"It is well known that no amount of written representation, however, detailed, can in all cases, he treated as an equally effective substitute of a personal hearing. It is easier for an assessee to persuade an assessing authority to his point of view by removing his doubts and by answering his questions at a personal hearing, than by merely availing of the cold effect of a written representation."
1. This is a reference at the instance of the revenue.
2. The question which has been referred to this Court under Section 27(1) of the Wealth-tax Act, 1957 (hereinafter referred to as the said
Act) is set out below :--
"Whether on the facts and in the circumstances of the case, the Tribunal was justified in cancelling the penalties imposed under Section 18(l)(a) of the Wealth-tax Act, 1957 on the ground that no reasonable opportunity of being heard was given by the successor Wealth-tax Officer before passing the Order imposing penalties under Section 18(l)(a) of the aforesaid Act to the assessee for the assessment years 1968-69 to 1970-71?"
3. The facts of this case, which are not very much in dispute, are stated as follows:--
For the late filing of wealth-tax returns, penalty proceedings were initiated against the assessee for the assessment years 1968-69, 1969-70, 1970-71. On or about 14th March, 1973 three similar show cause notices were issued by Mr. N. Dubey, the concerned Wealth-tax Officer in respect of the aforesaid three assessment years calling upon the assessee to show cause on or before 8th May, 1973 why penalty should not be levied. The assessee did not respond to those show cause notices. Pursuant to those show cause notices, no penalty was, however, imposed by Shri Dubey either on 8th May, 1973 or thereafter. Mr. Dubey was thereafter succeeded by another Wealth-tax Officer, namely, Smt. C. Merwar.
4. The matter was thus kept pending. It is an admitted position that no notice or intimation was ever given to the assessee of the fact that the original officer, who issued the show cause notices, has been succeeded by another officer. Thereafter on or about 26th March, 1975 Smt. C. Merwar levied a penalty of Rs. 481/-in respect of the assessment year 1968-69, a penalty of Rs. 14,399/- for the assessment year 1969-70 and a penalty of Rs. 4,185/- for the assessment year 1970-71. All these orders of levy of penalty have been passed under Section 18(l)(a) of the said Act.
5. These three penalty orders were challenged on appeal by the assessee before the Appellate Assistant Commissioner unsuccessfully. Thereafter the assessee filed Wealth-tax Appeals Nbs. 118 to 120 (Patna) of 1978-79 before the Appellate Tribunal and contended, inter alia, that after the issuance of show cause notice, the case remained pending for about two years and the Wealth-tax Officer, who issued the show cause notices, was succeeded by another and the assessee was not put on notice of the fact that the original officer has been succeeded by another officer. It was also contended that the assessee was not given a reasonable opportunity of being heard by the succeeding officer Smt. C. Merwar, who imposed the penalty. As such the penalty orders are bad. These contentions found favour with the Appellate Tribunal and it came to the finding that the assessee was not granted a reasonable opportunity of hearing before levy of the penalty and as such the penalty orders were annulled. Thereafter, at the instance of the revenue, the aforesaid question was referred to the High Court for its , decision.
6. The matter was taken up by the High Court for hearing on 4th March, 1994. On that date a Division Bench of this Court consisting of the Hon'ble the Chief Justice and Hon'ble Mr. Justice Naresh Kumar Sinha referred the matter to a larger Bench in view of the divergence of judicial opinion of different High Courts on the interpretation of Section 18(1) read with Section 39 of the said Act and in view of the fact that a substantial question of law is involved in such interpretation. Accordingly, the matter was heard before this larger Bench.
7. The question involved in this reference relates to the interpretation of the scope of Section 18(l)(a), 18(l)(b), 18(2) and 39 of the said Act. For the proper appreciation of the points involved, those sections of the said Act are set out below:--
"18.(1) If the Wealth-tax Officer, Appellate Assistant Commissioner, Commissioner or Appellate Tribunal in the course of any proceedings under this Act is satisfied that any person --
(a) has without reasonable cause failed to furnish the return which he is required to furnish under Sub-Section (1) of Section 14 or by notice given under Sub-Section (2) of Section 14 or Section 17, or has without reasonable cause failed to furnish it within the time allowed and in the manner required by Sub-Section (1) of Section 14 or by such notice, as the case may be; or
(b) has without reasonable cause failed to comply with a notice under Sub-Section (2) or Sub-Section (4) of Section 16;
XXX XXX XXX
18. (2) No order shall be made under Sub-Section (1) unless the person concerned has been given a reasonable opportunity of being heard.
39. Whenever in respect of any proceeding under this Act any wealth-tax authority ceases to exercise jurisdiction and is succeeded by another who has and exercises such jurisdiction, the authority so succeeding may continue the proceeding from the stage at which the proceeding was left by his predecessor :
Provided that the assessee concerned may demand that before the proceeding is so continued the previous proceeding or any part thereof be re-opened or that before any Order of assessment is passed against him, he be re-heard."
8. Almost similar provisions relating to levy of penalty including the procedural safeguards against such levy are found in other taxation laws, namely, Section 274 and 129 of the Income-tax Act, Section 17,17(2), 17-A and 17-A(4) of the Gift-tax Act as also Section 10-A(i) of the Central Sales Tax Act, 1956.
9. On a glance at the provisions of Section 18(l)(a) and 18(l)(b) of the said Act, it is clear that the levy of penalty contemplated under those sections does not by way of legislative mandate fasten an absolute liability on the assessee concerned. The imposition of penalty is at the discretion of the officer concerned on a relevant consideration of various factors. In other words, even in case of a default contemplated under Section 18(l)(a) and 18(l)(b) of the said Act, levy of penalty is not a must inasmuch as it is clear from the wording of those sections that no penalty shall be imposable if the assessee concerned shows that there was a reasonable cause for the failure referred to in those sections. About the existence or otherwise of a reasonable cause, the concerned assessee is, therefore, entitled to offer a factual explanation and it is incumbent upon the officer concerned to be satisfied about the existence or the absence of the reasonable cause in the context of the explanation offered. It goes without saying that the concerned officer in arriving at his satisfaction in such a situation is acting in a quasi-judicial capacity and the proceeding being one for imposition of penalty is a quasi-criminal one. Therefore, the satisfaction has to be reached by the concerned officer objectively and on consideration of relevant and germane materials only and to the total exclusion of extraneous and irrelevant considerations. Today this position in law is far too well settled to require reiteration of any authority and this Court proceeds to decide the questions involved in this case on the aforesaid basic assumption of the legal position.
9A. It is in the background of the such statutory exercise of power of the officer concerned, the Court has to consider and examine the scope, content and the gist of the right given to the person concerned under Section 18(2) of the said Act. The right given is a very valuable one, namely, a right of getting a reasonable opportunity of being heard. The said right is a facet of one of the well known principles of natural justice, namely, audi alteram partem.
10. Now the controversy here is over the exact connotation of the word 'heard' occurring in Section 18(2) of the said Act -- whether it means to be heard 'orally' and through ears or whether hearing in the present context means a mere consideration of the case as made out in written representation.
11. Inextricably mixed up with the consideration of the above question is an incidental query, namely, whether such an oral hearing can be given only on the request of the person concerned or whether under the scheme of the said Act it is an implied obligation of the concerned authority to offer an opportunity of an oral hearing to the person affected. In this context the interpretation of Section 39 of the said Act assumes a very great significance.
12. Section 39 of the said Act deals with the effect of transfer of authorities during the pendency of a proceeding. It provides that in such a case, when an authority initiating the proceeding is succeeded by another, the authority so succeeding, may continue the proceeding from the stage at which the proceeding was left by the predecessor but the succeeding officer can do so subject to certain rights given to the assessee. The proviso gives a right to the assessee to demand that before the proceeding is so continued by the succeeding officer, the previous proceeding or a part thereof may be re-opened or that before any order is passed against him, he may be re-heard. This condition obviously implies and postulates that before the assessee can demand the right given to him under the proviso, he must necessarily have a right to be put on notices of the two facts, namely :
(a) that the previous authority who was so long continuing the proceeding has been succeeded by another officer; and
(b) that the officer so succeeding wants to continue the proceeding from the stage at which the proceeding was left by this predecessor.
13. It is upon his being informed of the aforesaid two facts, that the assessee can make an effective exercise of his right to demand that the previous proceeding or part thereof may be re-opened or that he may be re-heard before a final Order is passed in the proceeding. This is an opportunity of hearing at a pre-decisional stage.
14. It is faintly argued on behalf of the revenue that it may not be convenient for the department to inform the assessee in such cases, It may be so. But we know that often justice and convenience are not on speaking terms. Therefore, this plea of the revenue cannot be accepted in view of statutory provision now under consideration.
