Appeal No 122 of 1957
Appeal from the order dated November 4 1954 of the Punjab High Court Circuit Bench at Delhi in Civil Reference No 15 of 1953
R Ganapathy Iyer R H Dhebar and D Gupta for the appellant
P M Mukhi Gopal Singh for Udhai Bhan Choudhry for the respondent
P M Mukhi and Ganpat Rai for Dalmia Jain Aviation Ltd now Asia Udyog Ltd Intervener
November 5
The Judgment of the Court was delivered by VENKATARAMA AIYAR J
This is an appeal against the judgment of the High Court of Punjab in a reference under section 661 of the Indian Income tax Act 1922 hereinafter referred to as the Act
The facts are that the respondent had not been assessed to income tax prior to the assessment year 1948 49
On July 4 1949 he made suo motu returns showing an income of Rs 4494 for the accounting year 1947 48 being the previous year for the assessment year 1948 49 and an income of Rs 31646 for 396 the accounting year 1948 49 being the previous year for the assessment year 1949 50
By orders dated August 25 1949 the Income tax Officer assessed the income for the assessment year 1948 49 at Rs 6277 and for the assessment year 1949 50 at Rs 36281
The correctness of these orders is not in question before us
We are concerned in these proceedings with the vires of an order which the Income tax Officer made on October 9 1950 under section 28 read with sections 18A3 and 18A9 of the Act
It will be convenient to set out these provisions so far as they are material for the purpose of this appeal
Section 18A3 provides that   Any person who has not hitherto been assessed shall before the 15th day of March in each financial year if his total income of the period which would be the previous year for an assessment for the financial year next following is likely to exceed six thousand rupees send to the Income tax Officer an estimate of the tax payable by him on that part of his income to which the provisions of section 18 do not apply of the said previous year calculated in the manner laid down in sub section 1 and shall pay the amount on such of the dates specified in that sub section as have not expired by instalments which may be revised according to the proviso to sub section 2 Section 18A9 is as follows  If the Income tax Officer in the course of any proceedings in connection with the regular assessment is satisfied that any assessee a has furnished under sub section 2 or sub section3 estimates of the tax payable by him which he knew or had reason to believe to be untrue or b has without reasonable cause failed to comply with the provisions of subsection 3 the assessee shall be deemed in the case referred to in clause a to have deliberately furnished inaccurate particulars of his income and in the case referred to in clause b to have failed to furnish the return of his total income and the provisions of section 28 so far  as may be shall apply accordingly
397 Then there is a proviso which imposes a limit on the amount of penalty which can be levied
Section 28 of the Act runs as follows 1  If the Income tax Officer  in the course of any proceedings under this Act is satisfied that any person ahas without reasonable cause failed to furnish the return of his total income which he was required to furnish by notice given under sub section 1 or subsection 2 of section 22 or section 34 or has without reasonable cause failed to furnish it within the time allowed and in the manner required by such notice or bhas without reasonable cause failed to comply with a notice under subsection 4 of section 22 or subsection 2 of section 23 or chas concealed the particulars of his income or deliberately furnished inaccurate particulars of such income he  may direct that such person shall pay by way of penalty in the case referred to in clause a in addition to the amount of the income tax and supertax if any payable by him a sum not exceeding one and a half times that amount and in the cases referred to in clauses b and c in addition to any tax payable by him a sum not exceeding one and a half times the amount of the income tax and super tax if any which would have been avoided if the income as returned by such person had been accepted as the correct income
The Income tax Officer held that as the respondent had failed to send an estimate of the tax on his income as provided in section 18A3 he became liable to be proceeded against under section 28 and accordingly imposed a penalty of Rs 40 for the year 1948 49 and Rs 1000 for the year 1949 50
On appeal the Appellate Assistant Commissioner confirmed the order in so far as it imposed a penalty for the year 1948 49 but set it aside as regards the year 1949 50 on the ground that by reason of the assessment for the year 1948 49 the respondent ceased to be a new assessee for 1949 50 and that in consequence section 18A3 had no application
Against the order cancelling the penalty for 1949 50 398 the Income tax Officer preferred an appeal to the Appellate Tribunal which disagreed with the view of the Appellate Assistant Commissioner that the respondent was no longer a new assessee within section 18A3 of the Act but held that the order of the lncome tax Officer imposing a penalty under section 28 was ultra vires because that section would in terms apply only when a person failed to furnish the return when he was required so to do by notice under section 22 or section 34 of the Act and that there could be Do such notices with reference to estimates of tax on income to be sent under section 18A3
In the result the appeal was dismissed
