# November. 25 Appeal allowed. N.A. MALBARI AND BROS v. COMMISSIONER OF INCOME-TAX, BOMBAY

- **Citation:** [1964] 5 S.C.R. 560
- **Court:** Supreme Court of India
- **Decided:** 1963-11-25
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/november-25-appeal-allowed-n-a-malbari-and-bros-v-commissioner-of-income-tax-2993
- **Pages:** 9

## Headnote

560
SUPREME COURT REPORTS
(1964]
1963
pute must be governed by Rule S(a)(i) of the respondent's Standing Orders.
Workmen of
Dewan Tea
In the result, we reverse the finding of the Tribunal
Estate and Ors. !hat the lay <!ff 4eclared by the .respon~e!lt for 45 days
v
m 1959 was Justified. That bemg so, 1t 1s unnecessary
"''he M
· g
t to consider the individual cases of the nine respective
,,
ana emen
·
b
h
h
b
h ·
compames,
ecause w atever may
ave
een t elf
Gajendragadkar respective financial position, under the relevant Rule
J.
they could not validly declare a lay off at all, nor
could they have declared the lay off in exercise of
their alleged common law right. The questions referred
to the Tribunal must, therefore, be answered in favour
of the appellants. The appeal is accordingly allowed
and the appellants' claim for full wages for the 45
days of lay off in respect of the
11 tea gardens is
awarded to them. The appellants will be entitled to
their costs throughout.
1963
November. 25
Appeal allowed.
N.A. MALBARI AND BROS.
v.
COMMISSIONER OF INCOME-TAX, BOMBAY
(A.K. SARKAR, M. HIDAYATULLAH AND J.C. SHAH,
JJ.)
Income Tax-Penalties-One earlier, the second on disclosure
of full facts-Whether justifiahle-Tncome-tax Act, 1922 (II of
1922), s. 28.
The appellant, a firm of Surat, had a branch at Bangkok,
to which it exported cloth, and the branch also made purchases
locally and sold them. During the war the business of the branch
had been in abeyance, but was re-started after the termination of
the hostilities. In its return for the assessment year 1949-50 the
appellant did not include any profit of the branch, but stated that
the books of account of branch were not available, and therefore
its profits might now be assessed on an estimate basis subject to
•
/
"'
</
,
•
--·;e.
5 S.C.R.
SUPREME COURT REPORTS
561
action under s. 34 or 35. The assessment was made on the basis
1963
of profit at 5 % 011 the export to the branch appearing in the Surat
books. A similar estimate was made for year 1950-51. For the N.A. Malbari
year 1951-52 also the business profits of the branch were not shown
and Bros.
but the Income-tax officer issued a notice to the assessee to produce
v
the relevant accounts and books. The appellant excused itself by
. ·.
promising that in the following year these accounts for the year Commissioner 0!
19:0 would be produced. Thereupon the Income-tax Officer made
Income-tax,
an estimate of the sales of the branch and of the net profits at 5 %
Bombay
thereon, amounting to Rs. 37,500/-, and the same day he issued a
notice to show cause why a penalty for concealment of the particulars of the income of 1951-52 should not be levied. Subsequently,
the Income-tax Officer imposed a penalty of Rs. 20,000/- on it as
its explanation was not acceptable. In the meantime assessment
proceedings for the year 1952-53 had commenced and the appellant
adopted a similar attitude. The Income-tax Officer was insistent
and, therefore, appellants had to produce the accounts and books
of the branch, from which it appeared that for the year 1951-52
the appellant had made a profit of Rs. 1,25,520/-. The Income-tax
Officer issued a further notice to the appellant to show cause why
penalty should not be levied for deliberately concealing income for
the year 1951-52. Pursuant to this notice the Income-tax Officer
passed another order imposing a penalty of Rs. 68,501/-. The
appellant's appeal to the Appellate Assistant Commissioner against
both the orders of penalty was rejo c'.ed.
On appeal, the Tribunal
cancelled the first order of penalty but confirmed the second one.
Thereafter, the appellant obtained a reference to the High Court
of the question: "Whether the levy of Rs. 68,501/- as penalty for
concealment in the original return for the assessment year 1951-52
is legal?" The High Court cm·,vercd the question in the affirmative.
On appeal by special leave it was urged that the second order for
penalty was illegal because there was one concealment and in

## Text

560
SUPREME COURT REPORTS
(1964]
1963
pute must be governed by Rule S(a)(i) of the respondent's Standing Orders.
