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8e72595b72e2-1 | The Chairman, A.P.S.R.T.C., ... vs Shafiya Khatoon And Ors. on 24 August, 1984 | 2. The deceased Mohd. Mahfooz was a carpenter when he died, he was aged 22 years. The accident occurred at 9.45 p.m. on 14-11-1977 at Hanamakonda when a bus belonging to the appellant Corporation bearing the number APZ 8330 knocked down the deceased. The deceased was admitted in the Mahatma Gandhi Hospital, Warangal and he expired on 21-11-1977 in the hospital at 9.00 p.m. The deceased was a carpenter owning a carpentry shop at Hunter Road and was earning Rs.400/- to Rs.500/- per month. He left behind him his mother and four unmarried sisters as his heirs and dependents who filed O.P. No. 11/1978 on 5-61978 claiming Rs.72, 000/- towards the dependency, at the rate of Rs.1500/- p.a. for 48 years and Rs.500/- towards damages to his clothing articles and cycle. The Corporation was impleaded as the Ist respondent and the driver as the 2nd respondents.
3. The Tribunal held that the accident occurred on account of the negligence of the appellant's driver. It accepted that the deceased was aged 22 years at his death, that he was earning Rs.400/- to Rs.500/- P.M. as a carpenter and would have given for the family at least Rs.1500/- per annum for a period of 48 years i.e., Rs.72, 000/- inasmuch as he would have lived up to 70 years. An award was passed for the other damages of Rs.500/- towards loss of clothing articles and cycle, in all making up a total of Rs.72, 500/-. Interest was granted at 6% p.a from the date of petition i.e., 5-6-1978. | https://indiankanoon.org/doc/532350/ |
8e72595b72e2-2 | The Chairman, A.P.S.R.T.C., ... vs Shafiya Khatoon And Ors. on 24 August, 1984 | 4. Against the above award, the Corporation has filed the present appeal.
5. We are not inclined to disturb the finding of the lower Court that the appellant's driver was negligent. The finding in this regard is based on the evidence of P.W. 2, another cyclist who was cycling by the side of the deceased, the wound certificate Ex. A-1 and the other circumstances. This finding is therefore confirmed.
6. Sri C. Ananda Rao, the learned counsel for the Corporation contends that the Tribunal erred in taking a multiplier of 48. He also contended that the sisters of the deceased are not among the dependents enumerated in the Fatal Accidents Act, 1855, that the provisions of S.110-B are merely procedural and that they cannot confer any rights on the sisters of the deceased for claiming share in the dependency. He placed reliance on the decision of the Supreme Court in N.I. Insurance Company v. Shanti Misra .
7. On the other hand, it is contended by the learned counsel for the respondents Sri K.F. Baba, that the multiplier adopted under law, be Rs.2400/- p.a. and not Rs.1500/- p.a. He also contended that the sisters of the deceased are entitled to be in the dependency in view of the special provisions of S.11 of the Motor Vehicles Act which according to him are wider than those under the Fatal Accidents Act, 1855. He contends that the provisions of S.110-B are also substantive in nature. According to him the sisters of the deceased are entitled to a share in the dependency in view of the decision of a Division Bench of this Court in Vanguard Insurance Company v. C. Hanumantha Rao (1975) 1 Andh WR 327 1975 Acc C.J. 344. | https://indiankanoon.org/doc/532350/ |
8e72595b72e2-3 | The Chairman, A.P.S.R.T.C., ... vs Shafiya Khatoon And Ors. on 24 August, 1984 | 8. We shall firstly address ourselves to these twin concept of loss to the dependency and loss to the estate.
9. The loss of the benefit to the dependents' is a concept derived from the English Fatal Accidents Act, 1846, known as the Lord Campbells Act. The corresponding law in India is the Fatal Accidents Act (Act 13 of 1855).
10. The loss of 'benefit to the estate' of the deceased is the loss arising to the estate under the heads of mental and physical pain, loss of expectation of life and loss of amenities. The compensation payable in this regard is made to survive to his legal representatives under the Legal Representatives Suits Act. 1855 read with S.306 of the Indian Succession Act, 1925. The corresponding law in England in this regard is the Law Reform (Miscellaneous Provisions) Act. 1934. The Indian Legislature would seem to have anticipated the English Stature of 1934 by several decades.
11. As there is a fatal accident in this case, the provisions of the Fatal Accidents Act. 1955 and of the Legal Representatives Suits Act read with S.306 of the Indian Succession Act 1925 apply and allow damages to be claimed after the death of the person killed in the accident. The damages are ascertained and shared and apportioned under S.110-B of the Motor Vehicles Act.
12. We shall now deal with the various components of the above-said 'compensation'. | https://indiankanoon.org/doc/532350/ |
8e72595b72e2-4 | The Chairman, A.P.S.R.T.C., ... vs Shafiya Khatoon And Ors. on 24 August, 1984 | (A) Loss of Benefit to the Dependents and the Multiplier:
13. The Fatal Accidents Act, 1855 provides that whenever the death of a person shall be caused by wrongful act, neglect or default, and the act, neglect or default is such as would (if death had not ensued) have entitled the party injured to maintain an action and recover damages in respect thereof, the party who would have been liable to death had ensued shall be liable to an action or suit for damages notwithstanding the death of the person injured. Even such action or suit shall be for the benefit of the wife husband, parent or child, if any, the deceased and the Court may 'apportion' the damages 'as it may think fit.' | https://indiankanoon.org/doc/532350/ |
8e72595b72e2-5 | The Chairman, A.P.S.R.T.C., ... vs Shafiya Khatoon And Ors. on 24 August, 1984 | 14. Damages under this head are restricted to the financial loss A basic figure regarding the net contribution for the support of the dependents which would have been derived from the future income of the deceased is arrived at. Then an estimate of the probable length of time for which the earnings or contribution would have continued is made, and then a convenient 'multiple' is determined - a number of years purchase - which will reduce the total loss to its 'present value' after taking into account the provide risks of rise of fall in the income. Thereafter all contingencies such as the possibility of the widow remarrying or the dependant dying earlier have to be taken into account. We shall explain this question in detail presently.
15. The mode of estimating the present value of the loss of benefit to the dependants by applying the 'multiplier' method was first dealt with by Lord Wright in Davis v. Powell Duffryn Association Collieries limited (1942) Ac 601 = (1942) 1 All ER 657 (HL) and by Lord Simon in Nance v. British Columbai Electric Railway Company Ltd. (1951) A.C. 601 = (1951) 2 All ER 448 (P.C.) and has been consistently followed in England. Australia, Newzealand etc. This method was explained in Davis case (1942) A.C. 601) (page 617) by Lord Wright: | https://indiankanoon.org/doc/532350/ |
8e72595b72e2-6 | The Chairman, A.P.S.R.T.C., ... vs Shafiya Khatoon And Ors. on 24 August, 1984 | "The starting point is the amount of wages which the deceased was earning, the ascertainment of which to some extent may depend on the regularity of his employment. Then there is an estimate of how much was required or expended for his own personal and living expenses. The balance will give a datum of basic figure which will generally be turned into a lump sum by taking a certain number of years purchase. That sum however, has to be taxed down by having due regard to uncertainties for instance, that the widow might have again married and thus ceased to be dependant, and other like matters of speculation and doubt."
16. The multiplier method has been consistently applied by our Supreme Court in various cases Subba Rao, J. (as he then was) referred to the above rulings in the decision of the Supreme Court in Gobald Motor Service Limited v. R.M.K. Veluswami . In Municipal Corporation of Delhi v. Subhagwanthi , after referring to the above passage from Lord Wright's judgment. Ramaswami J. applied a multiplier of 15 in respect of a person who died at the age of 30 years. A few years later, in C.K. Subrahmonia Iyer v. T. Kunhi Kuttan Nair Hegde J. also referred to the above English cases and after quoting a passage from Windfiled on Torts (7th Edn. At pages 135, 136) observed:
"as a general rule parents are entitled to recover the present cash value of the prospective service of the deceased minor child. In addition they may receive compensation for loss of pecuniary benefit reasonably to be expected after the child attains majority." | https://indiankanoon.org/doc/532350/ |
8e72595b72e2-7 | The Chairman, A.P.S.R.T.C., ... vs Shafiya Khatoon And Ors. on 24 August, 1984 | Coming to Sheikpura Transport Company v. N.I.T. Company Limited in respect of a person who died at the age of 42 years, Hegde J. adopted a multiplier of 15. In Hardeep Kaur v. State of Punjab the deceased was 25 years of age and a multiplier of 20 was adopted by Jaganmohan Reddy J. Similarly in Madhya Pradesh S.R.T.C. v. Sudhakar AIR 1977 SC 1189 Krishna Iyer & A.C. Gupta, JJ. Observed:
"a method of assessing damages, usually followed in England, as appears from Mallet v. M.C. Monagle (1970) A.C. 166 = (1969) 2 All ER 178 annual 'dependency' by a number of 'years' purchase. (p.178) that is the number of years the benefit was expected to last taking into consideration the imponderable factors infixing either the multiplier or the multiplicand."
There the deceased died at the age of 23 years and had 35 years of service and a multiplier of 20 was used against the annual sum payable to the dependents and it was observed;
"In a decision of the Kerala High Court relied on by the appellant (P.B. Kader v. Thatchamma ) to which on of us was a party the rare method of assessing compensation was adopted. Krishna Iyer J. who delivered the Judgment in the Kerala case P.B. kader v. Thatchmma explained that standardised methods have been devised for calculating the value of the dependency of the 'present value' of the pecuniary benefit that the deceased would have conferred upon the dependents in the future. In the Kerala case Krishna Iyer, J. finally observed as follows: | https://indiankanoon.org/doc/532350/ |
8e72595b72e2-8 | The Chairman, A.P.S.R.T.C., ... vs Shafiya Khatoon And Ors. on 24 August, 1984 | "As I mentioned earlier there are two ways of which the present value of the dependents can be worked out: either you fix the multiplier, disregarding the fact of lump sum payable now, and the, with reference to the relevant annuity tables read down that figure into the present value; or alternatively you reduce the multiplier having in mind the thought that a lump sum is being paid now in the place of staggered payments over the years. Courts in England have learned towards the latter method and in arriving at the multipliers mentioned above I have adopted the same course."
17. Thus in England as well as in India, the multiplier method is applied to compute the 'present value' of the future benefit to the dependents.
The British Law Commission has observed:
"the multiplier has been remains and should continue to remain, the ordinary, the best and only method of assessing the value of a number of future annual sums (Working paper No. 27- 1970) | https://indiankanoon.org/doc/532350/ |
8e72595b72e2-9 | The Chairman, A.P.S.R.T.C., ... vs Shafiya Khatoon And Ors. on 24 August, 1984 | 18. With regard to the choice of the multiplier, Judges select the same from their experience. But there is every possibility of the awards being arbitrary or speculative if it is left to the uncontrolled discretion of the Court. Lord Goddard in Heatley v. Steel Company of Wales (1953) 1 All ER 489 pointed out that Judges were likely to act arbitrarily or on speculative grounds. The present case is an example of the use of a multiplier of 48 for which there is neither precedent nor scientific basis.
19. We are of the view that it is necessary to judicially define the scope of the discretion in the selection of the 'multiplier' as well as the 'multiplicand' (the annual dependency) so that it may not be exercised arbitrarily.
20. It is in this context that the annuity tables become useful. Their use will help in selecting a multiplier appropriate to the age of the deceased at his death with reference to his working age or the age up to which the deceased would have earned for his dependents.
21. At one time it was thought that these tables do not take into consideration the probabilities but they consider only the chances that they do not take into account various 'contingencies', or that they give a false appearance of accuracy and precision in a sphere where conjectural estimates have to play a large part. (Per Lord person in Taylor v. O Connor (1970) 1 All ER 365. | https://indiankanoon.org/doc/532350/ |
8e72595b72e2-10 | The Chairman, A.P.S.R.T.C., ... vs Shafiya Khatoon And Ors. on 24 August, 1984 | 22. But it has been explained that these misgivings have no true basis. Prof. Street on Law of Damages (1962) Ed. Page 111) shows that the House of Lords had earlier allowed the use of the annuity tables in 1880 in order to value reversionary interests in property M Donald v. M Donald (1880) 5 A.C. 519. These tables are widely used in computation of death duties or for evalution of pensionary benefits of a person unlawfully dismissed. In fact, Lord Denning advocated the actuary's assistance in Hodges v. Hindland & Wolff Limited (1965) 1 WLR 523 as follows:
"The Judges do take actuarial considerations into account. They often take a number of years' purchase. If the evidence of an actuary would be helpful in any case, I know of no rule o law which prevents it being entertained."
The British Law Commission has clearly accepted the use and relevancy of the annuity tables prepared by actuaries in its Working Paper No. 27 (1970-71). It observed:
"The actuarial method of calculation, whether from expert evidence or from tables, continues to be technically relevant and technically admissible but its usefulness is confined, except perhaps in very unusual cases, to an ancilliary means of checking a computation already made by the multiplier method." | https://indiankanoon.org/doc/532350/ |
8e72595b72e2-11 | The Chairman, A.P.S.R.T.C., ... vs Shafiya Khatoon And Ors. on 24 August, 1984 | And also recommended legislative action to reaffirm the efficacy of the actuarial tables or the evidence of actuaries (vide Actuarial Assessment of Damages. The Thalidomide case - by Mr. J. H. Prevett in Vol. 35 Modern Law Review (1972) (P. 140 at P.146). Kemp & Kemp on 'Quantum of Damages' (1967) have compared the multiplies chosen by Judges from experience and found a close proximity between them and those arrived at from the annuity tables.
23. The position in the United States is no different. In the American Restatement of the Law of Torts (Vol. 4) (1939) it is stated at para 924. | https://indiankanoon.org/doc/532350/ |
8e72595b72e2-12 | The Chairman, A.P.S.R.T.C., ... vs Shafiya Khatoon And Ors. on 24 August, 1984 | "For this purpose, it is permissible to use mortality tables and other evidence as to the average expectation of life."
In fact, some American States such as North Carolina and Wisconsin have laid down statutory tables for use in personal injury actions. Actuarial tables are widely used by Courts in the U.S., Canada, Australia and Sought Africa (Street, 1962 PP. 114, 137). Using life-expectancy, pension plans compute differently for men and women were held by the American Supreme Court to be discriminatory City of Los Angeles v. Manhart (1978) 435 U.S. 702. | https://indiankanoon.org/doc/532350/ |
8e72595b72e2-13 | The Chairman, A.P.S.R.T.C., ... vs Shafiya Khatoon And Ors. on 24 August, 1984 | 24. We are adverting in detail to the Tables only for the purpose of enabling across-check of the Judge's multiplier chosen from experience.
