1965 PLP 75 (PTD)

On these facts and circumstances, the following questions of law do arise out of the Tribunal's order and the same are referred to the High Court under section 66 (1) of the Income-tax Act: "(1) Whether, on the facts and in the circumstances of the case, penalty of Rs. 80,000 was impossible upon the assessee under section 28 (1) (c)? (2) Whether penalty was leviable under section 28 (1) (c) on the assessee on January 23, 1958, when the claim for disruption of the assessee Hindu undivided family with effect from February 18, 1957, was recorded by the Department on July 31, 1958 under section 25-A?" The draft statement of the case was placed before the parties. The learned counsel for the assessee submitted that the word "false" occurring in paragraph 2 of the draft statement should be omitted and the exact wording used by the Appellate Tribunal in the appeal against the assessment should be substituted in its place. The learned counsel further submitted that the other question regarding the leviability of the penalty should also be referred to the High Court because it was the assessee's case that even though the explanation offered by it was false, no penalty could, in law, be imposed upon it. On behalf of the Commissioner, the departmental representative suggested a change in the wording of the question stated in our draft. The suggestions are accepted and the statement of the case is accordingly finalised. S. N. Datta and Harilal Agarwal for the Assessee. Tarkeshwar Prasad for the Commissioner. RAMASWAMI, C. J.-In this case the assessee was a Hindu undivided family. For the assessment year 1947-48 it was found by the Income-tax Officer that the assessee had concealed a sum of Rs. 4,39,

849. This additional amount was added to the taxable income of the assessee and the assessment order was made by the Income-tax Officer on the 30th April 1949. On the same day the Income-tax Officer drew up a proceeding for imposition of penalty on the Hindu undivided family under section 28 (1) (c) of the Income-tax Act. In response to the show cause notice the assessee explained that he had voluntarily brought to the notice of the taxing authorities the amount which was brought from the home chest and there was hence no concealment of any income. The Income-tax Officer rejected this explanation and imposed a penalty of Rs. 1,00,000 against the assessee by his order dated the 23rd January 1958. It appears that the assessee had filed an application on the 21st October 1957, under section 25-A of the Income-tax Act, claiming disruption of the Hindu undivided family with effect from the 18th February, 1957. In the appeal brought before the Appellate Assistant Commissioner against the order of penalty the assessee had urged that the income-tax Officer was under an obligation to dispose of the application under section 25-A before he could levy any penalty under section 28 (1) (c). The Appellate Assistant Commissioner accepted this argument and remanded the case to the Income-tax Officer for making an inquiry into the claim of the assessee with regard to the disruption of the Hindu undivided family and give his finding thereon. In pursuance of this direction the income-tax Officer disposed of the application under section 25-A on the 31st July 1958, accepting that there was a partition of the Hindu undivided family with effect from the 18th February 1957. After the matter came back to the Appellate Assistant Commissioner after remand, it was urged on behalf of the assessee that the order of imposition of penalty was illegal because the Hindu undivided family had ceased to exist on the date of the order. This argument was rejected by the Appellate Assistant Commissioner who confirmed the order of penalty imposed upon the assessee. The same view was taken by the Income-tax Appellate Tribunal which held that the order of penalty was validly imposed on the assessee by the Income-tax Officer. Under section 66 (1) of the Income-tax Act the Income-tax Appellate Tribunal has stated a case on the following questions of law for the determination of the High Court: "(1) Whether on the facts and in the circumstances of the case penalty of Rs. 80,000 was impossible upon the assessee under section 28 (1) (c)? (2) Whether penalty was leviable under section 28 (i) (c) on the assessee on January 23, 1958, when the claim for disruption of the assessee Hindu undivided family with effect from February 18, 1957, was recorded by the Department on July 31, 1958, under section 25-A?" With regard to the second question, which is really the more important question involved in this case, it was submitted by Mr. Datta on