_
640 SUPREME COURT-REPORTS, £1962] SUPP.
THE COMMISSIONER. OF INQOME TAX, .- ' “*' MADRAS"AND ANOTHER » zif 2 . “ * k ,
4 @. t §. V. ANGIDI CHETTIAR’:
woe ‘ t 1 . my
(B-P.Saviza, C. J; J, L. Kapur, M. HrpAvatvnran, J.C: Suan and J. R, Mupuorxar, JJ.)
. vt te a, of 42 } 4 ' 4 income He ~;Penalty on concealed income—Power to ith pose penalty dn a.registered firm-after dissolution—Condition Jor the exercise ‘of jiuriaiction by Tncome-tax Officer-——Indian Income tax'Act, 1922(11 of 1922), ss. 28, 44.
vA registered firm concealed particulars of income while submitting its returns forythey vears 1947-48, 1949-50 and 1950-5]. The, .Tticome-tax, Officer imposed penalty under §.28'(1) of the Indian Income-tax Act, 1922. *TKe High Court was moved for a wit of certiorari, submitting that the Incqme-tax Officer;could hot impose penalty under the said srctionjas he had information that the .registered firm was diss6lved ‘én April 13.1951, by agreement,,gnd in any event én Mav'5, 1953, by the fegth, of one of,the., partners. The High Coitirt issued the writ "and ' quashed the order imposing penalty, ve . .__Heldsthat the.prinéiple faid, Wowil, in'C. A, Abrahants case [1961] 2, S.-C. Re 765, | is as much ‘applicable to a régistered firm as,to an unregistered firm. , There issnothing in s.4€ of the’Act ‘or the context in which.it-occurs to ingicate. that it does not apply to registered firm.
" : . aes . t
Held, further'thdt thepenalty provisions under s. 28 would ig the evgnt.of the default contemplated by- cls. (a) (b) or (c) be applicable in the course of assessment of a registered firm. If the registered firm is exposed to Nability of paying penalty because it has committed any of the defaults contemplatéd by cls. (a), (b) or (c) by virtue of s.44 the assessment proceedings are liable to be continued against the registered firmeven after dissolution as if it has not been dissolved.
The power to impose penalty under s. 28 depends upon the satisfaction of the Incothe-tax Officerin the course of proceedings under the Act, It cannot le exercised if he is not satisfied about the existence of ennditions specified in cl. (a), (b) or (c) before the proceedings are concluded. The proceedings for levy of penalty has, fiowever, not to be commenced by the Income-tax Officer, before completion of the assessment proceedings by him. Satisfaction before the con-
\
%. ane cia ele
28.C.R. SUPREMECOURTREPORTS 641 clusion of the proceeding under the Act and not the issue of notice of intimation of any step for imposing penalty isa condition for the .exercise of the jurisdiction.
C. A. Abraham v. Income-tax Officer, Kotiayam, [1961] 2S. G. R. 765, applied.
Mareddev Krishna Reddy v. Income-tax Officer, Tenali [1957] 31 I. T. R. 678 and Khushiram Murarilal v. Commissioner of Income-tax, Central, Calcutta, [1954] 25 I. T. R. 572, approved.
Civ, APPELLATE JURISDICTION : Civil Appeals
Nos. 6 to 8 of 1961.
“ Appeals from the judgment and order dated May 8, 1957 of the Madras High Court in Writ Petition Nos. 943 to 945 of 1955.
K.N. Rajagopala Sasiri and P.D. Menon, for the appellants.
V. 8S. Venkataram and K.P. Bhat, for responclents.
1962. January 18.—The Judgment of the Court was delivered by
_ Sau, J.—Thesoe are three appeals with certificates of fitness granted by the High Court of Madras against orders passed in Petitions for the issue of writs of certiorari setting aside orders imposing penalty upon the firm of Messrs. 8S. V. Veerappan Chettiar & Co. passed by the Income-tax Officer under s. 28(1)(c) of the Indian Income-tax Act.
Four persons carried on business in cloth at Virudhunagar in the name-and style of S.V. Veerappan Chettiar & Co.—hereinafter called the firm. The firm was registered under Art. 26A of the Indian Income-tax Act, 1922, for the assessment years 1947-48, 1949-50-and 1950-51. The firm concealed particulars of its income in submitting its returns, and the Income-tax Officer, Virudhunagar in the course of assessment proceedings directed, by order dated May 20, 1954, payment. of penalty of Rs. 20,000/- for the year 1947-48, Rs. 10,000/-for the
