CR 1705/1998 BEFORE THE HON’BLE MR JUSTICE I.A.ANSARI CIVIL RULE 1705/1998 1. M/s. Nandalal Parshuram, A partnership Firm and Proprietor of a Tea Garden named Sookerating Tea Es tate,Doomdoma,Bishmile, PO.Chabua, Dist. Dibrugarh, Assam, Pin-786 184. 2. Shri Kanhaiya Agarwalla, Partner of the petitioner No.1 Firm R/O.Bishmile,PO.Chabua,Dist. Dibrugarh, Assam. & Petitioners By Advocate: Dr. AK Saraf, Sr. Advocate Mr. D. Baruah, Ms. N. Hawelia, Ms. ML Gope. - Versus - 1. Agricultural Income Tax Officer, Assam, Kar Bhawan, Dispur, Guwahati. 2. Commissioner of Taxes, Assam, Kar Bhawan, Dispur, Guwahati. 3. The Superintendent of Taxes, Unit Tinsukia, PO. Tinsukia, Assam 4. The State of Assam, Represented by the Secretary to the Govt. of Assam, Finance Department, Dispur, Guwahati. &Respondents By Advocate: Mr. R. Dubey BEFORE THE HON’BLE MR. JUSTICE IA ANSARI Date of hearing & date of judgment : 16.08.2007 JUDGMENT AND ORDER (ORAL) The material facts, which are not in dispute and which have given rise t o the present writ petition, may, in brief, be set out as follows: (i) The petitioner No. 1, namely, M/s Nandalal Parshuram, a register ed partnership firm under the Partnership Act, owns a Tea Estate known as Sooker ating Tea Estate, Doomdoma, Assam, and is engaged in the business of plantation, manufacture and sale of tea, the petitioner No. 2 being a partner of the petiti oner firm. The respondent No. 1, namely, Agricultural Income Tax Officer, Assam, assessed the agricultural income tax payable by the petitioner firm, for the as sessment years 1986-87, 1987-88 and 1990-91, at Rs.4,80,559/-, Rs.3,33,342/- and Rs. 77,627/- respectively. Having so completed assessment of the agricultural i ncome tax, respondent No.3 raised demand, on 30.03.95, for payment of Rs 4,80,55 9/-, Rs.3,33,342/- and Rs. 77,627/- under Section 23 of the Assam Agricultural I ncome Tax Act, 1939 (in short, ’the said Act’), directing the petitioner firm to make payment of the assessed amount by 30.04.1995. By letter, dated 08-12-1995 , issued by the respondent No.1, the petitioner firm was informed that the petit ioner firm was in default of payment of Rs. 4,80,559.00/-, Rs. 3,33,342.00/- an d Rs. 77,627.00/-, as agricultural income tax, for the assessment years 1986-87, 1987-88 and 1990-91 respectively and that the assessed amount should be paid b y 26-12-1995 making it clear that if the payment was not made by 26.12.95, nece ssary action, under Section 36(2) and 36(3) of the said Act, would follow. By a subsequent assessment order, dated 04.04.96, the Agricultural Income Tax for the assessment year 1990-91, in respect of the petitioner firm, was revised to Rs.2 ,64,319/- and a demand for payment of the revised assessment was accordingly rai sed by the respondent No.1, on 04.09.96, with direction that the said revised as sessed amount of Rs. 2,64,319/- be paid by 04.10.1996. The petitioner firm, the reafter, received a notice, dated 08.01.98, whereby the petitioner firm was dire cted to make payment of Rs.5,86,025/- as agricultural income tax for the assessm ent year 1990-91 within seven days from the date of the receipt of the said noti ce. This notice was followed by two other notices, both dated 19.01.98, whereby the petitioner firm was directed to pay, within seven days from the date of rece ipt of the said notices, Rs. 10, 42,903 as agricultural income tax for the asses sment year 1986-87 and Rs.7,77,091/- as agricultural income tax for the assessme nt year 1987-88. By three different letters, all dated 19.02.98, the petitioner firm informed the respondent No.3 that for the assessment years, in question, i. e., 1986-87, 1988-89 and 1990-91, the demands raised by letters, dated 08.01.98 and 19.01.98, aforementioned were higher than the assessment orders made in this regard inasmuch as the assessment made in respect of the assessment year 1986-8 7 was Rs.4,80,559/-, but the demand raised for payment by letter, dated 19.01.98 , was to the tune of Rs,10,42,903/- and, similarly, in respect of the assessment years 1987-88 and 1990-91, the assessment made were Rs.3,33,342/- and Rs.2,64,3 19/- respectively, but the demands for payment of the assessment years 1987-88 a nd 1990-91 were to the tune of Rs.7,77,091/- and Rs.5,86,025/- respectively. The petitioner firm, vide their letters, dated 19.02.98, aforementioned also inform ed the respondent No.3 that the petitioner firm had already filed statutory appe al and, therefore, requested the respondent No.3 to keep the realization of the alleged dues in abeyance until disposal of the appeal. Reacting to the letters o f the petitioner firm, dated 19.02.98, aforementioned, respondent No.3 clarified , vide letter, dated 11.03.98, that while the assessment of the agricultural inc ome tax, for the assessment year 1986-87, was Rs.4,80,559/-, the interest and pe nalty payable thereon were Rs.81,841/- and Rs. 4,80,500/- respectively, making g rand total of liability of the petitioner firm, for the assessment year 