T. L. Venkatarama Aiyar, J. - (1.) This is an appeal against the judgment of the High Court of Punjab in a reference under S. 66 (1) of the Indian Income-tax Act, 1922, hereinafter referred to as the Act.
(2.) The facts are that the respondent had not been assessed to income-tax prior to the assessment year 1948-49. On July 4, 1949, he made 'suo- motu' returns showing an income of Rs. 4,494 for the accounting year 1947-48 being the previous year for the assessment year 1948-49 and an income of Rs. 31,646 for the accounting year 1948-49 being the previous year for the assessment year 1949-50. By orders dated August 25, 1949, the Income-tax Officer assessed the income for the assessment year 1948-49 at Rs. 6,277 and for the assessment year 194950 at Rs. 36,281. The correctness of these orders is not in question before us. We are concerned in these proceedings with the vires of an order, which the Income-tax Officer made on October 9, 1950, under S. 28 read with Ss. 18-A (3) and 18-A (9) of the Act. It will be convenient to set out these provisions, so far as they are material for the purpose of this appeal. Section 18-A (3) provides that. "Any person who has not hitherto been assessed shall before the 15th day of March in each financial year, if his total income of the period which would be the previous year for an assessment for the financial year next following is likely to exceed six thousand rupees, send to the Income-tax Officer an estimate of the tax payable by him on that part of his income to which the provisions of S.18 do not apply of the said previous year calculated in the manner laid down in sub-s. (1) and shall pay the amount, on such of the dates specified in that sub-section as have not expired, by instalments which may be revised according to the proviso to sub-s. (2)." Section 18-A (9) is as follows: "If the Income-tax, Officer in the course of any proceedings in connection with the regular asseassment, is satisfied that any assessee- (a) has furnished under sub-s. (2) or sub-s. (3) estimates of the tax payable by him which he knew or had reason to believe to be untrue, or (b) has without reasonable cause failed to comply with the provisions of sub-s. (3), the assessee shall be deemed, in the case referred to in cl. (a), to have deliberately furnished inaccurate particulars of his income, and in the case referred to in cl. (b), to have failed to furnish the return of his total income; and the provisions of S. 28, so far as may be, shall apply accordingly:" Then, there is a proviso which imposes a limit on the amount of penalty, which can be levied. Section 28 of the Act runs as follows: "If the Income-tax Officer..... ..in the course of any proceedings under this Act, is satisfied that any person- (a) has without reasonable cause failed to furnish the return of his total income which he was required to furnish by notice given under sub-s. (1) or sub-s. (2) of S. 22 or S. 34 or has without reasonable cause failed to furnish it within the time allowed and in the manner required by such notice, or (b) has without reasonable cause failed to comply with a notice under sub-s. (4) of S. 22 or sub-s. (2) of S. 23, or (c) has concealed the particulars of his income or deliberately furnished inaccurate particulars of such income, he.........may direct that such person shall pay by way of penalty, in the case referred to in cl. (a) In addition to the amount of the income-tax and super-tax, if any, payable by him a sum not exceeding one and a half times that amount, and in the cases referred to in cls, (b) and (c), in addition to any tax payable by him, a sum not exceeding one and a half times the amount of the income-tax and super-tax, if any, which would have been avoided if the income as returned by such person had been accepted as the correct income:"
(3.) The Income-tax Officer held that as the respondent had failed to send an estimate of the tax on his income as provided in S. 18-A (3) he became liable to be proceeded against under S. 28, and accordingly imposed a penalty of Rs. 40 for the year 1948-49 and Rs. 1,000 for the year 1949-50. On appeal, the Appellate Assistant Commissioner confirmed the order in so as it imposed a penalty for the year 1948-49 but set it aside as regards the year 1949-50 on the ground that by reason of the assessment for the year 1948-49 the respondent ceased to be a new assessee for 1949-50, and that, in consequence, S. 18-A (3) had no application. Against the order cancelling the penalty for 1949-50, the Income-tax Officer preferred an appeal to the Appellate Tribunal, which disagreed with the view of the Appellate Assistant Commissioner that the respondent was no longer a new assessee within S. 18-A (8) of the Act, but held that the order of the Income-tax Officer imposing a penalty under S. 28 was ultra vires, because that section would, in terms, apply only when a person failed to furnish the return when he was required so to do by notice under S. 22 or S. 34 of the Act, an that there could be no such notices with reference to estimates of tax on income to be sent under S. 18-A (3). In the result, the appeal was dismissed. On the application of the appellant, the Tribunal referred the following question for the opinion of the High Court: "Whether on a true construction of S. 18- A (9)(b) read with S. 28 of the Indian Income-tax Act,1922, a penalty may be imposed for a total failure to comply with the provisions of S. 18A(3) of the said Act - The reference was heard by Bhandari, C. J., and Falshaw, J. who agreed with the Tribunal that the conditions as to notice laid down in S. 22(1) or S. 22(2) must be satisfied even when action was sought to be taken under S. 28 in respect of a failure to comply with S. 18A(3), an that as those conditions had not been satisfied, the order imposing penalty was bad. The appellant applied for a certificate under S. 66A(2) of the Act, and the same was granted, and that is how the appeal comes before us.;