1966 PLP 255 (PTD)

On 31st May 1961, the Income-tax Officer by three separate orders imposed penalties upon the firm of Rs. 1,000 for the year 1952‑53, Rs. 4,000 in respect of the year 1953‑54 and Rs. 6,000 in respect of the year 1954‑

55. On 23rd October 1961, the firm filed a petition to the Court praying for a writ of certiorari for quashing the said orders on the following grounds:‑ (i) that with the abrogation of the Constitution on 7th October 1958, the proceedings for imposition of penalty had abated; (ii) that penalty could not be imposed on a firm which was not in existence; (iii) that as no notice under section 28 of the Act was issued for the year 1953‑54, imposition of penalty for that year was illegal; and (iv) that the Income‑tax Officer was not competent to impose this penalty. The last ground was not argued before the High Court. As an appeal under the Income‑tax Act was pending, the learned Judges declined to deal with ground number (iii). They were, however, unable to accept the other grounds, namely, grounds. Nos. (i) and (ii). The only ground on which the validity of the proceedings taken by the Income‑tax Officer was attacked before us was that after the dissolution of the firm there was no statutory provision for the levy of any penalty either on the firm or on any of the partners of the dissolved firm. It was contended that as section 44 of the Act was not attracted to this case, the Income‑tax Officer had no jurisdiction to impose a penalty under section 28 on a dissolved firm. Section 44 of the Income‑tax Act at the relevant time was as follows: "Where any business, profession or vocation carried on by a firm or association of persons has 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." Section 44 says that a dissolved firm is liable to assessment. It also provides for the joint and several liability of the partners of a dissolved firm for the assessment and payment of tax. The section further adds that "all the provisions of Chapter IV shall so far as may be apply to any such assessment." We have therefore, to consider the scope of the expression "liable to assessment under Chapter IV". Section 28 which is one of the sections in Chapter IV provides for the imposition of penalty for the concealment of any income or the improper distribution of profits. Hence the question is: Whether the imposition of penalty could be equated to `assessment under Chapter IV within the meaning of section 44 of the Act. In other words, will expression such assessment' include within it proceedings taken under section 28 of the Act? It was contended that the expression assessment has been used merely in the sense of computation of income under section 23 of the Act and not for the purpose of imposing penalty. We are unable to accept the above contention because the expression `assessment' has been used in a comprehensive manner so as to include the proceedings for imposition of penalty. This view finds support from the provisions of Chapter IV of the Act, In this Chapter only section 23 deals with computation of income, There are several other sections in this Chapter which deal wit" the determination of liability, machinery for imposition of liability and the procedure in that behalf. Reference in this connection, may be made to sections 18‑A, 24‑B, 25, 25‑A, 29, 31, 33, 34 and 35, of this Chapter. It was therefore, rightly pointed out in the case of C. A. Abraham v. Income‑tax Officer, Kottayam and another that (A I R 1961 S C 609). "The expression assessment used in these sections is not used merely in the sense of computation of income and there is in our judgment no ground for holding that when by section 44 it is declared that the partners or members of the association shall be jointly and severally liable to assessment, it is only intended to declare the liability to computation of income under section 23 and not to the application of the procedure for declaration and imposition of tax liability and the machinery for enforcement thereof. Nor has the expression, all the provisions of Chapter IV shall so far as may be apply to such assessment a restricted content; in terms it says that all the provisions of Chapter IV shall apply so far as may be to assessment of firms which have discontinued their business. By section 28, the liability to pay additional tax which is designated penalty is imposed in view of dishonest con tumacious conduct of the assessee." In the matter of Messrs Abdul Karim, Karamat Ullah (1962 P T D 920) the High Court of West Pakistan has also correctly stated at page 924:‑ "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 IV which includes imposition of penalty under section 28 (1) (c)." In this view of the matter we are unable to accept the contention that only those sections of Chapter IV will be attracted tot section 44 which deal, only with the computation of income. Now section 28 (1) is in these terms:‑ "28 (1) If the Income‑tax Officer, the Appellate Assistant Commissioner or the Appellate Tribunal, in the 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 subsection (1) or subsection (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) or subsection (4‑A) of section 22 or subsection (2) of section 23 ; or (c) has, either in the said proceedings or in any earlier proceedings relating to an assessment in respect of the same previous year, concealed the particulars of his income or deliberately furnished inaccurate particulars of such income. he or it may direct that such person shall pay 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 cases referred to in clauses (b) and (c), in addition to any tax payable by him, a sum 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:" Thus failure to file return etc., or to furnish required particulars and concealment of income or improper distribution of profits are penalised by this section. It is evident that this section has beer enacted for facilitating proper assessment of taxable income and hence the defaults enumerated therein really relate to the process of assessment. For the above reasons we are unable to hold that a proceeding for imposition of penalty and a proceeding for assessment of income‑tax are matters distinct and that section 44 will not be attracted to this case. The partners of the firm, therefore, cannot evade the penalty imposed under section 28 by, the simple expedient of discontinuing the firm. This appeal fails and is accordingly dismissed. As the learned counsel for the respondent sought permission to appear in this case at a very late stage, we do not make any order as to costs. S. Q. Appeal dismissed.