AVADH BEHARI ROHATGI J.

(1) IN these eight references E under Section 256 (1) of the Income Tax Act, 1961 ( the), four at the instance of the assessee and four a; the instance of Commissioner of Income Tax (C. I. T.), the following two questions Of law were referred for the opinion of the Court;

" (1) Whether on the facts and in the circumstances of the case, the Tribunal was right in holding (hat the Commissioner of Income Tax should have directed the Income Tax Officer to modify the original assessment order by including any interest under Section 215 that he might consider chargeable after duly considering. the provisions of that section and of rule 40 (1)

(2) Whether on the facts and in the circumstances the Commissioner of Income Tax was entitled in passing an order under Section 263 to revise the assessment order to direct the Income Tax Officer to initiate proceedings for the imposition of penalty under section 215 that he aright consider chargeable 1961"

(2) THE cases relate to the assessment year 1964-65. The assesses were served on August 30, 1963 with a notice under section 156 of thefor payment of advance tax under section 210. They filed their estimates of advance tax as required by section 212 (1) on 31-8-1963. Eventually they filed their return of income on November 11, 1964 for the assessment year 1964-65 showing considerably higher incomes than those estimated under section 212. The assessments, were completed on 8-3-1968 by the Income Tax Officer on even much higher figures than those shown by them in their returns. While framing the assessments theO did not charge any interest under section 215. Nor did he initiate any penalty proceedings under section 273 (a) of the.

(3) THE Commissioner of Income Tax was of the opinion that failure on the part of theO to charge interest from the assessees under section 215 and to initiate penalty proceedings under section 273 (a) was prejudicial to the interest of the revenue. He came to the conclusion that on both these points the order of theO was erroneous. He therefore set aside the assessments of theO in exercise of his powers under section 263 of the. He directed theO to make fresh assessments in each case and to take action for charging interest under section 215 and also initiate penalty proceedings under clause (a) of section 273 in the course of proceedings.

(4) FROM the order of the Commissioner of Income Tax the assessees appealed, to the Income Tax Appellate Tribunal. The Tribunal was of the view that theO did not direct his attention to the terms of section 215 and therefore his order was erroneous and projudicial to the interest of the revenue. They agreed with the CIT on. the question of interest and upheld his direction. On the other question they differed from him. They held. that the question regarding imposition of penalty under section 273 (a) was totally extraneous to the scope of the assessment and the Commissioner had no jurisdiction to direct theO to initiate penalty proceedings under section 273 (a). In the result they set aside the order of the Commissioner in so far as the initiation of penalty proceedings under section 273 (a) was concerned. The Tribunal then referred the above two questions on interest and penalty to this court.

(5) THE references were heard by a division bench of this court (S. S. Chadha and H. C. Goel JJ). On the first question regarding interest they were agreed that the Commissioner, was right in directing theO to consider the question of levy of interest which he had failed to do. But they were faced with a decision of another division bench reported as Commissioner of Income Tax v. Caxton Press (P) Ltd. (1981) 129 ITR 462 [delhi (1) D. K. Kapur and N. N. Goswami JJ] with which they disagreed. They found themselves in agreement with another decision of another division bench in Commissioner of Income Tax v. J. K. D Costa, 133 ITR 7 [LQ/DelHC/1981/211] (Delhi) (2) (S. Ranganathan and Leila Seth JJ). These two cases-Caxton and D Costa-being of co-equal authority taking different views on the subject are in conflict with each other, they thought. So Chadha and Goel JJ suggested that the conflict must be resolved.

(6) ON the second question of initiation of penalty proceedings the learned judges took diametrically opposite views. Chadha J. following D Costa and Additional Commissioner of Income Tax v. Achal Kumar Jain, (1983) 142 ITR 606 (Delhi) [LQ/DelHC/1982/137] (3) held that the Commissioner had no power to make a direction with regard to the initiation of penalty proceedings. Goel J. , however, took the opposite view. He disagreed with D Costa and Achal Kumar Jain of this court and preferred to follow the decisions of Madhya Pradesh High Court in Additional Commissioner of Income Tax v. Indian Pharmaceuticals, (1980) (1) 123 ITR 874 (4), Additional Commissioner of Income Tax v. Kanti Lal Jain, (1980) 125 ITR 373 (5) and Additional Commissioner of Income Tax v. Nathoo Lal Balram, (1980) 125 ITR 596 (6). Goel J. held that it was within the power of the Commissioner under section 263 to direct theO to initiate penalty proceedings under section 273 (a). On this difference of opinion the cases were referred to me under section 259 of the.