The Commiasioner of Income-tax, Madras v. S. V. Angidi Chettiar
She Commissioner of Income-tax, Madras v. S. V, Angidt Chatter
—_—_
Shah J,
642 SUPREME COURT REPORTS [1962] SUPP.
year 1949.50 cnd Rs. 5,000/-for the year 1950-51. Against the orders imposing ponalty, one of the partners of the firm moved the Commissioner of Income-tax, Madras in revision but without success. Thereafter, petitions under Art. 226 of the Constitution for issue of write of certiorari or other appropriate writs calling for records relating to the orders dated May 20, 1954, passed by the Income-tax Officer, Virudhunagar, in respect of the three assessment orders and tho record relating to the order of the Commissioner and for quashing the penalty orders were filed by two partners of the firm in the High Court at Madras. It was submitted by the petitioners that by agreement between the partners the firm stood dissolved on April 13, 1951, and intimation inthat behalf was given to the Income-tax Officer, and that in any event the firm stood dissolved on May 5, 1953, when one of the partners died and the Income-tax Officer could not, in exercise of the power under s. 28(1) make an order imposing penalty after dissolution of the firm. The High Court accepted the plea of the petitioners and directed that the orders of the Income-tax Officer dated May 20, 1954, and the further action of the Commissioner thereon declining to revise the order of the Income-tax Officer in each of the petitions be set aside. Against the orders passed by the High Court the Commissioner appeals to this Court.
This Court ina recent judgment--C. 4. Abraham v. Income-tax Officer, Kottayam (’)—held that the Income-tax Officer had power under s. 28 of the {ncome-tax Act to impose penalty in the course of assessment of a firm even if the firm stood at the date of the order dissolved by the death of one of its partners. In so holding, this Court observed thats. 44 ofthe Income-tax Act sets up machinery for assessing tax liability of a firm which has discontinued its business and that the expression “assessment” inthe different sections of
(1) [1961] 2 S.C.R. 765,
28.C.R. SUPREME COURT REPORTS 643
Chapter IV of the Income-tax Act was not used merely in the sense of computation of income, and when s. 44 declared that the partners or members of the firm shall be jointly and severally liable to assessment, it referred to the liability to computation of income under s.23 as well as the application of the procedure for declaration and imposition of tax liability and the machinery for enforcement thereof.
Counsel for the appellants, however, contended that C. A. Abraham's case was one of an unregistered firm and the principle of that case has no application where the firm is a registered firm. But s. 44 makes the provisions of Chapter IV, so far as may be, applicable to assessment when any business, profession or vocation carried on by a firm has been discontinued : the section declares liability of all discontinued. firms and not merely of unregistered firms, There is nothing in s. 44 or the context in which it occur to indicate that it does not apply to registered firms. This Court in C. A. Abraham's case approved the decision of, the Andhra Pradesh High Court in Mareddy Krishna Reddy v. Income-tax Officer, Tenali, (") which was a case of a registered firm, which was dissolved before imposition of penalty.
Counsel then argued that in any event, no penalty under s. 28 can be imposed against a registered firm either before or after dissolution, even if the defaults set out in cls. (a), (b) or (c) are proved.
This, counsel submits, is the result of the scheme of the Act under s. 23(5) for assessment of tax liability of a registered firm. This plea was not set up in the petition, and there is no reference to itin the judgment of the High Court and even in the statement of the case filed in this Court there is no trace of it. On that ground alone the plea raised by the appellant is liable to be rejected. Even if the appellant is permitted to raise the contention there
(1) [1957] 311. T.R. 678,
The Commissioner of Income-t1x, Madras Vv. & V. Angidi Chettiar
The Commissioner of Encame-tax, Madras v. S.V. Angidi Chettiar
644 SUPREME COURT REPORTS [1962] SUPP.
is, in our judgment, no force init. Section 28(1) of the Act {inso faras itis material to these appeals) provides :
“If the Income-tax Officer x x x xX X x inthe 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 subsection (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 or it may direct that such persons shall 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 oases referred to in clauses (b) and (c), in addition to any tax payable by him, a eum 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”. The expression ‘‘person” is defined in 8. 2(a) of the Actas’ including “a Hindu undivided family anda local authority”. That evidently is not an exhaustive definition and recourse
28.0R. SUPREME COURTREPORTS — 615 is permissible to the. General Clauses Act which says in s.3(42) that a.‘‘person” includes “any company or association. or body of individuals whether incorporated or not.” A firm is manifestly a body of individuals and would therefore fall within the definition of “person”, and may be exposed to an order for payment of penalty-in the circumstances set out in cls. (a), (b) and (c) of a. 28 of the Income-tax Act. That a firm, registered or unregistered, may be liable to pay penalty has been further clarified by proviso (d) which declares the quantum of penalty payable by firms, registered as well as unregistered. Counsel for the appellant however contends. that even if a firm be regarded as a person within the meaning of the operative part of s. 28 and the proviso thereof, because of an obvious defect in drafting no liability for payment of penalty can be imposed upona registered firm and in support of that contention he relies upon the last clause of the Ist sub-section which provides for imposition of penalty “in addition to any tax payable by him’. Counsel submits that only the person liable to pay tax, may if found guilty of wrongful conduct specified in cls. (a), (b) and (c) be ordered to pay penalty, and by the scheme adopted by the Legislature for imposing tax liability upon registered. firms under s. 23(5) tax is never payable by a registered firm. Counsel says that when the Legislature by Act 40 of 1940 enacted cl. (d) of the proviso; only the quantum of penal liability of a registered firm was declared but the liability could not still be enforced because by the substantive provision, it depended solely upon the existence of an enforceable obligation of.the firm, and so long as an obligation was not imposed upon the firm to pay tax by an adequate amendment of s. 23 (5), the liability though quantified was unenforceable. It is urged that there were two defects in s. 28/1), as originally drafted: (1) that the penalty could be
The Commissioner of Income-tax, M adras v.