1986-87, to the tune of Rs.10,42,903/- and, similarly, in respect of assessment years 19 87-88 and 1990-91, while the tax assessed were Rs.3,33,342/- and Rs.2,64,319/- r espectively, the interest and penalty payable, in respect of the assessment year 1987-88, were Rs.1,10,449/- and Rs.3,33,300/- respectively and that the intere st and penalty payable, for the assessment year 1990-91, were Rs.57,405/- and Rs .2,64,300/- respectively. Thus, the total sum payable by the petitioner firm in respect of assessment years 1987-88 and 1990-91 were to the tune of Rs.7,77,091/ - and Rs.5,86,025/- respectively. By yet another letter, dated 18.03.98, respond ent No.3 informed the petitioner No.1 that without any stay order having passed in the appeal, recovery proceeding, commenced against the petitioner firm, canno t be kept in abeyance. Aggrieved by the imposition of penalty, as indicated here inbefore, the petitioners have impugned the same in the present writ petition, t he main ground of challenge being that no notice was issued to the petitioner fi rm in terms of the provisions of Section 36(2) of the said Act before the penalt y was imposed on the petitioner firm. 2. I have heard Dr. A. K. Saraf, learned Senior counsel, appearing on behal f of the petitioners, and Mr. R. Dubey, learned counsel, appearing for the respo ndents. 3. Though the respondents have not filed any affidavit, they have contended , at the time of hearing of this writ petition, that a notice directing payment of the dues was issued to the petitioner firm, on 14.02.1997, in terms of Sectio n 36(2). However, no copy of the notice, which the respondents claim to have is sued, has been produced at the time of hearing. Though the respondents have prod uced the records, the records too do not, admittedly, reflect as to what was the nature of the letter(s)/notice(s), which the respondents claim to have issued t o the petitioner firm. Be that as it may, the fact that the respondents had is sued letters/notices, dated 19-01-1998, aforementioned directing the petitioner firm to make payment of Rs. 10,42,903.00/-, Rs.7,77,091/- and Rs. 5,86,025/- for the assessment years 1986-87, 1987-88, 1990-91 respectively within a period sev en days from the date of the receipt of the notices is not in dispute. 4. What emerges from the above discussion is that a period of seven days ha d been given to the petitioner firm to make payment of their alleged dues and it is contended by the respondents that due to non-payment of the amounts, so clai med, the penalty was imposed. 5. Before proceeding further, it is of great relevance to note that while t he amounts assessed, as agricultural income tax, and the amounts, claimed as int erest, have been paid by the petitioner firm, it is the imposition of penalty, w hich stands impugned in the present writ petition. It, now, needs to be noted th at imposition of penalty is dealt with by Section 36 of the said Act. The relev ant provisions of Section 36 read as under : 36. Mode of recovery. (1) If the demand in respect of any dues under this Act is not paid on or before the date specified in section 35 -G and 35H, the assess ee shall be deemed to be in default: Provided that the Superintendent of Taxes or Agricultural Income- tax Officer ma y, in respect of any particular assessee and for reasons to be recorded in writi ng, extend the date of payment of dues or allow such assessee to pay the same by instalments and in such cases the assessee shall not be deemed to be in default , but in all such cases the provisions of sections 35C, 35D and 35E shall apply. (2) Where an assessee is in default, the Superintendent of Taxes or Agricultural Income-tax Officer may, in his discretion, direct that in addition to the amoun t due, a sum not exceeding that amount shall be recovered from the defaulter by way of penalty: Provided that no order of imposition of penalty under this section shall be made unless the assessee has been heard or has been given a reasonable opportunity o f being heard. (3) Where an assessee is in default, the Superintendent of Taxes or Agricultural Income-tax Officer may order that the amount due shall be recoverable as an arr ear of land revenue and may proceed to realise the amount as such. 6. From a close reading of Section 36, what transpires is that if the payme nt of dues is not made on or before the date specified in a notice of demand, th e assessee shall be deemed to be a defaulter and in such a case, Section 36(2) empowers the Superintendent of Taxes and the Agricultural Income Tax Officer to recover, by way of penalty, a sum not exceeding the amount, which is in default. The proviso to Section 36(2), however, requires the assessing authority not to impose penalty unless the assessee is heard or is given reasonable opportunity of being heard. Necessarily, therefore, imposition of penalty for default is not permissible without giving, at least, an opportunity of showing cause and heari ng to the assessee concerned. 