(7) BEFORE I proceed to deal with the two questions referred to us, I will deal with another question which was raised before me. It was suggested by counsel for the assessees that there being a conflict of decisions in this court on the matter of interest these references ought to have been placed before a full bench and not before a third judge. In my opinion there is no merit in this contention. Section 259 says-

"case before High Court to be heard by not less than two judges-

(1) when any case has been referred to the High Court under section 256, it shall be heard by a Bench of not less than two judges of the High Court, and shall be decided in accordance with the opinion of such judges or of the majority, if any, of such judges.

" (2) where there is no such majority, the judges shall state the point of law upon which they differ, and the case shall then be heard upon that point only by one or more of the other judges of the High Court, and such point shall be decided according to the opinion of the majority of the judges who have heard the case including those who first heard it. "

(8) IN accordance with this section the references under section 256 were heard by a bench of two judges of this court. On the first question they found that there was a conflict of decisions which required to be resolved. On the second point there was a sharp difference of opinion. So it became necessary to refer to a third judge. This is perfectly in accordance with section 259.

(9) THERE is no difference, really speaking, between a full bench of three judges sitting together and this method of referring to the third judge in the case of a difference of opinion between the A two judges. Whether the first method is adopted or the second, "opinion of the majority" will be decisive. In this case there is a formal reference to a third judge to ascertain his opinion. His is the deciding voice. He turns the scales. The third judge is the full bench. Not alone. But along with two others who first heard the case. Whether the three judges sit at the same time or at different times-two at one time, and the third hearing the matter later on a difference of opinion-does not make much difference. As has happened in this case, the two judges have differed. So the case bag come to me, the third judge. The two judges have expressed their opinion. I, am now called upon to give my opinion. The opinion of the majority will prevail. All that happens is that the third is segregated from the two and does not sit with them. He comes in later on when there is a difference of opinion between them. In all cases it is the theory of numbers which is the foundation of the doctrine of stare decisis. Majority is a term signifying the greater number. Counting of heads underlies the theory of judicial precedents as in any majority decision. The constitutional requirement of a constitution court of five judges is based on this theoiy. Similarly the Code of Civil Procedure of 1908 enacts that in case of difference of opinion the matter has to be referred to a third judge. (See Sec. 98, Civil Procedure Code.). In my opinion the reference was correctly made to me as the third judge.

(10) I now turn to the two questions referred to us. On the first question there is a plethora of precedents of the various High Courts. To name but a few of those cases I may mention; Addl. Commissioner of Income Tax v. J. K. Dcosta (1982) 133 ITR 7 (Delhi) (2), CIT v. Cochin-Malabar Estates Ltd. , (1974) 97 ITR 466 (Kerala) (7), Prem Chand Sita Nath Roy v. Additional Commissioner of Income Tax (1977) 109 ITR 751 (Calcutta) (8), Singho Mica lining Co. Ltd. v. Commissioner of Income Tax (1978) III ITR 231 (Calcutta) (9), Additional Commissioner of Income Tax v. Saraya Distillery (1978). 115 ITR 34 [LQ/AllHC/1978/298] (Allahabad) (10), Jagdish Rice Mills v. Commissioner of Income Tax (1978) 114 ITR 817 (M. P.) (II), R. R. Pictures v. Commissioner of Income Tax (1983) 143 ITR 429 (12) and Commissioner of Income Tax v. City Palayacot Co. (1980) 122 ITR 430 (Madras) (13). All these decisions uniformly take the view that the Commissioner has revisional jurisdiction under section 263 where the assessment order is silent as to the levy of interest under section 139 (8) or section 215 or section 217.