25. We shall now advert to the scientific basis on which these annuity tables are prepared combining (i) mortality tables, and (ii) the formula for reduction of the prospective loss to its 'present value'. Munkaman's Damages (3rd Ed. P.54) has set out the actuarial basis of these tables. A detailed analysis is also given in 'Judicial Attitudes towards actuarial evidence by M/s. K. Richanrds and R. Kidner in Vol. 124. New Law Journal (1974) page 105 as set out hereunder: | https://indiankanoon.org/doc/532350/ |
8e72595b72e2-14 | The Chairman, A.P.S.R.T.C., ... vs Shafiya Khatoon And Ors. on 24 August, 1984 | 26. They explain that these tables are prepared after taking into account the chances of premature death of the deceased at any later date and after making suitable deduction for a lump sum payment. They first direct the estimation of the annual dependency (we shall deal with it in detail later) taking into account the future salary increments and inflation, at 5% compound interest per annum. From the English Mortality Table No. 12 (1960-62) the probability of a male aged 30 surviving until age 35 can be calculated as 0.989 (i.e. he has got 98.9% chance of reaching that age until 50 is 0.95; until age 60 is 0.83 and so on. Th3se figures help in calculating the 'Expected value' of the dependency in any year i.e., the estimate of the dependency multiplied by the probability that the man would have remained alive to provide it for his wife and family. If the annual dependency of a lecturer, on date of his death at 30 years is 4, 500, the probability of his living to provide for his family till 35 years is 0.989 and the expected value of the dependency in the 35th year will be 4, 451 (0.989 X 4, 500). For each future year, this expected value is to be calculated till (say) 65 years of for life. | https://indiankanoon.org/doc/532350/ |
8e72595b72e2-15 | The Chairman, A.P.S.R.T.C., ... vs Shafiya Khatoon And Ors. on 24 August, 1984 | 27. But before totalling them, each expected-value for 'each' of the future years has to be reduced to its 'present value'. Since a pound received in future is not equivalent to a pound received now. Pounds in the future must be discounted. For example if a 100 is invested at 5% p.a. for one year, it will be worth 105. The 'discounted' or present value of 105 received in one year's time at a rate of discount of 5% is 100. Similarly the present value of 100 to be received in the 5th year from now, using a discount rare of 5% will be 78.35 (by using the compound interest or equivalent formula). | https://indiankanoon.org/doc/532350/ |
8e72595b72e2-16 | The Chairman, A.P.S.R.T.C., ... vs Shafiya Khatoon And Ors. on 24 August, 1984 | 28. We have seen that if the annual dependency in the 30th year is 4500, the estimated value of the dependency in the 35th year is 4451. Reducing it to its present value, it will be 4451 X 0.7835, giving 3487. It is these reduced values that are to be totalled for the 31st, 32nd, 33rd, 34th, 35th and so on till the 65th year, to provide a final present value of damages for all these years.
29. These two processes i.e., probabilities of death and the conversion to present value are combined into a single annuity table providing a multiplier which will, when applied against the annual dependency, give the present value of the total 'expected values' or prospective loss. Mr. J.H. Prevett in his Article already referred to (Vol. 35 Modern Law Review) stat4es that the association of a survival probability and a rate of discount lies at the root of the actuary's technique of arriving at the 'present value'. The tables (prepared by Mr. J.H. Prevett) are set out in Kemp & Kemp 'Quantum of Damages (1967 Ed. Pp. 40 to 51) and the authors observe (at page 36):
"It will be apparent that in the preparation of these tables both discount and mortality have been taken into account."
And that once the multiplier is chosen form the Table, we have only to provide for other 'contingencies' and adjust the multiplier suitably. | https://indiankanoon.org/doc/532350/ |
8e72595b72e2-17 | The Chairman, A.P.S.R.T.C., ... vs Shafiya Khatoon And Ors. on 24 August, 1984 | 30. There are several tables provided in Kemp & Kemp on 'Quantum of Damages' (1967 Ed) as also fresh tables in their 1982 Ed. The multipliers in the latter edition are higher in view of the improved health conditions in England. Having regard to Indian conditions, we are of the view that the Table No. IV (General Mortality Males) in the 1967 Ed. And which is prepared by calculating present value at 51/2 discount rate are useful for cross checking the multiplier which the Court might otherwise fix from its experience Table No. IV gives multipliers for those earning up to the end of their life and also those who learn up to 65 years. We are extracting the table in so far as those earning up to 65 years and the multipliers in cases of those earning for life i.e., beyond 65 years are mentioned in brackets. Conversely, if the earning capacity is to cease at the 55th or 60th year the multipliers in Table IV have to be slightly reduced. The Table is based on mortality figures for males and in cases where the deceased is a female, the multipliers from the Table are to be slightly reduced.
31. The other tables which adopt lesser rates of interest between 3% to 5% for reduction Value in Rupees of prospective loss of Rs.100/- per annum payable monthly or weekly. | https://indiankanoon.org/doc/532350/ |
8e72595b72e2-18 | The Chairman, A.P.S.R.T.C., ... vs Shafiya Khatoon And Ors. on 24 August, 1984 | Age Males (ceasing at age 65 ) Multiplier Earners for life
20 1649 16.49 (17.00)
21 1639 16.39 (16.92)
22 1628 16.28 (16.85)
23 1616 16.16 (16.76)
24 1604 16.04 (16.68)
25 1592 15.92 (16.59)
26 1578 15.78 (16.49)
27 1564 15.64 (16.39)
28 1549 15.49 (16.28)
29 1533 15.33 (16.16)
30 1516 15.16 (16.04)
31 1498 14.98 (15.91)
32 1480 14.80 (15.78)
33 1460 14.60 (15.64)
34 1440 14.40 (15.49)
35 1418 14.18 (15.34)
36 1396 13.96 (15.18)
37 1372 13.72 (15.02)
38 1348 13.48 (14.84)
39 1322 13.22 (14.66)
40 1295 12.95 (14.48) | https://indiankanoon.org/doc/532350/ |
8e72595b72e2-19 | The Chairman, A.P.S.R.T.C., ... vs Shafiya Khatoon And Ors. on 24 August, 1984 | 40 1295 12.95 (14.48)
41 1267 12.67 (14.28)
42 1237 12.37 (14.08)
43 1206 12.06 (13.87)
44 1174 11.74 (13.65)
45 1140 11.40 (13.43)
46 1105 11.05 (13.20)
47 1069 10.69 (12.96)
48 1030 10.30 (12.72)
49 991 9.91 (12.47)
50 949 9.49 (12.21)
51 906 9.06 (11.95)
52 860 8.60 (11.68)
53 813 8.13 (11.40)
54 763 7.63 (11.13)
55 712 7.12 (10.85)
56 658 6.58 (10.57)
57 601 6.01 (10.28)
58 541 5.41 (10.00)
59 478 4.78 (9.72)
60 412 4.12 (9.43)
61 341 3.41 (9.15)
62 265 2.65 (8.88)
63 184 1.84 (8.60) | https://indiankanoon.org/doc/532350/ |
8e72595b72e2-20 | The Chairman, A.P.S.R.T.C., ... vs Shafiya Khatoon And Ors. on 24 August, 1984 | 63 184 1.84 (8.60)
64 96 0.96 (8.32)
65 --- ---- (8.05) | https://indiankanoon.org/doc/532350/ |
8e72595b72e2-21 | The Chairman, A.P.S.R.T.C., ... vs Shafiya Khatoon And Ors. on 24 August, 1984 | of the annual dependency to 'present values' give higher multipliers than those in Table IV. It will be noticed that the higher the interest rate adopted (for reduction to present values), the lower will be the multiplier and vice versa. We have adopted the table No. IV prepared at 51/2% compound interest rate as being applicable to our country inasmuch as this rate can be treated as in vogue during stable periods of our country as pointed out by Lord Diplock in Mallet v. Mc. Monagle (1970-AC 166). We shall revert to this aspect while dealing with the question of 'inflation'.
32. The assumption of certain critics that the multipliers from the Table are likely to be on the high side because they do not take into consideration (i) the chances of the deceased dying earlier than heir normal life span or (ii) the factum of a lump sum payment are, from what we have seen to be the basis of the Tables, not correct as explained by several leading writers (see Street, Law of Damages 1962 Ed. O, 120 and the two articles, one by Mr. J.H. Prevett in (1972) 36 Modern law Review p. 140 at p.150 and the other by M/s K. Richards & R. Kidner (1974)124 Net law Journal passages 105 at 106 already referred to).
33. But the critics are justified in stating that the multipliers from the Tables are to be adjusted or reduced for certain other 'contingencies' and this is fully accepted by the authors of the tables and the actuaries. | https://indiankanoon.org/doc/532350/ |
8e72595b72e2-22 | The Chairman, A.P.S.R.T.C., ... vs Shafiya Khatoon And Ors. on 24 August, 1984 | 34. Contingencies which are 'negative' or necessitate a reduction in the multiplier chosen from the Table are:
(i) the chances of premature death of the dependents:
(ii)the chance of marriage or remarriage of the female dependents; (iii) the chance of the deceased falling sick or his earning coming down due to holidays, strikes, unemployment, sickness and industrial disablement etc. According to Prof. Street, the items in the last contingency (iii) require a reduction of the multiplier by 2% to 6%
35. The 'contingency' which has a positive content is the one pertaining to 'inflation' as stated by this Court in Polavarapu Somarajyam v. A.P.S.R.T.C. where this Court referred to the three earlier rulings of the House of Lords in Mallet v. Mc. Monagle (1970 AC 166). Taylor v. O' Connor (1070- 1 All ER 365) and Cookson v. Knowles (1977-3 WLR 279). In the first of these cases that is Mallet's case (1970-AC 166) Lord Dilpock stated that in computing damages under the Fatal Accidents Act. 1885, it was more practicable for Courts. | https://indiankanoon.org/doc/532350/ |
8e72595b72e2-23 | The Chairman, A.P.S.R.T.C., ... vs Shafiya Khatoon And Ors. on 24 August, 1984 | "..........to leave out of account the risk of further inflation.......... On the other hand.......money should be treated as retaining its value at the date of judgment and in calculating the present value of annual payments which would have been received in future years interest rates appropriate to times of stable currency such as four per cent to five per cent should be adopted."
Views to the same effect were expressed in the second case Taylor v. O' Connor (1970-1 All ER 365) by Viscount Dilhorne and Lord person but Lord Reid different. However on the facts of Taylor's case (1970-1 All ER 365) it was found that the award being sufficiently large, investment thereof by the dependents in interest-earning investments might result in charge to income tax on the interest and the multiplier was therefore slightly increased to compensate for tax rather than for inflation. In the third case Cookson v. Knowles (1977-3 WLR 279) Lord Diplock reiterated his views in Mallet's case (1970-AC 166) that future inflation is taken care of in a rough and ready way because the conventional multipliers applied by Judges "are higher as being the result of applying an interest rate of 4 to 5 per cent" whereas, actual rates of interest are much higher and higher interest rates would have otherwise yielded smaller multipliers. | https://indiankanoon.org/doc/532350/ |
8e72595b72e2-24 | The Chairman, A.P.S.R.T.C., ... vs Shafiya Khatoon And Ors. on 24 August, 1984 | 36. We have seen that the 'conventional multipliers, used by Judges from experience or those taken from annuity tables are based on a interest rate between 3% to 51/2% per annum compound - for reducing prospective earnings to present values. It would be anomalous, as pointed out by Lord Diplock, to take advantage of a higher multiplier obtained by use of lower rates of interest obtaining during stable periods of currency and asking for a further increase of the multiplier for offsetting inflation and higher rates of interest obtaining or obtainable in future. The reason is that the multiplier would have otherwise been smaller if current rates of interest at 8% to 10% granted by Nationalised Banks are used for reducing future earnings to their 'present value'. However in exceptional cases such as Taylor's case (1970-1 All ER 365) where the award is huge and investment in current deposits would result in liability to income tax it would be permissible to increase the multiplier slightly to off set the deduction. | https://indiankanoon.org/doc/532350/ |
8e72595b72e2-25 | The Chairman, A.P.S.R.T.C., ... vs Shafiya Khatoon And Ors. on 24 August, 1984 | 37. Recently in Lim poh Choo v. Camden and Islington Area Health Authority (1980) A.C. 174, the House of Lords speaking through Lord Scarman reviewed the above cases and accepted the vi3w of Lord Diplock in Mallet's case (1970-A.C. 166), that the conventional multiplier takes care of inflation but in exceptional cases such as Taylor's case (1970-1 All ER 365) where there was chance of incidence of income -tax, the multiplier could be increased and to that extent inflation was relevant. The approach of Lord Diplock has been accepted by the British law Commission in the Report on personal Injury Litigation Assessment of Damages (No. 56 paras 217, k227 to 230 and Working paper 41, para 190) which recommended that the inflation-factor should be included in the actuarial tables. We have already seen that interest rates and multipliers are in inverse proportion. | https://indiankanoon.org/doc/532350/ |
8e72595b72e2-26 | The Chairman, A.P.S.R.T.C., ... vs Shafiya Khatoon And Ors. on 24 August, 1984 | 38. We shall now proceed to deal with the computation of the 'annual dependency' which is the multiplicand. Start with the deceased net income at the date of his death, estimate how much of this he spends on himself, and then, if his pattern of life justifies the assumption take the remainder as his net income as being spent for the benefit of his dependents (kemp & Kemp 4th Ed, 1975. Vo. 1, pp. 235-236). In Adsett v. West (1983) 3 WLR 437, Mc. Cullough J. pointed out that customary calculations and estimates which have been made for many years in cases under the Fatal Accidents Act reveal that the deceased would roughly have spent only about a third or less of his income upon himself. In our view, this may vary between 35% to 50%. Further the deceased's liability to income-tax must be taken into account in arriving at his net annual income (British Transport Corporation v. Gourley (1956) A.C. 185).
39. The product of the multiplier and the multiplicand gives the compensation payable under the Fatal Accidents Act. The said product need not be reduced by the collateral benefits received by the dependents on the event of the death of the victim - such as insurance, provident fund etc. Parry v. Cleaver (1970) A.C. 1. The compensation under the Fatal Accidents Act is not to be distributed equally among the recipients but is to be apportioned (as we shall explain later) according to their needs and expected tenure of life. | https://indiankanoon.org/doc/532350/ |
8e72595b72e2-27 | The Chairman, A.P.S.R.T.C., ... vs Shafiya Khatoon And Ors. on 24 August, 1984 | 40. In case the recipients under the Fatal Accidents Act. 1855 receive any amounts from the estate, the award under the former is to be reduced by the share from the estate.
41. In Graham v. Dodds (1983) 2 All ER 953 the House of Lords held that in fatal accident cases the multiplier and the annual dependency have to be worked out with reference to the date of death of the victim and not as on date of trial.