Workmen of
Dewan Tea
In the result, we reverse the finding of the Tribunal
Estate and Ors. !hat the lay <!ff 4eclared by the .respon~e!lt for 45 days
v
m 1959 was Justified. That bemg so, 1t 1s unnecessary
"''he M
· g
t to consider the individual cases of the nine respective
,,
ana emen
·
b
h
h
b
h ·
compames,
ecause w atever may
ave
een t elf
Gajendragadkar respective financial position, under the relevant Rule
J.
they could not validly declare a lay off at all, nor
could they have declared the lay off in exercise of
their alleged common law right. The questions referred
to the Tribunal must, therefore, be answered in favour
of the appellants. The appeal is accordingly allowed
and the appellants' claim for full wages for the 45
days of lay off in respect of the
11 tea gardens is
awarded to them. The appellants will be entitled to
their costs throughout.
1963
November. 25
Appeal allowed.
N.A. MALBARI AND BROS.
v.
COMMISSIONER OF INCOME-TAX, BOMBAY
(A.K. SARKAR, M. HIDAYATULLAH AND J.C. SHAH,
JJ.)
Income Tax-Penalties-One earlier, the second on disclosure
of full facts-Whether justifiahle-Tncome-tax Act, 1922 (II of
1922), s. 28.
The appellant, a firm of Surat, had a branch at Bangkok,
to which it exported cloth, and the branch also made purchases
locally and sold them. During the war the business of the branch
had been in abeyance, but was re-started after the termination of
the hostilities. In its return for the assessment year 1949-50 the
appellant did not include any profit of the branch, but stated that
the books of account of branch were not available, and therefore
its profits might now be assessed on an estimate basis subject to
•
/
"'
</
,
•
--·;e.
5 S.C.R.
SUPREME COURT REPORTS
561
action under s. 34 or 35. The assessment was made on the basis
1963
of profit at 5 % 011 the export to the branch appearing in the Surat
books. A similar estimate was made for year 1950-51. For the N.A. Malbari
year 1951-52 also the business profits of the branch were not shown
and Bros.
but the Income-tax officer issued a notice to the assessee to produce
v
the relevant accounts and books. The appellant excused itself by
. ·.
promising that in the following year these accounts for the year Commissioner 0!
19:0 would be produced. Thereupon the Income-tax Officer made
Income-tax,
an estimate of the sales of the branch and of the net profits at 5 %
Bombay
thereon, amounting to Rs. 37,500/-, and the same day he issued a
notice to show cause why a penalty for concealment of the particulars of the income of 1951-52 should not be levied. Subsequently,
the Income-tax Officer imposed a penalty of Rs. 20,000/- on it as
its explanation was not acceptable. In the meantime assessment
proceedings for the year 1952-53 had commenced and the appellant
adopted a similar attitude. The Income-tax Officer was insistent
and, therefore, appellants had to produce the accounts and books
of the branch, from which it appeared that for the year 1951-52
the appellant had made a profit of Rs. 1,25,520/-. The Income-tax
Officer issued a further notice to the appellant to show cause why
penalty should not be levied for deliberately concealing income for
the year 1951-52. Pursuant to this notice the Income-tax Officer
passed another order imposing a penalty of Rs. 68,501/-. The
appellant's appeal to the Appellate Assistant Commissioner against
both the orders of penalty was rejo c'.ed.
On appeal, the Tribunal
cancelled the first order of penalty but confirmed the second one.
Thereafter, the appellant obtained a reference to the High Court
of the question: "Whether the levy of Rs. 68,501/- as penalty for
concealment in the original return for the assessment year 1951-52
is legal?" The High Court cm·,vercd the question in the affirmative.
On appeal by special leave it was urged that the second order for
penalty was illegal because there was one concealment and in respect
of that a penalty of Rs. 20.000/- had earlier been imposed, that
there was no jurisdiction to make the second order of penalty
while the first order stood and for that reason the second order
must be treated as a nullity: and that the fact that the first order
was subsequently cancelled by the Tribunal would not set the second
order on its feet for it was from the beginning a nullity as having
been made when the first order stood.
Held: (i) The conientions must be rejected. The Income-tax
Officer heJ full jurisdiction to make the second order and he would
not lose that jurisdiction because he had omitted to recall the earlier
order, though it may be that the two orders in respect of the same
concealment could not be enforced simultaneously or stand together.