(11) UNDER section 215 theO must charge interest if he finds that there is no case of waiver or reduction of interest. So he has to make a speaking order. He has to give reasons why in his opinion he has waived or reduced interest. It is a quasi-judicial act when he makes an order under section 215. It is an essential constituent of a quasi-judicial proceeding that the parties must be heard by the authority and reasons must be given for the view that it takes. A waiver is conscious act and a mere omission or inaction on the part of theO to levy penal interest cannot be construed under any circumstances as an act of waiver. If he waives or reduces interest, he must give reasons. "on a combined reading of section 215 and rule 40, it appears to me that if theO fails to do his statutory duty the Commissioner exercising his owers under section 263. can direct theO to consider the levy of penal interest. " This is the view taken by this court in Dcosta. Chadha and Goel JJ agreed with this view. I am also of the opinion that Dcosta is an accurate statement of law.

(12) CAXTON (1981) 129. ITR 462 (Delhi) (1), it seems to me, is not in line with the preponderant view of the various High Courts. In that case theO did not levy interest. It was claimed by the assessee that he must be deemed to have waived it under rule 48 of the Income Tax Rules, 1922, and therefore it was not open to the Commissioner to revise the order. The tribunal accepted this view. On a reference the court agreed with the tribunal -.

(13) CAXTON was cited before Chadha and Goel JJ. They strongly dissented from it. They preferred the view taken in Dcosta (1982) 133 ITR 77" (Delhi) (2). But since Caxton was a decision of coequal authority, they could not overrule it. Caxton was their chief difficulty on the first Question.

(14) IN Caxton the gist of the view of the learned judges is expressed in this sentence : "on any reading of theOs order the Commissioner had no jurisdiction under section 33b of Indian I. T. Act, 1922, to set aside the order except if he had found that the delay in the assessment proceedings was attributable to the assessee. " This, they said, the Commissioner did not find. "the foundation of the Commissioners jurisdiction therefore", they continue, "did not exist and he could not have set aside the order of theO". On the facts of a particular case this may be so but the principle enunciated in that case is not correct. The judges upheld a silent order. But there is room for silence where there is a duty to disclose reason. , A silent order is as inscrutable as the face of the sphinx.

(15) THE learned judges in Caxton asked the right question : "is a specific order necessary; or can the waiving of the penalty be done without saying anything " But, with respect, their answer wrong. The underlying thought of their judgment is that theO need not pass a "specific order" and he can waive penal interest "without saying anything". There is much in the train of thought in the judgment of Caxton to suggest that in the view of the learned judges a speaking order is not an essential requirement of law under section 215 of the. This is not right. In CIT v. Cochin-Malabar Estates Ltd. , 97 ILR 466, 477 (7) the judges said :

"the Commissioner is certainly entitled to know on what grounds interest had been waived. "

(16) THE question of levy of penal interest is a matter of statutory obligation. It is a quasi-judicial proceedings. The authorities under the have to act judicially and one of the requirements of judicial action is to give a tair hearing to a person before deciding against him.-If interest is levied the assesste is entitled to know the reasons because that touches his pocket. If it is waived the Commissioner is entitled to know the reasons because it is prejudicial to revenue.

(17) IN my opinion Caxton is based on a view which is wrong in its initial assumption. The inarticulate major premise of the decision is that silence means waiver. The statute does not support such a construction. It is not for the Commissioner to find whether delay is attributable to the assessee or the department. It is for theO to find facts and if he find that the delay was not attributable to the assessee he can waive interest under rule 40. But he must find and say so. The ITO has to find that special circumstances exist in a case which justify waiver or reduction of interest chargeable under sec. 215 of the. Mere omission by ITO to charge penal interest cannot as a matter of law be regarded as waiver. (R. R. Pictures 143 ITR 429). (12). If he waives or reduces interest he must give. reasons. If he does not the Commissioner can direct him to decide the question of interest. In Caxton the learned judges overturned the statute. What was to be done by theO as a matter of duty they asked the Commissioner of Income Tax to do. This is an inversion of duties. The primary duty is of theO as a fact finding authority in deciding whether to levy interest or waive it. Section 215 (4) is addressed to the lto : "in such cases and under such circumstances as may be prescribed the Income Tax Officer may reduce or waive the interest payable by the assessee under this section. " The jurisdiction of the Commissioner is revisional, a sort of overseeing or over- view of what theO docs. It will indeed be a fine case of upside-down logic if the Commissioner were to start on a voyage discovery in each case to explore facts and reasons, "cases" and "circumstances" leading to waiver of interest simply because theO whose duty it was has chosen to say nothing on the subject of interest.

