980‑81 and 1985‑86.
The petitioners are real brothers and have been referred to as the Kho‑days in the course of the proceedings before the authorities below. They appear to have evinced interest in the purchase of two estates situate in the Chickmagalur District of the State of Karnataka. These estates were then owned by a partnership comprising one Sri Thyagarajan and a few others. Instead of an outright transfer under an instrument, the parties appear to have adopted a circuitous route apparently to avoid payment of the stamp duty payable on any such transfer. This included the dissolution of the original partnership and constitution of two new partnership firms one in the name of Laxmi Estates and the other in the name of Saraswati Estate. While the petitioners K.L.A. Padmanabha and K.S. Swamy, were inducted as partners in Saraswati Estate, Sri K.L. Srihari and K.L. Swamy, were taken as partners in the other partnership, namely, Laxmi Estate, in terms of two partnership deeds both executed on November 17, 1984. These partnerships were within a period of three months dissolved by two different deeds, dated March 6, 1985, under which all other partners except the petitioners retired on being paid their share in cash. The net effect was that the estates stood transferred to the petitioners in lieu of the capital brought in by them. The payments made to the out going partners in each one of the partnerships, was shown to be Rs.45 lakhs so that a total sum of Rs.90 lakhs was paid as consideration for the transfer in question.
Shortly after the finalisation of the above deal a search and seizure was carried out by the Income‑tax Department in the premises of Sri Thyagarajan, in the course whereof certain incriminating documents were seized. These included an "agreement to sell" the estate in question executed between Sri Thyagarajan and his partners on the one hand and Sri Bala Shivayogi Maharaj and others on the other for a total consideration of Rs.1,04,50,000 in addition to a sum of Rs.25 lakhs payable in cash. Although the proposed sale never matured yet the agreement to sell sufficiently indicated that the market value of the estates was more than a crore and that besides the amount disclosed, a cash payment of Rs.25 lakhs was also agreed as a part of the deal. Diary sheets maintained by Sri Thyagarajan giving details of the payments received by him from one Sri Shesadri Iyer in connection with the eventual sale of the estates to the Khodays group were also seized besides details of the amounts deposited by Sri Thyagarajan in the Indian Overseas Bank. In addition material suggesting that the said Thyagarajan had actually stayed in Hotel East‑West during the period the payments in question were said to have been made to him as per his diary, were also recovered by the authorities. Sri Thyagarajan's statement recorded on January 18, 1988, and the affidavit sworn by him disclosed that the sale consideration for the two estates mentioned above that had exchanged hands between the parties was not limited to Rs.90 lakhs as disclosed in the documents but included ‑an additional sum of Rs.25 lakhs as a part whereof‑ had been received by Sir Thyagarajan as a loan and the balance in cash. The documents seized by the Income‑tax Department showed that out of the amount recovered by Mr. Thyagarajan, a sum of Rs.10 lakhs was deposited by him in his loan account in the Indian Overseas Bank on February 15, 1985, Which deposit corroborated the entries made in the diary maintained by Sri Thyagarajan. All this material indicating a payment of Rs.25 lakhs over and above the amount disclosed by the petitioners was put to Sri K.L. Swamy, one of the petitioners in the course of his individual assessment proceedings. He was also supplied with a copy of the statement made by Sri Thyagarajan and the affidavit furnished by him. The petitioners sought to question the veracity of the statement made by Sri Thyagarajan and wished to cross‑examine him. This request was granted by the assessing authority who summoned '1hyagarajan for the purpose of cross- examination on March 14, 1988. Instead of cross‑examining Thyagarajan and challenging his version above the payment of an additional payment of.Rs.25 lakhs towards the consideration for the sale of the estate in question, the petitioners chose to surrender the opportunity granted to them and on March 14, 1988, itself filed two returns‑‑‑one for the assessment year 1980‑81 and the other for 1985‑86 disclosing a sum of Rs.10 lakhs and Rs.15 lakhs, respectively, as taxable income in their capacity as a body of individuals. Based on these returns, the Department made a protective assessment reserving its right to make a substantive assessment against the petitioners in their individual assessments. The Department's view apparently was that the petitioners were assessable as individuals for the amounts disclosed by them and not as a body of individuals. This position was assailed by the petitioners, in an appeal preferred before the Commissioner of Income‑tax (Appeals), who accepted the petitioner's contentions and held that they were liable to be assessed as a body of individuals and not as individuals. The result was that the protective assessment order made by the Department, on the basis of the returns filed by the petitioners, became the substantive assessment also. This was followed by levy of interest and penalty under sections 139(8) and 217(1) and sections 271(1)(a), 271(1)(c) and 273(2)(b) of the Act. These orders were not questioned by the petitioners in appeals, instead an application was filed by them before the Commissioner of Income‑tax seeking waiver of the same. It was argued before the Commissioner that the petitioners were entitled to an order of waiver as they had made a disclosure by filing their returns voluntarily and in good faith. The Commissioner did not, however, find favour with that argument ‑and dismissed the application for waiver holding that the filing of the returns by the petitioners was neither voluntary nor in good faith. The disclosure in the opinion of the Commissioner was made with a view to avoiding prosecution proceedings against them. Aggrieved, the petitioners have filed the present writ petition as noticed earlier.