When the Income-tax Officer ascertained the true facts and realised
that a much higher penalty could have been imposed, he was entitled
to recall the earlier order and pass anolher order imposing the
higher penalty. If he had omitted to recall the earlier order that
would not make the second order invalid.
I SCl/64-36
562
SUPREME COURT REPORTS
[1964]
1963
(ii) In the present case the earlier order having been cancelled
and no objection to the cancellation having been taken, there is
N.A. Malbari only one order, which is a legal order.
and Bros.
C.V. Govindaraju/u Iyer v. Commissioner of Income-tax.
v.
Madras, 16 I.T.R. 391, distinguished.
Commissioner of
CIVIL APPEL LA TE JURISDICTION: Civil Appeal No.
Income-tax,
878 of 1962.
Bombay
Appeal from the judgment and order dated April
13, 1960, of the Bombay High Court in Incometax Reference No 40 of 1959.
R.J. Kolah, J.B. Dadachanji, O.C. Mathur and
Ravinder Narain, for the appellants.
N.D. Karkhanis and R.N. Sachthey, for the respondent.
November 25, 1963. The Judgment of the Court
was delivered by
Sarkar J.
SARKAR J.-This is an appeal against a judgment
of the High Court at Bombay given on a case stated
to it under the Income-tax Act and answering in the
affirmative the following question:
"Whether the levy of Rs. 68,501/- as penalty
for concealment in the original return for the
assessment year 1951-52 is legal?"
The question arose in the assessment of the
appellant, a firm, for the year 1951-52 in respect
of which the accounting year was the calendar year
1950. The assessee carried on business at Surat.
It had a branch at Bangkok to which it exported
cloth from India. The branch also made purchases
locally and sold them.
During the last world war
the business at Bangkok had been in abeyance but
it was re-started after the termination of the hostilities.
In its return for the assessment year 1949-50
the assessee did not include any profit of the Bangkok
branch but stated that the books of account of the
Bangkok branch were not available and that therefore
I'
•
--:
I
~
its profit might now be assessed on an estimate basis
subject to action under s. 34 or 35 on production
-~ ,
of statement of account. · The assessment was there-
l
5 S.C.R.
SUPREME COlJRT REPORTS
563
. upon made on the basis of profit at 5 % on the export
to Bangkok branch appearing in the Surat books.
1963
N.A. Malbari
For the year 1950-51 again there was no reference
and Bros.
to the Bangkok branch in the return and a similar
v.
estimate was made for this year also. For the year Commissioner of
1951-52 also the Bangkok business profits were not
Income-tax
shown but on January 11, 1952, the Income-tax
Bombay'
Ofhcer issued a notice to the assessee under s. 22( 4)
of the Act to produce the profits and loss account
Sarkar J.
and balance-sheet with the relevant books. The
assessee excused itself by alleging on January 29,
1952 that the books were at Bangkok and the profit
and loss account and the balance-sheet could not be
drawn up unless its partner, Hatimbhai A. Malbary,
went there personally and there was no certainty as
to when he would go there and promising that in the
following year these accounts for the calendar year
1950 would be produced. Thereupon the Income-tax
Officer made an estimate of the sales of the Bangkok
branch at Rs. 7,50,000 and of the net profits at
5 % thereon, amounting to Rs. 37, 500i-. This assessment was made on January 31, 1952. On the same
day he issued a notice under s. 28(3) of the Act requiring the assessee to show cause why a penalty under
s. 28(1)(c) for concealment of the particulars of the
income of 1950 should not be levied. The assessee
was heard on this notice and on January 22, 1954,
the
Income-tax
Officer imposed a penalty of
Rs. 20,000 on it as its explanation was not acceptable.
In the meantime assessment proceedings for the
year 1952-53 had commenced and this year also the
assessee adopted a similar attitude as in the previous
years. The Income-tax Ofhcer was however insistent
and, therefore, after various adjournments, the assessee
had on August 17, 1953 to
produce the accounts
and books of the Bangkok branch. It appeared
from these books that in the calendar year 1950
the assessee had made a profit of Rs. 1,25,520/-.
The Income-tax Officer thereupon commenced proceedings under s. 34 of the Act against the assessee
in respect of the assessment year 1951-52 and gave
564
SUPREME COURT REPORTS
[1964]
1963
notice to the assessee to submit a return. The assessee
then submitted a return stating therein correctly the
N.A. Malbari profits for the calendar year 1950. The Income-tax
and Bros.