(18) A speaking order, by theO is, therefore, necessary. Section 215 casts a statutory duty on theO. The performance of a statutory duty involves the application of mind. Naural justice must be observed. The assessee must be heard. Section 215 requires theO to pass an order in the discharge of his quasi-judicial duty staling why he has not charged interest. If he waives interest he must state the circumstances in which A he does so. But he cannot waive interest "without saying anything". Say he must whether he charges interest or waives it. "a specific order" is the sine quo non of the exercise of a statutory power. There is no assumption or presumption that ITO has waived interest simply because he has chosen to remain silent. Silence is not waiver. There is a duty on theO to speak. If he does not speak he does not do his duty. Chadha and Goel JJ seem to be right in dissenting from Caxton. Their Criticism of this case is valid. I join them and hold that Caxton should be overruled here and now.

(19) IN Additional Commissioner of Income Tax Lucknow v. Saraya Distillery, (1978) 115 ITR 34 [LQ/AllHC/1978/298] at p. 38 (All.) (10) it was held that the omission of the income tax officer to charge interest under section 215 in a case where the advance tax paid by the assessee fell short of 75 per cent of the tax assessed would substantially affect the legal right of the revenue and hence would be prejudicial to its interests. The Additional Commissioner had therefore jurisdiction to issue notice under section 263. This is exactly the case here.

(20) ON the cases it appears to me that the preponderance of opinion is that the failure of theO to charge interest is clearly prejudicial to the interests of the revenue and therefore the Commissioner will be justified, in law, to direct theO by an order under section 263 (1) to levy interest. Caxton is the solitary decision to ake a contrary view and, in my opinion, ought not to be followed.

(21) ON the second question regarding initiation of proceedings for penalty there is a sharp division of opinion. This court in D Costa and Achai Jain has. consistently held that the Commissioner has no power to. set aside the assessment on the ground that theO has not levied penalty under section 273 (a). The Madhya Pradesh High Court, on the other hand, in India Pharmaceuticals. has taken a contrary view. . recently in Commissioner of Income Tax v. Narpat Singh Malkhan Singh, (1981): 128 ITR 77 [LQ/MPHC/1980/145] . (M. P.) (14) the view taken in Indian Pharmaceuticals was reaffirmed in -that court. Chadha J. preferred to follow D Costa and Achal Jain. Goel J. was of the view that Indian Pharmaceuticals laid down the correct law.

(22) THE parameter of section 263 has been the subject of B controversy. D Costa and Achal Jain take the view that penalty proceedings are independent proceedings and form no part of the assessment proceedings. In Achal Jain Ranganathan and Leila JJ expressly dissented from Indian Pharmaceuticals and adhered to their previous view expressed in D Costa. Their conclusion appears to be summed up in a sentence : "it is well established that proceedings for the levy of a penalty whether under section 271 (l) (a) or under section 273 (b) are proceedings independent of and separate from the assessment proceedings. "

(23) IN Indian Pharmaceuticals Madhya Pradesh High Court holds that the word "assessment" in section 263 has been used in a wide sense and confers power on the Commissioner to set aside the assessment where theO has not levied penalty in a case in which, in the opinion of the Commissioner, he ought to have levied.

(24) THE question turns on the proper construction of section 263. The controversy centres round the word "assessment" used in section 263. Does it comprehend penalty proceedings Delhi view is that penalty proceedings are no part of assessment proceedings. M. P. view is that the word "assessment" is ot "wider perspective" and includes in its fold penalty proceedings. If the words were so plain and precise as to be capable of one signification only so that the actual provision were its own expositor, leaving no room for construction, no court could venture to alter its meaning. But words of a mixed and wavering content are the greatest of all tricksters. Language plays great tricks with the human mind.