S.V. Angidi Chettiar oe
The Commissioner of Lacome-tax, Madras v. S.V. Angidi Chettiar
616 SUPREME’ COURT REPORTS [1962] SUPP.
imposed only upon a person who was liable to pay imcome-tax or super-tax, and (2) that the penalty which may be imposed was a multiple of the inconic-tax and super-tax if any, which would have been avoided if the income as returned by such person would have been accepted as the correct income, and by the enactment of ol. (d) to the proviso, the second defect was removed, but not first. In support of this argument, counsel relied upon 8. 23(5) as it stood, before it waa amended by s. 14 ofthe Finance, Act of 1956. The clause provided that where an assessee ie a firm and the total income of the firm has been assessed under sub-s. (1), sub-s. (3) or sub-s. (4), as the case may be, the sum payable by the firm shall not be determined but the total income of each partner of the firm, including therein his share of its income, profits or gains of the previous year shall be assessed and the sum payable by him on the basis of such assessment shall be determined. Under this scheme the income of the registered firm was to be computed but tax was not asseseed on the total income of the registered firm : the income was distributed according to the terms of the agreement amongst the partners of the registered firm, and added to the separate income of the ners and tax was levied on the partners individually. Relying upon this scheme of levying tax, it was urged by counsel for the respondent that as the registered firm was not liable to pay tax it could not be rendered liable to pay penalty under 8. 28 (1) (c).
Section 28, as it was originally enacted, was somewhat obscure. The penalty which could be imposed in cases referred to in ols. (b) and (c) was to be a sum not exceeding one and a half times the amount of the tax which would have been avoided if the income as returned by such person had been accepted as the correct income. But the Legislature did not give any indication whether the
28.C.R. SUPREME COURT REPORTS 647 penalty was related to the tax avoided by the partners of the firm, or by the firm on the footing that it was to be regarded as an unregistered firm. By s. 23(5), income-tax not being made payable by the firm but by the individual partners of a registered firm the legislative intention was not clearly expressed. The Legislature to rectify the defect fixed an artificial basis for computing the penalty payable by a registered firm : it provided that in the cases referred to in cls. (b) and (c), the amount of the income-tax and super-tax which would have been avoided if the income as returned had been accepted as the correct income, shall be taken to be the difference between the amount of the tax which would have been payable by an unregistered firm, on an income equal to the firm’s total income. But the provision relating to imposition of liability to pay penalty by registered firms was clearly expressed. The assumption that the expression “any tax” used ins. 28 (1) is intended to indicate that there must be some tax payable by the assessee before penalty could be imposed is wholly unwarranted. The futility of the assumption is exhibited by the terms of cl. (b). Penalty may be imposed for failure to comply with the notice under sub-s. (4) of s. 22 or sub-s, (2) of s. 23 even if the assessee has no assessable income. To the imposition on of a penalty liability to pay tax by the person against whom the penalty is sought to be imposed is therefore not a condition precedent.
The Calcutta High Court in Khushiram Murarilal v. Commissioner of Income-tax, Central Calcutta (*) was called upon to deal with the submission made before us in thiscase. In that case the question which fell to be determined was whether imposition of a penalty on a registered firm under
8. 28 (1) (b) of the Income Tax Act was justified in law. It was urged in that case on behalf of the
(1) [1954] 251. T. R. 572,
The Commissioner of Income-tax, Madras ve SV. Angidi
Chettiar
The Commissioner of Income-tax, Madras
Vv. S.V. Angidi Chettiar
- 648 SUPREME COURT REPORTS [1962] SUPP.