Appearing for the petitioners Mr. Sarangan, strenuously argued that the finding returned by the Commissioner to the effect that the disclosure was neither voluntary nor in good faith, was not warranted in the facts and circumstances of the case. He contended that the disclosure made by the petitioners, was nothing but voluntary in nature not only because the search and seizure resulting in the discovery of the so‑called incriminating material was not conducted in the premises of the petitioners but also because there was no material suggesting that the petitioners had paid any amount in addition to the sum of Rs.90 lakhs disclosed as the consideration for the sale. The statement made by Sri Thyagarajan, it was urged was a self‑serving statement which could not provide a sound basis for the authorities below to conclude that he had received a sum of Rs.25 lakhs over and above, the ostensible consideration. The fact that Sheshadri Iyre through whom this additional payment is alleged to have been made had also denied the same was according to learned counsel enough to totally belie the version of the Revenue that any such payment had exchanged hands. The filing of the returns was in the circumstances not relatable to the search and seizure conducted by the Department nor could the same be treated as a circumstance compelling the petitioners to file their returns to avoid any adverse consequences. Reliance was in support placed by Mr. Sarangan, on the decisions of this Court in (1) Jadav Desai (S.R.) v. WTO (Sixth) (1980) 121 ITR 531; (2) Shantha Devi (Smt.) v. WTO (1980) 121 ITR 703 (Kar.). Reliance was also placed by him upon the decisions of the Allahabad and Bombay High Courts in Hakam Singh v. CIT (1980) 124 ITR 228 and Rohithkumar & Co. v. F.J. Bahadur, CIT (1991) 190 ITR 93 (Bom.).
The crucial question that falls for consideration is: Whether the disclosures made by the petitioners in the returns filed by them were voluntary and in good faith. The question it is obvious is a mixed question of law and fact with two distinct facets one relating to the true meaning of the expressions "voluntary" and 'good faith" appearing in section 273A of the Act and the other relating to the factual matrix to which the said expressions shall have `to be applied. Judicial pronouncements on analogous questions would therefore be relevant only to the extent the same interpret the two expressions. The decisions relied upon by Mr. Sarangan, and those that were referred to by Mr. Sheshachala, do not however, show any cleavage in judicial opinion. In the absence of any definition for the expressions there is no option but to depend upon the literal and the dictionary meaning thereof. So, viewed the term "voluntary" has to be understood as anything done intentionally and without coercion, compulsion or constraint. Coercion may in turn be direct or positive as in cases where physical force is used to compel an act against one's will or it may be implied legal or constructive as the position where one party is constrained by subjugation to another to do what his free will would refuse. Coercion that vitiates confession can in terms of Black's Law Dictionary be mental as well as physical. In other words, an action can be "involuntary" not merely because it has been taken by the use of actual direct or positive physical force but also where such action is taken on account of mental and other constraints. That would not however mean that a mere legal obligation to do something should constitute a constraint of the kind which would render any such action involuntary. For if that be so, there would hardly be any disclosure made under the Income tax Act which can be treated as "voluntary", in the light of section 139 which creates a legal obligation for all those having a taxable income, to disclose the same in the prescribed form. It follows that the circumstances, conditions or constraints that make a disclosure under the Act "involuntary" must be constraints other than obligations that arise under the Act, requiring the assessee to take a particular action.