42. We shall work out an illustration. Assume that the age of the deceased at his death was (say) 24 years. Taking the monthly value of the total income at Rs.800/- P.M. taking into account the usual deductions and the absence of income-tax at that level the amount which the deceased would have spent upon himself may be around Rs.350/- leavingRs.450/- towards monthly dependency. The annual dependency could be Rs.5400/-. The multiplier from the table would be 16.04 for a person earning up to 65 years. Assuming that the deceased would have retired from service at 55 years, and that he does not belong to the classes of law or high mortality groups, and taking into consideration the chances of his widow or children dying early, the chances of the deceased falling sick or earning less, etc. a multiplier of 14 would be proper. The award under the Fatal Accidents Act would be Rs.75, 000/- as being the present value of the prospective loss. As we shall point out below this is to be apportioned between the widow and children according to their needs and expected life span and if these persons should get a share from the loss to the estate', the same is to be deducted from the amount apportioned under the Fatal Accidents Act. | https://indiankanoon.org/doc/532350/ |
8e72595b72e2-28 | The Chairman, A.P.S.R.T.C., ... vs Shafiya Khatoon And Ors. on 24 August, 1984 | (A) Loss To The Estate:
43. The loss to the estate is to be recovered by these who are entitled to the estate under the law - the heirs on intestacy or the legatees administrators or executors in cases of testamentary succession. The right survives the deceased in England under the provisions of the Law Reform (Miscellaneous Provisions) Act, 1934 and in India under the Legal Representatives' suits Act, 1855 read with S.306 of the Indian Succession Act, 1925. Under S.2 of the Fatal Accidents Act, 1855 a claim for the estate and a claim for the dependency can be combined in the same action.
44. The loss to the estate comprises of damages that are payable to the deceased towards physical injuries sustained by him as representing pain and suffering (see Compensation for pain & suffering by Arye Miller at p.554 of International & Comparative law Quarterly, 1982, p.554) and for loss of amenities for the period between the time of accident and the time of death, together with a conventional small sum towards loss of expectation of life. These are all treated as non-pecuniary benefits. | https://indiankanoon.org/doc/532350/ |
8e72595b72e2-29 | The Chairman, A.P.S.R.T.C., ... vs Shafiya Khatoon And Ors. on 24 August, 1984 | 45. But in the decision in Pickett v. Gritish Rail Engineering Ltd. (1980) A.C. 136 = (1979) 1 All ER 774 (HL) the House of Lords added to this head, a separate item called the 'lost earnings' for the 'lost years'. Their Lordships held that a person's interest in his 'good health' and 'sound earning' is a valuable assets distinct from his 'expectation of life' and that he should be duly compensated for the 'loss of earnings' for the 'lost years'. Damages wee awarded to the widow under this head for the deceased's pain and suffering, loss of expectation of life and also 'loss of earnings' for the 'lost years'. The loss of earnings had to be calculated by arriving at the annual loss of earnings for the future years and applying the multiplier formula and reducing the same to the present values. This was applied by the house of Lords in Gammel v. Wilson (1982) A.C. 27= (1981) 1 All ER 578 to the case of the death of the victim of the accident.
46. In cases where the recipients of the dependency and the recipients of the estate were the same, it was found as a result of these rulings that they would receive more under the claim to the estate in an action under the Law Reforms Act, 1934 rather than under the Fatal Accidents Act for the multiplier under the claim to the estate need not be reduced for the contingency of the chances of death or marriage or remarriage of the legal heirs. Thus the status quo ante before Gammel v. Willson (1982 A.C. 27) was again restored. | https://indiankanoon.org/doc/532350/ |
8e72595b72e2-30 | The Chairman, A.P.S.R.T.C., ... vs Shafiya Khatoon And Ors. on 24 August, 1984 | 47. We are of the view that it is not necessary or desirable to adopt the English rule in Gammel v. Willson (1982 A.C. 27) in our law. The results in England were found unsatisfactory and had to be eliminated by statute. We therefore hold the loss to the 'estate' cannot be increased by computing the 'lost earnings' for the 'lost years'. We respectfully dissent from the contrary view taken by the Madhya pradesh High Court in Ramesh Chandra v. M.P.S.RAT.C. . The other items under this head already adverted to however remain.
(A) Deduction for Avoiding Double-Benefit | https://indiankanoon.org/doc/532350/ |
8e72595b72e2-31 | The Chairman, A.P.S.R.T.C., ... vs Shafiya Khatoon And Ors. on 24 August, 1984 | 48. During the course of our discussion we have pointed out that in cases where the recipients of the dependency under the Fatal Accidents Act and the loss to the estate are the same, the compensation obtained by a person under the Fatal Accidents Act, after apportionment, is to be reduced by the amount he receives as heir to the 'loss to the estate'. The balance that remains payable under the Fatal Accidents'. Award has of course to be added to the share obtainable towards 'loss to the estate' and the sum total is recoverable from the defendants. In case however the recipients under the Fatal Accidents Act are different from those of 'the loss to the estate', there is no question of such a deduction. This is clear from the decisions in Rose v. Ford (1973) A.C. 826 at 835. And Davis v. Powell Dufferyn Collieries (1942-A.C. 601). The deduction procedure is accepted by our Supreme Court in Gobald Motor Service Limited v. R.M.K. Veluswamy where Subba Rao, J. (as he then was) observed:
"If the claimants under both the heads are the same, and if they get compensation for the entire loss caused to the estate, they cannot claim again under the head of personal loss to capitalised income that might have been spent on them if the deceased were alive".
That leads us to the question as to who the recipients under the head of 'loss to the dependency' and 'loss to the estate' should be.
(A) Who Are Persons Entitled Under (A) and Under (B):
49. The next question that arises for consideration is: "Whether the apportionment of the dependency under the Fatal Accidents Act, 1855 is to be limited to the enumerated class of persons under S.1-A of the Fatal Accidents Act, 1855?" | https://indiankanoon.org/doc/532350/ |
8e72595b72e2-32 | The Chairman, A.P.S.R.T.C., ... vs Shafiya Khatoon And Ors. on 24 August, 1984 | 50. Under S.1-A of the said Act the apportionment of the dependency is to be made between the wife, husband, parent and child, if any, of the deceased. Section 4 of the said Act states the word 'parent' shall include the father, mother, grandfather and grandmother and that the word 'child' shall include the son, daughter, grandson, granddaughter, step-son and step-daughter.
51. It is contended by Sri K.F. Baba, the learned counsel for the respondents that the provisions of S.110-B of Motor Vehicles Act are wider in scope than the provisions of S.1A of the Fatal Accidents Act, 1855, that the apportionment under the Motor Vehicles Act is at the discretion of the Court and that therefore the brothers and sisters of the deceased, if they are otherwise legal representatives of the deceased according to their personal law, would also be entitled for an apportionment of the dependency.
52. Section 110-B of the Motor Vehicles Act provides that the tribunal shall hold an enquiry into the claims of the parties and shall make an 'award determining the amount of compensation which appears to it to be just and specifying the person or persons to whom compensation shall be paid'. | https://indiankanoon.org/doc/532350/ |
8e72595b72e2-33 | The Chairman, A.P.S.R.T.C., ... vs Shafiya Khatoon And Ors. on 24 August, 1984 | 53. In our view the provisions under S.110B of the Motor Vehicles Act, 1939 not only empower the Tribunal to make an award which is 'just' but also empower the said Tribunal to specify the person or persons to whom the compensation shall be paid, thereby permitting apportionment of compensation payable under the Fatal Accidents Act to persons other than those enumerated in the Fatal Accidents Act 1855. In our view all the legal representatives of the deceased according to the personal law applicable to the deceased will be entitled to apportionment of the dependency according to their needs and according to their age and that apportionment is not limited to the class of persons enumerated under S.1-A of the Fatal Accidents Act read with S.4 thereof. The observations of their Lordships of the Supreme Court in relation to the wider scope of S.110-B of the Motor Vehicles Act 1939 in Sheikpura Transport Company v. N.I.T. Insurance Company are in our view apposite. Hegde, J. of the Supreme Court observed:
"Under S.110-B of the Motor Vehicles Act 1939 the Tribunal is required to fix such compensation which appears to it to be just.
The power given to the Tribunal in the matter of fixing compensation under that provision is wide. Even if we assume (we do not propose to decide that question in this case) that compensation has to be fixed on the same basis as required to be done under the Fatal Accidents Act 1855 (Act 13 of 1855), the pecuniary loss to the aggrieved party would depend upon data which cannot be ascertained accurately but must necessarily be an estimate or even partly a conjecture. (Emphasis ours). | https://indiankanoon.org/doc/532350/ |
8e72595b72e2-34 | The Chairman, A.P.S.R.T.C., ... vs Shafiya Khatoon And Ors. on 24 August, 1984 | 54. The liberal view permitting apportionment of the dependency between all the legal representatives of the deceased - without being restricted to the persons enumerated under the Fatal Accidents Act - taken by us has also been taken by a Full Bench of the Punjab & Haryana High Court consisting of Chinnappa Reddy, M.R. Sharma and Harbanslal, JJ. In Jokhiram v. Naresh Kantha, , Damayant Devi v. Sita Devi, 1972 ACCC.J. 334 (Punj & Har) and by a Division Bench of the karnatka High Court in K.S.R.T. Corporation v. Peerappa, , by the Madras High Court in Mohd. Habibullah v. Seethammal, , the Himachal Pradesh High Court in State v. Dole Ram, and the Gujaat High Court in Megjibhai v. Chaturbhai, . The liberal vies which we have adopted was also taken earlier by a Division Bench of this Court in Vanguard Insurance Company v. C. Hanumantha Rao (1975-1 Andh WR 327).
55. For the reason given above, we respectfully dissent from the judgments of the following High Courts viz., Delhi High Court in Dewan Hari Chand v. Delhi Municipality, AIR 1981 Delhi 71, the kerala High Court in P.B. Kader v. Thatchamma the Madhya Pradesh High Court in Budha v. Union of India, and the Madras High Court in Perumal v. Elluswamy Reddiar (1974 1 Mad LJ 292 = 1974 Acc CJ 82. | https://indiankanoon.org/doc/532350/ |
8e72595b72e2-35 | The Chairman, A.P.S.R.T.C., ... vs Shafiya Khatoon And Ors. on 24 August, 1984 | 56. The learned counsel for the appellant placed reliance upon another judgment of the Supreme Court in N.I. Insurance Company v. Shanti Misra . A reading of the judgment would show that their Lordships were only concerned with Ss. 110-A and 110-F of the Motor Vehicles Act and held that the said two sections only dealt with the procedural law and not with the substantive law relating to compensation. In our view that judgment was concerned with the question as to the forum before which a claim under the Motor Vehicles Act should be adjudicated and was confined to two sections viz., S.110-A and 110-F and is therefore clearly distinguishable. In our opinion the decision of the Supreme Court in Sheikpura Transport Company v. N.I.T. Company (AIR 1917 KLSC 1624) which directly deals with S.110-B is in point and binding on us.
57. We may point out that in England and list of statutory dependents has been periodically enlarged ksubs3quent to 1846 in several statutes such as the Fatal Accidents Act. 1959, the Fatal Accidents Act 1976 and the Administration of Justice Act, 1982. Under the English statutory law the brother, sister, uncle or aunt of the deceased and the persons related by adopted or half blood and the illegitimate off-spring are entitled to the apportionment of the dependency. The recipients are in three classes viz., the dependents, the mourners, apart from the beneficiaries of the estate (see New law Journal. Vol. 133 pp. 307 and 321 by Mr. Tom Harvery). | https://indiankanoon.org/doc/532350/ |
8e72595b72e2-36 | The Chairman, A.P.S.R.T.C., ... vs Shafiya Khatoon And Ors. on 24 August, 1984 | 58. We have also pointed earlier that under S.1-A of the Fatal Accidents Act. 1855 the Court may give such "damage as it may think proportioned to the loss resulting from such death to the par4ie respectively, for whom and for whose benefit such action shall be brought and the amount so recovered......shall be divided amongst the before-mentioned parties or any of them, in such shares as the Court by its judgment or decree shall direct."
The Court therefore has the power to apportion the dependency between the recipients individually. The entitlement of each person is to a separate award and not just to a joint-interest in a global sum.
59. The compensation payable to the dependents of the deceased is determined and apportioned by the Tribunal constituted under the Motor Vehicles Act. 1939 but the survival of the right in respect of the damages to the dependents and to the legal heirs could only be traced to the Fatal Accidents Act, 1855 read with S.306 of the Indian Succession Act. 1925. Once the right survives, the Tribunal exercises various powers of the Motor Vehicles Act. 19939. Under S.110-B of the Act, it has power to "make an award determining the amount of compensation which appears to it to be just and specifying the person or persons to whom compensation shall be paid......."
The Tribunal therefore has power to apportion the dependency among the dependents under the Fatal Accidents Act, 1855 in accordance with their needs and life-span. But so far as the 'loss to the estate' is concerned, the Tribunal has to divide the same in accordance with the personal law applicable to the deceased in case of intestacy or to the legal representatives, administrators, executors or legatees in accordance with law or any other testamentary directions.
60. We shall now proceed to apply the above principles to the facts of the case. | https://indiankanoon.org/doc/532350/ |
8e72595b72e2-37 | The Chairman, A.P.S.R.T.C., ... vs Shafiya Khatoon And Ors. on 24 August, 1984 | 60. We shall now proceed to apply the above principles to the facts of the case.
61. The first step is to determine the annual dependency of the 'multiplicand'. In our view, the evidence of P.W. 1. the mother of the deceased and of P.W. 2, the husband of one of the married sisters is to the effect that the deceased was having a carpentry and painting workshop and that he was earning, on an average, about Rs.400/- to Rs.500 P.M. at the time of his death. We determine the average monthly net earning at Rs.400 and consider that the deceased would have given Rs.200/- P.M. to his dependents. The annual dependency thus works out to a sum of Rs.2, 400/-. We are not inclined to go by the rough figure of Rs.1500/- P.A. mentioned by the claimants for that figure is clearly contrary to the conventional figure is clearly contrary to the conventional figure adopted towards the dependency. Thus the annual dependency will be Rs.2, 400 and for such an income there is no incidence of income-tax. | https://indiankanoon.org/doc/532350/ |
8e72595b72e2-38 | The Chairman, A.P.S.R.T.C., ... vs Shafiya Khatoon And Ors. on 24 August, 1984 | 62. The next step is to arrive at the appropriate multiplier. The decesed having died at the age of 22 years, we consider that a multiplier of 16 would be reasonable.
63. We now proceed to cross-check the multiplier with reference to the annuity tables. The deceased not being a salaried employee liable to retirement, it is reasonable to assume that his earning capacity extends beyond 65 years. For a person dying at 22, and earning beyond his 65th year, the multiplier would be 16.85. This multiplier has to be reduced for the 'contingencies' - namely, the chances of the mother dying, the sisters marrying soon, the deceased falling sick or his earning capacity being diminished. We are of the view that the multiplier of 16.85 from the Table is to be reduced to 16. Thus the multiplier of 16 selected by us compares favourably with the one arrived at by use of the actuarial or annuity tables. Therefore it is clear that the multiplier of 48 adopted by the Tribunal is hopelessly arbitrary.