On the application of the appellant the Tribunal referred the following question for the opinion of the High Court  Whether on a true construction of Section 18A9 b read with section 28 of the Indian Income tax Act1922 a penalty may be imposed for a total failure to comply with the provisions of Section 18A3 of the said Act  The reference was heard by Bhandari C J and Falshaw J who agreed with the Tribunal that the conditions as to notice laid down in section 221 or section 222 must be satisfied even when action was sought to be taken under section 28 in respect of a failure to comply with section 18A3 and that as those conditions had not been satisfied the order imposing penalty was bad
The appellant applied for a certificate under section 66A2 of the Act and the same was granted and that is how the appeal comes before us
The sole question that arises for our determination in this appeal is whether under section 281 read with section 18A9 of the Act it is competent to the Income tax authorities to impose a penalty on a person who has failed to comply with section 18A3 of the Act
In answering it in the negative the learned Judges in the court below were influenced almost exclusively by the terms of section 28 which they held did not cover failure to comply with section 18A3
Now section 281 provides for penalty being imposed in three classes of cases which are mentioned respectively in cls
a b
and c
Clause b deals with cases where there has been failure 399 to produce documents or accounts or other evidence which the assessee had been required to produce under section 224 or section 232 of the Act and that is not relevant for the purpose of the present discussion
Then there are cls
a and c and they have reference stating it in plain language cl
a to failure to make a return and cl
c to making false return
Now the learned Judges observe that if an estimate of the tax is furnished under section 18A3 and that is deliberately inaccurate that will fall under section 281c read with section 18A 9a and penalty could be imposed under that section but that that could not be done when there is failure to furnish an estimate as required by section 18A3 be cause sub section
1 of section 28 would apply only when a person failed to furnish the return when he had been required to do so by notice under section 221 or section 222 or section 34 or had failed to furnish it within the time allowed and in the manner required by the notice and that there could be no such notice with reference to section 18A3
Say the learned Judges  In the first place a person who fails to send an estimate under section 18A3 cannot be said to have failed to furnish the return of his total income which he was required to furnish in response to a notice issued under section 22 or section 34 secondly the said person cannot be said to have failed to furnish it
within the time allowed and in the manner required by such notice for estimates under section 18A3 must be furnished before the 15th March in the financial year immediately preceding the year of assessment whereas the returns required by the notices under sections 22 and 34 can be furnished at later dates With respect the error in this reasoning lies in this that it fails to give due effect to the fiction contained in section 18A9b of the Act
Under that provision when an assessee has failed to comply with section 18A3 he  shall be deemed to have failed to furnish the return of his total income and the provisions of section 28 so far as may be shall apply accordingly In other words  by a legal fiction the failure to send an estimate of the tax under section 18A3 is treated as a 400 failure to furnish return of income under section 22
It is a necessary implication of this fiction that the estimate of tax on the income to be submitted under section 18A3 is in fact different from the return to be furnished under section 22 and to appreciate the full significance of this fiction it is necessary to examine what the distinction is
Under section 3 of the Act the tax is payable on the income of the previous year
A statement of that income can be furnished only after that year ends and section 22 enacts provisions as to when it is to be furnished in the assessment year
Sub sections 1 and 2 provide for notices being given and the assessee is required to file his statement of income within the period provided therein and it is this statement that is termed  return 
Section 18A3 however relates to the sending of a statement of tax on the income of the accounting year before the 15th day of March of that year itself and that statement is termed not a return but an estimate and quite rightly because in the very nature of it it can only be that
A person who sends an estimate under section 18A3 has also to send a return of his income for the accounting year under section 22 and sub sections
4 and 5 of section 18A provide for adjustment of advance tax paid under section 18A3 towards the tax as finally computed under section 23
Thus there is a clear distinction between a return of income under section 22 which can only be during the year of assessment and an estimate of tax on income under section 18A3 which can only be in the year of account
It is in the light of this distinction that the effect of the legal fiction enacted ins
18A9 b that when a person fails to send an estimate of tax on his income under section 18A3 he shall be deemed to have failed to furnish return of his income will have to be judged
The respondent contends that its effect is only to place the estimate to be sent under section 18A3 on the same footing as the return under section 22 for purposes of section 28 and that that does not abrogate the other conditions laid down in that section on which alone action could be taken thereunder and penalty imposed and one of those conditions is the issue of notice under section 221 or section 222
But it must be noted that section 18A9 b does 401 not merely say that an estimate under section 18A3 shall be deemed to be a return
It enacts that the failure to send an estimate in accordance with section 18A3 is to be deemed to be a failure to make a return
