NASIM SIKANDAR, J.~ This is a case stated by the Lahore Bench of the Income Tax Appellate Tribunal. The question framed for our opinion and answer reads as under:-- "Whether on the facts and in the circumstances of the case the Tribunal was justified in holding that a show- cause notice is necessary before imposition of penalty under section 46(1) of the Income Tax Act?.
2. The respondent an individual and a popular film artist returned an income of Rs. 30,090/- and Rs.
27,550/- respectively for the assessment years 1973-74 and 1974-75. In absence of any books of account or other material to support the receipts as well as the claimed professional expense, the Assessing Officer on usual proceedings framed assessments in the two years involved at Rs.
1,73,000/- and Rs. 2,09,000/- respectively. Subsequently, finding that demand in the said two years had not been discharged, the Assessing Officer imposed penalties under section 46(1) of the Income Tax Act, 1922 at a rate of 2.5% of the demand at Rs. 3409/- in the year 1973-74 and at Rs.
3663/- in the year 1974-75. The learned Appellate Assistant Commissioner confirmed both the penalties for the reason that default committed had not been denied by the assessee.
3. On further appeal the learned Tribunal however, cancelled the penalty orders on the ground of their having been made in violation of the principle of natural justice by not serving upon the appellant/assessee a show-cause notice prior to the passing of the penalty order.
4. After hearing the learned counsel for the revenue we are of the view that the learned Income Tax Appellate Tribunal did not commit any error of law by allowing the aforesaid relief. Sub-section (1) of section 46 of the late Act, 1922 at the relevant time provided that:-- "When an assessee is in default in making a payment of tax, the Income Tax Officer may in his discretion direct that, in addition to the amount of the arrears, a sum not exceeding that amount shall be recovered from the assessee by way of penalty".
5. The provision clearly indicates vesting of a discretion in the assessing officer to impose penalty where an assessee was in default in making payment of tax; that discretion, according to the learned Tribunal, could not be judiciously exercised unless the assessee in default was given a chance of being heard prior to the passing of the order imposing the penalty under that section.
6. The view expressed by the learned Tribunal that the impugned penalty orders had been passed in violation of the principle of natural justice and were therefore, void finds support from a number of discussions of the Supreme Court as well as the opinion held by this Court, In re: Commissioner of Income Tax v. Fazlur Rehman (PLD 1964 SC 410), a larger Bench of the apex Court while interpreting the provisions of section 33-A of the Income Tax Act, 1922 (XI of 1922) held the proceedings there under to be judicial in nature and not merely administrative. Therefore, the order passed without affording an opportunity of hearing to the applicant was found to be illegal and in- effective, In the view of their Lordships the principle of audi alteram partem (that no man shall be condemned unheard) visualizes hearing not only in judicial proceedings but in all kinds of proceedings affecting person or property of a party. Further that mere absence of a provision as to notice in the statute cannot override the principle of natural justice that an order affecting the rights of a party cannot be passed without affording an opportunity of hearing to the party. To reach that conclusion their Lordships referred to their earlier judgment in re: The Chief Commissioner Karachi v. Mrs. Dina Sohrab Katrak (PLD 1959 SC(Pak). 45.
7. Two other cases of the Supreme Court on the subject also appear in the same report, In the first case re: Province of East Pakistan and another v. Nur Ahmad and another (PLD 1964 SC 451) while interpreting Article 25(4) of the Basic Democracies Order (18 of 1959) their Lordships propounded that the principle of audi alteram partem (that no man shall be condemned unheard) is presumed to be embodied in every statute in absence of any provision to the contrary. That view was repeated in the second case appearing in the report re: Sh. Abdur Rehman, Advocate v. The Collector and Deputy Commissioner Bahawalnagar and 13 others (PLD 1964 SC 461). Reiterating the principle that no person could be condemned without an opportunity to defend himself, the Court declared the proceedings and resolution of the District Council to remove the Chairman to be illegal and restored him to his office, In the process it was observed that "although there is no specific provision in the Basic Democracies Order entitling the member proceeded against for removal to an opportunity to show cause, the member is entitled to such opportunity on principles of natural justice which are to be read in every enactment in the absence of a provision to the contrary."
8. The Karachi High Court maintained a similar view in re: Jumma Khan V. Province of Sindh, etc. (PLD 1981 Karachi 311) that provision of notice and opportunity of hearing before passing any order adversely affecting the rights of a citizen is considered to be a part of every statute unless the statute itself expressly excludes such notice or opportunity of hearing. The Court earlier referred to a similar view held by it is re: Tanweer Ahmed Khan v. District Magistrate Sanghar and another (PLD 1979 Karachi 732) and Asghar Ali and 10 others v. Rationing Controller Hyderabad and another (PLD 1979 Karachi 194).
9. In a recent judgment, a Division Bench of this Court in re: Muhammad Jamil Khan v.
Commissioner of Wealth Tax (1995 PTD 1239) explained the distinction between notices issued under sections 14(2) and section 16(2) of Wealth Tax Act, 1963. It was noted that the aims and objects of section 14(2) and section 16(2) of the Act were wholly different and were meant to cater for different situations. That the notice under section 14 (2) was an intimation asking the owner of the wealth, who had not filed a return, to file the same. On the other hand, the purpose of section 16(2) was to provide an opportunity of hearing to a person who had filed a return which was found unsatisfactory by the Wealth Tax Officer. The issuance of such notice under section 16(2) of the Act was, therefore, found to be a condition precedent for passing of an assessment order. The view of the Revenue that a notice under section 14(2) was equally good and could be taken as opportunity of hearing was accordingly rejected. Plainly it was held that before making of an assessment when the returned wealth is found to be unsatisfactory, the assessing officer will require the assessee to produce evidence in support of the declared version. Obviously the other notice under section 14(2) simply requiring an assessee to file a return of wealth could not serve and be taken as an opportunity of being heard, In the first kind of notice under section 14 (2) of the Act only a direction is contained that a return be put in. In the second notice, on the other hand as assessee is confronted with the situation that, on the basis of certain objections which are being brought to his notice, the returned version will not be accepted unless supported by evidence. Therefore, it is only the second notice which answers the requirements of the said principle that no man shall be condemned unheard.
10. The view adopted by the Tribunal is otherwise supported by a well-established principle that penalties in fiscal matters should not be imposed only for the reason that it was legal to do so.
Particularly where the statute vested a discretion in the Tax Collector, In this regard we share the opinion expressed by their Lordships of the Andhra Perdesh High Court in re: Addl. Commissioner of Income Tax V. Narayan Das Ramkishan (1976) 34 Tax 189. A tax being an exaction of money from citizens, its imposition and collection is a necessary evil which, since cannot be cured, must be endured. The case of penalty provisions is, however, slightly different. A resort to such provisions needs to be in exceptional situations, specially in direct taxes like income tax. The payment of tax without tears is an ideal situation which unfortunately does not appear achievable completely in view of the complex human nature when no direct or immediate reward is seen reciprocated with the payment of money. To part with money without a simultaneous passing on of quid pro quo is not a pleasant situation to be in. Obviously, mere persuasion normally does not work to motivate a person to part with his money readily and happily. However, a Revenue Collector can be assertive with certain degree of restraint, In cases where imposition of penalty is discretionary the powers so rested may not be exercised unless the defaulter is found contumacious.
11. The questions as referred are, therefore, answered in the affirmative.