Officer completed that assessment after directing the
·
v.
issue of a further notice under s. 28(3) on· April 8,
Commissioner 0/1954 requiring the assessee to show cause why penalty
· Income-tax,
should not be levied for deliberately concealing the
Bombay
particulars of his income of 1950. Pursuant to this
notice the Income-tax Officer passed another order on
Sarkar J.
February 28, 1957 imposing a penalty of Rs. 68,501.
So there were two orders of penalty.
The assessee appealed to the Appellate Assistant
Commissioner against both the aforesaid orders of
penalty but the appeals were rejected. There is no
dispute as to the assessment of the income. The
assessee then appealed to the Income-tax Appellate
Tribunal. The Tribunal observed, "It is indeed difficult to understand the action of the Department
in splitting up one offence into two proceedings.
So far as the levy on the basis of the 23(3) assessment
is concerned, it appears to have no basis as till that
stage the Department had not succeeded in establishing
and bringing home any guilt. It was still in the
region of estimate ........ The levy of Rs. 20,000
has to be remitted in full.
The levy of Rs. 68,501
is entirely different. With the definite knowledge
that the Income-tax Officer had obtained that the
profit for the year was Rs. 1,25,520 he has clearly
proved
the
guilt of concealment against
the
assessee ............ The penalty is not at all excessive
and accordingly confirmed." The revenue authorities never questioned the cancellation of the first order
of penalty.
Thereafter the asseseee obtained a reference to
the High Court of the question which we have set
out at the beginning of this judgement. That question,
it will be noticed,
referred only to the penalty of
Rs. 68,501/- imposed pursuant to the second notice
under s. 28(3) for concealing the particulars of the
income of 1950. It has to be observed that in the
return that was filed in the proceedings started under
J
,
5 S.C.R.
SUPREME COURT REPORTS
565
s. 34, the assessee furnished correct particulars and
1963
it also produced the books. So it had not committed
any default in connection therewith. The notice N.A. Malbari
must therefore be taken to have been in respect of
and Bros.
the original concealment of the income. The assessee
v.
knew-and this is what was found by the Tribunal Commissioner of
and that is a finding of fact which is binding on a
Income-tax,
Court in a reference-that its profits were Rs. 1,25,520/-
Bombay
and it had not disclosed that profit originally nor
produced the relevant books but permitted the IncomeSarkar J.
tax Officer to proceed on an estimate of that profit at
Rs. 37,500/-. It was contended in the High Court
that in respect of the same concealment there were
thus two penalties involved, namely, one of Rs. 20,000/-
and the other of Rs. 68,501/-. The High Court
agreed with the contention of the assessee that two
penalties could not be levied in respect of identical
facts but it held that the penalties in this case had
not been levied on the same facts. It observed
that the original assessment was solely on the basis
of an estimate and the second assessment was after
knowledge of the full facts of the concealed income.
In this Court Mr. Kolah has urged that the
second order for penalty was illegal because there
was one concealment and in respect of that an order
for penalty of Rs. 20,000/- had earlier been made.
He contended that there was no jurisdiction to make
the second order of penalty while the first order stood
and for that reason the second order must be treated
as a nullity. He further stated that the fact that the
first order was subsequently cancelled by the Tribunal
would not set the second order on its feet for it was
from the beginning a nullity as having been made
when the first order stood.
We are unable to accept this argument. It
may be that in respect of the same concealment two
orders of penalty would not stand but it is not a
question of jurisdiction. The penalty under the section
has to be correlated to the amount of the tax which
would have been evaded if the assessee had got away
with the concealment. In this case having assessed
566
SUPREME COURT REPORTS
[1964)
1963
the income by an estimate, the Income-tax Officer
levied a penalty on the basis of that estimate. Later
N. A. Malbari when he ascertained the true facts and realised that
and Bros.
a much higher penalty could have been imposed,
v.
he was entitled to recall the earlier order and pass
Commissioner of another order imposing the higher penalty. If he
Income-tax,
had omitted to recall the earlier order that would
Bombay
not make the second order invalid. He had full
jurisdiction to make the second order and he would
Sarkar J.
not lose that jurisdiction because he had omitted to
recall the earlier order, though it may be that the two
orders could not be enforced simultaneously or stand
together. However, in the present case the earlier
order having been cancelled and no objection to the
cancellation having been taken, we have only one
order and that for the reasons earlier stated is, in our
view, a legal order.
It was also said that when the first order of penalty
was passed the Income-tax Officer was in possession
of the full facts which would have justified the imposition of the higher penalty. It was pointed out that
the first order of penalty was passed on January 22,
1954 while the books disclosing the real state of
affairs had been produced before the Income-tax
Officer on August 17, 1963. It was contended that
in i11spite of this he passed the order imposing a lower
penalty, he had no right later to change that order.
