P.A. Mohammed, J. 1. The main question involved in these cases is whether the levy of penalty under Section 17A(3) of the Kerala Agricultural Income-tax Act, 1950 (for short "the Act"), is automatic or it is subject to the discretionary power of the officer levying penalty.
2. The facts of the case are summarised hereunder : The writ petitioner is an assessee to the Agricultural Income-tax Act on the file of the Inspecting Assistant Commissioner, Agricultural Income-tax and Sales tax, Ernakulam. For the assessment years 1982-83 and 1983-84, the assessee filed revised returns on July 28, 1987, and May 14, 1988, declaring a total income of Rs. 5,89,404 and Rs. 2,69,459, respectively, as his share income from the firm known as "Pembra Coffee Plantation", Since the assessee was liable to pay the admitted tax along with the returns, it was not paid due to paucity of funds. The assessee therefore filed applications before the Inspecting Assistant Commissioner on July 28, 1987, and May 14, 1988, seeking permission to remit the arrears of tax in monthly instalments. Though no formal orders had been passed by the Commissioner on the said applications, the assessee continued to make the payment of tax in instalments. Such payment was noted in the proceedings of the Inspecting Assistant Commissioner dated April 26, 1988. An amount of Rs. 3,20,000 was thus remitted in instalments for the year 1982-83 ending with the last instalment made on March 7, 1988. Likewise an amount of Rs. 1,81,634 was remitted for the year 1983-84 ending with the last instalment made on July 18, 1988. Notwithstanding this the Inspecting Assistant Commissioner initiated proceedings proposing to impose penalty under Section 17A(3) of the Act for non-payment of the admitted tax for the aforesaid years. This proposal was opposed by the assessee and he filed objections. However, after overruling the objections, the Inspecting Assistant Commissioner passed orders levying penalty for 1982-83 and 1983-84. A penalty of Rs. 42,605 was imposed for the year 1982-83 and Rs. 3,998 for the year 1983-84. Being aggrieved, the assessee filed revision petitions before the Commissioner of Agricultural Income-tax, Trivandrum. The Commissioner, however, dismissed the revision petitions by a common order dated December 18, 1990. Challenging the said order, the assessee filed O. P. No. 2527 of 1991 before this court. That writ petition ultimately came up for hearing on March 20, 1991. After the hearing this court by the judgment dated March 20, 1991, remanded the case to the Commissioner observing whether the discretion has been properly exercised and whether two per cent. penalty should be imposed are matters which the Commissioner has to consider and enter a finding thereon. As against the said judgment of the learned single judge, the State has filed the present Writ Appeal No. 827 of 1991. Pursuant to the judgment of this court in O.P. No. 2527 of 1991, the Commissioner of Agricultural Income-tax passed an order on December 2, 1991. Though the Commissioner has considered the revision petition and affidavit filed by the assessee on March 27, 1991, the revision petition was however dismissed. That order has been challenged by the assessee in O. P. No. 2671 of 1992. Thus, the substantial question to be decided in the writ appeal as well as in O.P. No. 2671 of 1992 is one and the same.
3. Section 17A of the Act deals with self-assessment to be made by a person liable to furnish a return under Section 17 or Section 35 of the Act. Such person shall pay before furnishing the return the amount of tax on the total agricultural income admitted in the return and proof of payment of such tax shall be produced along with the return. Failure to comply with this requirement will result in the consequences contemplated in Sub-section (3) which is as follows :
"(3) If any person fails to pay the tax or any part thereof in accordance with the provisions of Sub-section (1), the assessing authority may direct that a sum equal to two per cent. of such tax or part thereof, as the case may be, shall be recovered from him by way of penalty for every month during which the default continues :
Provided that, before levying any such penalty, the person shall be given a reasonable opportunity of being heard."
4. The above provision will be attracted only in a case where a person failed to pay the tax or part thereof in accordance with the provisions of Sub-section (1). When such failure is established, the assessing authority may direct the assessee to pay a sum equal to two per cent. of such tax or part thereof by way of penalty for every month during which the default continues. The learned judge in the impugned judgment observed to the effect that the provisions contained in Section 17A(3) cannot be interpreted to mean that there is no discretion to the assessing authority as to the quantum of penalty. In that view of the matter, the learned judge remitted the case to the Commissioner for fresh decision after considering further representation, if any, to be made by the assessee. However, the Government Pleader challenges the above observation of the learned judge. On the other hand, counsel for the assessee challenges the order of the Commissioner dated December 2, 1991 (exhibits P-6 in O. P. No. 2671 of 1992), dismissing the revision observing that the assessing authority had not demanded penalty at the rate higher than two per cent. of the tax defaulted or delayed. In other words, the Commissioner took the view that the assessing authority had no discretionary power while fixing the quantum of penalty. Therefore, while deciding this question we found it necessary to examine the ambit and scope of the power of the assessing authority to levy penalty under Section 17A(3) of the Act.
5. At the outset it is necessary to examine the nature of the proceeding authorising to levy penalty under Sub-section (3) of Section 17A. Since this provision authorises the levy of penalty it is no doubt penal; but the question is whether it is criminal or quasi-criminal. The proceeding under this provision is not initiated by giving information to the police. The Supreme Court in Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26, held that an order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-judicial proceeding. "Quasi" means "as if similar to" and therefore it is not a criminal proceeding in the true sense of the term. Under this quasi-criminal proceeding penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. The Supreme Court in Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26 observed (page 29) :
"Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judically 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."