64. The compensation payable to the dependency under the Fatal Accidents Act, 1855 comes to Rs.2400 x 16 = Rs.38, 400/-. | https://indiankanoon.org/doc/532350/ |
8e72595b72e2-39 | The Chairman, A.P.S.R.T.C., ... vs Shafiya Khatoon And Ors. on 24 August, 1984 | 65. As the same is not high when apportioned, it is not likely to result in any diminution towards income-tax on any investments so as to fall within the exception in Limpoh Choo's case (1980-A.C. 174). As the multiplier of 16 is arrived at by reducing the prospective loss to its 'present value' by applying a standard rate of 51/2% compound for future years, it will not be reasonable to treat any investment of the dependency at rate higher than 51/2% so as to provide further for inflation or income-tax.
66. The next question is the loss to the estate. We confirm the loss to the estate at Rs.500/-
67. The further question is as to who are entitled to receive these sums. The dependency, according to the liberal view accepted by us, is to go to all the legal heirs of the deceased who died interstate. The heirs are the mother and sister, married and unmarried. But the married sisters, not being any longer dependent get nothing. The dependency goes to the mother and the unmarried sisters.
68. The dependency of Rs.38, 400/- has however to be apportioned between the mother and the unmarrieds isters according to their needs and span of life. The loss to the estate, namely Rs.500/- has to be divided according to Mahomedan law between the mother and sisters of the deceased. Therefore, the amount received by each of the claimants from the estate has to be deducted from the amount each is apportioned from the dependency.
69. On the facts of this case, the claimants having already withdrawn 'jointly' one half of the award of Rs.72, 500 - with interest, we do not propose to make the above calculation. Suffice it to say that the amount receivable by the claimants 'jointly' would be as follows: | https://indiankanoon.org/doc/532350/ |
8e72595b72e2-40 | The Chairman, A.P.S.R.T.C., ... vs Shafiya Khatoon And Ors. on 24 August, 1984 | (a) towards dependency under Fatal accidents Act, 1855 (Rs.38, 400 - Rs.500) Rs.37, 900.00
(b) towards the loss to the estate Rs. 500.00 ___________ Total Rs.38, 400.00 ___________ | https://indiankanoon.org/doc/532350/ |
8e72595b72e2-41 | The Chairman, A.P.S.R.T.C., ... vs Shafiya Khatoon And Ors. on 24 August, 1984 | 70. In the result, the award made by the Tribunal is set aside and the appeal allowed in part and an award of Rs.38, 400 with interest at 6% P.A. from 5-6-78, the date of the petition, is substituted. There shall be no order as to costs in the C.M.A.
71. With regard to the mode of payment of compensation award under the Motor Vehicles Act, 1939, it would in our opinion, be desirable that the Tribunals should issue payments under 'Account-payee' cheques or similar orders, directly to the parties or their legal guardians upon verification of their identity.
72. Compensation cases raise issue of social, economic and financial policy not amenable to Judicial reform but can be resolved by the legislature only after full consideration of factors which cannot be brought into clear focus, or be weighed and assessed, in the courses of the forensic process. The judge - however wise, creative, and imaginative he may - is "Cabi" c. cribb'd confin'd bound in not as was Macbeth, to his "saucy doubts and fears" but by the evidence and arguments of litigants. It is this limitation, inherent in the forensic process, which sets bounds to the scope of judicial law reform (per Lord Scarman at .1813 of Lim Poh Choo's case (1980-A.C. 174). | https://indiankanoon.org/doc/532350/ |
8e72595b72e2-42 | The Chairman, A.P.S.R.T.C., ... vs Shafiya Khatoon And Ors. on 24 August, 1984 | 73. The reform must therefore come from Parliament. The Fatal Accidents Act, 1855 requires to be made up to date in the light of the experience of the English Fatal Accidents Acs of 1959 and 1976. Similarly the legal Representatives Suits Act 1855 and S.306 of the Indian Succession Act 1925 require to be brought in line after examining the amendments to the Law Reforms (Miscellaneous Provisions) Act, 193 (Sic). The widespraed reforms made under the Administration Justice Act 1982 have also to be taken into account. The law has to be simplified and adjusted to suit Indian conditions. | https://indiankanoon.org/doc/532350/ |
8e72595b72e2-43 | The Chairman, A.P.S.R.T.C., ... vs Shafiya Khatoon And Ors. on 24 August, 1984 | 74. Lord Hailsham, while introducing the Administration of justice Bill, 1982 spoke of the need for 'darning' the statute from time to time, like darning old socks. Perhaps, as pointed out by M/s. Andrew Borkowski & K. Stanton (Vol. 46, Modern Law Review, 1983, P. 191) it is necessary to buy 'new socks' rather than darn the old ones.
75. Appeal partly allowed. | https://indiankanoon.org/doc/532350/ |
a16dd6a67cf7-0 | Addl. Commissioner Of Income-Tax ... vs Dargapandarinath Tuljayya & Co. on 10 December, 1975 | JUDGMENT Chinnappa Reddy, J. | https://indiankanoon.org/doc/809429/ |
a16dd6a67cf7-1 | Addl. Commissioner Of Income-Tax ... vs Dargapandarinath Tuljayya & Co. on 10 December, 1975 | 1. The respondent-assessee, a firm, failed to file its returns for the years 1965-66 to 1969-70, within the time stipulated by the Act. The firm submitted an explanation that the returns could not be filed in time because the person who was in-charge of the accounts of the firm was unable to attend to its affairs for some time owing to some personal reasons. The Income-tax Officer did not accept the explanation. He levied penalties. The assessee preferred revision petitions before the Commissioner of Income-tax. Before the Commissioner it was represented that the delay was due to family troubles. The Commissioner did not accept the explanation. He rejected the revision petitions. The assessee filed writ petitions in the High Court. Obul Reddy J. (as he then was) quashed the orders of the Commissioner on the ground that penalties could only be imposed if it was found that the assessee acted deliberately in defiance of the law or was guilty of contumacious or dishonest conduct or acted in conscious disregard of his obligations and not otherwise. He directed the Commissioner to reconsider the matters. The Commissioner has preferred these writ appeals.
2. We find it extremely difficult to agree with the view expressed by Obul Reddy J, But that view was approved by a Division Bench of this court consisting of Obul Reddy C J. and Punnayya J. in Additional Commissioner of Income-tax v. Narayanadas Ramkishan . In the circumstances, we think that the question should be resolved by a Full Bench. | https://indiankanoon.org/doc/809429/ |
a16dd6a67cf7-2 | Addl. Commissioner Of Income-Tax ... vs Dargapandarinath Tuljayya & Co. on 10 December, 1975 | 3. We would, however, like to express our view in the matter. Section 271(1)(a) of the Income-tax Act provides that if the Income-tax Officer is satisfied that any person "has without reasonable cause" failed to furnish the returns of total income, etc., he may levy a penalty on such person. All that the Income-tax Officer has to be satisfied about is that the failure of the assessee to submit return is "without reasonable cause" neither more nor less. Parliament has thus prescribed an objective test to determine the mental state of the person proposed to be proceeded against. There is no reason for importing the doctrine of mens rea into a situation where the requisite mental state is already defined. More about it later. Nor is there any reason for qualifying the failure to furnish a return with expressions like "contumacious", "dishonest", "in deliberate defiance of law", etc. To do so is to rewrite Section 271(1)(a).
4. The doctrine of mens rea, in origin and in practice, is a rule of construction. In England, in 18th and 19th centuries, with the growth of statute law, a conflict arose between the common law and the statute law. The common law judges and lawyers evolved a rule of construction to avoid the conflict. They said :
"It is a sound rule to construe a statute in conformity with the common law rather than against it, except where and so far the statute is plainly intended to alter the course of the common law."
Now, it was one of the principles of English common law that mens rea was an essential ingredient of an offence. An application of the rule of construction to this principle meant that there was no presumption that mens rea was excluded from statutory offences. This led to the development of a presumption stated thus by Wright J : | https://indiankanoon.org/doc/809429/ |
a16dd6a67cf7-3 | Addl. Commissioner Of Income-Tax ... vs Dargapandarinath Tuljayya & Co. on 10 December, 1975 | "There is a presumption that mens rea, an evil intention or a knowledge of the wrongfulness of the act, is an essential ingredient in every offence, but that presumption is liable to be displaced either by the words of the statute creating the offence or by the subject-matter with which it deals, and both must be considered." [Sherras v. De Rutzen [1895] 1 QB 918 (QB)].
This presumption or rule of construction is a sound rule to apply where traditional crime is given statutory form or where a new crime is added to the general criminal law. But it has no application or it is of very weak application to offences created by modern, social, industrial, fiscal and economic legislation. Some judges have altogether denied the existence of any such presumption in the case of modern statutory offences while other judges have "manifested a marked tendency to readily displace or minimise the application of the presumption". Vide Stephen J. in Cundy v. Le Cocq [1884] 13 QBD 207 (QB), Kennedy L.J. in Hobbs v. Winchester Corporation [1910] 2 KB 471 (CA) and Donovan J. in Regina v. St. Margaret's Trust Ltd. [1958] 1 WLR 522 (C Cr App). We may refer here to Bruhn (Jacob) v. The King [1909] AC 317, 324 (PC), where dealing with a case arising out of a contravention of revenue laws, Lord Atkinson said:
"In many cases connected with the revenue certain things are prohibited unless done by certain persons, or under certain conditions. Unless the person who does one of these things can establish that he is one of the privileged class, or that the prescribed conditions have been fulfilled, he will be adjudged guilty of the offence, though in fact he knew nothing of the prohibition." | https://indiankanoon.org/doc/809429/ |
a16dd6a67cf7-4 | Addl. Commissioner Of Income-Tax ... vs Dargapandarinath Tuljayya & Co. on 10 December, 1975 | In. Lim Chin Aik v. The Queen [1963] AC 160 (PC), the Privy Council recognised that where "public welfare offences" (which most modern statutory offences are) were concerned there was a presumption of strict liability and the presumption of mens rea was displaced. In Indo-China Steam Navigation Co. Ltd. v. Jasjit Singh [1964] 34 Comp Cas 435 (SC) the Supreme Court attached great importance to the social purpose of the legislation rather than to the so called presumption relating to mens rea. In State of Maharashtra v. Mayer Hans George [1965] 35 Comp Cas 557 (SC) the Supreme Court expressed the view that the rule of construction laid down by the Court of Criminal Appeal of England in Regina v. St. Margaret's Trust Ltd. [1958] 1 WLR 522 (C Cr App) was nearer to the point having regard to the objects and purposes of the legislation with which they were dealing. In Nathulal v. State of Madhya Pradesh , Subba Rao J. held that mens rea was an essential ingredient of a criminal offence but, all the same, accepted the position that the rule relating to mens rea was a rule of construction. He observed: | https://indiankanoon.org/doc/809429/ |
a16dd6a67cf7-5 | Addl. Commissioner Of Income-Tax ... vs Dargapandarinath Tuljayya & Co. on 10 December, 1975 | "It is, however, a sound rule of construction which is adopted in England and also accepted in India, to construe a provision which creates an offence in conformity with the common law rather then against it except where the statute expressly or by necessary implication excludes mens rea." If the true position is that the principle of mens rea is a rule of construction raising a presumption that criminal intent is not to be considered as excluded unless so excluded expressly or by necessary implication, it must follow that where the requisite mental state is defined by the statute itself (as, for instance, in the present case) there is no scope for the application of the doctrine of mens rea. In India, the requisite mental state is almost always defined by the statute itself, and generally, there is no scope for application of the doctrine of mens rea. The question of the application of the doctrine of mens rea arises only in cases where the requisite mental state is not defined by statute. In such cases, it is necessary first to consider the words in their true and natural sense; to consider the object of the statute; if necessary, to consider further the attendant circumstances such as the nature of the duty imposed and on whom, whether a particular construction will render the Act effective or ineffective to achieve its object, whether it will permit the observance of the statute. If the evidence afforded by these considerations is insufficient to conclude whether mens rea is included or excluded as an ingredient of the offence then only recourse should be had to the presumption. As we said earlier, in the present case. Parliament has provided an objective test to determine the mental element. There is, therefore, no occasion to invoke the doctrine of mens rea.
We would further like to point out that it is wrong to classify proceedings for levy of penalty under taxation statutes as offences of a criminal nature. In Corpus Juris Secundum, Vol. 85, p. 580, it is said. | https://indiankanoon.org/doc/809429/ |
a16dd6a67cf7-6 | Addl. Commissioner Of Income-Tax ... vs Dargapandarinath Tuljayya & Co. on 10 December, 1975 | "A penalty imposed for a tax delinquency is a civil obligation, remedial and coercive in its nature, and is far different from the penalty for a crime or a fine or forfeiture provided as punishment for the violation of criminal or penal laws. "
In Ummali Umma v. Inspecting Assistant Commissioner of Income-tax [1967] 64 ITR 669, 676 (Ker), Mathew J. said :
"I cannot say that the penalty imposed under Section 28 of the repealed Act or under Section 271 of the Act was or is imposed on the basis that it was or is an offence. For the offence punishment was or is prescribed such as imprisonment, fine or both. The imposition of penalty on the basis of an act or omission by an assessee is not because the act or omission constitutes an offence, but because that act or omission would constitute an attempt at evasion. Therefore, penalty is exacted not because an act or omission is an offence but because it is an attempt at evasion of tax on the part of the assessee."
In R.C.No. 64/1970 [Commissioner of Income-tax v. Maduri Rajeswar [1977] 107 ITR 832, 836 (AP)] a Division Bench of this court of which one of us was a member observed :
"The objects of the two provisions appear to be different: the one entailing the prosecution and punishment is to vindicate public justice by punishing the offender, whereas the object of penalty proceedings is to render evasion unprofitable and to secure to the State the compensation for damages or attempted evasions." | https://indiankanoon.org/doc/809429/ |
a16dd6a67cf7-7 | Addl. Commissioner Of Income-Tax ... vs Dargapandarinath Tuljayya & Co. on 10 December, 1975 | In W.Ps. Nos. 7974 and 7839/1973 [Kashiram v. Income-tax Officer ] the question of the constitutional validity of Section 140A(3) was raised before us. In that case, we had occasion to point out that the provision of levy of penalty for failure to pay the tax on self-assessment was no more than a mere provision ensuring compliance with Sub-section (1), making such non-compliance unprofitable. We also observed as follows :
"Now, there are provisions in the Income-tax Act providing for levy of penalties for non-compliance with the provisions relating to filing of return, non-furnishing of accounts or particulars, failure to pay advance tax, concealment or evasion of income-tax, etc. Criminal prosecution is also provided for by Chapter 22 of the Act in certain cases which, inter alia, include failure to file a return of income, failure to produce accounts and documents, making of false statements and declaration, failure to deduct and pay tax when required to do so. These provisions relating to levy of penalties and criminal prosecutions are twin sanctions provided by law for ensuring compliance with law on the part of the assessees."