In support of this contention reference was made to
C. V. Govinderajulu Iyer v. Commissioner of Income
tax, Madras< 0 •
There it was argued that the original
proceeding under s. 23(3) and a proceeding under
s. 34 in respect. of the same period were different
and in the latter proceeding a penalty could not be
imposed for a concealment in respect of the original
proceeding. Rajamannar C.J. rejected this contention and held, "that so long as the proceedings under
Section 34 relate to the assessment for the same period
as the original assessment, the Income-tax Officer will
be competent to levy a penalty on any ground open
....
to him under Section 28(1), even though it relates
-
(I) [16] l.T.R. 391
5 S.C.R.
SUPREME COURT REPORTS
567
to the prior proceeding". He however proceeded
1963
to observe, "There may be one possible qualification
of his power, and that is when the default or the act
N.A. Malbari
which is the basis of the imposition of the penalty
and Bros.
was within the knowledge of the officer who passed
v.
the final order in the prior proceeding and if that Commissioner of
officer had failed to exercise his power under Section
Income-tax,
28 during the course of the proceeding before him.
Bombay
Possibly in that case he would have no power." Learned counsel for the appellant relied on this latter obSarkar J.
servation in support of his contention. We do not
think that Rajamannar C.J. wished to state this
qualification on the power of the Income-tax Officer
as a proposition of law. It was not certainly necessary
for the purposes of the case before him. We do
not wish to be understood as subscribing to it as at
present advised.
But assume that this statement of the law is
correct. It has no application to the present case.
What is said is that if the default which entails the
penalty was within the knowledge of the authority
when it passed the final order in the prior proceeding
no penalty could be later imposed. Now Rajamannar
C.J. was not dealing with a case in which two penalties
had been imposed. The case before him was one
in which no return had been filed pursuant to a general
notice but subsequently s. 34 proceedings had been
started and resulted in an assessment and an order
imposing a penalty was thereupon passed. The final
order in the prior proceedings referred to by the
learned Chief Justice must, therefore, be final assessment order in the prior proceedings. Now in the
present case the final order in the prior assessment
proceedings was made on January 31, 1952 and on
that date the Income-tax Officer had no knowledge
of the concealment of income of Rs. 1,25,520.
Therefore it seems to us that the observation of Rajamannar
C.J. does not assist Mr. Kolah. We may also observe
that the first order of penalty passed on January
22, 1954, was pursuant to a notice issued on January
31, 1952 in respect of which the assessee had offered
568
SUPREME COURT REPORTS
[1964]
1963
his explanation on March 11, 1952. That notice
was not concerned with any concealment that came
N.A. Malbari to light from the production of the books on August
and Bros.
17, 1953 and, therefore, on this concealment the
v.
assessee had never been heard. In assessing a penalty
Commissioner of on this notice subsequently acquired knowledge would
Income-tax,
be irrelevant.
Bombay
.
.
The result is that the appeal fails and it is disSarkar J.
missed with costs.
1963
November 29
Appeal dismissed.
MCLEOD AND COMPANY LTD.
v.
WORKMEN
(P.B. GAJENDRAGADKAR AND K.C. DAS GUPTA, JJ.)
Industrial Dispute-Worker's ·claim for cash allowance in
lieu of tiffin arrangements-Implied condition of service-Re-employment of retired persons-Limited direction b)' Tribunal, if proper.
The disputes between the appellant company and its workmen
were referred to the Industrial Tribunal. The workmen claimed
that (1) they should be given cash allowance in lieu of the tiffin
arrangements made by the company. and (2) the practice started
by the company of re-employing retired persons should be discontinued. The Tribunal directed : (I) the clerical staff should be
paid As. -/8/- per day and the subordinate staff As. -/6/- per day
on all working days, and (2) the company should stop the reemployment of retired workmen in the category of clerks above
C grade. In respect of the subordinate staff as also in regard to
the lower grade clerks, the Tribunal thought it unnecessary to make
any such direction. The evidence showed that in the region 31
comparable concerns were supplying free tiffin to their employees
and that the appellant company had been throughout making .
provision for tiffin to its employees. It was also found that the
policy adopted by the company of re-employing the retired personnel
was not based solely on humanitarian grounds and that when
retired persons were re-employed they were paid a much smaller
salary for doing the same work than they were drawing before
retirement.