CHAGLA, C.J. - The question that arises in this reference in whether the assessee are liable to pay a certain penalty imposed upon them by the Income-tax Officer under Section 28 of the Act.
The facts which led up to this reference may be briefly stated. On the January 16, 1940, the Income-tax Officer issued a notice under Section 22, sub-section (4), of the Income-tax Act for production of certain accounts and documents. The assessee failed to comply with that notice. The assessment of the assessee was completed by the Income-tax Officer on the February 8, 1940, in completing the assessment a note was made by the Income-tax Officer that proceedings should be taken against the assessee under Section 28(1)(a) and (b). On the 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 assessee was completed, they were not registered as a firm; but on the October 12, 1940, the Income-tax Commissioner made the order registering the firm of the assessees. On the March 29, 1946, after the proceedings had terminated, in respect of the notice issued under Section 28, an order was made imposing a certain penalty upon the assessee; 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. Now the effect of the order of the Income-tax Commissioner on the October 12, 1940, was that the assessee firm, though originally unregistered, because a registered firm for all the purpose 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 this 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 as a firm. The assessment is in the assessment of each partners 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 assessee who are liable to pay tax. As the registered firm is not liable to pay tax, there is no penalty which would be imposed upon it.
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 the 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 the 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 of 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. Joshis 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 the 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 attracted 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 the December 3, 1940; but he 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.
We must, therefore, answer the question in the negative. Commissioner to pay the costs.
TENDOLKAR, J. - I agree.
Reference answered in the negative.