P L D 1962 (W (PLP)

S. A. MAHMOOD, J.‑On an application under section 66 (1) of the Income‑tax Act made by the Commissioner of Income‑tax North Zone, the Income‑tax Appellate Tribunal under section 66 (1) of the Act formulated the following question for decision by this Court :‑ "Whether in the circumstances of the case, the Tribunal was right in holding that a penalty under section 28 (1) (c) of the Act could not be imposed on a defunct firm as such, after it had been dissolved and its business had been discontinued, even when the notice for the penalty proceedings was issued before the dissolution of the firm?" 2. In this reference the assessment year is 1951‑52. The Firm Messrs Abdul Karim Karamat Ullah Gujrat, was dissolved and its business was discontinued on the 31st of March 1955. Assessment of the income of the firm was made on the 22nd of April 1954, and proceedings under section 28 of the Act were started on the same date. A notice under section 28 (3) of the Act was served on the firm on the 27th of April 1954 and the proceedings culminated in an order imposing a penalty under section 28 (1) (c) on the 31st of January 1956, which was long after the firm had been dissolved and its business discontinued. The Income‑tax Officer levied a consolidated penalty of Rs. 9,300 under sections 18‑A (9) and 28 (1) (c). On appeal, the Appellate Assistant Commissioner apportioned the penalty by attributing one‑half of it to the default made under section 18‑A (3) and the other half to concealment of profits within section 28 (1) (c). He knocked off the penalty in so far as the default under section 18‑A (3) was concerned, but he maintained a penalty of Rs. 4,650 under section 28 (1) (c). The assessee appealed to the Tribunal against the levy of this penalty. On this further appeal, the Tribunal decided that it was well settled that a penalty under section 28 (1) (c) could not be imposed on a firm, which on the date of imposition had ceased to exist, and therefore, set aside the penalty of Rs. 4,650 imposed on the firm under sec tion 28(1) (c). On an application by the Commissioner of Income- tax the Appellate Tribunal then formulated the above question. 3. The decision of the question formulated for our opinion rests on the interpretation of section 44 of the Income‑tax Act which at the relevant time read as follows: ‑ "Where any business, profession or vocation carried on by a firm or association of persons had been discontinued or where an association of persons is dissolved, every person who was at the time of such discontinuance or dissolution a partner of such firm or a member of such association shall, in respect of the income, profits and gains of the firm or association be jointly and severally liable to assessment under. Chapter IV and for the amount of tax payable and all the provisions of Chapter IV shall, so far as may be, apply to any such assessment." This section provides in simple terms that a partner of a dissolved or discontinued firm shall in respect of its income, profits and gains be jointly and severally liable to assessment under Chapter IV and for the amount of tax payable and all the provisions of Chapter IV shall, so far as may be, apply to any such assessment. It is not in dispute in this case that a partner is responsible to be assessed on income, profits and gains of the firm, jointly and severally but it is contended on behalf of the assessee, as has been held by the Appellate Tribunal, that he is not liable to imposition of a penalty under section 28. There is no doubt on the plain language of the section that a partner even after dissolution or discontinuance of the firm shall be liable jointly and severally to assessment under Chapter IV, which includes section 28 (1) (c), which provides for a penalty. The section does not end there and goes on to provide that he shall be liable for the amount of tax payable and all the provisions of Chapter IV shall, so far as may be, apply to any such assessment. In view of the clear and unambiguous language employed, and the words "and all the provisions of Chapter IV shall, so far as may be, apply to any such assessment," no room is left for doubt that section 28 (1) (c) is fully applicable to the assessment of a member of a dissolved firm and is envisaged by it. Chapter IV deals with assessment and it includes section 28, which provides for a penalty in certain circumstances. Thus, imposition of a penalty is an incidence of assessment and flows from it. Since it is relatable to assessment and is provided for in 6 Chapter IV, which is specifically made applicable by section 44, it must be held that the penalty provided for is contemplated by it and can be imposed even in case a firm has been dissolved and its business discontinued. 