Now there can be no failure to make a return unless notice had been issued under section 221 or section 222 and there has been a default in complying with that notice
Therefore the fiction that the failure to send an estimate is to be deemed to be a failure to send a return necessarily involves the fiction that notice had been issued under section 22 and that had not been complied with
It is a rule of interpretation well settled that in construing the scope of a legal fiction it would be proper and even necessary to assume all those facts on which alone the fiction can operate
The following off quoted observations of Lord Asquith in East End Dwellings Co Ltd vs Finsbury Borough Council 1 may appropriately be referred to  If you are bidden to treat an imaginary state of affairs as real you must surely unless prohibited from doing so also imagine as real the consequences and incidents which if the putative state of affairs had in fact existed must inevitably have flowed from or accompanied it
One of these in this case is emancipation from the 1939 level of rents
The statute says that you must imagine a certain state of affairs it does not say that having done so you must cause or permit your imagination to boggle when it comes to the inevitable corollaries of that state of affairs
 The fiction under section 18A9 b therefore that failure to send an estimate under section 18A3 is to be deemed to be a failure to send a return must mean that all those facts on which alone there could be a failure to send the return must be deemed to exist and it must accordingly be taken that by reason of this fiction the notices required to be given under section 22 must be deemed to have been given and in that view section 28 would apply on its own terms
Some argument was addressed to us based on the use of the definite article the qualifying the word 1  132
51 402 return in section 18 A9b
It was said that that expression meant the return which is to be furnished under of section 22 and that that requires that there must have been a notice issued under section 221 or section 222 before action could be taken under section 28
In the view expressed above that the fiction enacted in section 18 A9b involves the fiction that notices had been issued under section 221 or section 222 this contention does not call for further consideration
It was finally argued that a fiscal statute and especially one imposing a penalty should be strictly construed and that if the words of the enactment be not sufficiently explicit to reach the subject the Revenue must fail and the following observations in Vestey s Lord Executors vs Inland Revenue Commissioners 1 were relied on in support of this position  Parliament in its attempts to keep pace with the ingenuity devoted to tax avoidance may fall short of its purpose
That is a misfortune for the taxpayers who do not try to avoid their share of the burden and it is disappointing to the Inland Revenue
But the court
will not stretch the terms of taxing Acts in order to improve on the efforts of Parliament and to stop gaps which are left open by the statutes
Tax avoidance is an evil but it would be the beginning of much greater evils if the courts were to overstretch the language of the statute in order to subject to taxation people of whom they disapproved
 These observations would be in point if the language of the enactment left us in any doubt as to what the legislature meant
But can that be said of section 18 A9b Its object avowedly is to assimilate the position of a person who has failed to send the estimate under section 18 A 3 to that of a person who has failed to furnish the return under section 22 and that object is sought to
be achieved by enacting the fiction which is contained in section 18 A9b
And if on the principles laid down in East End Dwellings Co Ltd vs Finsbury Boorough Council 2 the true effect of that fiction is that it imports that notice had been issued under section 22 then the conditions prescribed in section 28 of the Act are satisfied and 1 1949 1 All ER 1108 1120
2  132
403 penalty could be imposed under that section for failure to comply with section 18 A3 on the clear language of that enactment itself without straining or overstretching it
We must now refer to an aspect of the question which strongly reinforces the conclusion stated above
On the construction contended for by the respondent section 18 A9b would become wholly nugatory as sections 221 and 222 can have no application to advance estimates to be furnished under section 18 A3 and if we accede to this contention we must hold that though the legislature enacted section 18 A9b with the very object of bringing the failure to send estimates under section 18 A3 within the operation of section 28 it signally failed to achieve its object
A construction which leads to such a result must if that is possible be avoided on the principle expressed in the maxim ut res magis valeat quam pereat
Vide Curtis vs Stovin 1 and in particular the following observations of Fry L J at page 519  I The only alternative construction offered to us would lead to this result that the plain intention of the legislature has entirely failed by reason of a slight inexactitude in the language of the section
If we were to adopt this construction we should be construing the Act in order to defeat its object rather than with a view to carry its object into effect
Vide also Craies on Statute Law p 90 and Maxwell on The Interpretation of Statutes Tenth Edn pp 236 237
A statute is designed observed Lord Dunedin in Whitney vs Commissioners of Inland Revenue 2 to be workable and the interpretation thereof by a court should be to secure that object unless crucial omission or clear direction makes that end unattainable
We are accordingly of opinion that it was competent to the Income tax authorities to impose a penalty under section 28 read with section 18 A9b where there has been a failure to comply with section 18 A3