15. I am compelled to take this view that the obligation of the concerned authority to inform the assessee of the facts stated at (a) and (b) above is inbuilt in Section 39 of the said Act. I am of this view primarily for the reason that transfer of officers, while a proceeding is pending, is an official act of which the assessee can have no clue unless he is informed. Therefore, in a given case the valuable safeguard and right given to the assessee will be defeated if he is not informed of the facts pointed out at (a) and (b) above. Such a valuable right given to the assessee under the proviso to Section 39 of the said Act cannot be made to depend on the mere chance of his being informed. Therefore, the obligation of the revenue to inform the assessee is inherent in the very scheme of Section 39 of the said Act.
16. Apart from that, the other compelling reason which weighs with me in taking this view is the well known principle of statutory construction that while construing a provision which creates a right, the Court will always lean in favour of a construction which saves the right rather than the one which defeats it. Francis Bennion in his treatise 'Statutory Interpretation' -- 2nd Edition, (Butterworths) at page 411 and Section 198 stated this principle in the following words :--
"It is a Rule of law that the legislator intends the interpreter of an enactment to observe the maxim ut res magis valeat quam pareat; so that he must construe the enactment in such a way as to implement, rather than defeat, the legislative purpose."
17. I am further emboldened to take this view having regard to the fact that Section 39 of the said Act provides a salutary safeguard which is attracted even in case of levy of penalty. Here again I quote the following passage at page 573, Sec. 271 from Bennion's Treatise (supra) to illustrate the principle of construction of safeguards in a penal statute :--
"It sometimes happens that a penal enactment contains provisions giving relief from the imposed penalty in specified cases. It may be clear that a particular detriment is imposed, unless the case can be brought within a problematical exception. Here the presumption against doubtful penalisation requires that the exception be construed liberally (that is in favour of the subject). If it is doubtful whether an exception to a penalty applies, it is doubtful whether the penalty itself applies."
18. Keeping those principles in mind, I am of the view that reasonable opportunity of hearing mentioned in Section 18(2) of the said Act means a reasonable opportunity of oral hearing and similarly 're-heard' mentioned in Section 39 of the said Act would mean reasonable opportunity of 're-heard'.
19. This construction would obviously flow from a combined reading of the safe-gurads given in Section 18(2) with Section 39 of the said Act. In other words if the legislative intent of giving a reasonable opportunity of hearing is confined merely to a consideration of the written representation without an oral hearing, in that case there is no meaning in giving an opportunity of re-opening of the case or an opportunity of being re-heard before the succeeding officer. To put it differently, if the-legislative intent behind the expression 'hearing in Section 18(2) of the said Act does not mean a personal and an oral hearing in that case the succeeding officer can continue with the proceeding on the basis of the materials on record and there is no purpose in giving a right to the assessee to demand a re-opening of the proceedings or demand a re-hearing. The legislative intent behind giving to the assessee a right of re-opening of the proceeding or a right of re-hearing in it becomes meaningful only if the right of hearing given in Section 18(2) of the said Act is construed as a right of oral and personal hearing. Therefore, what was implicit in Section 18(2) of the said Act becomes explicit on a combined reading of Section 18(2) with Section 39 of the said Act. Any other construction, in my view, will dilute and water down the procedural safeguards given to an assessee in the penal provision of a taxing law and such a construction which has the effect of weakening and diffusing protection given to a subject in a penal provision must be avoided.
20. In the view which I am taking, I am supported by the decision of Andhra Pradesh High Court in the case of Anantha Naganna Chetty v. C.I.T. reported in 78 ITR 743 : (AIR 1970 Andh Pra 367). That was a case of penalty proceeding under Section 28(3) of the Income-tax Act, 1922 read with Section 5(7C) of the said Act. Those were the corresponding provision of Sections 274 and 129 of the Income-tax Act, 1961.
21. The Division Bench of Andhra Pradesh High Court in that case while construing the provision of Section 5(7C) held as follows (paras 13 and 14 of AIR) :--
"It is not disputed that in very many cases the penalty proceedings are kept in abeyance awaiting the final result of the assessment proceedings and, although notice under Section 28(3) is served upon the assessee and he filed a written explanation, for months and sometimes years together the penalty proceedings are kept in abeyance and the assessee has no knowledge as to what has happened or is happening except when he gets the final Order made in the proceedings served upon him. In such a case, if the assessee, due to a long lapse of time, assumes that his explanation perhaps was found to be satisfactory and proceedings were dropped, he cannot be said to be altogether wrong in such assumption. If officer after officer succeed when proceedings are thus pending and the assessee does not even know about such transfers then how is he to exercise his right to demand re-opening or re-heard if he has no notice that the succeeding officer proposes to continue the proceedings. The assessee must, therefore, be told about the intention of the succeeding officer to continue the proceedings and who can tell him so, except the succeeding officer who proposes to continue the proceedings and who also knows that he cannot continue the proceedings if he is told by the assessee that he wants him to re-open the case or give him a re-hearing. It is thus inherent in the situation that the succeeding officer should give notice to the assessee not under Section 28(3) but under Section 5(7C) itself intimating him that the succeeding officer proposes to continue the proceedings. This intimation alone would provide the assessee with an opportunity to exercise or decline to exercise the right given to him by the first proviso to Section 5(7C). The second proviso lends considerable support to such a construction. The notice is thus necessarily implied in the provisions of Section 5(7C) as the right to continue the proceedings is made dependant upon the assessee's right of demanding re-opening or re-hearing of the case. It cannot be assumed that the Legislature has given with one hand right to the assessee to demand re-opening or re-hearing and has taken away that right with the other by not intending to inform him about the opportunity to exercise such a right by not expecting any notice to be given to be assessee by the succeeding officer of his intention to continue the proceedings. Any such interpretation would mean that the enactment has conferred on the assessee a mere illusory right.
In this connection, it is well to remember that the proceedings under the Act, which can be said to fall within the purview of Section 5(7C), are of quasi-judicial character. The penalty proceedings in any case are of aquasi-criminal nature. It can, therefore, safely be presumed that the Legislature while conferring the power on the succeeding officer to continue the proceedings from the stage where it was left by his predecessor thought it proper to provide an opportunity to the assessee to demand the re-opening or rehearing of the case and that is why the power to continue the proceedings is made subject to such a right. The notice, therefore, for the exercise of such right becomes necessary."
The learned Judges in Anantha Naganna Chetty (AIR 1970 Andh Pra 367) (supra) after considering the famous treatise of Maxwell and Craies on the interpretation came to the following conclusion at page 751 (of ITR): (at page 371 of AIR):--
"We are, therefore, satisfied that even though Section 5(7C) does not in terms or expressly provide for any notice by the succeeding office to the assessee informing him of his intention to continue the proceedings from the stage at which his predecessor has left, by necessary implication it provides for such an intimation. We must, we think, infer from the power given to the succeeding officer that such a notice was intended by the legislature. When the legislature has directed something to be done, it must be considered to have empowered something ancillary to be done which is necessary in Order to accomplish the ultimate object of Section 5(7C). What must follow is that the succeeding officer must give notice to the assessee before he decides to continue the proceedings from the stage where it was left by his predecessor."
1 am in respectful agreement with the aforesaid statement of law and they apply also to the interpretation of Section 37 of the said Act.
22. There is a still more recent judgment of Calcutta High Court in the case of Commissioner of Income-tax, West Bengal-IV v. Smt. Chitra Mukherjee reported in 127 ITR 252 : (1981 Tax LR 82). The Hon'ble Judge of the Division Bench relying on the aforesaid decision of Andhra Pradesh High Court in Anantha Naganna Chetty (AIR 1970 Andh Pra 367) (supra) came to the conclusion that penalty proceeding under Section 271 (l}(a) of the Income-tax Act, 1961 was not only quasi-judicial but also quasi-criminal and the revenue in Order to impose penalty has to discharge its onus in strict compliance of the law. The learned Judges of the Division Bench in the case of Smt. Chitra Mukherjee (supra) had gone to the extent of holding that even in a case where there is no response from the assessee to the notice under Section 274 of the Income-tax Act issued by the predecessor I.T.O., which is similar to the factual position in this case, the successor or Income-tax Officer has no authority to pass an Order of penalty under Section 271(l)(a) of the Income-tax Act without giving the assessee a fresh opportunity of being heard. I follow the ratio of the said judgment in Chitra Mukherjee's case (supra).