We may mention that in Abraham v. Income-tax Officer , the Supreme Court held that the character of penalty was that of an additional tax. In Collector of Malabar v. Ebrahim Hajee [1957] 32 ITR 124 (SC), the Supreme Court held that even the provision for arrest for nonpayment of taxes was only a measure to compel payment of taxes and not a measure of punishment. | https://indiankanoon.org/doc/809429/ |
a16dd6a67cf7-8 | Addl. Commissioner Of Income-Tax ... vs Dargapandarinath Tuljayya & Co. on 10 December, 1975 | 5. Obul Reddi C.J. referred to the observations of the Supreme Court in Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26, 29 (SC), where, dealing with the provision for levy of penalty under the Orissa Sales Tax Act, the Supreme Court observed:
"Under the Act penalty may be imposed for failure to register as a dealer: Section 9(1), read with Section 25(1)(a) of the Act. But the liability to pay penalty does not arise merely upon proof of default in registering as a dealer. An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding, and penalty will not ordinarily be imposed unless the party obliged, either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute. Those in charge of the affairs of the company in failing to register the company as a dealer acted in the honest and genuine belief that the company was not a dealer. Granting that they erred, no case for imposing penalty was made out." | https://indiankanoon.org/doc/809429/ |
a16dd6a67cf7-9 | Addl. Commissioner Of Income-Tax ... vs Dargapandarinath Tuljayya & Co. on 10 December, 1975 | We think that the Supreme Court was merely trying to explain the possible manner in which discretion may be exercised for imposing a penalty. They were emphasising that mere failure to register as a dealer ought not to attract a penalty. In each case the discretion to levy penalty had to be exercised, not mechanically, but, judicially after taking into account all the facts and circumstances of the case relevant for the exercise of discretion. It is no authority for the proposition that under Section 271(1)(a) of the Act the Income-tax Officer must find some extra mental element in addition to finding that the assessee had failed to furnish a return "without reasonable cause".
The views expressed by us are shared by a Full Bench of the Kerala High Court in Commissioner of Income-tax v. Gujarat Travancore Agency [FB] and a Full Bench of the Orissa High Court in Commissioner of Income-tax v. Gangaram Chapolia [FB].
6. In the light of this discussion we are unable to agree with the view expressed by Obul Reddy C.J. and Punnayya J. in Additional Commissioner of Income-tax v. Narayanadas Ramkishan . We, therefore, direct that the papers may be placed before the Honourable the Chief Justice for the constitution of Full Bench.
JUDGMENT Sambasiva Rao, J. | https://indiankanoon.org/doc/809429/ |
a16dd6a67cf7-10 | Addl. Commissioner Of Income-Tax ... vs Dargapandarinath Tuljayya & Co. on 10 December, 1975 | 7. Is there an occasion to introduce the doctrine of mens rea into Section 271(1)(a) read with Sub-clause (i) of that section of the Income-tax Act, 1961? Seeking an answer to this question, these four writ appeals have been directed by Chinnappa Reddy and Jeevan Reddy JJ. to be placed before a Full Bench. | https://indiankanoon.org/doc/809429/ |
a16dd6a67cf7-11 | Addl. Commissioner Of Income-Tax ... vs Dargapandarinath Tuljayya & Co. on 10 December, 1975 | 8. It is not necessary for answering the question and also for the adjudication of the four appeals before us to go into the facts in minute detail. Broadly stated, the material facts are : The respondents are assessees which are firms. They failed to file their returns for the years 1965-66 to 1969-70 within the time prescribed under the Income-tax Act, 1961 (hereinafter referred to as the Act). An explanation was tendered for this delay saying that the person who was in charge of the accounts of the firms was unable to look after the affairs of the firms for some time owing to some personal reasons. The Income-tax Officer was not inclined to accept this explanation and levied penalties for late submission of the returns. The respondents preferred revision petitions before the Commissioner of Income-tax. Before him, the reason for the delay was stated as family troubles. He rejected the revision petitions as he did not accept the explanation. Thereupon, writ petitions were filed in this court by the respondents. Obul Reddy J., as he then was, quashed the orders of the Commissioner, holding that the penalties could be imposed only when it was found that the assessee acted deliberately in defiance of the law, or was guilty of contumacious or dishonest conduct, or acted in conscious disregard of his obligations and not otherwise. The learned judge sent back the matters to the Commissioner for reconsidering them in the light of the observations he made and the observations of the Supreme Court in Hindustan Steel Ltd. v. State of Orissa . The department preferred these writ appeals challenging the learned judge's order.
9. The view expressed by Obul Reddy J., sitting single in these writ petitions, was later reiterated and approved by a Division Bench consisting of Obul Reddy C.J. and Punnayya J. in Additional Commissioner of Income-tax v. Narayanadas Ramkishan . | https://indiankanoon.org/doc/809429/ |
a16dd6a67cf7-12 | Addl. Commissioner Of Income-Tax ... vs Dargapandarinath Tuljayya & Co. on 10 December, 1975 | 10. It was after rendering of the above Bench decision, these four writ appeals came before Chinnappa Reddy and Jeevan Reddy JJ. The learned judges observed that it was extremely difficult to agree with the view taken by Obul Reddy J., sitting single, which was reiterated in Narayanadas Ramkishan's case . | https://indiankanoon.org/doc/809429/ |
a16dd6a67cf7-13 | Addl. Commissioner Of Income-Tax ... vs Dargapandarinath Tuljayya & Co. on 10 December, 1975 | 11. While stating this, the learned judges gave their reasons for their disagreement. According to them, penalty could be imposed for the delayed filing of the return under Section 271(1)(a) of the Act, when the Income-tax Officer is satisfied that the assessee has "without reasonable cause" failed to file it within the prescribed time. While imposing such a penalty, what all the Income-tax Officer is to be satisfied about is that the delay occurred "without reasonable cause". The provision of law requires nothing more or nothing less. Parliament itself has thus provided an objective test to determine the mental state of the person proposed to be proceeded against. There is no reason for importing the doctrine of mens rea into a situation where the requisite mental state is already defined. There is no justification for qualifying the failure to file a return with the expressions, "contumacious", "dishonest", "in deliberate defiance of law", etc. Then the learned judges proceeded to give the reasons in detail for the conclusions they had reached. Since this view is in conflict with the decision of the earlier Division Bench in Narayanadas Ramkishan's case , they decided that the conflict should be resolved by a Full Bench. While commending the appeals and the view propounded by Chinnappa Reddy and Jeevan Reddy JJ., in their order referring the appeals to a Full Bench, Sri Polavarapu Rama Rao pressed his brief in the following manner : The doctrine of mens rea is a rule of construction. It is a sound rule to construe the statute in conformity with the common law in so far as it is possible. However, where the statute plainly intends to alter the course of the common law, the statutory provisions should prevail. Mens rea is an essential ingredient of an offence. However, the general presumption that mens rea is an essential ingredient of an offence can be displaced either by the words of the statute creating the offence or by the subject matter with | https://indiankanoon.org/doc/809429/ |
a16dd6a67cf7-14 | Addl. Commissioner Of Income-Tax ... vs Dargapandarinath Tuljayya & Co. on 10 December, 1975 | offence can be displaced either by the words of the statute creating the offence or by the subject matter with which it deals, in which case both must be considered. It may be that mens rea is a necessary ingredient in every traditional crime which is given statutory form. But it has very limited application, and in some cases, it has no application at all to offences created by modern, social, industrial, fiscal and economic legislation. The Indian Income-tax Act is one such modern fiscal legislation. As a piece of modern fiscal and economic legislation, the Act provides for deterrents in many shapes and forms for not acting in accordance with its provisions. It may rest content with collecting interest for delayed submission of returns. In some other cases, it goes a step further and provides for levy of penalty, and in still some other cases, it treats the delayed filing of the returns an offence making the offender liable to punishment. May be, that one of the three modes of deterrents laid down by the Act for preventing delayed filing of the returns is imposition of a penalty under Section 271(1)(a). Penal proceedings are quasi-criminal in their nature. But Section 271(1)(a) itself providing for imposition of penalty, clearly lays down the test and the basis for its imposition and that is the satisfaction of the Income-tax Officer that the delay has occurred "without reasonable cause". There is no warrant or justification for inducting into this provision the concept of mens rea, when the provision itself is abundantly clear, laying down the objective tests for imposition of penalty. On the other hand, the third mode of preventive action is provided under Section 276C. Section 276C considers delayed filing of a return as an offence, which is punishable with rigorous imprisonment for a term which may extend to one year or with a fine, when the assessee has wilfully failed to furnish in due time the return of his income. In such cases alone the concept of mens rea could be | https://indiankanoon.org/doc/809429/ |
a16dd6a67cf7-15 | Addl. Commissioner Of Income-Tax ... vs Dargapandarinath Tuljayya & Co. on 10 December, 1975 | due time the return of his income. In such cases alone the concept of mens rea could be introduced, and it will have to be established by the revenue that the assessee's conduct in filing the return after due date was wilful; in other words, he deliberately acted in defiance of law or was guilty of contumacious or dishonest conduct or acted in conscious disregard of his obligations. But that is not required in a case under which action is taken under Section 271(1)(a) and penalty is imposed. In order to do so, it would meet the requirement of law if the Income-tax Officer or the Appellate Assistant Commissioner is satisfied that the assessee has "without reasonable cause" failed to furnish the return of his income within the time allowed. So, the learned counsel for the revenue argued that the existence of mens rea, i. e., contumacious conduct is not a necessary ingredient for a proceeding under Section 271(1)(a). Only the satisfaction of the concerned officer that the delay has occurred "without reasonable cause" is sufficient. | https://indiankanoon.org/doc/809429/ |
a16dd6a67cf7-16 | Addl. Commissioner Of Income-Tax ... vs Dargapandarinath Tuljayya & Co. on 10 December, 1975 | 12. On the other hand, Sri Dasaratharama Reddy, for the assessees-respondents maintained that Section 271 occurs in Chapter XXI which has the title "Penalties imposable". Penalty is a penal imposition. That means the proceeding is in the nature of a criminal proceeding. Mens rea is always a necessary ingredient of a criminal proceeding. That apart, the section itself is sufficiently indicative of the intention of Parliament that mens rea has been made a necessary part of a proceeding under Section 271. He relies on the Explanation to Sub-clause (iii) of Section 271(1), which requires a person whose return of his total income is less than eighty per cent. of the total income as assessed under Section 143 or 144 or 147 to prove that his failure to return the correct income did not arise from any fraud or any gross or wilful neglect on his part. In the absence of such proof emanating from him, the Explanation deems him to have concealed the particulars of his income or to have furnished inaccurate particulars of his income. The Explanation thus introduces into Section 271 the need to prove existence or absence of fraud or any gross or wilful neglect. If the returned total income is less than 80 per cent. of the total income as finally assessed, it would be for the assessee to prove absence of fraud or gross or wilful neglect. From this, it must logically follow that if the returned income is not less than 80 per cent. of the finally assessed income, the burden would lie on the revenue to show that the assessee has concealed the particulars of his income or furnished inaccurate particulars of such income on account of fraud or gross or wilful neglect. Such being the position in regard to the cases arising under Clause (c) of Section 271(1) there is no reason whatever to exclude the ideas of fraud or gross or wilful neglect from the other two clauses of the | https://indiankanoon.org/doc/809429/ |
a16dd6a67cf7-17 | Addl. Commissioner Of Income-Tax ... vs Dargapandarinath Tuljayya & Co. on 10 December, 1975 | whatever to exclude the ideas of fraud or gross or wilful neglect from the other two clauses of the self-same section, namely, (a) and (b). In the submission of the learned counsel, this idea must be extended even to delayed filing of the returns. He further relied on Sub-section (4A) of Section 271, which he claimed as another indication of the existence of mens rea in the entirety of Section 271. It was argued that under Sub-section (4A), the Commissioner may reduce or waive the amount of minimum penalty imposable on a person for delayed filing of the return "without reasonable cause", if it is seen that the assessee has, prior to the issue of the notice to him under Sub-section (1) of Section 139, voluntarily and in good faith made full disclosure of his income. The use of the phrases "voluntarily" and "in good faith" clearly points to the proof of existence of the mental attitude on the part of the assessee which smacks of mens rea, before he is visited with penalty by the appropriate authority. Thus, either going by the general principles that apply to penalty proceedings or going by the language of the statute, so, learned counsel submitted, it is sufficiently clear that mens rea is an ingredient of a penalty proceeding under Section 271(1)(a). Therefore, without showing that the assessee acted deliberately in defiance of law or was guilty of contumacious or dishonest conduct or acted in conscious disregard of his obligations while filing the return after time, the appropriate taxing authority cannot impose penalty under Section 271. | https://indiankanoon.org/doc/809429/ |
a16dd6a67cf7-18 | Addl. Commissioner Of Income-Tax ... vs Dargapandarinath Tuljayya & Co. on 10 December, 1975 | 13. Let us first notice Section 271, excluding the irrelevant portions thereof, as a first step in the process of finding out whether mens rea has been made an ingredient for imposing penalty for filing returns after due dates. It occurs in Chapter XXI under the caption "Penalties imposable". The heading given to Section 271 is "Failure to furnish returns, comply with notices, concealment of income, etc." The heading itself classifies the subject with which it deals into (1) failure to furnish returns, (2) failure to comply with notices, and (3) concealment of income. Since incidental matters are also included in the section, the word "etc." is added at the end.
14. Then Section 271 says:
"271. (1) If the Income-tax Officer or the Appellate Assistant Commissioner 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 total income which he was required to furnish under Sub-section (1) of Section 139 or by notice given under Sub-section (2) of Section 139 or Section 148 or has without reasonable cause failed to furnish it within the time allowed and in the manner required by Sub-section (1) of Section 139 or by such notice, as the case may be, or | https://indiankanoon.org/doc/809429/ |
a16dd6a67cf7-19 | Addl. Commissioner Of Income-Tax ... vs Dargapandarinath Tuljayya & Co. on 10 December, 1975 | (b) has without reasonable cause failed to comply with a notice under Sub-section (1) of Section 142 or Sub-section (2) of Section 143, or | https://indiankanoon.org/doc/809429/ |
a16dd6a67cf7-20 | Addl. Commissioner Of Income-Tax ... vs Dargapandarinath Tuljayya & Co. on 10 December, 1975 | (c) has concealed the particulars of his income or furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty,--
(i) in the cases referred to in Clause (a), in addition to the amount of the tax, if any, payable by him, a sum equal to two per cent. of the assessed tax for every month during which the default continued, but not exceeding in the aggregate fifty per cent. of the assessed tax.