6. While dealing with the constitutional validity of Section 48 of the Haryana General Sales Tax Act on the ground of Article 14, the Supreme Court in Shiv Dutt Rai Fateh Chand v. Union of India [1984] 148 ITR 664, observed that the order levying penalty is quasi-judicial in character and involves exercise of judicial discretion. The degree of remissness involved in the default is a relevant factor to be taken into account while levying penalty, (see also (1) Cement Marketing Co. of India Ltd. v. Commissioner of ST (Asst.) [1980] 124 ITR 15 (SC); (2) Akbar Badrudin Jiwani v. Collector of Customs [1990] AIR 1990 SC 1579 ; (3) Hill Tiller and Co. v. Coffee Board [1979] AIR 1979 SC 1785). What is emerged from the above decisions is that a sound judicial discretion is conferred on the authorities in the matter of levying penalty for failure to carry out a statutory obligation.
7. The provisions contained in Section 17A(3) of the Act and Section 140A(3) of the Income-tax Act which is substituted by the Taxation Laws (Amendment) Act, 1975 (41 of 1975), are in pari materia. While dealing with the case coming under Section 140A(3) of the Income-tax Act, the Division Bench of the Andhra Pradesh High Court in Kashiram v. ITO [1977] 107 ITR 825, held that Section 140A which provides for payment of self-assessment tax is one of the modes of collection of tax devised by Parliament in exercise of its power of taxation. Every person earning taxable income has to provide for payment of taxes. Section 140A(3) is only a measure enacted for ensuring compliance with payment of self-assessment tax. A discretion is conferred on the Income-tax Officer in the matter of levying penalty. Even though, normally, an assessee is expected to pay the tax within 30 days of filing the return from out of the income earned by him, certain situations may arise where the assessee may not be able to pay tax within that time and, in such a case, if the assessee explains the circumstances to the satisfaction of the Income-tax Officer, he would not be exposed to penalty.
8. The Division Bench of the Madhya Pradesh High Court in CIT v. Vrajlal Manilal and Co. [1981] 127 ITR 512, a case coming under Section 140A(3) of the Income-tax Act, 1961, followed the decision of the Supreme Court in Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26. The Calcutta High Court in CIT v. Wesman Engineering Co. (P.) Ltd. [1976] 104 ITR 605, has observed that Sub-section (3) of Section 140A of the Income-tax Act does not cast an absolute duty on the Income-tax Officer to levy penalty on the failure of the assessee to pay the tax due on self-assessment within thirty days of furnishing his return. Under the section, the assessee is given an opportunity of being heard before any penalty is imposed. This opportunity would be illusory if the penalty was automatic. Further, under this section, the Income-tax Officer has discretion as to the rate of the penalty within the ceiling of 50 per cent. This also indicates that the penalty does not follow automatically under subsection (3). In CIT v. R. B. L. Banarsi Dass and Co. (P.) Ltd. [1977] 108 ITR 554 (P & H).
9. Chinnappa Reddy J. (as he then was) after interpreting Section 140A(3) observed (page 555) ;
"That necessarily implies that it is open to the Income-tax Officer to levy a penalty or not at all."
10. The following decisions are also relevant :
(1) Addl. CIT v. Free Wheels India Ltd. [1982] 137 ITR 378 (Delhi).
(2) CIT v. Mysore Fertiliser Co. [1984] 145 ITR 91 (Mad). What emerges from the above discussion is that the levy of penalty under Sub-section (3) of Section 17A is not automatic. The levy is always subject to the discretionary power of the officer who is empowered to levy penalty. The proviso to Sub-section (3) mandates that before levying the penalty the person concerned shall be given a reasonable opportunity of being heard. Despite this provision, if the penalty is imposed automatically or as a matter of course, then this proviso would become otiose or redundant. When the assessee is given such opportunity, he can place all the materials before the assessing authority in order to establish that there was no dishonest or contumacious conduct on his part in not making the payment of tax along with the return. If he succeeds in this, the assessing authority can absolve him from payment of penalty. As far as the present case is concerned, the assessee has filed a detailed affidavit before the Commissioner stating that he was not wilfully evading the payment of tax and the non-payment was due to paucity of funds. The Commissioner, according to us, failed to apply the principles governing the levy of penalty for the failure to pay the tax along with the return for the reason of the paucity of funds, In this context, we point out that the Division Bench of this court in CIT v. Chembara Peak Estates Ltd. [1990] 183 ITR 471 observed (page 475) :
"Paucity of funds and financial stringency have been considered good and sufficient reasons for explaining inability to pay the tax demanded . . ."
11. The Division Bench of the Madras High Court in CIT v. Mysore Fertiliser Co. [1984] 145 ITR 91 held that non-payment of tax due to financial difficulties could not be said to be based on any unreasonable view in the facts of the case while dealing with the penalty under Section 140A(3) of the Act.
12. In view of the discussion hereinabove, it is difficult for us to hold that exhibit P-6 order in O. P. No. 2671 of 1992 under Section 17A(3) of the Act is in consonance with the principles governing the levy of penalty. We therefore set aside exhibit P-6 order. The original orders issued by the Inspecting Assistant Commissioner evidenced by exhibits P-2 and P-3 in O.P. No. 2671 of 1992 are also set aside. The entire matter is remitted to the assessing authority to pass orders afresh in accordance with law and in view of the observations made above. In view of the fact that the entire matter is remitted to the assessing authority as above, Writ Appeal No. 827 of 1991 is dismissed.