7. A careful reading of Section 36(2) also clearly reveals that if, presuan t to a demand made in respect of any dues under the said Act, the assessee does not pay his dues on or before the due date, the assessee shall be deemed to be a defaulter. Power has, however, been conferred on the authority concerned to ext end the date of payment of the dues or even to allow an assessee to pay the asse ssed tax in installments and in such a case, the assessee will not be deemed to be a defaulter till the date as extended or till the last date of payment by ins tallment is over. When an assessee is in default within the meaning of Sub-Secti on (1) of Section 36, because of the fact that he has not made payment of the ta x within the time, originally, given or within the extended time, the Agricultur al Income Tax Officer or Superintendent of Taxes, as the case may be, has the po wer to impose, by way of penalty, a sum not exceeding the amount, which the asse ssee has failed to pay as the assessed tax. The power to levy penalty is, thus, in addition to the power to order recovery of the assessed tax as arrear of land revenue. 8. From the scheme of Section 36, it becomes abundantly clear that impositi on of penalty is not a routine affair nor can the penalty be imposed as an autom atic consequence of a default in making payment of the tax. Non-payment of tax i n itself is not sufficient to attract a penalty, for, such non-payment merely ma kes an assessee defaulter and a discretion has been vested in the authority conc erned to extend the date of payment and/or to allow the assessee to make payment of the assessed tax is installment and not to treat him as defaulter till expir y of the extended date. When discretion is vested in an authority, such a discre tion cannot be arbitrarily exercised. The exercise of power to impose penalty is circumscribed inasmuch as the authority concerned must, before imposing the pen alty, give an opportunity of hearing to the assessee. Having given such an oppo rtunity, the authority concerned shall take into account all relevant circumstan ces and eschew from consideration every irrelevant circumstance and, then, deter mine as to whether the assessee needs to be saddled with the liability of penalt y for non-payment of his dues and if so, what would be the extent of such a pena lty? The authority concerned must, thus, take a decision, in the matter of imp osition of penalty, objectively, upon consideration of all relevant factors. 9. In the light of the law discussed above, when I revert to the factual ma trix of the present case, what attracts the eyes, most prominently, is that notw ithstanding the fact that letters, dated 18.12.95, were issued by the respondent s, demanding payment of Rs.4,80,559/-, Rs.3,33,342/-, and Rs.77,627/- (which was revised to Rs.2,64,319/-) for the assessment years 1986-87, 1988-89 and 1990-91 respectively, with a caution that the demands, if not immediately met, would en tail recovery proceeding under Section 36, no notice was given to the petitioner firm to show cause as to why penalty, as provided by Section 36(2), be not impo sed on the petitioner firm for their failure to make payment of the assessed tax . In fact, by letters, dated 19.01.88 and 08.01.98, aforementioned, what were de manded were not only the payment of tax and interest, which had accrued thereon, but also the penalty, which had been imposed for the failure to pay assessed ta x in respect of assessment years 1986-87, 1987-88, 1990-91. Thus, the letter, da ted 19.01.98 and 08.01.98, aforementioned could not have been regarded, and cann ot be legally treated, as notices under the proviso to Section 36(2). 10. In short, in the case at hand, the respondents have neither averred by w ay of affidavit nor have they produced any material to indicate that notice, as is required under Section 36(2), was ever given to the petitioner firm directing them to show cause as to why the penalty shall not be imposed on the petitioner firm for their failure to pay the assessed tax within the time given to them by the assessing authority concerned. Viewed from this angle, it becomes clear tha t the imposition of penalty on the alleged non-payment of dues was wholly in vio lation of the safeguard guaranteed to an assessee under proviso to Section 36(2) . Thus, the penalty imposed by the respondent No. 3 by its letters, dated 19-01- 1998 and 08.01.98, aforementioned and reiterated by its letter, dated 11-03-1998 , cannot be sustained. 11. In the result and for the reasons discussed above, this writ petition su cceeds. While the demands for payment of tax and the interest, which had accrued thereon, are not interfered with, the penalty of Rs. 4,80,500.00, Rs. 3,33,300. 00 and Rs. 2,64,300.00, imposed in respect of the assessment years 1986-87, 1987 -88 and 1990-91 respectively, is hereby set aside and quashed. 12. With the above observations and directions, this writ petition shall sta nd disposed of. 13. No order as to costs.