(25) WE were told by that distinguished tax judge, Rowlatt J. , that one must look at what is clearly said in the statute (See Cape Brandy Syndicate v. IRC, (1926) I K. B. 64 at A p. 71) (15). But the difficulty is that in the taxing Acts nothing is clearly said. Of the maker of the tax code, as of another inscrutable author, "we ask and ask : Tholu smilest and art still, out-topping knowledge. " (Methew Arnolds Sonnet on Shakespeare, quoted in IRC v. Frere (1965) AC 402 at p. 428 (16) (per Viscount Redcliff). But we cannot fold our hands and blame the draftsman. The intention of the legislature has to be discovered.

(26) AS early as 1916 Lord Wrenbury gave this warning. "in these Acts", he said, speaking of the English taxing Acts of 1842 and 1880, "it is not possible to rest any conclusion upon a particular word. The same word is in one section used in one sense, and in another in a different sense". (Kensington I. T. Commissioner v. Aramayo, (1916) I A. C. 215 at p. 227) (17). The Privy Council in Commissioner of Income Tax v. Khernchand Ramdas. (1938) 6 ITR 414 [LQ/PC/1938/22] , 416 (18) said :

"one of the peculiarities of most Income-tax Acts is that the word assessment is used as meaning sometimes the computation of income, sometimes the determination. of the amount of tax payable and sometimes the whole procedure laid down in the imposing liability upon the tax payer. The Indian Income-tax Act is no exception in this respect. "

(27) IT is universally accepted now that the uses the term "assessment" in more than one sense. Verbal consistency is the last virtue that can be attributed to an Act which is the and work of different hands which made innumerable amendments to it since its enactment in 1961. The Act is no more than a makeshift patchwork in many respects.

(28) THE fundamental fallacy in the reasoning of the learned judges of M. P. , with very great respect, is that the wide meaning that they attribute to the word "assessment" is not bone out by the context. Take a simple illustration. The ITO frames. the assessment. But he does not initiate penalty proceedings. 149 The Commissioner thinks that the order is erroneous and prejudicial to the revenue. He cancels the assessment and directs a fresh assessment even though with the assessment as such there is nothing wrong. Income has been correctly computed and B the tax has been calculated at the correct rate. But since in the course of the proceedings theO has not issued notice of penalty proceedings-the entire assessment has to go. The Commissioner himself cannot initiate the penalty proceedings because they have to be commenced "in the course of any proceedings, in connection with the regular assessment" by theO if he is "satisfied" "that any assessee has furnished under section 212 an estimate of the advance tax payable by him which he knew or had reason to believe to be untrue" under section 273 (a). Section 275 enacts a bar of limitation for imposing penalty. Penalty proceedings can be commenced only on the comleption of assessment proceedings. They must be concluded within two years from commencement. This shows that the legislature attaches the greatest importance to the time limit of two years after which no order for penalty can be passed. But the Commissioner by canceling the assessment and directing a fresh assessment will open the door to theO to start everything de novo. Even then theO may say : "i find no case for the imposition of penalty. " With this the Commissioner may disagree. He will again cancel the assessment and direct a fresh assessment. Every time the assessment will have to be cancelled. Because without a regular assessment penalty proceedings cannot be commenced.

(29) IS assessment more important or penalty proceedings Of central importance is the assessment. That is the cornerstone of the. Cancelling an assessment wholesale has for reaching consequences, as was pointed out in Dcosta. "such a wholesale cancellation of the assessment with a direction to make a fresh assessment is called for only in cases where there is something totally or basically wrong with the assessment which is not capable of being remedied by amendments to the assessment order itself. " (Dcosta at page 12).

(30) THE view contended for would require much to be written into the section which is not there, would complicate its operation and would lead to practical difficulties. The consequences of accepting the interpretation put by the Revenue will lead to harsh results Commissioner of Income Tax v. Vegetable Products Ltd. , (1973) 88 ITR 192 (SC) (19). This may well lead to tax laws capable, if unchecked, of great oppression. It will be an "intolerable inquisition", to use an expressive phrase of H. H. Monroe, if penalty proceedings can be continued even after the expiry of the original limit of 2 years. (Intolerable Inquisition) Reflections on the Law of Tax, Hamlyn Lectures 33 series).