4. In Mareddi Krishna Reddi v. Income‑tax Officer, Tenali ((1957) 31 I T R 678), the contention that section 44 only made the partner liable jointly and severally for assessment for the amount of the tax and not for levying or collecting of penalty, as it was not specifically provided for, was repelled. The Supreme Court of India in C. A. Abraham v. Income‑tax Officer, Kottayam and another ((1957) 31 I T R 678) has taken a similar view. It was pointed out that section 44 of the Income -tax Act set up machinery for assessing .the tax liability of firms which had discontinued their business and provided for three consequences, ((1957) 31 I T R 678) on the discontinuance of the business of a firm, every person who was at the time of its discontinuance a partner is liable, in respect of the income, profits and gains of the firm, to be assessed jointly and severally, ((1961) P T D 779) each partner is liable to pay the amount of tax payable by the firm, and ((1955) 27 I T R 307) the provisions of Chapter IV, so far as may be, apply, to such assessment. The word "assessment" used in Chapter IV of the Income‑tax Act is not used merely in the sense of computation of income and when section 44 declares that the partners or members of the firm or association shall be jointly and severally liable to assessment, it refers to the liability to computation of income under section 23 as well as the application of the procedure for declaration and imposition of tax liability and the machinery for enforcement thereof. Nor had the expression "all the provisions of Chapter IV shall, so far as may be, apply to such assessment" a restricted content. By section 28, the liability to pay additional tax, which is designated penalty, is imposed in view of the dishonest contumacious conduct of the assessee. This liability arises only if the Income‑tax Officer is satisfied about the existence of the conditions which give him jurisdiction and the quantum thereof depends upon the circumstances of the case. Penalty is not uniform and its imposition depends upon the exercise of discretion by the taxing authorities, but it is imposed as a part of the machinery for assessment of tax liability. It was held that the imposition of penalty under section 28 in the assessment of a firm consisting of two partners, even after the death of one of them, was valid. 5. On behalf of the assessee reliance has been placed before us on the Commissioner of Income‑tax, Bihar and Orissa v. Sanichar Sah Ehim Sah ((1955) 27 I T R 307), Raju Chettiar v. Collector of Madras ((1956) 29 I T R 241) and Commissioner of Income‑tax, Hyderabad v. Rayalaseema Oil Mills ((1959) 37 I T R 208), which are cases of `Hindu undivided family' which are governed by section 25‑A of the Income‑tax Act and are distinguishable on the ground that the section is differently worded than section 44, which is relevant to the present case. Reliance was also placed before us on S. V. Veerappan Chettiar and another v. Commissioner of Income‑tax, Madras and another ((1957) 32 I T R 411) and K. Sadianna Shetty v. Second Additional Income‑tax Officer, Mangalore ((1958) 33 I T R 692). These cases hold that assessment referred to in section 44 was obviously assessment of tax and could not include within its proceedings taken under section 28 (1) (c) of the Act and that there was a lacuna in section 44 as in section 25‑A of the Act. R. N. Bose v. Manindra Lal Goswami ((1958) 33 I T R 435) and C. A. Abraham v. Income‑tax Officer, Kottayam and another ((1958) 33 I T R 287) were also referred to by the learned counsel for the assessee, but these cases do not help him. In fact, the decision in the last case was against the assessee and this decision was maintained on appeal by the Supreme Court of India in the case already cited. In view of this decision, the contrary view no longer holds good in India. 6. The main contention of the learned counsel for the assessee before us is that section 44 only contemplates assessment of income‑tax and makes the partner of a dissolved firm .liable therefore and that it does not include penalty which is not mentioned in the section. The Judicial Committee of the Privy Council in Commissioner of Income‑tax v. Khemchand Ramdas ((1938) 6 I T R 414) at page 416 pointed out that "one of the peculiarities of the most Income‑tax Acts is that the word `assessment' is used as meaning sometimes the computation of income, sometimes the deter mination of the amount to tax payable and sometimes the whole procedure laid down in the Act for imposing liability upon the taxpayer. The Indian Income‑tax Act is no exception in this respect." We have no doubt that the words "jointly and severally liable to assessment under Chapter IV and for the amount of tax payable and all the provisions of Chapter IV shall, so far as may be, apply to any such assessment" include the entire process and incidence of assessment as provided in Chapter 4 which includes imposition of penalty under section 28 (1) (c). No importance can be attached to the omission of the word "penalty" since the entire provisions including the one relating to the penalty has been specifically made applicable to liability to assessment of a partner of a dissolved firm by section 44. The learned counsel for the assessee also referred to an amendment introduced by the Finance Act, 1958, (XXII of 1958) by which tax was defined for the first time in clause (14) of section 2 as meaning tax payable under the Act including any penalty, interest, fee or other things leviable under the Act. The definition of the word "tax" became necessary because of amendment of section 44 introduced by the Finance Act, which introduced the word "tax" in section 44. No help can be derived from the amended definition of tax in section 2 (14) of the Act in aid of the desired interpretation of section 44, as it existed before the amendment. 7. In view of what we have stated above, our answer to the question referred to us for opinion is in the negative. As the authorities were divided on the question, we make no order as to costs. M. N./A. H. Reference answered in negative.