23. In another decision of a Division Bench of Punjab & Haryana High Court in the case of Ram Saran Das Kapur v. Commissioner of Income-tax, Patiala reported in AIR 1969 Punj & Har 429, the learned Judges of the Division Bench on a construction of Sections 28 and 5(7C) of the Income-tax Act came to the conclusion that the hearing contemplated under Section 28 of the Act is a personal hearing. At page 432 the said Division Bench held as follows :--
"It is well known that no amount of written representation, however, detailed, can in all cases, he treated as an equally effective substitute of a personal hearing. It is easier for an assessee to persuade an assessing authority to his point of view by removing his doubts and by answering his questions at a personal hearing, than by merely availing of the cold effect of a written representation."
Then again in the same page their Lordships were of the view that
"So far as personal hearing is concerned, it seems to us to be plain that such a hearing can have some meaning only if it is given by the very person who has to ultimately decide the matter. Oral hearing by one officer cannot possibly be of any advantage to his successor in deciding a case. To hold otherwise would amount to saying that the force of a hearing is equal to a real, genuine and effective hearing."
24. In coming to the aforesaid conclusion their Lordships relied on the judgment of the Supreme Court in Nageshwara Rao v. Andhra Pradesh State Road Transport Corporation reported in AIR 1959 SC 308 where a similar quest ion arose relating to the duty of the State Government to give a personal hearing to Objectors against the scheme framed under Chapter IV-A of the Motor Vehicles Act, 1939. The procedure which had been prescribed by the State of Andhra Pradesh for the hearing of such objections was that the Secretary to the Government had to give personal hearing but the decision had to be given by Chief Minister. Their Lordships of the Supreme Court in that case held that (at p. 327).
"Personal hearing enables party appearing at such hearing to persuade the authority concerned by reasoned arguments to accept his point of view. Therefore, in the fitness of things, it is same authority which has to decide must hear."
In the context, the learned Judge of the Supreme Court was pleased to observe as follows (at p. 327):--
"If one person hears and another person' decides, then personal hearing becomes an empty formality."
25. On the same parity of reason, I am of the view that the hearing contemplated under Section 18(2) of the said Act is a personal hearing. In Order that such a personal hearing does not become 'an empty formality', the assessee has been given under Section 39 of the said Act a right of re-hearing before the succeeding officer inasmuch as the succeeding officer has not heard him at the stage of hearing under Section 18(2) of the said Act. Any other construction would defeat the purpose of hearing which is an oral hearing meant under Section 18(2) as also under Section 39 of the said Act.
26. It is well known that principles of natural justice are not, in the inimitable words of Lord Bridge, 'engraved on tablets of stone'. What are the requirements of the principles of natural justice have been very succinctly expressed by Lord Bridge in the case of Lloyd v. McMahon, a decision of the House of Lord, reported in (1987) 1 All ER 1118, at page 1161, of the said report Lord Bridge has equated the requirements of natural justice with that of fairness and has been pleased to observe as follows: --
"What the requirements of fairness demand when any body, domestic, administrative or judicial, has to make a decision which will affect the rights of individual depends on the character of the decision making body, the kind of decision it has to make and the statutory or other frame work in which it operates. In particular, it is well established that when a statute had conferred on any body the power to make decisions affecting individuals, the Courts will not only require the procedure prescribed by the statute to be followed, but will readily imply so much and no more to be introduced by way of additional procedural safeguards as will ensure the attainment of fariness."
27. Francis Bennion in his famous treatise 'Statutory Interpretation' -- 2nd Edition, (Butterworths) has also expressed the same view in page 739 (Section 329) which is set out below: --
"Procedural propriety is of more practical importance in relation to implied rather than express requirements. Here it is linked to the concept of fairness or natural justice which in relation to any statutory requirement is as Lord Denning put it, "implicit in the Act."
28. In the decision of Wiseman v. Borneman (1971) Appeal Case 297 at pages 308-309 Lord Morris of Borth-y-Gest explained the principle in following words :
".......... that the conception of natural justice should at all stages guide those who discharge judicial functions is not merely an acceptable hut is an essential part of the philosophy of law .... Natural justice, it has been said, is only 'fairness in action'."
29. Under our Constitution the apex Court has reiterated time and again that principle of natural justice is a facet of Article 14 of the Constitution of India, Therefore, in construing the provisions of Sections 18(2) and 39 of the said Act, I must be guided by the constitutional principles emanating from Article 14 of the Constitution of India. The Supreme Court has also equated the principles of natural justice with fairness in action and it has been consistently held that 'fairness in action' is an inbuilt content of Article 14 of the Constitution of India. Reference in this connection is made to the Constitution Bench judgment of the Supreme Court in the case of Delhi Transport Corporation v. D.T.C. Mazdoor Congress reported in AIR 1991 SC 101. Al paragraph 260 at page 195 of the majority judgment of the said case, the learned Judges of the Supreme Court came to this conclusion ;--
"The Maneka Gandhi's case (AIR 1978 SC 597) is also an authority for the proposition that the principles of natural justice is an Integral part of the guarantee of equality assured by Article 14 of the Constitution. In Union of India v. Tulsiram Patel, 1985 Suppl (2)SCR 131 at p. 233: (AIR 1985 SC 1416 at p. 1460), this Court held that the principles of natural justice thus come to be recognised as being a part of the guarantee contained in Article 14 because of the new and dynamic interpretation given by this Court to the concept of equality which is the subject matter of that Article. Shortly put, the syllogism runs thus :
xxxx xxxx xxxx
The principles of natural justice, however, apply not only to the legislation and State action but also where any criminal, authority or body of men, not coming within the definition of 'State' in Article 12, is charged with the duty of deciding a matter. In such a case, the principles of natural justice requires that it must decide such a matter fairly and impartially."
30. Similar view has been echoed in still more recent judgment of the Supreme Court in D. K. Yadav v. J.M.A. Industries Ltd. reported in (1993) 2 SCC 259 (267) : (1993 AIR SCW 1995), Paragraph 8 (of SCC) : (Paragraph 7 of SCW), the learned Judges have come to this conclusion :--
"The cardinal point that has to be borne in mind, in every case, is whether the person concerned should have a reasonable opportunity of presenting his case and the authority should act fairly, justly, reasonably and impartially. It is not so much to act judicially but is to act fairly, namely, the procedure adopted must be just, fair and reasonable in the particular circumstances of the case. In other words application of the principles of natural justice that no man should be condemned unheard intends to prevent the authority from acting arbitrarily affecting the rights of the concerned person."
31. In the instant case, fairness in action in the context of the penalty proceeding would demand that the assessee who is charged with the levy of penalty is given a reasonable opportunity of oral hearing. It is only by means of an oral hearing the assessee can have an opportunity of persuading the officer concerned that he has a reasonable cause for the default. Having regard to the provisions for levy of penalty, as has been discussed earlier, the assessee can plead reasonable cause as the justification for late furnishing of return. The word 'reasonable cause' has not been defined under the Act but it could receive the same interpretation which is given to the expression 'sufficient cause'. Therefore, in the context of penalty provision, the word 'reasonable cause' would mean a cause which is beyond the control of the assessee. 'Reasonable cause' obviously means a cause which prevents a reasonable man of a ordinary prudence acting under normal circumstances, without negligence or inaction or want of bona fide from furnishing the return in time. It is, however, made clear that I am not giving any exhaustive definition of the phrase 'reasonable cause' occurring in Sections 18(l)(a) and 18(I)(b) of the said Act. In other words, such an attempt is unnecessary and futile. The reasonableness of a cause will depend upon the facts and circumstances of each penalty case. All that 1 want to emphasis is that for convincing the officer concerned about the reasonableness of the cause which prevented the assessee from furnishing return in time, an oral hearing is a must. An oral hearing is necessary not only on grounds of fairness and for enabing of the assessee concerned, to record his case which has been described as to 'blow off steam'. Such an oral hearing is necessary on grounds of public policy and in public interest also as has been described by Prof. H.W.R. Wade in his article The Twilight of Natural Justice' published in 1951 in Law Quarterly Review Vol. 67 page 103, Prof. Wade observed that such an oral hearing is required in Order to clear well-meaning ignorance or carelessness of the officer concerned. Prof. Wade stated at page 106 of that article--
"The Rule is a safeguard not against perversity but against well-meaning ignorance or carelessness a much more likely danger. The official endowed with power, is kept in the light leading strings of fundamental justice. If he is only made to look fairly at the facts, that is the best security against an unreasonable decision."
In the said article Prof. Wade has quoted with approval the observation of Lord Loreburn L.C., in the case of Board of Education v. Rice reported in 1911 Appeal Cases 179 at page 182 of the said decision Lord Loreburn summarised the requirement of fairness which must be observed by any decision making authority:
"It will, I suppose, usually be of an administrative kind but some times it will involve matter of law as well as matter of fact, or even depend upon matter of law alone. In such cases, the Board of Education will have to ascertain the law and also to ascertain the facts. I need not add that in doing either they must act in good faith and fairly listen to both sides, for that is a duty lying upon every one who decides anything."