(31) "the object of the construction of a statute being to ascertain the will of the legislature it may be presumed that neither injustice nor absurdity was intended. If therefore a literal interpretation would produce such a result, and the language admits of an interpretation which would avoid it, then such an interpretation may be adopted. Owen Thomas Magin v. IRC. . (1971) A. C. 739, 746 per Lord Donovan (PC) (20).

(32) THE legislature never intended that the time limit would be lengthened. Penalty proceedings are peripheral in nature. They are initiated in the course of "regular assessment" and have to be completed within 2 years of the completion of the assessment. Canceling the assessment every time for the sake of penalty will mean this. What is gained on the swings will easily be lost on the roundabouts. Between assessments and penalties there will be many rounds. So we will live in a world where the Commissioner will care more for penalties than for assessments. It will indeed be a curious world in which solid assessments will be set aside by the side wind of penalty. The truth is that Ch. XXI which deals with "penalties imposable" cannot be fitted into a coherent legal scheme that section 263 envisages. The very mechanism of Ch. XXI is in competible with the scheme of section 263. The requirement of "regular assessment" is interwoven and interlocked with theOs power to impose penalty. And "regular assessment" means the assessment made under section 143 or section 144 [s. 2 (4)]. For the infraction of the statute the legislature has prescribed penalty. The penalty is not uniform and its imposition depends upon the exercise of discretion by the taxing authorities.

(33) WE must, therefore, reject the wide interpretation of the term "assessment". It has to be interpreted in the context of the and its scheme as would yield a more just result. I am of the view that assessment and penalty are different and distinct concepts under the. Penalty proceedings have distinctive features. The tax payer is heard separately. Separate evidence is taken. They have to be initiated in the course of regular assessment. A separate time limit is fixed for their completion. They are committed to the sole discretion of theO and A. A. C.

(34) THE power to impose penalty depends upon the "satisfaction" of theO "in the course of any proceedings in connection with regular assessment". If he is not satisfied the power cannot be exercised. His satisfaction is a condition for the exercise of the jurisdiction.

(35) WHAT is important is the satisfaction of the income tax authorities that a default has been. committed by the assesses which would attract the provisions relating to penalty. Whatever the stage at which the satisfaction is reached, the scheme of section 275 is that the order imposing penalty must be made after the completion of the assessment. The crucial date therefore, for purposes of penalty, is the date of such completion.

(36) SO the necessary satisfaction conferring jurisdiction on theO to impose penalty has to be reached before passing the order of assessment, (see Commissioner of Income Tax v. S. V. Aggidi Chettiar, (1962) 44 ITR739 (SC) (21); D. M. Manasvi v. CIT, (1972) 86 ITR 557 (SC) (22). The power to impose penalty is exeicisable only if theO is satisfied about the existence of the conditions which give him jurisdiction.

(37) ON the strength of certain observations of the Supreme Court in Abraham v. ITO, 41 ITR 425, 430 (23) and Commissioner of Income Tax v. Bhikaji Dadabhai, 42 ITR 123, 128 (24), counsel for the Revenue contended that penalty is an "additional tax" and therefore the Commissioner bag jurisdiction in the matter of penalty. This argument is not well founded. The word penalty means any punishment. Penalty in the broad sense may be defined as any suffering in person or property by way of forfeiture, deprivation or disability imposed as a punishment by law or judicial authority in respect of an act prohibited by statute. The Oxford Dictionary echoes the same wide conception by referring to a loss, disability or disadvantage of some kind-fixed by law for some offence. (Coogans v. Macdonald, (1954) Scottish Law Times 279 (25), per the Lord Justice-General (Cooper) at p. 281). Ch. XXI deals with "penalties". Ch. XXII deals with "offences and prosecutions". Both are penalties. Speaking about tax avoiders Lord Greene M. R. said : "it scarcely lies in the mouth of the tax payer who. plays with fire to complain of burnt fingers (Howard de Walden v. IRC (1942) I K. B. 389 (26) at p. 397). If penalty is a suffering it will be misnomer to call it "additional tax" and thereby found jurisdiction in the CIT.