Coming then to the question whether there was any constraint or other compulsion for the petitioners to file the returns in question, it cannot be disputed, that an appreciation of the circumstances which in the opinion of the Commissioner, worked as the compulsion behind the making of the disclosures, is in essence an appreciation of the facts and the material on the basis whereof, the Commissioner has returned his finding. The Commissioner has come to the conclusion that the disclosure made by the petitioner was intended to avoid their prosecution which would follow as a result of the material that came to light in the search and seizure proceedings. The Commissioner appears to be of the view that the material assembled by the income‑tax authorities was sufficient for the petitioners to have realised that the lid of secrecy over the deal had been blown and thus, they could not escape a finding on the bass of the available material to the effect that they had paid an undisclosed sum of Rs.25 lakhs to Mr. Thyagarajan, in connection with the sale in question. The "inevitability" of such a finding was according to the Revenue, the sole reason underlying the disclosures made by the petitioners the question then is whether this inference of the Revenue is justified and whether this Court would be justified in subsisting its own finding on that factual aspect of the matter for that of the Commissioner. It is now fairly well settled that this Court does not exercise appellate powers in the name of proceedings under Article 226 so as to re-appreciate the facts and the evidence involved in the determination by the authorities below and to substitute its own findings for those returned by such authorities. This Court would be justified in interfering with a finding of fact only in cases where the finding is perverse in that there is no evidence to support the same or that no rational person could have arrived at the conclusion recorded by the authority on the basis of the available material. Short of perversity and patent irrationality in the decision recorded by the authority, this Court would be reluctant to interfere with a finding which is essentially a finding of fact.
Judged in that light it cannot be said that the finding recorded by the Commissioner to the effect that the circumstances attendant upon the case, left no option for the petitioner but to make a disclosure to avoid prosecution and penalty proceedings is either without any evidence or so perverse or irrational as to constitute an outrageous defiance of logic. There was indeed no physical coercion used on the petitioners forcing them to tile their returns, there may also have been no formal notice issued to the petitioners asking them to file such returns or threatening action against them in the event of their failure to do so. Yet, the compulsion of the circumstances that unfolded themselves consequent upon the search and seizure operations would itself constitute a constraint effective enough to render the filing of returns by them "involuntary". Just because the search and seizure operations were not conducted in the premises of any one of the petitioners or just because the person through whom the petitioners are alleged to have paid the additional amount of Rs.25,00,000, had denied any such payment, would not have been conclusive of the matter. In fairness to Mr. Sarangan, it must be stated that he did not argue that on the available material it would have been impossible to sustain a finding to the effect that the petitioners paid an additional sum of Rs.25 lakhs for the sale of the estates in question. What was argued by him was that such a finding would have been unlikely for it was Thyagarajan who had to first satisfactorily explain and account for the receipt of money discovered by the search operations in his books and bank accounts. The petitioners may amuse themselves with the belief that if the enquiry initiated by the respondents had been taken to its logical conclusion the ultimate finding may have been in their favour. The fact of the matter, however, is that they did not risk any such finding and made an enquiry into the matter academic by filing their returns in which they admitted the amount of Rs.25 lakhs as their income for the years 1980‑81 and 1985‑86. The disclosure made in the returns actually tantamounts to an admission on the part of the petitioners to the effect that the amount disclosed was the additional consideration for the purchase of estates by the Khodays and that the said payment was according to them assessable in their hands as a body of individuals and not as individuals. Having, thus, disclosed the amount and by necessary implication accepted its untilisation towards the purchase of the estates it is not possible for the petitioners to contend that any such disclosures or admission was made or accepted not because any such consideration had actually changed hands but with a view to buy pace with the Department and avoid a long term and expensive legal battle over the question. The petitioners are in my opinion estopped from raising any such contention specially when the disclosures come after an initial denial of the making of the payments and only when Thyagarajan stood his ground and offered himself for cross‑examination in support of his version that such a payment was made. In the totality of these circumstances I do not see any error of law in the view taken by the Commissioner that the disclosure was involuntary.
The disclosure cannot even be termed as one made in good faith. The expression "good faith" means an act done honestly even if the same be tainted with negligence or mistake. Section 2(22) of the General Clauses Act, lends a similar meaning to the said expression. In order that a disclosure is termed as having been made in good faith, the same must be demonstrably honest. A disclosure which is made under the compulsion of a possible penalty or other proceedings cannot be termed honest or one made in good faith, the underlying object of any such disclosure being not to come clean on the subject but to avoid the adverse consequences that may follow a non disclosure.
In the circumstances, therefore, the order passed by the Commissioner rejecting the petitioner's application does not warrant any interference. This petition accordingly fails and is hereby dismissed with costs assessed at Rs.1,500.
M.B.A./228/FCPetition rejected.