M.C. Chagla, C.J.
1. The question that arises in this reference is whether the assessees are liable to pay a certain penalty imposed upon them by the Income-tax Officer under Section 28 of the Act.
2. The facts which led up to this reference may be briefly stated. On January 16, 1940, the Income-tax Officer issued a notice under Section 22, Sub-section (4), of the Indian Income-tax Act, for production of certain accounts and documents. The assessees failed to comply with that notice. The assessment of the assessees was completed by the Income-tax Officer on February 8, 1940. In completing the assessment a note was made by the Income-tax Officer that proceedings should be taken against the assessees under Section 28(1)(a) and (h). On February 17, 1940, pursuant to that note, a notice was issued by the Income-tax Officer under Section 28 of the Act. Now when the assessment of the assessees was completed, they were not registered as a firm; but on October 12, 1940, the Income-tax Commissioner made the order registering the firm of the assessees. On March 29, 1946, after the proceedings had terminated, in respect of the notice issued under Section 2ft, an order was made imposing a certain penalty upon the assessees; and the question we have to consider is as to the legality of this penalty. Now, under Section 28 penalties are laid down, for various defaults committed under the Act, and we are concerned with Section 28(1), Sub-clause (b), which deals with an assessee failing to comply with a notice under Sub-section (4) of Section 22 and the penalty prescribed is that he may be liable to pay, in addition to any tax payable by him, a sum not exceeding the income-tax which would have been avoided if the income as returned by such person had been accepted as the correct income. The effect of the order of the Income-tax Commissioner on October 12, 1940, was that the assessee firm, though originally unregistered, became a registered firm for all the purposes of the Income-tax Act and from the beginning of the period of account. Now, under Section 23(5), when the assessee is a firm and it is a registered firm, the sum payable by the firm itself shall not be determined but the total income of each partner of the firm, including therein his share of its income, profits and gains of the previous year, shall be assessed and the sum payable by him on the basis of such assessment shall be determined. Therefore in the case of a registered firm, no tax is payable by such a firm. It is the partners of the registered firm who pay the tax, and there is no assessment at all of the registered firm as a firm. The assessment is in the assessment of each partner of the registered firm. Therefore when we turn to Section 28, we find that if a registered firm commits a default by not complying with the requisition under Sub-section (4) of Section 22, there is no penalty which can be imposed upon a registered firm, because the penalty enacted in Section 28 can only be imposed on those assessees who are liable to pay tax. As the registered firm is not liable to pay tax, there is no, penalty which could be imposed upon it.
3. Mr. Joshi for the Commissioner has relied on Sub-clause (d) to the proviso to Section 28(1) which was incorporated by the amending Act which was passed on December 3, 1940, and the effect of that amendment is that a registered firm is to be treated as if it was unregistered and the penalty is to be imposed on that basis. Now, what Mr. Joshi asks us to do is to> give retrospective effect to the amendment which was passed on December 3. 1940. Mr. Joshi relies on the principle that if an offence is constituted by the Legislature and a certain penalty is fixed for that offence, it is always open to the Legislature to enhance the punishment. The offender would be liable to undergo the enhanced punishment although, when he committed the offence, the punishment imposed was less than when he was actually convicted. I do not quarrel with that principle. But in this case Mr. Joshi's difficulty lies in this: that at the date when the notice was issued against the assessee, his failure to comply with the requisition under Section 22(4) was not constituted an offence by the Legislature at all, and a new offence cannot be retrospectively constituted by the amendment passed on December 3, 1940. Mr. Joshi says that within the meaning of Section 28, even a registered firm could commit default by not complying with the requisition under Section 22, Sub-section (4); but the default has no significance because no consequence was attached to the commission of that default by a registered firm. It is only when a default carries a certain consequence with it, namely, the possibility of a penalty being imposed for the commission of that default, that the default can be considered to be an offence. Obviously there was a lacuna in the law which has been made good by the amendment of December 3, 1940; but the assessee is entitled to the benefit of that lacuna, and in our opinion the Tribunal was right in coming to the conclusion that the penalty imposed was not valid under the law.
4. We must, therefore, answer the question in the negative.
5. Commissioner to pay the costs.