32. Therefore, the requirement of oral hearing must be insisted as a matter of public policy, namely, to prevent not only perverse decision but also to secure a decision which is not vitiated by well-meaning ignorance or carelessness due to absence of oral hearing.
33. It is well known that in modern time increasingly greater powers have been conferred upon the statutory authorities in administrative or quasi-judicial functioning. With the exercise of such functioning they are taking decisions which largely affects the citizens in every sphere of their life. Therefore, in taking such a decision and for that matter, in taking a fair decision, it becomes all the more necessary to give an oral hearing to the party affected by the decision in question and as such a requirement of oral hearing is implicit with the concept of fairness, in quasi-judicial functioning and even administrative. The same is also the opinion of Prof. De Smith in his famous treatise in 'Judicial Review of Administrative Action' (Fourth Edn.) 1980. At page 201 of the said treatise Professor S.A. De Smith pointed out "it must be pointed out, however, that when the words 'hearing' or 'opportunity to be heard' are used in legislation, they nearly always denote a hearing at which oral submissions and evidence may be tendered. Professor S.A. de Smith was pleased to further add at page 201 of the same treatise that "In the absence of clear statutory guidance on the matter, one who is entitled to the protection of the audi-alteram partem Rule is now prima facie entitled to put his case orally."
34. Reference in his connection may be made to the decision in R. v. Immigration Appeal Tribunal reported in 1977 (2) All ER 602. In that case a deportation Order was set aside by Queens Bench decision consisting of Lord Widgery, C.J., Forbes and Slynn, JJ., on the ground that there was no oral hearing given to the person affected. Their Lordships gave their conclusion at page 608 of the said report in the following words :--
"On the other hand, it is possible that if the applicant had had an oral hearing before the Tribunal, on the hearing of his appeal, further matter could have been advanced on his behalf. On our judgment, he has been deprived of that opportunity. Whether any thing new will emerge of whether he can persuade the Tribunal, of course, remains to be seen and nothing in this judgment is intended to have any bearing on the question whether this is a case in which the power given under Regulation 11(4) should be exercised. We do, however, consider that the right course is that the decision of the Tribunal should be quashed and the matter should go back for the Tribunal to hear the appeal."
35. In this connection further reference may be made to the decision of U.S. Supreme Court in Golbberg v. Kelly, (1970) 397 US 254. At page 269 of the report, the law has been so stated:
"the opportunity to be heard must be tailored to the capacities and circumstances of those who are to be heard. Written submissions are an unrealistic option for most recipients who lack the educational attainment necessary to write effectively and who cannot obtain professional assistance. Moreover, written submission do not afford the flexibility of oral presentations; they do not permit the recipients to mould his arguments to the issues the decision makers appears to regard as important. Particularly where credibility and veracity are at issue, as they must be in many termination proceedings, written submissions are a wholly unsatisfactory basis for decision."
36. I am, with great respect accepting the said statement of law as correctly summarising the requirement of the opportunity of being heard contemplated under Sections 18(2) and 39 of the said ACT.
37. The phrase 'reasonable opportunity of being heard' has not been defined either in the Constitution or under the provisions of the said Act but the said expression has been construed by a Constitution Bench judgment of the Supreme Court in the celebrated decision of Khemchand v. Union of India reported in AIR 1958 SC 300. The same phrase, namely, 'reasonable opportunity of being heard' occurs in Article 311(2) of the Constitution of India. The said procedural safeguards have also been engrafted in the Constitution in connection with the imposition of penalty on a member of Civil services. In other words the said safeguard under the Constitution also occurs in connection with the provision relating to imposition of penalties. Therefore, the elucidation and judicial interpretation which the said phrase has received by the Supreme Court, in my view, is applicable in connection with penal provisions which are now being considered in this judgment. While construing the ambit and scope of 'reasonable opportunity of being heard', the Constitution Bench of the Supreme Court in Khemchand's case (supra) has been pleased to observe as follows at page 307 :--
"(a) an opportunity to deny his guilt and establish his innocence, which he can only do if he is told what the charges levelled against him are and the allegations on which such charges are based.
(b) an opportunity to defend himself by cross-examining the witnesses produced against him and by examining himself or any other witnesses in support of his defence; and finally,
(c) an opportunity to make his representation as to why the proposed punishment should not be inflicted on him, which he can only do if the competent authority, after the enquiry is over and after applying his mind to the gravity or other wise of the charges proved against the Government servant tentatively proposes to inflict one of the three punishments and communicates the same to be Government servant."
38. Though there are some vital contextual differences between the grant of reasonable opportunity of being heard to a member of the Civil Services and to an assessee under the said Act substantially and on principle it is the same, namely, grant of reasonable opportunity of hearing against imposition of penalty. In such a context, the Supreme Court has by the word 'hearing' obviously meant an oral hearing. I respectfully adopt the said elucidation of the scope of hearing in respect of the legislative intent behind the expression 'reasonable opportunity of being heard' occurring in Section 18(2) of the said Act read with Section 39 thereof.
39. I am adopting the aforesaid interpretation in view of the fact the word 'reasonable opportunity of being heard' must be construed in the background that penalty cannot be imposed by the authorities concerned where an assessee can satisfy the concerned officer that he had reasonable cause for the delayed furnishing of the return. It has been observed by the Supreme Court inHindustan Steel Limited v. State of Orissa reported in 25 STC 211 : (AIR 1970 SC 253) in the following words (at p. 256 of AIR):
"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 to the obligation. Penalty would not be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform 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."
40. 1 hold that before levying penalty under Section 18(l)(a) of the said Act, the same conditions must be fulfilled. Therefore, the officer concerned must address himself to the aforesaid question and these questions can only be decided satisfactorily only upon an oral hearing being given to assessee and not otherwise. A decision of the above questions without an oral hearing whether such hearing is demanded pr not, will be an unfair decision. Any decision with is unfair and arbitrary falls foul of the principles of Article 14 of the Constitution of India which envelopes within itself requirement of fairness which, in turn, in these days is a requirement of the principles of natural justice. Therefore, having regard to the developments of the principles of natural justice as well as the dynamic interpretation of Article 14 of the Constitution by the Apex Court in a series of decisions it is no longer open to the Wealth-tax Authorities acting under Section 18(1)(a) read with Section 18(2) of the said Act to decide the liability of penalty of an assessee merely on the basis of consideration of a written representation given by the assessce. In my opinion, he must offer the assesses an opportunity of oral hearing and if that opportunity is not availed of by the assessee, that is of course a different matter but without offering the assessee an opportunity of oral hearing, the decision made on the basis of consideration of the written representation only, is bound to be an unfair one and, in my view, such a decision does not satisfy the mandatory requirement of Section 18(2) of the said Act,
41. In view of the fact that 1 have taken the aforesaid view about the obligation of the Wealth-tax Officer where he is acting in discharge of his statutory power under Section 18(l)(a) read with Section 18(2) and Section 39 of the said Act, it is not possible for me to approve the contrary view taken in three decisions of the Patna High Court in Murlidhar Tejpal v. C.I.T. reported in (1961) 42 ITR 129, Commissioner of Wealth-tax v. Gilliram Suggiram reported in (1990) 186 ITR 445 and C.I.T. v. Lalji Das Agarwalla reported in (1991) 190 ITR 429. I, on the other hand, approve the ratio of the decision of the Andhra Pradesh High Court in Anantha Naganna Chetty v. C.I.T. (A.P.) reported in 78 ITR 743 : (AIR 1970 Andh Pra 367) and the decision of Calcutta High Court in the case of C.I.T. v. Chitra Mukherjee reported in 127 ITR 252: (1981 Tax LR 82) and the decision of Kerala High Court in Commissioner of Income-tax v. M. Sree Dharan reported in (1991) 191 ITR 604 : (1991 Tax LR 424).
42. In view of discussions made above, this Court answers the question in the affirmative and in favour of the assessee and against the Revenue.
43. Let a copy of this judgment under the seal of this Court and the signature of the Registrar be forwarded to the Income-lax Appellate Tribunal, Patna Bench, Patna.
K. Section Paripoornan, C.J.
44. I agree.
Naresh Kumar Sinha, J.
45. I agree
Print Page
Then again in the same page their Lordships were of the view that
"So far as personal hearing is concerned, it seems to us to be plain that such a hearing can have some meaning only if it is given by the very person who has to ultimately decide the matter. Oral hearing by one officer cannot possibly be of any advantage to his successor in deciding a case. To hold otherwise would amount to saying that the force of a hearing is equal to a real, genuine and effective hearing."Personal hearing enables party appearing at such hearing to persuade the authority concerned by reasoned arguments to accept his point of view. Therefore, in the fitness of things, it is same authority which has to decide must hear."