(38) NO one loves taxes, it is true. But everyone dreads pains and penalties. In R. v. Barger, (1908) 6 Common wealth L. R. (Australia) 41 (27) at p. 54 Issacs J. said :

"the difference between a pecuniary penalty and a tax is that the former is a sum required in respect of an unlawful act, and the latter is a sum required in respect of a lawful act. "

(39) IN Additional Commissioner of Income Tax v. China Krishna Murthy (1980) 121 ITR 326 (A. P.) (28) it was said that tax and penalty cannot be equated. The observations in C. A. Abraham were made in a different context and for a different purpose, as was pointed out by the Supreme Court in Commissioner of Income Tax v. Anwar Ali, (1970) 76 ITR 696 (29), 700.

(40) IN Jain Bros/v. Union of India, (1970) 77 ITR 107 (30) at p. 116 the Supreme Court said : "although penalty has been regarded as an additional tax in a certain sense and for certain purposes it is not possible to hold that penalty proceedings are essentially a continuation of the proceedings relating to assessment where a return has been filed. "

Isaacs J. said:

"miller on the Constitution of the United States at p. 235 says : "the definition by both Webster and Story is that a tax is a contribution imposed by Government on individuals for the service of the States. " A penalty is never spoken of as a contribution. " (R v. Barger p. 99) (supra).

(41) I cannot better the language of Isaacs J. when he says that penalty ig not a contribution and therefore not a tax. Nor "additional tax".

(42) PENALTY is a punishment annexed by law to some illegal act. Philosophically, linguistfcally, and morally, it is a contradiction in terms to say that penalty is an "additional tax". To raise penalty to the status of tax is to lend it. a dignity, a respectability, which by no canon of ethics it would deserve. In other words we will be asking virtue to pay homage to vice.

(43) UN-LIKE section 215 which uses the word shall section 273 uses the word may. may imports a discretion and shall an obligation. Under section 273 the decision to initiate penalty proceedings rests with theO. With section 215 it is different. Under section 215 a stautory duty to charge interest in cast on him. Interest is an integral part of the assessment. If he waives or reduces interest he has to give reasons. Sub silentio A he cannot do. The matter of penalty, I venture to think, the legislature in its wisdom has left to the discretion of theO and AAC. To the Commissioner it is a forbidden territory. II the legislature does not trust its own ITO and AAC it can always alter the law. It can give to the Commissioner more discretionary powers and make him the trustee and gurdian of the tax administration in the moral and legal sense of the term. As it is a question of voting, I would vote with both hands for the proposition that penalty is not in the Commissioners province and power, whatever else may be.

(44) THERE are in-built limitations in the fiscal process. The Revenue can rightly take every advantage which is open to it under the taxing statutes for the purpose of depleting the tax payers pocket. And the tax payer is, in like manner, entitled to be astute to prevent, so far as he honestly can, the depletion of his means by the Revenue. (Ayrshire Pullman Motor Service v. IRC, (1929) 14 TC 754 (31), 763, 764 per Lord Clyde). Moral percepts are not applicable to the interpretation of re- venue statutes.

(45) REVISIONAL power of the Commissioner is not administrative but quasi-judicial. A ievisional authority cannot ask the initial authority to do something which the former is not empowered to do under the law. The power conferred upon this functionary is hedged with restrictions. It is not an unfettered power. It is "cabined, caged and confined" by the limitations of the fiscal process.

(46) M. P. view, with all deference, is too literal an interpretation of section 263. We must remember : "the letter killeth, the spirit giveth life. " (St Paul). What we must look for is the intention of Parliament. I find it difficult to believe that Parliament ever intended the consequences which flow from the contention of the Revenue. Himself the Commissioner can not impose the penalty. It is left to theO by the legislature. He has to be satisfied in the course of assessment that penalty proceedings should be initiated. If ultimately he finds no case 155 either for initiation or for imposition there is precious little that the Commissioner can do. He can only cancel the assessment and direct a fresh assessment. Himself he cannot impose the penalty, as I have said. The uncontrollable width of the language of section 263 adds little to his powers in the matter of penalty.