Explanation.--In this clause "assessed tax" means tax as reduced by the sum, if any, deducted at source under Chapter XVII-B or paid in advance under Chapter XVII-C ;
(ii) in the cases referred to in Clause (b), in addition to any tax payable by him, a sum which shall not be less than ten per cent. but which shall not exceed fifty per cent. of the amount of the tax, if any, which would have been avoided if the income returned by such person had been accepted as the correct income ;
(iii) in the cases referred to in Clause (c), in addition to any tax payable by him, a sum which shall not be less than, but which shall not exceed twice, the amount of the income in respect of which the particulars have been concealed or inaccurate particulars have been furnished. | https://indiankanoon.org/doc/809429/ |
a16dd6a67cf7-21 | Addl. Commissioner Of Income-Tax ... vs Dargapandarinath Tuljayya & Co. on 10 December, 1975 | Explanation,--Where the total income returned by any person is less than eighty per cent. of the total income (hereinafter in this Explanation referred to as the correct income) as assessed under Section 143 or Section 144 or Section 147 (reduced by the expenditure incurred bona fide by him for the purpose of making or earning any income included in the total income but which has been disallowed as deduction), such person shall, unless he proves that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect on his part, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income for the purposes of Clause (c) of this sub-section......
(4A) Notwithstanding anything contained in Clause (i) or Clause (iii) of Sub-section (1), the Commissioner may, in his discretion-
(i) reduce or waive the amount of minimum penalty imposable on a person under Clause (i) of Sub-section (1) for failure, without reasonable cause, to furnish the return of total income which such person was required to furnish under Sub-section (1) of Section 139, or | https://indiankanoon.org/doc/809429/ |
a16dd6a67cf7-22 | Addl. Commissioner Of Income-Tax ... vs Dargapandarinath Tuljayya & Co. on 10 December, 1975 | (ii) reduce or waive the amount of minimum penalty imposable on a person under Clause (iii) of Sub-section (1), if he is satisfied that such person-
(a) in the case referred to in Clause (i) of this sub-section has, prior to the issue of notice to him under Sub-section (2) of Section 139, voluntarily and in good faith, made full disclosure of his income ; and in the case referred to in Clause (ii) of this sub-section has, prior to the detection by the Income-tax Officer of the concealment of particulars of income in respect of which the penalty is imposable or of the inaccuracy of particulars furnished in respect of such income, voluntarily and in good faith, made full and true disclosure of such particulars ;
(b) has co-operated in any enquiry relating to the assessment of such income; and
(c) has either paid or made satisfactory arrangements for payment of any tax or interest payable in consequence of an order passed under this Act in respect of the relevant assessment year :
Provided that-
(i) if in a case the minimum penalty imposable under Clause (i) of Sub-section (1) for the relevant assessment year, or, where such disclosure relates to more than one assessment year, the aggregate of the minimum penalty imposable under the said clause for those years, exceeds a sum of fifty thousand rupees, or | https://indiankanoon.org/doc/809429/ |
a16dd6a67cf7-23 | Addl. Commissioner Of Income-Tax ... vs Dargapandarinath Tuljayya & Co. on 10 December, 1975 | (ii) if in a case falling under Clause (c) of Sub-section (i), the amount of income in respect of which penalty is imposable for the relevant assessment year, or, where such disclosure relates to more than one assessment year, the aggregate amount of such income for those years, exceeds a sum of five hundred thousand rupees, no order reducing or waiving the penalty shall be made by the Commissioner unless the previous approval of the Board has been obtained.
(4B) An order under Sub-section (4A) shall be final and shall not be called in question before any court of law or any other authority."
Clause (iii) of Sub-section (1) and Explanation to Sub-section (1) of Section 271 were amended by way of substitution and insertion by the Amendment Act, 1973.
15. In these writ appeals, we are called upon to deal only with the nature of penalty that is imposable on the assessee for filing his returns after due dates and we are not concerned with either failure to comply with notices or with concealment of income which are also matters dealt with by Section 271. Therefore, we shall confine our consideration of the matter only to the failure to furnish returns within the time allowed. We do not propose to deal with other matters included in the section, as failure to comply with notices and concealment of income, excepting to the extent that they will be necessary to arrive at the actual intent and content of Clause (a) of Section 271(1) read with Sub-clause (i), on a comparative appraisal of the different provisions of the section. | https://indiankanoon.org/doc/809429/ |
a16dd6a67cf7-24 | Addl. Commissioner Of Income-Tax ... vs Dargapandarinath Tuljayya & Co. on 10 December, 1975 | 16. Does Section 271(1)(a) take in its amplitude the requirement that the appropriate taxation authority should be satisfied before imposing penalties on an assessee for his filing returns late not only that he had reasonable cause but also that he acted deliberately in defiance of law or was guilty of contumacious or dishonest conduct or acted in conscious disregard of his obligation ? In other words, is it necessary for the appropriate authority to arrive at the conclusion that the conduct of the assessee in filing the delayed return has been vitiated by mens rea. What all Clause (a) expressly requires is that the officer or the Appellate Assistant Commissioner has to be satisfied that the assessee has, without reasonable cause, failed to furnish the return within the time allowed. Mens rea is evil intention or knowledge of the wrongfulness of the act that a person commits. That is, the person has a guilty mind in committing the act. It is only when such mental attitude is present in an act, the person who commits it is said to have acted deliberately in defiance of law or was guilty of contumacious or dishonest conduct or acted in conscious disregard of his obligation. | https://indiankanoon.org/doc/809429/ |
a16dd6a67cf7-25 | Addl. Commissioner Of Income-Tax ... vs Dargapandarinath Tuljayya & Co. on 10 December, 1975 | 17. Mens rea is an essential ingredient of an offence. However, it is a rule of construction. If there is a conflict between the common law and the statute law, it has always been held that it is a sound rule to construe a statute in conformity with the common law. But it cannot be postulated that a statute cannot alter the course of the common law. Parliament in exercise of its constitutional powers makes statutes and in exercise of that power it can affirm, alter or take away the common law altogether. Therefore, if it is plain from the statute that it intends to alter the course of the common law, then the plain meaning should be accepted. The existence of mens rea as an essential ingredient of an offence has to be made out by the construction of the statute. This is what Wright J. said in Sherras v. De Rutzen [1895] 1 QB 918, 921 on the subject ;
"There is a presumption that mens rea, an evil intention, or a knowledge of the wrongfulness of the act, is an essential ingredient in every offence ; but that presumption is liable to be displaced either by the words of the statute creating the offence or by the subject-matter with which it deals, and both must be considered." | https://indiankanoon.org/doc/809429/ |
a16dd6a67cf7-26 | Addl. Commissioner Of Income-Tax ... vs Dargapandarinath Tuljayya & Co. on 10 December, 1975 | Absolute liability for an offence in order to presume mens rea should be established. In order to find out whether means rea, i.e., a guilty mind is an ingredient or not, reference has to be made to the language of the enactment, the object and subject-matter of the statute and the nature and character of the act sought to be punished. It should also be borne in mind, while considering the question of mens rea, that even in cases where there is an absolute prohibition, absolute liability is not to be presumed but has to be clearly established. Adopting the view of Wright J. in Sherras v. De Rutzen [1895] 1 QB 918 and the view expressed in Brend v. Wood 110 JP 317; [1946] 62 TLR 462, Lord Du Parcq observed in Srinivas Mall v. Emperor ILR 26 Pat 460; AIR 1947 PC 135.
"It is... ...of the utmost importance for the protection of the liberty of the subject that a court should always bear in mind that, unless the statute, either cleaily or by necessary implication rules out mens rea as a constituent part of a crime a defendant should not be found guilty of an offence against the criminal law unless he has got a guilty mind."
It Hariprasada Rao (Ravula) v. State this rule regarding presumption of mens rea and construction of the statute was approved by the Supreme Court, and it was once again reiterated by the majority view in State of Maharashtra v. M.H. George . | https://indiankanoon.org/doc/809429/ |
a16dd6a67cf7-27 | Addl. Commissioner Of Income-Tax ... vs Dargapandarinath Tuljayya & Co. on 10 December, 1975 | 18. Subba Rao J. (as he then was) expressed the view in Nathulal v. State of Madhya Pradesh that the rule of construction was adopted in England and accepted in India to construe a statutory provision which creates an offence, in conformity with the common law rather than against it. At the same time, the learned judge pointed out an exception, and that is where the statute expressly or by necessary implication excludes mens rea. In the light of these authoritative opinions expressed in the judicial pronouncements of the Supreme Court, it can be unhesitatingly concluded that mens rea or criminal intent is a necessary ingredient in a criminal offence. A presumption exists that criminal intent is not excluded unless the statute excludes it either expressly or by necessary implication. | https://indiankanoon.org/doc/809429/ |
a16dd6a67cf7-28 | Addl. Commissioner Of Income-Tax ... vs Dargapandarinath Tuljayya & Co. on 10 December, 1975 | 19. Then it has to be considered what precisely is the nature of penalty proceeding. Is it possible to say that simply because the word "penalty" is used in a statute, it has classified that proceeding as a proceeding of a criminal nature ? When a statute provides for imposition of penalty, it will have to be found out from the scheme of the Act and the particular provision under which penalty is imposable, whether imposition of penalty is provided as a punishment for an offence. Simply because something more than the usual payment of tax that is payable by an individual is imposed on him, could it be said that a punishment is inflicted on him for an offence he has committed ? Once again, it will have to be kept in mind that as human values have been changing and changing at a fast pace, a spate of social legislation has been taken up by all countries, particularly developing countries like India. Taxation statutes have two purposes. They are intended not only to collect revenues for the State, but also for bringing about social justice and to enable the State to implement social welfare schemes undertaken by it. Consequently, several taxation statutes, if not all, have taken great care in making provisions for collection of taxes imposed, as speedily as possible. If there is a delay on the part of the taxpayer to pay his taxes, taxation statutes have provided for not only remedial and coercive proceedings, but also punishments treating certain tax delinquencies as offences. These several measures should not be confused with each other. The position has been explained thus in Corpus Juris Secundum, Volume 85, at page 580 :
"A penalty imposed for a tax delinquency is a civil obligation, remedial and coercive in its nature, and is far different from the penalty for a crime or a fine or forfeiture provided as punishment for the violation of criminal or penal laws."
In the same page, it proceeds to state : | https://indiankanoon.org/doc/809429/ |
a16dd6a67cf7-29 | Addl. Commissioner Of Income-Tax ... vs Dargapandarinath Tuljayya & Co. on 10 December, 1975 | In the same page, it proceeds to state :
"In some jurisdictions it is held that the penalty becomes, by operation of the statute imposing it, a part and parcel of the taxes due, and in other jurisdictions penalties are a type of tax. In still other jurisdictions, however, it is held that the penalty is not a part of the tax, and that will not be regarded as a legal incident to a tax. It is merely a method of enforcing payment of the tax."
It was held by the Supreme Court of the United States dealing with the nature of penalties in Guy T. Helvering v. Charles E. Mitchell (303 US 391) ;
"Where civil procedure is prescribed for the enforcement of remedial sanction, the accepted rules and constitutional guarantees governing the trial of criminal prosecutions do not apply."
Once again, the Supreme Court of the United States, dealing with penalties imposed for evasion or avoidance of payment of income-tax, observed in Murray R. Spies v. United States (317 US 492 at 495): | https://indiankanoon.org/doc/809429/ |
a16dd6a67cf7-30 | Addl. Commissioner Of Income-Tax ... vs Dargapandarinath Tuljayya & Co. on 10 December, 1975 | "The penalties imposed by Congress to enforce the tax laws embrace both civil and criminal sanctions. The former consist of additions to the tax upon determinations of fact made by an administrative agency and with no burden on the Government to prove its case beyond a reasonable doubt. The latter consist of penal offences enforced by the criminal process in the familiar manner. Invocation of one does not exclude resort to the other... The failure in a duty to make a timely return, unless it is shown that such failure is due to reasonable cause and not due to wilful neglect, is punishable by an addition to the tax of 5 to 25 per cent. thereof depending on the duration of the default... The offence may be more grievous than a case for civil penalty. Hence, the wilful failure to make a return, keep records, or supply information when, required, is made a misdemeanour, with regard to existence of a tax liability."
The Supreme Court, while considering the nature of penalty levied under Section 28(1)(c) of the Income-tax Act, observed in C. A. Abraham v. Income-tax Officer that penalty is only an additional tax. Mathew J,, sitting single in Kerala High Court, in P. Ummali Umma v. Inspecting Assistant Commissioner of Income-tax [1967] 64 ITR 669 (Ker), after referring to the two decisions of the Supreme Court of the United States, observed at pages 675 and 676: | https://indiankanoon.org/doc/809429/ |
a16dd6a67cf7-31 | Addl. Commissioner Of Income-Tax ... vs Dargapandarinath Tuljayya & Co. on 10 December, 1975 | "No conviction for any offence is involved in the imposition of a penalty. Article 20(1) of the Constitution will have application only when a person is subjected to a penalty greater than that which might have been inflicted under the law in force at the time of the commission of the offence. This would indicate that commission of an offence and a conviction thereof are necessary in order that the provisions of the article may be attracted... A penalty, therefore, would come within the purview of Article 20(1) only if the earlier part of the clause is attracted, i.e., there must have been a conviction for an offence. Unless there is a conviction, no question of the latter part of the article applying will arise... The imposition of penalty on the basis of an act or omission by an assessee is not because the act or omission constitutes an offence, but because that act or omission would constitute an attempt at evasion. Therefore, penalty is exacted not because an act or omission is an offence but because it is an attempt at evasion of tax on the part of the assessee. Article 20(1) of the Constitution can have no application to a case where a penalty is imposed not as punishment for an offence but for some other collateral purpose." | https://indiankanoon.org/doc/809429/ |
a16dd6a67cf7-32 | Addl. Commissioner Of Income-Tax ... vs Dargapandarinath Tuljayya & Co. on 10 December, 1975 | Chinnappa Reddy and A. D. V. Reddy JJ. expressed, in their judgment in R.C. No. 64 of 1970 (Commissioner of Income-tax v. Maduri Rajes-war ), dated 24th of November, 1971, the viewthat the proceedings entailing penalty under the Income-tax Act are to be equated to prosecutions attracting punishment cannot be accepted, as no conviction for any offence is involved in the imposition of a penalty. They found that Article 20(1) of the Constitution was not applicable to the proceedings imposing penalty under the Income-tax Act. While coming to this conclusion, they followed the decision in Spies v. United States (317 US 492).
