P L D 1984 Lahore 401 (PLP)

(b) Income‑tax Ordinance (XXXI of 1979)‑‑-- ‑‑‑ S. 136(2)‑Reference to High Court‑Controversy which department wanted to refer to High Court already adjudicated upon in another case by said High Court‑‑Tribunal, held, justified in refusing to refer such case on ground that it would be just futile exercise and wastage of time if question already decided by High Court was referred. Muhammad 1lyas Khan for Petitioner. MUHAMMAD AFZAL LONE, .J.--‑This order shall dispose of Tax Reference No. 1 of 1983, brought by the Commissioner of Income‑tax, Zone A, Lahore, under section 136(2) of the Income‑tax Ordinance, 1979 for decision of the High Court on the following question of law :‑ "Whether on the facts and in the circumstances of the case, the Tribunal was justified in upholding that a show‑cause notice was necessary before imposition of penalty under section 46(1) of the Repealed Act?"

2. The facts which led to the institution of the instant tax Reference are that during the assessment year 1976‑7,7, the Income‑tax Officer raised a tax demand of Rs. 29,010 against the assessee and served him with a notice of demand on 26‑7‑1978, but the latter did not make any payment. Consequently, on 31‑12‑1978, the Income‑tax Officer proceeded under section 46(1) of the Income‑tax Act, 1922 and imposed on him a penalty of Rs. 2,901, being 10% of the amount of the tax due.

3. In appeal, filed by the assessee, the Appellate Assistant Commissioner, found that the order imposing the penalty was violative of Circular No. 5 of 1953, issued by the Central Board of Revenue. He, therefore, set it aside, with a direction to the Income‑tax Officer, to pass a fresh order in accordance with the Circular, after affording the assessee sufficient opportunity to present his case.

4. Dissatisfied with the Appellate order, the department went in appeal before the income‑tax Appellate Tribunal but it was dismissed on 25‑2‑1980. The learned Tribunal maintained that the assessee had the right to be heard, but prior to the imposition of penalty no show‑cause notice was given to him. The contention raised by the department, that since the assessee failed to pay the tax, it was within the discretion of the Income‑tax Officer, to inflict the penalty on him, was also turned down. In the opinion of the Tribunal as no opportunity was given to the assessee to explain the circumstances, which obviated him from paying the tax, there was no judicious exercise of discretion by the I. T. O. It, thus, concluded that the order passed by the I. T. O. was violative of the principle of natural justice. The Commissioner of Income tax then moved the Tribunal under section 36(1) of the Ordinance, to refer to the High Court the aforesaid question of law, said to have arisen out of its Appellate order dated 25‑2‑1980. The Tribunal by its order dated 24‑9‑1981 declined the department's request and maintained: ‑ The controversy regarding issuance‑ of show‑cause notice before imposi tion of penalty for non‑payment of any tax demand has already been adjudicated in cases reported as (1974) 29 Tax

7. It will be just futile exercise and wastage of time, if the question already decided by the High Court, is referred. In this view of the matter, no pro position of law merits reference to the High Court.

5. Mr. Muhammad Ilyas Khan who represents the Commissioner of Income‑tax, has reiterated the arguments advanced on behalf of the Depart ment before the Tribunal. He contended that .as the tax was not paid within the stipulated period, the assessee became a defaulter and in view of the provisions of subsection (1) of section 46, it fell within the discretion of the l.‑T. O. to give a direction, that in addition to the amount of the tax, by way of penalty, an additional amount not exceeding that amount, may be recovered from him. He criticised the Tribunal's reliance on the said precedent and further submitted that issue of show‑cause notice, is, not countenanced by subsection (1) of section

46. His last submission, was, that as the adjudication of the matter before the Tribunal, involved, interpretation of section 46, this gave rise to the question of law, formulated by the Commis sioner of Income‑tax.

6. No doubt in section 46(1) there is no provision for issuing a show -cause notice to the assessee before imposing the penalty, but on the authority of various judicial pronouncements, it is, now well‑settled that unless the statute itself lays down to the contrary, the rule of natural justice, that no one should be condemned unheard, is to be read in every statute, empowering passing of orders, having penal consequences. This rule was also enunciated in Commissioner of Income‑tax v. Fazal‑ur‑Rehman (P L D 1964 S C 410) which has been follow ed in the case of Paramount Electric Company ((1974) 29 Taxation 77), relied upon by the Tribunal. Though in the last mentioned case, section 45 of the Income‑tax Act, 1922 was the subject of discussion, but the ratio of that judgment equally applies to the instant case. In that precedent, it has been maintained that while exercising discretionary powers, under section 45, the Income‑tax Officer must act in a lawful manner which includes the grant of opportunity off hearing, to the affected persons.

7. We are of the view that the assessee who is treated as being a defaulter, before he is burdened with the penalty, is entitled to explain the reasons which prevented him from paying the tax. Such explanation can have a bearing on the exercise of discretion, by the I. T. O., and the fixation of the quantum of penalty. May be, the non‑compliance with the demand notice, is, the result of some unavoidable cause or there are some other mitigating circumstances, warranting lesser penalty. Subsection (1) prescribes the maximum penalty, and any variation in the imposition, within that limit, is, in the Income‑tax Officer's discretion. This discretion has to be exercised, on the foundation of some material. Evidently, apart from the departmental record, such material is to be furnished by the assessee, in the form of his, explanation. The discretionary power which ostensibly, is, unfettered, is, subject to implied limitations, namely, that it is to be exercised judicially and not arbitrarily and further the Income‑tax officer must address himself to the circumstances of the case before him.

8. We, are, also in agreement with the Tribunal that the rule laid down in the Paramount Electric Company's case, in respect of exercise of discretionary powers under section 45, equally applies to the case in hand. It would have been, therefore, idle, for the Tribunal, to refer to this Court, the question of law, stated by the Commissioner of Income‑tax. Consequently, this tax reference is dismissed in limine. M.Z. M. Reference dismissed.