assessce—a registered firm —that inasmuch as under s. 28 (1) (b) @ person can be made liable to pay penalty, in addition to the amount of income-tax and super-tax, ifany, payable by him in cases falling under cls. (b) and (c), no order for payment of penalty can be made against a registered firm, becauso under the Income Tax Act no tax is made payable by the firm. Chief Justice Chakravartti, speaking for the Court, observed, “............... even when construed by its own language the concluding paragraph of section 28 (1) cannot be said to make it a condition precedent that a person must be liable to pay some income-tax or it may be also super-tax if he is tobe made liable for a penalty. Clause (b) of the proviso tomy mind emphasizes that meaning of the concluding paragraph of Section 28 (1) and reats on an sssumption that under that provision a person may be chargeable to penalty although he may not be chargeable to tax.” The learned Chief Justice also observed, “......... it was not really necessary for olause (d) ef the pre irm
‘viso to enact specifically that a registered would be liable to pay a penalty dospite the fact that it could not be charged and was not, in fact, charged to income-tax or super-tax. The whole argument of Dr. Sen Gupta was that the concluding paragraph of Section 28 (1) had left a gap which bad been attempted to be filled up by clause (d) of the proviso, but the attempt had not been succesaful. In my view the gap which undoubtedly existed in the concluding paragraph of section 28 (1) was only an absence ofa provision regarding the quantum of the penalty that could be levied froma registered firm because tho quantum depends upon the amount of income-tax payable”.
In our view the learned Chief Justice was ight is so enunciating the law. Under s. 23 (5) | af the Indian Income-tax Act, before it was amended in 1956, in the case of a registered firm the tax payable by the firm itself was not required to be
28.C.R. SUPREME COURTREPORTS 649 determined but the total income of each partner of . the firm including therein the share of its income, profits and gains of the previous year was required to be assessed and the sum payable by him on the basis of such assessment was to be determined. But this was merely a method of collection of tax due from the firm.
The penalty provisions under s. 28 would therefore in the event of the default contemplated by cls. (a), (b) or (c) be applicable in the course of assessment ofa registered firm. If a registered firm is exposed to liability of paying penalty, by committing any of the defaults contemplated by els. (a), (b) or (c) by virtue of s. 44, notwithstanding the dissolution of the firm the assessment proceedings are liable to be continued against the registered firm, as if it has not been dissolved.
Counsel contended that in any event, penalty for the assessment year 1949-50 could not be imposed upon the assessee firm because there was no evidence that the Income-tax Officer was satisfied in the course of any assessment proceedings under the Income-tax Act that the firm had concealed the particulars of its income or had deliberately furnished inaccurate particulars of the income. ‘The power to impose penalty under s.28 depends upon the satisfaction of the Income-tax Officer in the course of proceedings under the Act: it cannot be exercised if he is not satisfied about the existence of conditions specified in cls. (a), (b) or (c) before the proceedings are concluded. The proceeding to levy penalty has, however, not to be commenced by the Income Tax Officer before the completion of the assessment proceedings by the Income-tax Officer. Satisfaction before conclusion of the proceeding under the Act, and not the issue of a notice of initiation of any step for imposing penalty is a condition for the exercise of the jurisdiction. There is no evidence on the record that the Income-tax Officer
The Commissioner of Income-tax, Madras v. S.V Angidi Chetticr
1% 2
€50 SUPREME COURT REPORTS [1962] SUPP.
was not satisfied in the course of the assessment
Ths Cummissioner of proceeding that the firm had concealed its income. Inometex, Madre: ‘The agsseasment order is dated November 10, 1951,
$. V. Angidi Chettiar
Shek J.
January 19.
and there is an endorsement at the foot of the assessment order by the Income-tax Officer that action under s. 28 had been taken for concealment of income indicating clearly that the Income-tax Officer was satisfied in the course of the assessment proceeding that the firm had concealed its income.
In our view, the High Court was in error ‘in holding that penalty could not be imposed under
8. 28 (1) (c) upon the firm Messrs. S. V. Veerappan Chettiar & Co.,-after its dissolution.
The appeals will thorefore be allowed and the orders passed by the High Court will be set aside and the petitions filed by the respondents dismissed with costs in this Court and the High Court. One hearing fee.
Appeals allowed.
——
PALAKDHARI SINGH & OTHERS.
v THE STATE OF UTTAR PRADESH AND ANOTHER
(J.L. Kapur and Racuusar Dayal, JJ.)
Limttetion—Panchayati Adaiat—Fine imposed on conviction—Recovery after expiry of siz yeare—lf barred—U.P. Panchayat Kaj Act, 1947. (U.P. XXVI of 1947) es. 54, 83, 94— Indian Penal Code, 1860 (XLV of 1960) 8. 70.
The appellant was convicted by the Panchayati Adalat for theft and sentenced to pay a fine of Rs. 75/- in 1950. The conviction and sentence was confirmed in 1953 by the High Court in revision. In 1958 proceedings were taken to recover the fine. The appellant contended that the recovery was barred bys. 70 The Indian Penal Code. The respondent contended that s. 70 was not applicable to convictions by Panchayati Adalats and that the limitation started from the date of the order of the High Court.