(47) THE scheme of the is that assessment must be made in the past and imposition of penalty in the future. The assessment plays its part in the quantification of the penalty. A multiplier of the tax with which tax payer ought to be charged is made a constituent of the penalty. The timing factor is crucial. The commissioners revisional power can be exercised only within two years.

(48) SECTION 275 says that no order imposing a penalty shall be passed after the expiry of two years from the date of the completion of assessment in the course of which the proceedings for the imposition of penalty were commenced. Two years there in section 263 (2) and two years here in section. 275 strongly suggest that the two proceedings are separate and distinct. If the word "assessment" is not given a limited meaning limitation periods will become meaningless. Not only there will be much overlapping the intention of the legislature will also be defeated. "the limitation enacted for the protection of the tax payer will become illusory. Nothing will be finished within the time limited by sections 263 and 275. The taxation troubles will never end. " theO can go on with penalty proceedings till the end of all time. I would hesitate long before acceding to a contention that would lead to such extravagant results.

(49) SO from the "assessment" proceedings I will subtract the penalty proceedings. I prefer this construction because it does not lead to oppressive and unreasonable conclusion. One is entitled and indeed bound to assume that Parliament intends to act reasonably, and therefore to prefer a reasonable interpretation of a statutory provision. (IRC v. Hinchv, (1960) AC 748 (32) at p. 768 per Lord Reid). "to apply the words literally is to defeat the obvious intention of the legislation and to. A produce a wholly unreasonable result. To achieve the obvious intention and to produce a reasonable result we must do some violence to the words" (Luke v. IRC (1962) AC 557 (33) at p. 577 per Lord Reid). Of rules of construction Lord Reid has said: "they are our servants not our masters. " (Maunsell v. Olins (1975) A. C. 373) (34).

(50) PENALTY is to be measured only by tax on income which is the subject of regular assessment. After that has been done theO has a discretion to. inflict penalty for the violation of statutory provisions. The area within which he has to operate is indicated in Ch. XXI. Penalty has been prescribed by the legislature for a very wide variety of defaults. The sequence of events clearly indicates that the Commissioners jurisdiction extends to the "regular assessment" where the total tax liability is ascertained. I find myself unable to hold that the crucial words of section 263 are capable of the interpretation which the M. P. judges have adopted, however elliptical the expression "assessment" may be.

(51) A true and sober view of section 263 is that taken in Dcosts and Achal Jain with which I respectfully agree. "assessment" is a word which cannot be its own expositor. It takes colour from the context. Context is everything. "the proper course in all these cases is to search out and follow the true intent of the legislature, and to adopt that sense of the words which harmonizes best with the context, and- promotes in the. fullest manner, the apparent policy and objects of the legislature. " (Scott v. Cawsey, (1907) 5 Commonwealth Law Reports 132 (35) at p. 157. per Isaacs J. (Australia). The context suggests that the vital term "assessment" used in section 263 should be given a limited construction rather than a literal interpretation. . .

At the end of the day l-will quote Dryden :

"as long as words a different sense will bear; And each may be his own interpreter. Our airy faith will no foundation find. : The words a weathercock for every wind. " (Dryden : "the Hind and the Panther II 462. Quoted in Statutory Interpretation in Australia by D. C. Pearce (2nd ed. 1981) at p. 179).

(52) FOR these reasons I agree with Chadha and Goel JJ. that the first question must be answered in favour of the Revenue. As against Caxton, D Costa should be preferred as an accurate statement of the law. On the second question I am with Chadha J. In my opinion we should not follow the M. P. view propounded in Indian Pharmaceuticals. I think Dcosta and Achal Jain were correctly decided. The second question I would answer in favour of the assessee and against the Revenue.

(53) IN accordance with the opinion of the majority the first question is answered in the affirmative. The second question is answered in the negative.

(54) THE parties are left to bear their own costs.