The above considerations would demonstrate that imposition of penalty for tax delinquency cannot be equated to imposition of punishment for an offence. | https://indiankanoon.org/doc/809429/ |
a16dd6a67cf7-33 | Addl. Commissioner Of Income-Tax ... vs Dargapandarinath Tuljayya & Co. on 10 December, 1975 | 20. Sri Dasaratharama Reddy, however, pointed out that penalty proceedings are quasi-criminal in nature and are not of civil character. He endeavoured to point out that taxation laws do not maintain such distinction between offences and penalties and generally they make penalties leviable for offences. An offence necessarily must have, as one of its essential ingredients, guilty mind or mens rea. He referred to Section 30 of the Andhra Pradesh General Sales Tax Act, 1957, which deals with "offences and penalties". That section provides for imposition of penalties, including imprisonment and fine, on conviction for tax delinquencies. Taxation laws, therefore, do not keep up any marked distinction between penalty and punishment for an offence, so the learned counsel submitted. Likewise, he invited our attention to Section 10 of the Central Sales Tax Act, 1956, which provides for imposition of penalties like simple imprisonment and fine for tax offences. Our attention was also invited to Section 9 of the Andhra Pradesh Cinemas (Regulation) Act, 1970, under which penalties are leviable for certain offences.
21. Relying on these provisions, it was argued that at least in so far as taxation enactments are concerned, there is not much of a distinction between penalty for taxation delinquency and punishment for taxation offence. It is in this view, Sri Dasaratharama Reddy submitted, the observations of Shah, Actg. C.J., in Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26 at page 29 (SC) should be understood. There the learned Acting Chief Justice was considering, as one of the questions, whether imposition of penalties for failure to get registered as a dealer was justified under the Orissa Sales Tax Act of 1947. The learned Chief Justice observed at page 29: | https://indiankanoon.org/doc/809429/ |
a16dd6a67cf7-34 | Addl. Commissioner Of Income-Tax ... vs Dargapandarinath Tuljayya & Co. on 10 December, 1975 | "Under the Act penalty may be imposed for failure to register as a dealer : Section 9('l), read with Section 25(1)(a) of the Act. But the liability to pay penalty does not arise merely upon proof of default in registering as a dealer. An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding, and penalty will not ordinarily be imposed unless the party obliged, either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation."
Resting on these observations of the Supreme Court, the argument was advanced that imposition of penalty is the result of a quasi-criminal proceeding and such being the nature, it shall not be imposed unless the assessee either acted deliberately in defiance of law, or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of his obligation. | https://indiankanoon.org/doc/809429/ |
a16dd6a67cf7-35 | Addl. Commissioner Of Income-Tax ... vs Dargapandarinath Tuljayya & Co. on 10 December, 1975 | Indeed, this is the observation which is the fountain source from which the concept of mens rea or guilty mind being an ingredient of a penalty proceeding under the Income-tax Act sprang up. These observations have set the ball rolling and injected into penalty proceedings the idea of mens rea or guilty conduct. | https://indiankanoon.org/doc/809429/ |
a16dd6a67cf7-36 | Addl. Commissioner Of Income-Tax ... vs Dargapandarinath Tuljayya & Co. on 10 December, 1975 | 22. In the light of what we have said above, we will now proceed to consider whether this argument of Sri Dasaratharami Reddy is tenable. As we have pointed out, we are limiting the consideration only to cases which fall under Section 271(1)(a) of the Income-tax Act, i.e., cases of levy of penalty for late filing of income-tax returns. We will consider the question on the assumption that imposition of penalty is in the nature of a quasi-criminal proceeding. Even so, is it necessary or does it inevitably follow that guilty mind should be an ingredient that should be established before imposing penalty for filing income-tax return late ? We have already recorded our conclusion that mens rea, though an essential ingredient of an offence, is a rule of construction. The presumption that evil intention or mens rea is an essential ingredient in every offence is liable to be displaced by the words of the statute creating the offence. A statutory provision which creates an offence will have to be considered in conformity with the common law presumption that guilty mind is an ingredient of an offence. However, where the statute which provides for penalty or quasi-judicial proceeding, as it may be, expressly or by necessary implication, lays down its own objective tests for levying penalty and excludes mens rea, then the statute should prevail. We may go even a step further. Even supposing that mens rea is treated by the statute as a necessary ingredient of a penalty proceeding, then it will have to be examined, whether the relevant statutory provision or provisions provide for any objective criteria for adjudicating upon the liability of an individual for the imposition of penalty. In other words, it is the statutory provision which deals with imposition of penalty, in the light of the general scheme of the Act, that should be looked into to find out whether guilty mind is necessary for imposition of penalty. If that is not done, and if penalty proceeding is conducted on general common law principles alone, | https://indiankanoon.org/doc/809429/ |
a16dd6a67cf7-37 | Addl. Commissioner Of Income-Tax ... vs Dargapandarinath Tuljayya & Co. on 10 December, 1975 | If that is not done, and if penalty proceeding is conducted on general common law principles alone, it would result in ignoring and even contravening the provisions of the statute itself, under which penalty is imposed. | https://indiankanoon.org/doc/809429/ |
a16dd6a67cf7-38 | Addl. Commissioner Of Income-Tax ... vs Dargapandarinath Tuljayya & Co. on 10 December, 1975 | 23. We will now examine how the Income-tax Act, 1961, had dealt with late filing of the returns. Practically all taxing statutes lay down their own procedure and machinery for enforcing implementation of their provisions. It must be remembered that all these taxation laws are intended to fetch revenue for the State to enable it to run its administration and to implement welfare programmes. There shall be neither evasion of tax, nor delay in the procedure relating to assessment and collection of taxes. In order to see that payment of tax is not evaded, that there is no delay in assessment or in the collection of tax imposed, every taxation statute lays down a clear cut procedure. While doing so, the statute may treat minor delinquencies lightly, some other delinquencies which are not simple in nature slightly harshly and delinquencies of grave nature very severely. The Indian Income-tax Act adopts the same policy. If the Act is analysed, it could be seen that it has dealt with returns of income and the delays relating thereto in three different ways. Section 139 which occurs in Chapter XIV relating to "Procedure for assessment" deals with "Return of income". Sub-section (1) prescribes the time before which returns should be filed. Further sub-sections also lay down the manner in which extension of time for filing returns may be sought "and granted. Subsection (8) makes the assessee liable to pay simple interest at twelve per cent. per annum on the amount of the tax payable on the total income as determined on regular assessment, if there was delay in filing the return. This is one way of enforcing compliance with the requirements of the law for filing the returns in time. Even here, the proviso to Sub-section (8) confers power on the Income-tax Officer to reduce or waive the interest payable by any assessee, in such cases and under such circumstances as may be prescribed. Then Chapter XXI deals with "Penalties imposable". Unlike the Sales | https://indiankanoon.org/doc/809429/ |
a16dd6a67cf7-39 | Addl. Commissioner Of Income-Tax ... vs Dargapandarinath Tuljayya & Co. on 10 December, 1975 | as may be prescribed. Then Chapter XXI deals with "Penalties imposable". Unlike the Sales Tax Act of Andhra Pradesh, the Indian Income-tax Act deals with "penalties imposable" separately and in a different chapter. Section 271(1)(a) which we have already extracted, makes penalty imposable if the Income-tax Officer or the Appellate Assistant Commissioner is satisfied, in the course of any proceeding under the Act, that any person has without reasonable cause failed to furnish the return of total income which he was required to furnish under Section 139(1) or in response to a notice given under Section 139(2). When the Income-tax Officer or the Appellate Assistant Commissioner is satisfied that a person has, without reasonable cause, failed to furnish returns in time, he may direct that such person shall pay by way of penalty, as provided in Sub-clause (i), in addition to the amount of the tax, a sum equal to two per cent. of the assessed tax for every month during which the default continued, but not exceeding in the aggregate fifty per cent. of the assessed tax. | https://indiankanoon.org/doc/809429/ |
a16dd6a67cf7-40 | Addl. Commissioner Of Income-Tax ... vs Dargapandarinath Tuljayya & Co. on 10 December, 1975 | 24. It is important to note the difference between the imposition of interest under Section 139(1) and the imposition of penalty under Section 271(1)(a). If there is delay in filing the return, interest is chargeable under Section 139(1) and in appropriate cases the Income-tax Officer is given power to remit the whole or part of it. Section 27l(1)(a) goes a step further and deals with somewhat graver situations. A penalty as provided in Clause (i) may be imposed only when the Income-tax Officer or the Appellate Assistant Commissioner is satisfied that the delay has occurred without reasonable cause. Every cause cannot explain away the delay in filing the return. If a cause, which is reasonable, in other words, a cause which appeals to or satisfies any reasonable mind, does not exist, then alone penalty can be imposed. The quantum of penalty is heavier than the interest that is collectable under Section 139(8). But, as Sub-clause (i) to Sub-section (1) of Section 271 now stands, it may be anything between two per cent. of the assessed tax for every month during which the default continued, and fifty per cent. of the aggregate thereof. It is very much noteworthy that for failure to comply with a notice under Section 142(1) or 143(2) without reasonable cause, Section 271(1)(b) read with Sub-clause (ii) provides for the higher rate of penalty starting from ten per cent. of the tax. When it comes to concealment of particulars of income or furnishing of inaccurate particulars of income, the penalty under Section 27l(1)(c) is still more severe. We are pointing out this to highlight the distinction kept by the statute between various degrees of seriousness of failures and concealments. It is also significant to note that Clause (i) says that what is imposed thereunder is "in | https://indiankanoon.org/doc/809429/ |
a16dd6a67cf7-41 | Addl. Commissioner Of Income-Tax ... vs Dargapandarinath Tuljayya & Co. on 10 December, 1975 | is also significant to note that Clause (i) says that what is imposed thereunder is "in addition" to the amount of the tax." Section 274, occurring in the same Chapter XXI, says : | https://indiankanoon.org/doc/809429/ |
a16dd6a67cf7-42 | Addl. Commissioner Of Income-Tax ... vs Dargapandarinath Tuljayya & Co. on 10 December, 1975 | "No order imposing a penalty under this Chapter shall be made unless the assessee has been heard, or has been given a reasonable opportunity of being heard."
Therefore, before penalty is imposed a reasonable opportunity should be given to the assessee to make a representation. If he then succeeds in satisfying the appropriate assessing authority that he was prevented by reasonable cause from filing the return in time, no penalty may be imposed on him. It is manifest that the statute has intended that a safeguard by a reasonable opportunity should be afforded to the assessee before any penalty is imposed. That is the second mode postulated by the Act for enforcing compliance with its provisions.
25. The third mode is contained in Chapter XXII which bears the caption "Offences and prosecutions". It makes several contraventions, offences, like failure to make payments or deliver returns or statements, or to allow inspection (as made in Section 276), failure to comply with the provisions of Section 178(1) and (3) (as made in Section 276A) and also failure to deduct and pay tax (as shown in Section 276B), failure to furnish returns of income (made punishable under Section 276C). Section 276C reads as follows :
"If a person wilfully fails to furnish in due time the return of income which he is required to furnish under Sub-section (1) of Section 139 or by notice given under Sub-section (2) of Section 139 or Section 148, he shall be punishable with rigorous imprisonment for a term which may extend to one year or with fine equal to a sum calculated at a rate which shall not be less than four rupees or more than ten rupees for every day during which the default continues, or with both." | https://indiankanoon.org/doc/809429/ |
a16dd6a67cf7-43 | Addl. Commissioner Of Income-Tax ... vs Dargapandarinath Tuljayya & Co. on 10 December, 1975 | We are not here concerned with the proviso to the section. It can be immediately noticed that this section treats only wilful failures to furnish returns in due time as punishable offences. This is clearly and patently distinct from failure to furnish returns in time "without reasonable cause". Certainly, the expression "without reasonable cause" and the expression "wilful failure" cannot be equated. It is important to note that the word "wilful" was introduced with effect from April 1, 1971, by Act 42 of 1970. Until then, the words which appeared were "without reasonable cause". For the change, the reason, as could be seen from Taxation, Volume 30, at page 101, is that the Joint Select Committee felt that "in accordance with the accepted canons of criminal jurisprudence failure to furnish returns or produce documents, etc., should be made punishable only when such failure is wilful". It is thus manifest that the word "wilful" has been deliberately introduced to incorporate into the provision and to clearly specify the idea of mens rea. That is absent in Section 27l(1)(a). Thus, it is seen that the Act postulates three modes of enforcement of the statutory requirement of filing the income-tax return in time, (1) by levying interest, (2) by imposing penalty if the delay has been occasioned without reasonable cause, and (3) by punishing the assessee treating failure to file the returns as an offence if it was proved that it was caused by wilful failure. These are the three varying degrees of non-filing of returns within time and the statute clearly keeps up the distinction between the three modes. While it rests content by imposing only penalty on reaching satisfaction as to the absence of reasonable cause, it insists upon the presence of wilful failure to furnish returns in due time to make it an offence punishable with imprisonment or fine. There is another equally significant distinction between the word | https://indiankanoon.org/doc/809429/ |
a16dd6a67cf7-44 | Addl. Commissioner Of Income-Tax ... vs Dargapandarinath Tuljayya & Co. on 10 December, 1975 | to make it an offence punishable with imprisonment or fine. There is another equally significant distinction between the word "penalty" as contemplated by Section 271(1)(a) and the punishment posited by Section 276C. The penalty leviable under Section 271(1)(a) is a payment "in addition to the tax" and is calculated in relation to the amount of the assessed tax. It means that the penalty imposed under that provision is in that way related to tax. What is imposed under Section 276C is altogether different in nature. It is a punishment wholly unrelated to the tax amount. The offender can be visited with rigorous imprisonment for a term which may extend to one year or with fine equal to a sum calculated at a rate which shall not be less than four rupees or more than ten rupees for every day during which the default continues, or with both. The fine that is imposable has to be reckoned on the basis of the duration of the default and not on the basis of the tax. All this clearly demonstrates the difference which the statute maintains between the penalty imposable under Section 271(1)(a) and the punishment that is leviable under Section 276C. While for imposing a penalty, absence of reasonable cause has to be shown, for imposing punishment under Section 276C, wilful failure has to be demonstrated. "Wilful failure" certainly brings in the element of guilty mind, while absence of "reasonable cause" does not. Thus, the statute has kept up the dichotomy between a penalty proceeding and a prosecution proceeding for failure to furnish returns in due time. This is clear enunciation by the statute itself of the three different modes of enforcing its provisions. It contains clear indication of the growing gravity of the three situations dealt with, not only through the severity of the additional amounts or the punishments that are imposable, but also through the language employed in Section 139(1), Section | https://indiankanoon.org/doc/809429/ |
a16dd6a67cf7-45 | Addl. Commissioner Of Income-Tax ... vs Dargapandarinath Tuljayya & Co. on 10 December, 1975 | punishments that are imposable, but also through the language employed in Section 139(1), Section 271(1)(a) and Section 276C. Thus, it is clear that the element of guilty mind is made an ingredient for an action under Section 276C and not for penalty proceeding under Section 271(1)(a). | https://indiankanoon.org/doc/809429/ |
a16dd6a67cf7-46 | Addl. Commissioner Of Income-Tax ... vs Dargapandarinath Tuljayya & Co. on 10 December, 1975 | 26. Sri Dasaratharania Reddy pointed out the difference in the language between rule 117A(v) of the Income-tax Rules, 1962, and Section 146 of the Income-tax Act on one side and Section 271(1)(a) on the other. In the first set of provisions, the phrase "sufficient cause" is used, while in Section 271(1)(a), the expression "reasonable cause" is used. Section 146 relates to "reopening of assessment at the instance of the assessee", and enables the assessee to seek cancellation of the assessment on the ground that he was prevented by "sufficient cause" from making the return required under Sub-section (2) of Section 139. His attempt was that the expression "sufficient cause" used in Section 146 is analogous to the same language used in Section 5 of the Limitation Act or Order 9, rule 9, or Order 9, rule 13, of the Civil Procedure Code and that it is different from the expression "reasonable cause" used in Section 271(1)(a). The cause being sufficient or otherwise does not indicate the guilty element but the expression "without reasonable cause" would suggest its presence. He amplified the argument by saying that by the words "without reasonable cause" it is meant that cause should not be unreasonable. In other words, if a cause is unreasonable, then it indicates a certain element of guilty mental attitude on the part of the assessee. It was, therefore, argued that the words "without reasonable cause" would bring in the element of guilty mind. For this, reliance was placed on the decision of the Madras High Court in V. Ramanathan v. Commissioner of Income-tax [1966] 62 ITR 293 (Mad). There, the Division Bench said : | https://indiankanoon.org/doc/809429/ |
a16dd6a67cf7-47 | Addl. Commissioner Of Income-Tax ... vs Dargapandarinath Tuljayya & Co. on 10 December, 1975 | "There is some difference in the language employed in Section 27 and Section 28 (of 1922 Act). While in the case under Section 27 the requirement is only a sufficient cause to enable the cancellation of the assessment, to justify the imposition of the penalty under Section 28 the absence of reasonable cause has to be established. Again, in an application under Section 27 of the Act, the onus is upon the assessee to establish sufficient cause, while under Section 28, before a penalty could be imposed, it is for the department to show that the assessee who failed to submit the return did so without reasonable cause."