Patna High Court
Commissioner Of Wealth-Tax, ... vs Jagdish Prasad Choudhary, ... on 19 May, 1994
Equivalent citations: AIR 1996 Pat 58, 1995 211 ITR 472 Patna
Bench: K Paripoornan, N K Sinha, A K Ganguly
1. This is a reference at the instance of the revenue.
2. The question which has been referred to this Court under Section 27(1) of the Wealth-tax Act, 1957 (hereinafter referred to as the said
Act) is set out below :--
"Whether on the facts and in the circumstances of the case, the Tribunal was justified in cancelling the penalties imposed under Section 18(l)(a) of the Wealth-tax Act, 1957 on the ground that no reasonable opportunity of being heard was given by the successor Wealth-tax Officer before passing the Order imposing penalties under Section 18(l)(a) of the aforesaid Act to the assessee for the assessment years 1968-69 to 1970-71?"
3. The facts of this case, which are not very much in dispute, are stated as follows:--
For the late filing of wealth-tax returns, penalty proceedings were initiated against the assessee for the assessment years 1968-69, 1969-70, 1970-71. On or about 14th March, 1973 three similar show cause notices were issued by Mr. N. Dubey, the concerned Wealth-tax Officer in respect of the aforesaid three assessment years calling upon the assessee to show cause on or before 8th May, 1973 why penalty should not be levied. The assessee did not respond to those show cause notices. Pursuant to those show cause notices, no penalty was, however, imposed by Shri Dubey either on 8th May, 1973 or thereafter. Mr. Dubey was thereafter succeeded by another Wealth-tax Officer, namely, Smt. C. Merwar.
4. The matter was thus kept pending. It is an admitted position that no notice or intimation was ever given to the assessee of the fact that the original officer, who issued the show cause notices, has been succeeded by another officer. Thereafter on or about 26th March, 1975 Smt. C. Merwar levied a penalty of Rs. 481/-in respect of the assessment year 1968-69, a penalty of Rs. 14,399/- for the assessment year 1969-70 and a penalty of Rs. 4,185/- for the assessment year 1970-71. All these orders of levy of penalty have been passed under Section 18(l)(a) of the said Act.
5. These three penalty orders were challenged on appeal by the assessee before the Appellate Assistant Commissioner unsuccessfully. Thereafter the assessee filed Wealth-tax Appeals Nbs. 118 to 120 (Patna) of 1978-79 before the Appellate Tribunal and contended, inter alia, that after the issuance of show cause notice, the case remained pending for about two years and the Wealth-tax Officer, who issued the show cause notices, was succeeded by another and the assessee was not put on notice of the fact that the original officer has been succeeded by another officer. It was also contended that the assessee was not given a reasonable opportunity of being heard by the succeeding officer Smt. C. Merwar, who imposed the penalty. As such the penalty orders are bad. These contentions found favour with the Appellate Tribunal and it came to the finding that the assessee was not granted a reasonable opportunity of hearing before levy of the penalty and as such the penalty orders were annulled. Thereafter, at the instance of the revenue, the aforesaid question was referred to the High Court for its , decision.
6. The matter was taken up by the High Court for hearing on 4th March, 1994. On that date a Division Bench of this Court consisting of the Hon'ble the Chief Justice and Hon'ble Mr. Justice Naresh Kumar Sinha referred the matter to a larger Bench in view of the divergence of judicial opinion of different High Courts on the interpretation of Section 18(1) read with Section 39 of the said Act and in view of the fact that a substantial question of law is involved in such interpretation. Accordingly, the matter was heard before this larger Bench.
7. The question involved in this reference relates to the interpretation of the scope of Section 18(l)(a), 18(l)(b), 18(2) and 39 of the said Act. For the proper appreciation of the points involved, those sections of the said Act are set out below:--
"18.(1) If the Wealth-tax Officer, Appellate Assistant Commissioner, Commissioner or Appellate Tribunal in the course of any proceedings under this Act is satisfied that any person --
(a) has without reasonable cause failed to furnish the return which he is required to furnish under Sub-Section (1) of Section 14 or by notice given under Sub-Section (2) of Section 14 or Section 17, or has without reasonable cause failed to furnish it within the time allowed and in the manner required by Sub-Section (1) of Section 14 or by such notice, as the case may be; or
(b) has without reasonable cause failed to comply with a notice under Sub-Section (2) or Sub-Section (4) of Section 16;
XXX XXX XXX
18. (2) No order shall be made under Sub-Section (1) unless the person concerned has been given a reasonable opportunity of being heard.
39. Whenever in respect of any proceeding under this Act any wealth-tax authority ceases to exercise jurisdiction and is succeeded by another who has and exercises such jurisdiction, the authority so succeeding may continue the proceeding from the stage at which the proceeding was left by his predecessor :
Provided that the assessee concerned may demand that before the proceeding is so continued the previous proceeding or any part thereof be re-opened or that before any Order of assessment is passed against him, he be re-heard."
8. Almost similar provisions relating to levy of penalty including the procedural safeguards against such levy are found in other taxation laws, namely, Section 274 and 129 of the Income-tax Act, Section 17,17(2), 17-A and 17-A(4) of the Gift-tax Act as also Section 10-A(i) of the Central Sales Tax Act, 1956.
9. On a glance at the provisions of Section 18(l)(a) and 18(l)(b) of the said Act, it is clear that the levy of penalty contemplated under those sections does not by way of legislative mandate fasten an absolute liability on the assessee concerned. The imposition of penalty is at the discretion of the officer concerned on a relevant consideration of various factors. In other words, even in case of a default contemplated under Section 18(l)(a) and 18(l)(b) of the said Act, levy of penalty is not a must inasmuch as it is clear from the wording of those sections that no penalty shall be imposable if the assessee concerned shows that there was a reasonable cause for the failure referred to in those sections. About the existence or otherwise of a reasonable cause, the concerned assessee is, therefore, entitled to offer a factual explanation and it is incumbent upon the officer concerned to be satisfied about the existence or the absence of the reasonable cause in the context of the explanation offered. It goes without saying that the concerned officer in arriving at his satisfaction in such a situation is acting in a quasi-judicial capacity and the proceeding being one for imposition of penalty is a quasi-criminal one. Therefore, the satisfaction has to be reached by the concerned officer objectively and on consideration of relevant and germane materials only and to the total exclusion of extraneous and irrelevant considerations. Today this position in law is far too well settled to require reiteration of any authority and this Court proceeds to decide the questions involved in this case on the aforesaid basic assumption of the legal position.
9A. It is in the background of the such statutory exercise of power of the officer concerned, the Court has to consider and examine the scope, content and the gist of the right given to the person concerned under Section 18(2) of the said Act. The right given is a very valuable one, namely, a right of getting a reasonable opportunity of being heard. The said right is a facet of one of the well known principles of natural justice, namely, audi alteram partem.
10. Now the controversy here is over the exact connotation of the word 'heard' occurring in Section 18(2) of the said Act -- whether it means to be heard 'orally' and through ears or whether hearing in the present context means a mere consideration of the case as made out in written representation.
11. Inextricably mixed up with the consideration of the above question is an incidental query, namely, whether such an oral hearing can be given only on the request of the person concerned or whether under the scheme of the said Act it is an implied obligation of the concerned authority to offer an opportunity of an oral hearing to the person affected. In this context the interpretation of Section 39 of the said Act assumes a very great significance.
12. Section 39 of the said Act deals with the effect of transfer of authorities during the pendency of a proceeding. It provides that in such a case, when an authority initiating the proceeding is succeeded by another, the authority so succeeding, may continue the proceeding from the stage at which the proceeding was left by the predecessor but the succeeding officer can do so subject to certain rights given to the assessee. The proviso gives a right to the assessee to demand that before the proceeding is so continued by the succeeding officer, the previous proceeding or a part thereof may be re-opened or that before any order is passed against him, he may be re-heard. This condition obviously implies and postulates that before the assessee can demand the right given to him under the proviso, he must necessarily have a right to be put on notices of the two facts, namely :
(a) that the previous authority who was so long continuing the proceeding has been succeeded by another officer; and
(b) that the officer so succeeding wants to continue the proceeding from the stage at which the proceeding was left by this predecessor.
13. It is upon his being informed of the aforesaid two facts, that the assessee can make an effective exercise of his right to demand that the previous proceeding or part thereof may be re-opened or that he may be re-heard before a final Order is passed in the proceeding. This is an opportunity of hearing at a pre-decisional stage.