in the result
 we set aside the order of the court below and answer the reference in the affirmative
1 2  110
404 The appellant will have his costs here and in the court If below
Appeal allowed


Summary:
The appellants are two different trade unions of Barauni Refinery of the respondent Indian Oil Corporation Limited IOCL
The IOCL is comprised essentially of two divisions 1 Marketing Division and 2 Refinery and Pipe Lines Division
The age of superannuation of the staff in the Marketing Division was 60 years whereas for the Refinery and Pipe Lines Division it was fixed at 58 years under Clause 20 of the Standing Orders concerning Barauni Refinery
In December 1981 14 recognised Unions representing the employees of the IOCL working in different refineries and pipe lines divisions submitted a charter of demands
By clause 18 of this charter the superannuation age was sought to be enhanced to 60 years
A similar charter of demands was separately submitted by the Barauni Telshodhak Mazdoor Union
As a result of discussions a general settlement was mutually arrived at by and between the parties on May 24 1983
Subsequently a separate Memorandum of Settlement dated 4th August 1983 concerning Barauni Refinery was signed by the parties under sections 123 and 183 of the in conciliation proceedings
Both the general settlement and the special settlement concerning Barauni Refinery were to remain in force till 30th April 1986
Despite the specific demand made in the two charters of demand for the upward revision of the age of superannuation no specific provision was made in that behalf either in the general settlement or in the special settlement
On the contrary clause 19 of both the settle ments provided that the 283 terms and conditions of service which were not changed under the settlements shah remain unchanged and operative during the period of settlement further clause 21 did not permit raising of any demand throwing an additional burden on the corporation during that period
Later the Petroleum and Chemical Mazdoor Union served notice on the Regional Labour Commissioner Central under section 102 of the Industrial Employment Standing Orders Act 1948 for modification of clause 20 of the Certified Standing Orders of Barauni Refinery for raising the age of superannuation from 58 years to 60 years
This demand was based on the averment that the nature of work performed by the workmen in the Refinery and Pipe Lines Division and their payscales were identical to the staff members of the Marketing Division
The Regional Labour Commissioner allowed the application for modification of clause 20 of the Certified Standing Orders
The Appellate Authority dismissed the appeal of the Corporation but at the same time directed a slight modifi cation in clause 20 of the Standing Orders
The IOCL preferred a writ petition in the High Court for quashing the orders of the Regional Labour Commissioner as well as the Appellate Authority
On the other hand the Union feeling aggrieved by the order of the Appellate Authority preferred a writ petition against that order
The High Court inter alia held that the settlement arrived at in the conciliation proceedings was binding on the workmen and as clause 19 of the settlement kept the service conditions which were not changed in tact and clause 21 of the settlement did not permit raising of any demand throwing an additional burden on the Corporation it was not permissible to modify the certified Standing Orders by an amendment as that would alter the service conditions and increase the financial burden on the management
Dismissing the appeals by the two trade unions this Court HELD 1 The Industrial Employment Standing Orders Act 1948 was enacted to define with sufficient precision the conditions of employment for workers employed in indus trial establishments and to make the same known to them
289B 2 According to sub sections 1 and 3 of section 18 of the  settlements are divided into two categories namely i those arrived at outside the conciliation proceedings and ii 284 those arrived at in the course of conciliation proceedings
A settlement which belongs to the first category has limited application in that it merely binds the parties to the agreement but the settlement belonging to the second catego ry has extended application since it is binding on all parties to the industrial dispute
292A B 3 A settlement arrived in the course of conciliation proceedings with a recognised majority union will be binding on all workmen of the establishment even those who belong to the minority union which had objected to the same
To that extent it departs from the ordinary law of contract
292C 4 The object is to uphold the sanctity of settlement reached with the active assistance of the Conciliation Officer and to discourage an individual employee or a minor ity union from scuttling the settlement
There is an under lying assumption that a settlement reached with the help of the Conciliation Officer must be fair and reasonable and can therefore safely be made binding not only on the workmen belonging to the union signing the settlement but also on others
The High Court was therefore right in coming to the conclusion that the settlement dated 4th August 1983 was binding on all the workmen of the Barauni Refinery including the members of Petroleum and Chemical Mazdoor Union
292D E 5 The age of retirement prescribed by clause 20 of the Certified Standing Orders was undoubtedly a condition of service which was kept in tact by clause 19 of the settle ment
292G 6 During the operation of the settlement it was not open to the workmen to demand a change in clause 20 of the certified Standing Orders because any upward revision of the age of superannuation would come in conflict with clauses 19 and 21 of the settlement
293E F