We are unable to agree with this. We do not think that there is any material difference between the expressions "sufficient cause" and "reasonable cause". What is sufficient cause is always a reasonable cause. As stated in Strand's Judicial Dictionary, "the word 'reasonable' has in law the prima facie meaning of reasonable in regard to those circumstances of which the actor, called on to act reasonably, knows or ought to know". If a cause is reasonable having regard to the circumstances in which it has occurred and with reference to the person who has conducted himself in the course of the act which is under examination and if that act or cause is found to be reasonable in the light of the circumstances by a reasonable mind, it is accepted as sufficient cause. We cannot, therefore, agree that there is any substantial difference between "reasonable cause" and "sufficient cause". We derive support for this view from a decision of the Division Bench of this court in Repaka Seetharamaswamy v. Commissioner of Income-tax [1961] 42 ITR 829 (AP). It cannot, therefore, be accepted that the occurrence of the words "without reasonable cause" in Section 271(1)(a) would indicate the requirement of a guilty mind. | https://indiankanoon.org/doc/809429/ |
a16dd6a67cf7-48 | Addl. Commissioner Of Income-Tax ... vs Dargapandarinath Tuljayya & Co. on 10 December, 1975 | 27. At the same time, we must take notice of the use of the expression "without reasonable cause or excuse" in some of the offences for which prosecutions can be levied under the Act. As we have said, Chapter XXII relates to "offences and prosecutions". Sections 276, 276A and 276B make offences of failure to make payments or deliver returns or statements or allow inspection, failure to comply with the provisions of Sub-sections (1) and (3) of Section 178 and failure to deduct and pay tax "without reasonable cause or excuse", and they are punishable with either fine or imprisonment. These sections, using the above said expression, occur in the Chapter relating to "Offences and prosecutions" and expressly declare that, if these acts are done without reasonable cause or excuse, they would be punishable offences. It is noteworthy that immediately following these sections and occurring in the same Chapter, Section 276C, which deals with "failure to furnish returns of income" in due time, clearly declares that such failure becomes an offence when it is wilful. There cannot be a more eloquent testimony to the intention of Parliament to maintain the distinction between the offences covered by Sections 276, 276A and 276B on the one hand, and the one under Section 276C on the other. While, in the former, absence of reasonable cause and excuse has to be established, in the latter to make an offence of failure to file returns of income in due time wilful failure has to be proved. | https://indiankanoon.org/doc/809429/ |
a16dd6a67cf7-49 | Addl. Commissioner Of Income-Tax ... vs Dargapandarinath Tuljayya & Co. on 10 December, 1975 | 28. Even so, Sri Dasaratharama Reddy urged that the very Section 271, when understood in a broad perspective of all its provisions, indicates that guilty mind has to be established even in regard to late filing of returns of income. In the first place, he relies on the Explanation to Clause (iii) to contend that the element of fraud, gross negligence or wilful neglect on the part of the assessee is clearly made an ingredient of an action to be taken under Section 271 for imposition of penalty. The said Explanation is in these terms :
"Where the total income returned by any person is less than eighty per cent. of the total income (hereinafter in this Explanation referred to as the correct income) as assessed under Section 143 or Section 144 or Section 147 (reduced by the expenditure incurred bona fide by him for the purpose of making or earning any income included in the total income but which has been disallowed as deduction), such person shall, unless he proves that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect on his part, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income for the purposes of Clause (c) of this sub-section." | https://indiankanoon.org/doc/809429/ |
a16dd6a67cf7-50 | Addl. Commissioner Of Income-Tax ... vs Dargapandarinath Tuljayya & Co. on 10 December, 1975 | In the submission of the learned counsel, though fraud or gross or wilful neglect on the part of the assessee is made an element of the penalty proceedings under Clause (c) of Section 271(1), it should be understood that this ingredient of fraud, etc., runs through all the other clauses. When three eventualities, for which penalties could be levied under the section, are mentioned one after another and proof of fraud or gross or wilful neglect is made an essential ingredient of one of them, there is no reason, so maintained the learned counsel, to suppose that the said ingredient is confined or limited only to Clause (c). If the total income returned by the person is less than eighty per cent. of the total income as assessed finally, the Explanation places the burden of proof on him, in order to escape from penalty, of establishing that his failure to return the correct income does not arise out of gross or wilful neglect on his part. If he does not make any attempt to do so, a presumption is raised by the explanation that he has concealed the particulars of his income or furnished inaccurate particulars of such income. By parity of reasoning, the learned counsel argued, when the total income" returned is not less than eighty per cent. of the total income as finally assessed, then the burden would be on the department to prove that the failure to return the correct income was due to fraud or gross or wilful neglect on the part of the assessee. Likewise, Clauses (a) and (b), which deal with failure to furnish returns in due time and failure to comply with reasonable notices, should also be construed as placing the burden on the department to prove fraud or wilful neglect on the part of the assessee in committing the two acts mentioned in the two clauses. Our attention was invited to a decision of the Patna High Court in Commissioner of Income-tax v. Patna Timber Works [1977] 106 ITR 452 (Pat). | https://indiankanoon.org/doc/809429/ |
a16dd6a67cf7-51 | Addl. Commissioner Of Income-Tax ... vs Dargapandarinath Tuljayya & Co. on 10 December, 1975 | v. Patna Timber Works [1977] 106 ITR 452 (Pat). That is a case relating to penalty levied for concealment. It was found there that there was a difference of more than 20 per cent. in the income returned and the total income as assessed, and, therefore, Clause (c) came into operation by the rule of presumption. It was observed that by the rule of evidence engrafted in the Explanation, it is for the assessee to prove that the failure to return the correct income did not arise from any fraud or gross or wilful neglect on his part. This gives the key to the interpretation of the main provisions contained in Clause (c) after its amendment. If a case is not covered by the Explanation, then charge of furnishing inaccurate particulars of income can be founded by recording a finding that the assessee had furnished such particulars due to his fraud. That means the department has to show that such furnishing was a result of gross or wilful neglect on his part. Unless such ingredient is proved and found, penalty cannot be levied on the mere finding that there was a difference in the particulars given and the figure of the income assessed. This is the substance of the Patna decision. | https://indiankanoon.org/doc/809429/ |
a16dd6a67cf7-52 | Addl. Commissioner Of Income-Tax ... vs Dargapandarinath Tuljayya & Co. on 10 December, 1975 | Our attention was also invited to the decision of the High Court of Punjab and Haryana in Addl. Commissioner of Income-tax v. Karhail Singh V. Kaleran [1914] 94 ITR 505 (Punj). The learned judges explained the purposes of the Explanation as being to differentiate the two types of assessees-those who have reported correct income up to eighty per cent. of the assessed income and those who have not. In the case of the first type the onus lies on the department to prove fraud or gross or wilful neglect in not returning the correct income, and in the case of the second type the onus is on the assessee to establish that the failure to return the correct income was not on account of any fraud or gross or wilful neglect on his part. The learned judges referred to Anwar Ali's case and then observed that the principles enunciated by the Supreme Court in that case that Section 271 is penal in character is still applicable. In the same strain and to the same effect practically, are the decisions of the Kerala High Court in Commissioner of Income-tax v. Sankar-sons & Co. , that of the Allahabad High Court in Saeed Ahmed v. Inspecting Assistant Commissioner of Income-tax , that of the Gujarat High Court in Commissioner of Income-tax v. S.P. Bhatt , the one of Gauhati High Court in Rajputana Stores v. Inspecting Assistant Commissioner of Income-tax and the decision of the Orissa High Court in Commissioner of Income-tax v. K.C. Behera , which were brought to our notice by Sri Dasaratharama Reddy. All these decisions of the various High Courts examined the scope of the Explanation to Sub-clause (iii) and its impact on the main provision contained in Clause (c) of Section 271(1). It must be noted that none of them relates to the other clauses of Section | https://indiankanoon.org/doc/809429/ |
a16dd6a67cf7-53 | Addl. Commissioner Of Income-Tax ... vs Dargapandarinath Tuljayya & Co. on 10 December, 1975 | 271(1). It must be noted that none of them relates to the other clauses of Section 271(1). The decisions pointed out that the object behind the enactment of the Explanation was to check more effectively the evasion of income-tax. Obviously, the main purpose of the Explanation is to place the burden of establishing want of fraud or gross or wilful neglect in the matter of income-tax return filed by the assessee on him, where the difference revealed between the returned income and assessed income is more than twenty per cent. But in case the difference is less than twenty per cent. then the assumption postulated by the Explanation would not arise, and it shall be for the department to establish that the assessee had concealed the particulars of his income or furnished inaccurate particulars of such income. This is the burden of all the aforesaid decisions. | https://indiankanoon.org/doc/809429/ |
a16dd6a67cf7-54 | Addl. Commissioner Of Income-Tax ... vs Dargapandarinath Tuljayya & Co. on 10 December, 1975 | 29. In our opinion, these decisions throw light on the question of burden of proof in so far as Clause (c) and Sub-clause (iii) read with its Explanation are concerned. None of the decisions goes further and says that the element of fraud, or gross or wilful neglect is engrafted into Clauses (a) and (b) as well. These decisions do not, therefore, help Sri Dasaratharama Reddy in sustaining his contention that the principle of the Explanation to Sub-clause (iii) should be read into Clauses (a) and (b) of Section 271(1).
30. In his endeavour to show that the existence or absence of reasonable cause is made an ingredient of Clauses (a) and (b), the learned counsel relied on the decision of the Gujarat High Court in Morvi Cotton Merchants' Industrial Corporation Ltd. v. State of Gujarat [1975] 36 STC 347 (Guj). A Division Bench of the Gujarat High Court was considering the scope of the phrase "without reasonable excuse", in Section 10(d) of the Central Sales Tax Act, 1956. The court held:
"The expression... ...is a necessary ingredient of the offence mentioned therein and that ingredient has to be alleged and proved by the department and on which the authority imposing the penalty has to give a finding. It is only when that ingredient is pleaded and proved by the department, by way of presumptive proof, that the onus shifts on to the dealer to rebut that presumption."
It was further held :
"In the absence of a finding by the department about the absence of reasonable excuse, no penalty under Section 10(d) read with Section 10A can be imposed." | https://indiankanoon.org/doc/809429/ |
a16dd6a67cf7-55 | Addl. Commissioner Of Income-Tax ... vs Dargapandarinath Tuljayya & Co. on 10 December, 1975 | This decision is again of no avail to the learned counsel. It was Section 10A which provides for offences under Clause (b) or Clause (c) or Clause (d) of Section 10 of the Central Sales Tax Act. Thus, Section 10(d) is clearly incorporated in Section 10A. Further Section 10(d) itself makes using of the goods purchased for the purposes specified in Section 8(3)(b) without reasonable excuse, an offence punishable with imprisonment or fine or with both. Thus, it is more in the nature of Sections 276, 276A and 276B of the Income-tax Act, which treat certain things done without reasonable cause or excuse as offences. When the statute itself expressly treats them as offences, there cannot be any ambiguity about it. But Section 271 is only a provision under which penalties could be imposed in some eventualities. It is true, penalty, as the very name suggests, implies penal proceeding. It was so held in Hindustan Steel Ltd.'s case , and the character of a penal proceeding was also made clear by a Division Bench of this High Court in T. Venkata Krishnaiah & Co. v. Commissioner of Income-tax . The learned judges were dealing with the distinction between charging of interest and imposition of penalty and observed that interest was civil in nature while penalty was penal and so both could be levied. | https://indiankanoon.org/doc/809429/ |
a16dd6a67cf7-56 | Addl. Commissioner Of Income-Tax ... vs Dargapandarinath Tuljayya & Co. on 10 December, 1975 | 31. Sri Dasaratharama Reddy further endeavoured to reinforce the above argument by referring to the circumstances that by the Finance Act of 1964, the word "deliberately" was deleted from Clause (c) which was there earlier before the words "furnished inaccurate particulars of such income". How he developed the argument is, when once the word "deliberately" was deleted, the very act of furnishing of inaccurate particulars of income is treated as a ground for imposition of penalty. When mere furnishing inaccurate particulars of income is treated as a case for imposing penalty, the learned counsel argued, there is no reason to suppose that failure to furnish returns of income before due date without reasonable cause is not placed on the same footing as the former act. If fraud or any gross or wilful neglect is made an ingredient of furnishing inaccurate particulars for which penalty can be imposed, in the submission of the learned counsel, the same ingredient should be applicable to failure to furnish the return in due time without reasonable cause. | https://indiankanoon.org/doc/809429/ |