MANU/SC/0062/1958Equivalent Citation: AIR1959SC352, [1959]Supp1SCR394

IN THE SUPREME COURT OF INDIA

Civil Appeal No. 122 of 1957
Assessment Year: 1948-1949
Decided On: 05.11.1958
Appellants:Commissioner of Income Tax, Delhi
Vs.
Respondent:S. Teja Singh
Hon'ble Judges/Coram:
A.K. Sarkar, P.B. Gajendragadkar and T.L. Venkatarama Aiyyar, JJ.
Income-tax Penalty by New assessee failing to send estimate of tax--absence of notice
to the assessee-Income-tax Officer competent to levy penalty.
JUDGMENT
T.L. Venkatarama Aiyyar, J.
1 . This is an appeal against the judgment of the High Court of Punjab in a reference
under section 66(1) of the Indian Income-tax Act, 1922, hereinafter referred to as the
Act.
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 1949-50 at Rs. 36,281. The correctness of these
orders is not in question before us. We are concerned in these proceedings with the
vires of an order, which the Income-tax Officer made on October 9, 1950, under section
28 read with sections 18A(3) and 18A(9) of the Act. It will be convenient to set out
these provisions, so far as they are material for the purpose of this appeal. Section
18A(3) provides that :
"Any person who has not hitherto been assessed shall, before the 15th day of
March in each financial year, if his total income of the period which would be
the previous year for an assessment for the financial year next following is
likely to exceed six thousand rupees, send to the Income-tax Officer an
estimate of the tax payable by him on that part of his income to which the
provisions of section 18 do not apply of the said previous year calculated in the
manner laid down in sub-section (1), and shall pay the amount, on such of the
dates specified in that sub-section as have not expired, by installments which
may be revised according to the proviso to sub-section (2)."
3. Section 18A(9) is as follows :
"If the Income-tax Officer, in the course of any proceedings in connection with
the regular assessment, is satisfied that any assessee -

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 (a) has furnished under sub-section (2) or sub-section (3) estimates of
the tax payable by him which he knew or had reason to believe to be
untrue, or
(b) has without reasonable cause failed to comply with the provisions
of sub-section (3),
The assessee shall be deemed, in the case referred to in clause (a), to have
deliberately furnished inaccurate particulars of his income, and in the case
referred to in clause (b), to have failed to furnish the return of his total income;
and the provisions of section 28, so far as may be, shall apply accordingly :".
4. Then, there is a proviso which imposes a limit on the amount of penalty, which can
be levied. Section 28 of the Act runs as follows :
(1) "If the Income-tax Officer, .... in the course of any proceedings under this
Act, is satisfied that any person -
(a) has without reasonable cause failed to furnish the return of his total
income which he was required to furnish by notice given under sub-
section (1) or sub-section (2) of section 22 or section 34 or has
without reasonable cause failed to furnish it within the time allowed
and in the manner required by such notice, or
(b) has without reasonable cause failed to comply with a notice under
sub-section (4) of section 22 or sub-section (2) of section 23, or
(c) has concealed the particulars of his income or deliberately furnished
inaccurate particulars of such income,
he... may direct that such person shall pay by way of penalty, in the case
referred to in clause (a), in addition to the amount of the income-tax and
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 clauses (b) and (c), in addition to any
tax payable by him, a sum not exceeding one and a half times the amount of
the income-tax and super-tax, if any, which would have been avoided if the
income as returned by such person had been accepted as the correct income :".
5. The Income-tax Officer held that as the respondent had failed to send an estimate of
the tax on his income as provided in section 18A(3) he became liable to be proceeded
against under section 28, and accordingly imposed a penalty of Rs. 40 for the year
1948-49 and Rs. 1,000 for the year 1949-50. On appeal, the Appellate Assistant
Commissioner confirmed the order in so far as it imposed a penalty for the year 1948-
49 but set it aside as regards the year 1949-50 on the ground that by reason of the
assessment for the year 1948-49 the respondent ceased to be a new assessee for 1949-
50, and that, in consequence, s. 18A(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 section 18A(3) of the Act, but held
that the order of the Income-tax Officer imposing a penalty under section 28 was ultra
vires, because that section would, in terms, apply only when a person failed to furnish
the return when he was required so to do by notice under section 22 or section 34 of
the Act, and that there could be no such notices with reference to estimates of tax on
income to be sent under section 18A(3). In the result, appeal was dismissed. On the