14. It is faintly argued on behalf of the revenue that it may not be convenient for the department to inform the assessee in such cases, It may be so. But we know that often justice and convenience are not on speaking terms. Therefore, this plea of the revenue cannot be accepted in view of statutory provision now under consideration.
15. I am compelled to take this view that the obligation of the concerned authority to inform the assessee of the facts stated at (a) and (b) above is inbuilt in Section 39 of the said Act. I am of this view primarily for the reason that transfer of officers, while a proceeding is pending, is an official act of which the assessee can have no clue unless he is informed. Therefore, in a given case the valuable safeguard and right given to the assessee will be defeated if he is not informed of the facts pointed out at (a) and (b) above. Such a valuable right given to the assessee under the proviso to Section 39 of the said Act cannot be made to depend on the mere chance of his being informed. Therefore, the obligation of the revenue to inform the assessee is inherent in the very scheme of Section 39 of the said Act.
16. Apart from that, the other compelling reason which weighs with me in taking this view is the well known principle of statutory construction that while construing a provision which creates a right, the Court will always lean in favour of a construction which saves the right rather than the one which defeats it. Francis Bennion in his treatise 'Statutory Interpretation' -- 2nd Edition, (Butterworths) at page 411 and Section 198 stated this principle in the following words :--
"It is a Rule of law that the legislator intends the interpreter of an enactment to observe the maxim ut res magis valeat quam pareat; so that he must construe the enactment in such a way as to implement, rather than defeat, the legislative purpose."
17. I am further emboldened to take this view having regard to the fact that Section 39 of the said Act provides a salutary safeguard which is attracted even in case of levy of penalty. Here again I quote the following passage at page 573, Sec. 271 from Bennion's Treatise (supra) to illustrate the principle of construction of safeguards in a penal statute :--
"It sometimes happens that a penal enactment contains provisions giving relief from the imposed penalty in specified cases. It may be clear that a particular detriment is imposed, unless the case can be brought within a problematical exception. Here the presumption against doubtful penalisation requires that the exception be construed liberally (that is in favour of the subject). If it is doubtful whether an exception to a penalty applies, it is doubtful whether the penalty itself applies."
18. Keeping those principles in mind, I am of the view that reasonable opportunity of hearing mentioned in Section 18(2) of the said Act means a reasonable opportunity of oral hearing and similarly 're-heard' mentioned in Section 39 of the said Act would mean reasonable opportunity of 're-heard'.
19. This construction would obviously flow from a combined reading of the safe-gurads given in Section 18(2) with Section 39 of the said Act. In other words if the legislative intent of giving a reasonable opportunity of hearing is confined merely to a consideration of the written representation without an oral hearing, in that case there is no meaning in giving an opportunity of re-opening of the case or an opportunity of being re-heard before the succeeding officer. To put it differently, if the-legislative intent behind the expression 'hearing in Section 18(2) of the said Act does not mean a personal and an oral hearing in that case the succeeding officer can continue with the proceeding on the basis of the materials on record and there is no purpose in giving a right to the assessee to demand a re-opening of the proceedings or demand a re-hearing. The legislative intent behind giving to the assessee a right of re-opening of the proceeding or a right of re-hearing in it becomes meaningful only if the right of hearing given in Section 18(2) of the said Act is construed as a right of oral and personal hearing. Therefore, what was implicit in Section 18(2) of the said Act becomes explicit on a combined reading of Section 18(2) with Section 39 of the said Act. Any other construction, in my view, will dilute and water down the procedural safeguards given to an assessee in the penal provision of a taxing law and such a construction which has the effect of weakening and diffusing protection given to a subject in a penal provision must be avoided.
20. In the view which I am taking, I am supported by the decision of Andhra Pradesh High Court in the case of Anantha Naganna Chetty v. C.I.T. reported in 78 ITR 743 : (AIR 1970 Andh Pra 367). That was a case of penalty proceeding under Section 28(3) of the Income-tax Act, 1922 read with Section 5(7C) of the said Act. Those were the corresponding provision of Sections 274 and 129 of the Income-tax Act, 1961.
21. The Division Bench of Andhra Pradesh High Court in that case while construing the provision of Section 5(7C) held as follows (paras 13 and 14 of AIR) :--
"It is not disputed that in very many cases the penalty proceedings are kept in abeyance awaiting the final result of the assessment proceedings and, although notice under Section 28(3) is served upon the assessee and he filed a written explanation, for months and sometimes years together the penalty proceedings are kept in abeyance and the assessee has no knowledge as to what has happened or is happening except when he gets the final Order made in the proceedings served upon him. In such a case, if the assessee, due to a long lapse of time, assumes that his explanation perhaps was found to be satisfactory and proceedings were dropped, he cannot be said to be altogether wrong in such assumption. If officer after officer succeed when proceedings are thus pending and the assessee does not even know about such transfers then how is he to exercise his right to demand re-opening or re-heard if he has no notice that the succeeding officer proposes to continue the proceedings. The assessee must, therefore, be told about the intention of the succeeding officer to continue the proceedings and who can tell him so, except the succeeding officer who proposes to continue the proceedings and who also knows that he cannot continue the proceedings if he is told by the assessee that he wants him to re-open the case or give him a re-hearing. It is thus inherent in the situation that the succeeding officer should give notice to the assessee not under Section 28(3) but under Section 5(7C) itself intimating him that the succeeding officer proposes to continue the proceedings. This intimation alone would provide the assessee with an opportunity to exercise or decline to exercise the right given to him by the first proviso to Section 5(7C). The second proviso lends considerable support to such a construction. The notice is thus necessarily implied in the provisions of Section 5(7C) as the right to continue the proceedings is made dependant upon the assessee's right of demanding re-opening or re-hearing of the case. It cannot be assumed that the Legislature has given with one hand right to the assessee to demand re-opening or re-hearing and has taken away that right with the other by not intending to inform him about the opportunity to exercise such a right by not expecting any notice to be given to be assessee by the succeeding officer of his intention to continue the proceedings. Any such interpretation would mean that the enactment has conferred on the assessee a mere illusory right.
In this connection, it is well to remember that the proceedings under the Act, which can be said to fall within the purview of Section 5(7C), are of quasi-judicial character. The penalty proceedings in any case are of aquasi-criminal nature. It can, therefore, safely be presumed that the Legislature while conferring the power on the succeeding officer to continue the proceedings from the stage where it was left by his predecessor thought it proper to provide an opportunity to the assessee to demand the re-opening or rehearing of the case and that is why the power to continue the proceedings is made subject to such a right. The notice, therefore, for the exercise of such right becomes necessary."
The learned Judges in Anantha Naganna Chetty (AIR 1970 Andh Pra 367) (supra) after considering the famous treatise of Maxwell and Craies on the interpretation came to the following conclusion at page 751 (of ITR): (at page 371 of AIR):--
"We are, therefore, satisfied that even though Section 5(7C) does not in terms or expressly provide for any notice by the succeeding office to the assessee informing him of his intention to continue the proceedings from the stage at which his predecessor has left, by necessary implication it provides for such an intimation. We must, we think, infer from the power given to the succeeding officer that such a notice was intended by the legislature. When the legislature has directed something to be done, it must be considered to have empowered something ancillary to be done which is necessary in Order to accomplish the ultimate object of Section 5(7C). What must follow is that the succeeding officer must give notice to the assessee before he decides to continue the proceedings from the stage where it was left by his predecessor."
1 am in respectful agreement with the aforesaid statement of law and they apply also to the interpretation of Section 37 of the said Act.
22. There is a still more recent judgment of Calcutta High Court in the case of Commissioner of Income-tax, West Bengal-IV v. Smt. Chitra Mukherjee reported in 127 ITR 252 : (1981 Tax LR 82). The Hon'ble Judge of the Division Bench relying on the aforesaid decision of Andhra Pradesh High Court in Anantha Naganna Chetty (AIR 1970 Andh Pra 367) (supra) came to the conclusion that penalty proceeding under Section 271 (l}(a) of the Income-tax Act, 1961 was not only quasi-judicial but also quasi-criminal and the revenue in Order to impose penalty has to discharge its onus in strict compliance of the law. The learned Judges of the Division Bench in the case of Smt. Chitra Mukherjee (supra) had gone to the extent of holding that even in a case where there is no response from the assessee to the notice under Section 274 of the Income-tax Act issued by the predecessor I.T.O., which is similar to the factual position in this case, the successor or Income-tax Officer has no authority to pass an Order of penalty under Section 271(l)(a) of the Income-tax Act without giving the assessee a fresh opportunity of being heard. I follow the ratio of the said judgment in Chitra Mukherjee's case (supra).
