Case ID: 649

Judgment:
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 66(1) 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. 4	494 for the accounting year 1947 48 being the previous year for the assessment year 1948 49 and an income of Rs. 31	646 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. 6	277 and for the assessment year 1949 50 at Rs. 36	281. 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 18A(3) and 18A(9) 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 18A(3) 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 18A(9) 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 section(3) 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 (a)has 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 (b)has without reasonable cause failed to comply with a notice under subsection (4) of section 22 or subsection (2) of section 23	 or (c)has 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 18A(3) 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. 1	000 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 18A(3) 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 18A(3) 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 18A(3). 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 18A(9) (b) read with section 28 of the Indian Income tax Act	1922	 a penalty may be imposed for a total failure to comply with the provisions of Section 18A(3) 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 22(1) or section 22(2) must be satisfied even when action was sought to be taken under section 28 in respect of a failure to comply with section 18A(3)	 and that as those conditions had not been satisfied	 the order imposing penalty was bad. The appellant applied for a certificate under section 66A(2) 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 28(1) read with section 18A(9) 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 18A(3) 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 18A(3). Now	 section 28(1) 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 22(4) or section 23(2) 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 18A(3) and that is deliberately inaccurate	 that will fall under section 28(1)(c) read with section 18A (9)(a) 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 18A(3)	 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 22(1) or section 22(2) 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 18A(3). Say the learned Judges: " In the first place	 a person who fails to send an estimate under section 18A(3) 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 18A(3) 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 18A(9)(b) of the Act. Under that provision	 when an assessee has failed to comply with section 18A(3) 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 18A(3) 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 18A(3) 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 18A(3)	 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 18A(3) 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 18A(3) 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 18A(3)	 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. 18A(9) (b) that when a person fails to send an estimate of tax on his income under section 18A(3) 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 18A(3) 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 22(1) or section 22(2). But it must be noted that section 18A(9) (b) does 401 not merely say that an estimate under section 18A(3) shall be deemed to be a return. It enacts that the failure to send an estimate in accordance with section 18A(3) 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 22(1) or section 22(2) 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 18A(9) (b) therefore that failure to send an estimate under section 18A(3) 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 A(9)(b). 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 22(1) or section 22(2)	 before action could be taken under section 28. In the view expressed above that the fiction enacted in section 18 A(9)(b) involves the fiction that notices had been issued under section 22(1) or section 22(2)	 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 A(9)(b)? 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 A(9)(b). 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 E.R. 1108	 1120. (2) 	 132. 403 penalty could be imposed under that section for failure to comply with section 18 A(3)	 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 A(9)(b) would become wholly nugatory	 as sections 22(1) and 22(2) can have no application to advance estimates to be furnished under section 18 A(3)	 and if we accede to this contention	 we must hold that though the legislature enacted section 18 A(9)(b) with the very object of bringing the failure to send estimates under section 18 A(3) 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 A(9)(b) where there has been a failure to comply with section 18 A(3). 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 respondent who bad not been assessed to income tax prior to the assessment year 1948 49 made suo motu returns on July 4	 1949	 showing an income of Rs. 4	494 and Rs. 31	646 respectively	 for the assessment years 1948 49 and 1949 5o	 but failed to send an estimate of the tax on his income as provided in section 18A(3) of the Indian Income tax Act	 1922. The Incometax Officer took action under section 28 read with section 18A(9) of the Act and imposed a penalty on him for the years 1948 49 and 1949 50. 395 The Appellate Tribunal held that the order imposing the penalty was ultra vires on the ground that section 28 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 no such notices with reference to estimates of tax on income to be sent under section 18A(3). The High Court	 on reference	 agreed with the view of the Tribunal. Held	 that in view of the legal fiction contained in section 18A(9) of the Act that when an assessee has failed to comply with section 18A(3) 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 "	 the failure to send an estimate of the tax under section 18A(3) should be treated as failure to furnish return of income under section 22. Accordingly	 it was competent to the Income tax authorities to impose a penalty under section 28 read with section 18A(9)(b) where there has been a failure to comply with section 18A(3). The relevant provisions of the Indian Income tax Act	 1922	 are set out in the judgment.