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application of the appellant, the Tribunal referred the following question for the opinion
of the High Court :
"Whether on a true construction of Section 18A(9)(b) read with section 28 of
the Indian Income-tax Act, 1922, a penalty may be imposed for a total failure
to comply with the provisions of Section 18A(3) of the said Act ?"
6 . The reference was heard by Bhandari, C.J., and Falshaw, J., who agreed with the
Tribunal that the conditions as to notice laid down in section 22(1) or section 22(2)
must be satisfied even when action was sought to be taken under section 28 in respect
of a failure to comply with section 18A(3), and that as those conditions had not been
satisfied, the order imposing penalty was bad. The appellant applied for a certificate
under section 66A(2) of the Act, and the same was granted, and that is how the appeal
comes before us.
7 . The sole question that arises for our determination in this appeal is whether under
section 28(1) read with section 18A(9) of the Act, it is competent to the Income-tax
authorities to impose a penalty on a person who has failed to comply with section
18A(3) of the Act. In answering it in the negative, the learned Judges in the court below
were influenced almost exclusively by the terms of section 28 which they held did not
cover failure to comply with section 18A(3). Now, section 28(1) provides for penalty
being imposed in three classes of cases which are mentioned respectively in clauses
(a), (b) and (c). Clause (b) deals with cases where there has been failure to produce
documents or accounts or other evidence which the assessee had been required to
produce under section 22(4) or section 23(2) of the Act, and that is not relevant for the
purpose of the present discussion. Then, there are clauses (a) and (c), and they have
reference, stating it in plain language, clause (a) to failure to make a return and clause
(c) to making false return. Now, the learned Judges observe that if an estimate of the
tax is furnished under section 18A(3) and that is deliberately inaccurate, that will fall
under section 28(1)(c) read with section 18A(9)(a) and penalty could be imposed under
that section, but that could not be done when there is failure to furnish an estimate as
required by section 18A(3), because sub-section (1) of section 28 would apply only
when a person failed to furnish the return when he had been required to do so by notice
under section 22(1) or section 22(2) or section 34, or had failed to furnish it within the
time allowed and in the manner required by the notice, and that there could be no such
notice with reference to section 18A(3). Say the learned Judges :
"In the first place, a person who fails to send an estimate under section 18A(3)
cannot be said to have failed to furnish the return of his total income which he
was required to furnish in response to a notice issued under section 22 or
section 34; secondly, the said person cannot be said to have failed to furnish it
within the time allowed and in the manner required by such notice, for,
estimates under section 18A(3) must be furnished before the 15th March in the
financial year immediately preceding the year of assessment whereas the
returns required by the notices under sections 22 and 34 can be furnished at
later dates."
8. With respect, the error in this reasoning lies in this that it fails to give due effect to
the fiction contained in section 18A(9)(b) of the Act. Under that provision, when an
assessee has failed to comply with section 18A(3) he "shall be deemed to have failed to
furnish the return of his total income and the provisions of section 28, so far as may be,
shall apply accordingly." In other words, by a legal fiction the failure to send an
estimate of the tax under section 18A(3) is treated as a failure to furnish return of

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income under section 22. It is a necessary implication of this fiction that the estimate of
tax on the income to be submitted under section 18A(3) is, in fact, different from the
return to be furnished under section 22, and to appreciate the full significance of this
fiction, it is necessary to examine what the distinction is. Under section 3 of the Act, the
tax is payable on the income of the previous year. A statement of that income can be
furnished only after that year ends, and section 22 enacts provisions as to when it is to
be furnished in the assessment year. Sub-section (1) and (2) provide for notices being
given and the assessee is required to file his statement of income within the period
provided therein, and it is this statement that is termed "return". Section 18A(3),
however, relates to the sending of a statement of tax on the income of the accounting
year before the 15th day of March of that year itself, and that statement is termed not a
return but an estimate, and quite rightly, because in the very nature of it, it can only be
that. A person who sends an estimate under section 18A(3) has also to send a return of
his income for the accounting year under section 22, and sub-sections (4) and (5) of
section 18A provide for adjustment of advance tax paid under section 18A(3) towards
the tax as finally computed under section 23. Thus, there is a clear distinction between
a return of income under section 22, which can only be during the year of assessment
and an estimate of tax on income under section 18A(3), which can only be in the year
of account.
9 . It is in the light of this distinction that the effect of the legal fiction enacted in
section 18A(9)(b) that when a person fails to send an estimate of tax on his income
under section 18A(3) he shall be deemed to have failed to furnish return of his income,
will have to be judged. The respondent contends that its effect is only to place the
estimate to be sent under section 18A(3) on the same footing as the return under
section 22 for purposes of section 28, and that that does not abrogate the other
conditions laid down in that section on which alone action could be taken thereunder
and penalty imposed, and one of those conditions is the issue of notice under section
22(1) or section 22(2). But it must be noted that section 18A(9)(b) does not merely say
that an estimate under section 18A(3) shall be deemed to be a return. It enacts that the
failure to send an estimate in accordance with section 18A(3) is to be deemed to be a
failure to make a return. Now, there can be no failure to make a return, unless notice
had been issued under section 22(1) or section 22(2) and there has been a default in
complying with that notice. Therefore, the fiction that the failure to send an estimate it
to be deemed to be a failure to send a return necessarily involves the fiction that notice
had been issued under section 22, and that had not been complied with. It is a rule of
interpretation well settled that in constructing the scope of a legal fiction it would be
proper and even necessary to assume all those facts on which alone the fiction can
operate. The following oft-quoted observations of Lord Asquith in East End Dwellings
Co. Ltd. v. Finsbury Borough Council [1952] A.C. 109, 132), may appropriately be
referred to :
"If you are bidden to treat an imaginary state of affairs as real, you must
surely, unless prohibited from doing so, also imagine as real the consequences
and incidents which, if the putative state of affairs had in fact existed, must
inevitably have flowed from or accompanied it. One of these in this case is
emancipation from the 1939 level of rents. The statute says that you must
imagine a certain state of affairs; it does not say that having done so, you must
cause or permit your imagination to boggle when it comes to the inevitable
corollaries of that state of affairs."
10. The fiction under section 18A(9)(b) therefore that failure to send an estimate under
section 18A(3) is to be deemed to be a failure to send a return must mean that all those