23. In another decision of a Division Bench of Punjab & Haryana High Court in the case of Ram Saran Das Kapur v. Commissioner of Income-tax, Patiala reported in AIR 1969 Punj & Har 429, the learned Judges of the Division Bench on a construction of Sections 28 and 5(7C) of the Income-tax Act came to the conclusion that the hearing contemplated under Section 28 of the Act is a personal hearing. At page 432 the said Division Bench held as follows :--
"It is well known that no amount of written representation, however, detailed, can in all cases, he treated as an equally effective substitute of a personal hearing. It is easier for an assessee to persuade an assessing authority to his point of view by removing his doubts and by answering his questions at a personal hearing, than by merely availing of the cold effect of a written representation."
Then again in the same page their Lordships were of the view that
"So far as personal hearing is concerned, it seems to us to be plain that such a hearing can have some meaning only if it is given by the very person who has to ultimately decide the matter. Oral hearing by one officer cannot possibly be of any advantage to his successor in deciding a case. To hold otherwise would amount to saying that the force of a hearing is equal to a real, genuine and effective hearing."
24. In coming to the aforesaid conclusion their Lordships relied on the judgment of the Supreme Court in Nageshwara Rao v. Andhra Pradesh State Road Transport Corporation reported in AIR 1959 SC 308 where a similar quest ion arose relating to the duty of the State Government to give a personal hearing to Objectors against the scheme framed under Chapter IV-A of the Motor Vehicles Act, 1939. The procedure which had been prescribed by the State of Andhra Pradesh for the hearing of such objections was that the Secretary to the Government had to give personal hearing but the decision had to be given by Chief Minister. Their Lordships of the Supreme Court in that case held that (at p. 327).
"Personal hearing enables party appearing at such hearing to persuade the authority concerned by reasoned arguments to accept his point of view. Therefore, in the fitness of things, it is same authority which has to decide must hear."
In the context, the learned Judge of the Supreme Court was pleased to observe as follows (at p. 327):--
"If one person hears and another person' decides, then personal hearing becomes an empty formality."
25. On the same parity of reason, I am of the view that the hearing contemplated under Section 18(2) of the said Act is a personal hearing. In Order that such a personal hearing does not become 'an empty formality', the assessee has been given under Section 39 of the said Act a right of re-hearing before the succeeding officer inasmuch as the succeeding officer has not heard him at the stage of hearing under Section 18(2) of the said Act. Any other construction would defeat the purpose of hearing which is an oral hearing meant under Section 18(2) as also under Section 39 of the said Act.
26. It is well known that principles of natural justice are not, in the inimitable words of Lord Bridge, 'engraved on tablets of stone'. What are the requirements of the principles of natural justice have been very succinctly expressed by Lord Bridge in the case of Lloyd v. McMahon, a decision of the House of Lord, reported in (1987) 1 All ER 1118, at page 1161, of the said report Lord Bridge has equated the requirements of natural justice with that of fairness and has been pleased to observe as follows: --
"What the requirements of fairness demand when any body, domestic, administrative or judicial, has to make a decision which will affect the rights of individual depends on the character of the decision making body, the kind of decision it has to make and the statutory or other frame work in which it operates. In particular, it is well established that when a statute had conferred on any body the power to make decisions affecting individuals, the Courts will not only require the procedure prescribed by the statute to be followed, but will readily imply so much and no more to be introduced by way of additional procedural safeguards as will ensure the attainment of fariness."
27. Francis Bennion in his famous treatise 'Statutory Interpretation' -- 2nd Edition, (Butterworths) has also expressed the same view in page 739 (Section 329) which is set out below: --
"Procedural propriety is of more practical importance in relation to implied rather than express requirements. Here it is linked to the concept of fairness or natural justice which in relation to any statutory requirement is as Lord Denning put it, "implicit in the Act."
28. In the decision of Wiseman v. Borneman (1971) Appeal Case 297 at pages 308-309 Lord Morris of Borth-y-Gest explained the principle in following words :
".......... that the conception of natural justice should at all stages guide those who discharge judicial functions is not merely an acceptable hut is an essential part of the philosophy of law .... Natural justice, it has been said, is only 'fairness in action'."
29. Under our Constitution the apex Court has reiterated time and again that principle of natural justice is a facet of Article 14 of the Constitution of India, Therefore, in construing the provisions of Sections 18(2) and 39 of the said Act, I must be guided by the constitutional principles emanating from Article 14 of the Constitution of India. The Supreme Court has also equated the principles of natural justice with fairness in action and it has been consistently held that 'fairness in action' is an inbuilt content of Article 14 of the Constitution of India. Reference in this connection is made to the Constitution Bench judgment of the Supreme Court in the case of Delhi Transport Corporation v. D.T.C. Mazdoor Congress reported in AIR 1991 SC 101. Al paragraph 260 at page 195 of the majority judgment of the said case, the learned Judges of the Supreme Court came to this conclusion ;--
"The Maneka Gandhi's case (AIR 1978 SC 597) is also an authority for the proposition that the principles of natural justice is an Integral part of the guarantee of equality assured by Article 14 of the Constitution. In Union of India v. Tulsiram Patel, 1985 Suppl (2)SCR 131 at p. 233: (AIR 1985 SC 1416 at p. 1460), this Court held that the principles of natural justice thus come to be recognised as being a part of the guarantee contained in Article 14 because of the new and dynamic interpretation given by this Court to the concept of equality which is the subject matter of that Article. Shortly put, the syllogism runs thus :
xxxx xxxx xxxx
The principles of natural justice, however, apply not only to the legislation and State action but also where any criminal, authority or body of men, not coming within the definition of 'State' in Article 12, is charged with the duty of deciding a matter. In such a case, the principles of natural justice requires that it must decide such a matter fairly and impartially."
30. Similar view has been echoed in still more recent judgment of the Supreme Court in D. K. Yadav v. J.M.A. Industries Ltd. reported in (1993) 2 SCC 259 (267) : (1993 AIR SCW 1995), Paragraph 8 (of SCC) : (Paragraph 7 of SCW), the learned Judges have come to this conclusion :--
"The cardinal point that has to be borne in mind, in every case, is whether the person concerned should have a reasonable opportunity of presenting his case and the authority should act fairly, justly, reasonably and impartially. It is not so much to act judicially but is to act fairly, namely, the procedure adopted must be just, fair and reasonable in the particular circumstances of the case. In other words application of the principles of natural justice that no man should be condemned unheard intends to prevent the authority from acting arbitrarily affecting the rights of the concerned person."
31. In the instant case, fairness in action in the context of the penalty proceeding would demand that the assessee who is charged with the levy of penalty is given a reasonable opportunity of oral hearing. It is only by means of an oral hearing the assessee can have an opportunity of persuading the officer concerned that he has a reasonable cause for the default. Having regard to the provisions for levy of penalty, as has been discussed earlier, the assessee can plead reasonable cause as the justification for late furnishing of return. The word 'reasonable cause' has not been defined under the Act but it could receive the same interpretation which is given to the expression 'sufficient cause'. Therefore, in the context of penalty provision, the word 'reasonable cause' would mean a cause which is beyond the control of the assessee. 'Reasonable cause' obviously means a cause which prevents a reasonable man of a ordinary prudence acting under normal circumstances, without negligence or inaction or want of bona fide from furnishing the return in time. It is, however, made clear that I am not giving any exhaustive definition of the phrase 'reasonable cause' occurring in Sections 18(l)(a) and 18(I)(b) of the said Act. In other words, such an attempt is unnecessary and futile. The reasonableness of a cause will depend upon the facts and circumstances of each penalty case. All that 1 want to emphasis is that for convincing the officer concerned about the reasonableness of the cause which prevented the assessee from furnishing return in time, an oral hearing is a must. An oral hearing is necessary not only on grounds of fairness and for enabing of the assessee concerned, to record his case which has been described as to 'blow off steam'. Such an oral hearing is necessary on grounds of public policy and in public interest also as has been described by Prof. H.W.R. Wade in his article The Twilight of Natural Justice' published in 1951 in Law Quarterly Review Vol. 67 page 103, Prof. Wade observed that such an oral hearing is required in Order to clear well-meaning ignorance or carelessness of the officer concerned. Prof. Wade stated at page 106 of that article--
"The Rule is a safeguard not against perversity but against well-meaning ignorance or carelessness a much more likely danger. The official endowed with power, is kept in the light leading strings of fundamental justice. If he is only made to look fairly at the facts, that is the best security against an unreasonable decision."