behalf of the assessee that the Hindu undivided family did not exist on the date the Income-tax Officer made the order of penalty, that is, on the 23rd January 1958, and, therefore, the Income-tax Appellate Tribunal was erroneous in law in holding that the penalty was lawfully imposed upon the assessee. In support of this argument learned counsel referred to the decision of this High Court in Commissioner of Income-tax v. Sanichar Sah Bhim Sah ((1955) 27 I T R 307). On behalf of the Income-tax Department it was pointed out by the Standing Counsel that in the present case the Hindu undivided family was existent on the 30th April 1949, and notice was issued by the. Income-tax Officer under section 28 (1) (c) of the Income-tax Act. We do not, however, think that this distinction is really material. It is true that in Commissioner of Income-tax v. Sanichar Sah Bhim Sah the Hindu undivided family was not existent both on the date the Income-tax Officer initiated the proceedings under section 28 (1) (c) of the Act and also on the date on which the penalty was imposed. But the principle laid down in that case was that the order of the Income-tax Officer imposing penalty under section 28 (i) (c) would be legally valid only if both the conditions were satisfied, namely, that the Hindu undivided family was existent on the date the Income-tax Officer started the proceeding and it was also existent on the date the Income-tax Officer imposed the order of penalty. The decision of this High Court in Commissioner of Income-tax v. Sanichar Sah Bhim Sah has been followed by the Madras High Court in S. A. Raju Chettiar v. Collector of Madras ((1956) 29 I T R 241). It was held by the learned Judges of the Madras High Court in this case that the proceedings under section 28 of the Income-tax Act for imposing a penalty on a Hindu undivided family will be legally valid only if both requirements are satisfied: (1) the family must be in existence when the proceedings are initiated, and (2) it must also be in existence on the data the order imposing the penalty on that family as a "person" is passed. In the Madras case, the notice under section 28 (1) (c) was issued on the 4th September 1944 before the disruption of the Hindu undivided family and the karta of the Hindu undivided family represented the assessee-family in the income-tax proceedings at that stage; but the family had ceased to exist as a "person" for purposes of income-tax long before the penalty was imposed on the 18th March, 1948. It was held by the Income-tax Officer in these circumstances that the order imposing a penalty was legally invalid. The material facts of the present case are identical with those of the Madras case. A similar view has been expressed by the Andhra Pradesh High Court in Mahanakali Subba Rao v. Commissioner of Income-tax ((1957) 31 I T R 867) and the view taken by the Patna High Court in Commissioner of Income-tax v. Sanichar Sah Bhim Sah and by the Madras High Court in S. A. Raju Chettiar v. Collector of Madras has been approved in this case also. On behalf of the Income-tax Department the learned Standing Counsel referred to the decision of the Supreme Court in C. A. Abraham v. Income-tax Officer ((1961) 41 I T R 425). But, in our opinion, the principle laid down in this case has no bearing on the question presented for determination in the present case. The question at issue before the Supreme Court was the interpretation of section 44 of the Income-tax Act which is not in pari materia with section 25-A of the statute and there is no real analogy between the language of the two sections. The decision of the Supreme Court in C. A. Abraham v. Income-tax Officer has, therefore, no relevance on the question for determination in the present case. As we have already said, the present case is governed by the principle laid down in Commissioner of Income-tax v. Sanichar Sah Bhim Sah, S. A. Raju Chettiar v. Collector of Madras and Mahankali Subba Rao v. Commissioner of Income-tax, and in view of the principle laid down by these authorities it is manifest that the order of penalty imposed by the Income-tax Officer on the assessee on the 23rd January 1958, is legally invalid. We accordingly answer the second question of law referred by the Income-tax Appellate Tribunal in favour of the assessee and against the Income-tax Department. In view of our answer to the second question, it is not necessary to answer the first question of law referred by the Income-tax Appellate Tribunal to the High Court because it is academic. We do not propose to make any order as to the costs of this reference. Second question answered in favour of the assessee.