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facts on which alone there could be a failure to send the return must be deemed to
exist, and it must accordingly be taken that by reason of this fiction, the notices
required to be given under section 22 must be deemed to have been given, and in that
view, section 28 would apply on its own terms.
11. Some argument was addressed to us based on the use of the definite article "the"
qualifying the word "return" in section 18-A(9)(b). It was said that that expression
meant the return which is to be furnished under section 22, and that requires that there
must have been a notice issued under section 22(1) or section 22(2), before action
could be taken under section 28. In the view expressed above that the fiction enacted in
section 18-A(9)(b) involves the fiction that notices had been issued under section 22(1)
or section 22(2), this contention does not call for further consideration.
12. It was finally argued that a fiscal statute and especially one imposing a penalty,
should be strictly construed and that if the words of the enactment be not sufficiently
explicit to reach the subject, the Revenue must fail, and the following observations in
Vestey's (Lord) Executors v. Inland Revenue Commissioners ([1949] 1 All E.R. 1108,
1120), were relied on in support of this position :
"Parliament in its attempts to keep pace with the ingenuity devoted to tax
avoidance may fall short of its purpose. That is a misfortune for the taxpayers
who do not try to avoid their share of the burden, and it is disappointing to the
Inland Revenue. But the court will not stretch the terms of taxing Acts in order
to improve on the efforts of Parliament and to stop gaps which are left open by
the statutes. Tax avoidance is an evil, but it would be the beginning of much
greater evils if the courts were to overstretch the language of the statute in
order to subject to taxation people of whom they disapproved."
13. These observations would be in point if the language of the enactment left us in
any doubt as to what the legislature meant. But can that be said of section 18-A(9)(b) ?
Its object avowedly is to assimilate the position of a person who has failed to send the
estimate under section 18-A(3) to that of a person who has failed to furnish the return
under section 22, and that object is sought to be achieved by enacting the fiction which
is contained in section 18-A(9)(b). And if, on the principles laid down in East End
Dwellings Co. Ltd. v. Finsbury Borough Council ([1952] A.C. 109, 132), the true effect
of that fiction is that it imports that notice had been issued under section 22, then the
conditions prescribed in section 28 of the Act are satisfied and penalty could be
imposed under that section for failure to comply with section 18-A(3), on the clear
language of that enactment itself without straining or overstretching it.
1 4 . We must now refer to an aspect of the question, which strongly reinforces the
conclusion stated above. On the construction contended for by the respondent, section
18-A(9)(b) would become wholly nugatory, as sections 22(1) and 22(2) can have no
application to advance estimates to be furnished under section 18-A(3), and if we
accede to this contention, we must hold that though the legislature enacted section 18-
A(9)(b) with the very object of bringing the failure to send estimates under section 18-
A(3) within the operation of section 28, it signally failed to achieve its object. A
construction which leads to such a result must, if that is possible, be avoided, on the
principle expressed in the maxim, "ut res magis valeat quam pereat". Vide Curtis v.
Stovin ([1889] 22 Q.B.D. 513), and in particular the following observations of Fry, L.J.,
at page 519 :
"The only alternative construction offered to us would lead to this result, that

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 the plain intention of the legislature has entirely failed by reason of a slight
inexactitude in the language of the section. If we were to adopt this
construction, we should be construing the Act in order to defeat its object
rather than with a view to carry its object into effect".
1 5 . Vide also Craies on Statute Law, p. 90 and Maxwell on The Interpretation of
Statutes, Tenth Edn., pp. 236-237. "A statute is designed", observed Lord Dunedin in
Whitney v. Commissioners of Inland Revenue [1925] 10 Tax Cas. 88, 110), "to be
workable, and the interpretation thereof by a court should be to secure that object,
unless crucial omission or clear direction makes that end unattainable".
16. We are accordingly of opinion that it was competent to the Income-tax authorities
to impose a penalty under section 28 read with section 18-A(9)(b) where there has
been a failure to comply with section 18-A(3).
17. In the result, we set aside the order of the court below and answer the reference in
the affirmative. The appellant will have his costs here and in the court below.
18. Appeal allowed.

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