In the said article Prof. Wade has quoted with approval the observation of Lord Loreburn L.C., in the case of Board of Education v. Rice reported in 1911 Appeal Cases 179 at page 182 of the said decision Lord Loreburn summarised the requirement of fairness which must be observed by any decision making authority:
"It will, I suppose, usually be of an administrative kind but some times it will involve matter of law as well as matter of fact, or even depend upon matter of law alone. In such cases, the Board of Education will have to ascertain the law and also to ascertain the facts. I need not add that in doing either they must act in good faith and fairly listen to both sides, for that is a duty lying upon every one who decides anything."
32. Therefore, the requirement of oral hearing must be insisted as a matter of public policy, namely, to prevent not only perverse decision but also to secure a decision which is not vitiated by well-meaning ignorance or carelessness due to absence of oral hearing.
33. It is well known that in modern time increasingly greater powers have been conferred upon the statutory authorities in administrative or quasi-judicial functioning. With the exercise of such functioning they are taking decisions which largely affects the citizens in every sphere of their life. Therefore, in taking such a decision and for that matter, in taking a fair decision, it becomes all the more necessary to give an oral hearing to the party affected by the decision in question and as such a requirement of oral hearing is implicit with the concept of fairness, in quasi-judicial functioning and even administrative. The same is also the opinion of Prof. De Smith in his famous treatise in 'Judicial Review of Administrative Action' (Fourth Edn.) 1980. At page 201 of the said treatise Professor S.A. De Smith pointed out "it must be pointed out, however, that when the words 'hearing' or 'opportunity to be heard' are used in legislation, they nearly always denote a hearing at which oral submissions and evidence may be tendered. Professor S.A. de Smith was pleased to further add at page 201 of the same treatise that "In the absence of clear statutory guidance on the matter, one who is entitled to the protection of the audi-alteram partem Rule is now prima facie entitled to put his case orally."
34. Reference in his connection may be made to the decision in R. v. Immigration Appeal Tribunal reported in 1977 (2) All ER 602. In that case a deportation Order was set aside by Queens Bench decision consisting of Lord Widgery, C.J., Forbes and Slynn, JJ., on the ground that there was no oral hearing given to the person affected. Their Lordships gave their conclusion at page 608 of the said report in the following words :--
"On the other hand, it is possible that if the applicant had had an oral hearing before the Tribunal, on the hearing of his appeal, further matter could have been advanced on his behalf. On our judgment, he has been deprived of that opportunity. Whether any thing new will emerge of whether he can persuade the Tribunal, of course, remains to be seen and nothing in this judgment is intended to have any bearing on the question whether this is a case in which the power given under Regulation 11(4) should be exercised. We do, however, consider that the right course is that the decision of the Tribunal should be quashed and the matter should go back for the Tribunal to hear the appeal."
35. In this connection further reference may be made to the decision of U.S. Supreme Court in Golbberg v. Kelly, (1970) 397 US 254. At page 269 of the report, the law has been so stated:
"the opportunity to be heard must be tailored to the capacities and circumstances of those who are to be heard. Written submissions are an unrealistic option for most recipients who lack the educational attainment necessary to write effectively and who cannot obtain professional assistance. Moreover, written submission do not afford the flexibility of oral presentations; they do not permit the recipients to mould his arguments to the issues the decision makers appears to regard as important. Particularly where credibility and veracity are at issue, as they must be in many termination proceedings, written submissions are a wholly unsatisfactory basis for decision."
36. I am, with great respect accepting the said statement of law as correctly summarising the requirement of the opportunity of being heard contemplated under Sections 18(2) and 39 of the said ACT.
37. The phrase 'reasonable opportunity of being heard' has not been defined either in the Constitution or under the provisions of the said Act but the said expression has been construed by a Constitution Bench judgment of the Supreme Court in the celebrated decision of Khemchand v. Union of India reported in AIR 1958 SC 300. The same phrase, namely, 'reasonable opportunity of being heard' occurs in Article 311(2) of the Constitution of India. The said procedural safeguards have also been engrafted in the Constitution in connection with the imposition of penalty on a member of Civil services. In other words the said safeguard under the Constitution also occurs in connection with the provision relating to imposition of penalties. Therefore, the elucidation and judicial interpretation which the said phrase has received by the Supreme Court, in my view, is applicable in connection with penal provisions which are now being considered in this judgment. While construing the ambit and scope of 'reasonable opportunity of being heard', the Constitution Bench of the Supreme Court in Khemchand's case (supra) has been pleased to observe as follows at page 307 :--
"(a) an opportunity to deny his guilt and establish his innocence, which he can only do if he is told what the charges levelled against him are and the allegations on which such charges are based.
(b) an opportunity to defend himself by cross-examining the witnesses produced against him and by examining himself or any other witnesses in support of his defence; and finally,
(c) an opportunity to make his representation as to why the proposed punishment should not be inflicted on him, which he can only do if the competent authority, after the enquiry is over and after applying his mind to the gravity or other wise of the charges proved against the Government servant tentatively proposes to inflict one of the three punishments and communicates the same to be Government servant."
38. Though there are some vital contextual differences between the grant of reasonable opportunity of being heard to a member of the Civil Services and to an assessee under the said Act substantially and on principle it is the same, namely, grant of reasonable opportunity of hearing against imposition of penalty. In such a context, the Supreme Court has by the word 'hearing' obviously meant an oral hearing. I respectfully adopt the said elucidation of the scope of hearing in respect of the legislative intent behind the expression 'reasonable opportunity of being heard' occurring in Section 18(2) of the said Act read with Section 39 thereof.
39. I am adopting the aforesaid interpretation in view of the fact the word 'reasonable opportunity of being heard' must be construed in the background that penalty cannot be imposed by the authorities concerned where an assessee can satisfy the concerned officer that he had reasonable cause for the delayed furnishing of the return. It has been observed by the Supreme Court inHindustan Steel Limited v. State of Orissa reported in 25 STC 211 : (AIR 1970 SC 253) in the following words (at p. 256 of AIR):
"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 to the obligation. Penalty would not be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform 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."
40. 1 hold that before levying penalty under Section 18(l)(a) of the said Act, the same conditions must be fulfilled. Therefore, the officer concerned must address himself to the aforesaid question and these questions can only be decided satisfactorily only upon an oral hearing being given to assessee and not otherwise. A decision of the above questions without an oral hearing whether such hearing is demanded pr not, will be an unfair decision. Any decision with is unfair and arbitrary falls foul of the principles of Article 14 of the Constitution of India which envelopes within itself requirement of fairness which, in turn, in these days is a requirement of the principles of natural justice. Therefore, having regard to the developments of the principles of natural justice as well as the dynamic interpretation of Article 14 of the Constitution by the Apex Court in a series of decisions it is no longer open to the Wealth-tax Authorities acting under Section 18(1)(a) read with Section 18(2) of the said Act to decide the liability of penalty of an assessee merely on the basis of consideration of a written representation given by the assessce. In my opinion, he must offer the assesses an opportunity of oral hearing and if that opportunity is not availed of by the assessee, that is of course a different matter but without offering the assessee an opportunity of oral hearing, the decision made on the basis of consideration of the written representation only, is bound to be an unfair one and, in my view, such a decision does not satisfy the mandatory requirement of Section 18(2) of the said Act,
41. In view of the fact that 1 have taken the aforesaid view about the obligation of the Wealth-tax Officer where he is acting in discharge of his statutory power under Section 18(l)(a) read with Section 18(2) and Section 39 of the said Act, it is not possible for me to approve the contrary view taken in three decisions of the Patna High Court in Murlidhar Tejpal v. C.I.T. reported in (1961) 42 ITR 129, Commissioner of Wealth-tax v. Gilliram Suggiram reported in (1990) 186 ITR 445 and C.I.T. v. Lalji Das Agarwalla reported in (1991) 190 ITR 429. I, on the other hand, approve the ratio of the decision of the Andhra Pradesh High Court in Anantha Naganna Chetty v. C.I.T. (A.P.) reported in 78 ITR 743 : (AIR 1970 Andh Pra 367) and the decision of Calcutta High Court in the case of C.I.T. v. Chitra Mukherjee reported in 127 ITR 252: (1981 Tax LR 82) and the decision of Kerala High Court in Commissioner of Income-tax v. M. Sree Dharan reported in (1991) 191 ITR 604 : (1991 Tax LR 424).
42. In view of discussions made above, this Court answers the question in the affirmative and in favour of the assessee and against the Revenue.
43. Let a copy of this judgment under the seal of this Court and the signature of the Registrar be forwarded to the Income-lax Appellate Tribunal, Patna Bench, Patna.
K. Section Paripoornan, C.J.
44. I agree.
Naresh Kumar Sinha, J.
45. I agree
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