Skip to content


Commissioner of Income-tax Vs. Tatavarthy Narayanamurthy (Decd.) and ors. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAndhra Pradesh High Court
Decided On
Case NumberCase Referred No. 42 of 1965
Judge
Reported in[1972]83ITR58(AP)
ActsIncome Tax Act, 1922 - Sections 25A, 25A(1), 25A(3), 28 and 28(1)
AppellantCommissioner of Income-tax
RespondentTatavarthy Narayanamurthy (Decd.) and ors.
Appellant AdvocateP. Rama Rao, Adv.
Respondent AdvocateJ.V. Srinivasa Rao, ;M.J. Swamy and ;J.Y. Anjaneyalu, Advs.
Excerpt:
direct taxation - penalty - sections 25a, 25 a (1), 25 a (3), 28 and 28 (1) of income tax act, 1922 - whether income-tax officer could levy penalty by his order dated 04.11.1957 on hindu undivided family - order dated 06.11.1958 recognising partition was passed after finalisation of assessment for year 1949-50 in respect of which penalty imposed and therefore to be ignored - order under section 25 a (1) can become effective only in respect of year of assessment subsequent to one in which claim for disruption is made - there was no joint family on 04.11.957 when penalty imposed - held, income-tax officer could not levy penalty by his order dated 04.11.1957 on a hindu undivided family which got disrupted on 31.10.1957. - - order that the family property has been partitioned in definite.....kuppuswami, j.1. an assessment order was passed on 29th august, 1949, by the income-tax officer, masulipatam, for the assessment year 1949-50 whereby the assessee, a hindu undivided family, consisting of tatavarthi narayanamurthy and his sons, was assessed on a total income of rs. 48,413 and directed to pay a tax of rs. 12,537.07. this order was confirmed on appeal by the appellate assistant commissioner of income-tax, vijayawada, by his order dated march 5, 1951 and the income-tax appellate tribunal also dismissed the appeal preferred from the order of the appellate assistant commissioner.2. before completing the assessment, proceedings under section 28(1)(c) of the income-tax act were started against the assessee and as the income-tax officer found that the assessee had deliberately.....
Judgment:

Kuppuswami, J.

1. An assessment order was passed on 29th August, 1949, by the Income-tax Officer, Masulipatam, for the assessment year 1949-50 whereby the assessee, a Hindu undivided family, consisting of Tatavarthi Narayanamurthy and his sons, was assessed on a total income of Rs. 48,413 and directed to pay a tax of Rs. 12,537.07. This order was confirmed on appeal by the Appellate Assistant Commissioner of Income-tax, Vijayawada, by his order dated March 5, 1951 and the Income-tax Appellate Tribunal also dismissed the appeal preferred from the order of the Appellate Assistant Commissioner.

2. Before completing the assessment, proceedings under Section 28(1)(c) of the Income-tax Act were started against the assessee and as the Income-tax Officer found that the assessee had deliberately suppressed true particulars of the income, he levied a penalty of Rs. 6,000 on the assessee with the previous approval of the Inspecting Assistant Commissioner of Income-tax. This order was passed on the 4th November, 1957.

3. Tatavarthi Narayanamurthi preferred an appeal against this order to the Appellate Assistant Commissioner of Income-tax, Vijayawada. During the pendency of the appeal, an application was made under Section 25A of the Act on December 18, 1957, claiming that a partition had taken place on October 13, 1957, between the members of the family. The Income-tax Officer passed an order under that section on November 6, 1958, holding that the assets of the family had been divided by metes and bounds on October 31, 1957, and the assessment of the family on its income up to October 31, 1957, will be made for the year 1958-59 and separate assessment will be made on the income after that date in the hands of each member.

4. In view of this order, it was contended in the appeal before the Appellate Assistant Commissioner against the order of the Income-tax Officer, imposing the penalty, that as the family had become divided on October 31, 1957, the penalty levied on November 4, 1957, after the disruption of the family was illegal.

5. The Appellate Assistant Commissioner in his order dated November 29, 1958, held that though the document of partition was executed on October 31, 1957, the house properties were sought to be divided on November 6, 1957, and the documents were registered on November 21, 1957. He was of the view that the division of the house properties could be effective only after registration of the document and, therefore, the family continued to exist till November 27, 1957. In the circumstances, he held that the levy of penalty on the family on November 4, 1957, was legal. On the merits, he came to the conclusion that the penalty of Rs. 6,000 actually imposed by the Income-tax Officer was quite reasonable.

6. On appeal by Tatavarthi Narayanamurthy, the Income-tax Appellate Tribunal, Hyderabad Bench, relying on a decision of this court in Additional Income-tax Officer, Cuddappah v. A Thimmayya, [1962] 46 I.T.R. 999 (A.P.) held that the family ceased to exist with effect from October 31, 1957, in view of the order passed by the Income-tax Officer in the proceedings under Section 25A of the Act and hence on the date on which the Income-tax Officer passed the penalty order there was no such 'person' as the Hindu undivided family in existence. It, therefore, held that the levy of penalty cannot stand. In view of its decision on this point, it did not consider the other contentions raised by the assessee.

7. At the instance of the revenue, the Tribunal referred the following question to the High Court under Section 66(1) of the Act:

'Whether, on the facts and in the circumstances of the case, the Income-tax Officer could levy the penalty by his order dated November 4, 1957 ?'

8. It is argued on behalf of the Commissioner of Income-tax that the decision of the High Court on which reliance was placed by the Tribunal was the subject-matter of an appeal to the Supreme Court, which held that the High Court was in error in holding that the order of assessment which had become final is liable to be reopened under Section 25A(2) by the Income-tax Officer when an order under Section 25A(1) is passed by him subsequent to the order of assessment: vide Additional Income-tax Officer, Cuddappah v. Thimmayya, [1965] 55 I.T.R. 666 ; [1965] 2 S.C.R. 91 (S.C.) In that case, after considering the provisions of Section 25A, the Supreme Court observed as follows:

' The scheme of Section 25A is therefore clear : a Hindu undivided family hitherto assessed in respect of its income will continue to be assessed in that status notwithstanding partition of the property among its members. If a claim is raised at the time of making an assessment that a partition has been effected, the Income-tax Officer must make an inquiry after notice to all the members of the family and make an. order that the family property has been partitioned in definite portions, if he is satisfied in that behalf. The Income-tax Officer is by law required still to make the assessment of the income of the Hindu undivided family, as if no partition had taken place and then to apportion the total tax liability and to add to the separate income of the members or groups of members the tax proportionate to the portion of the joint family property allotted to such members or groups of members and to make under Section 23 assessment on the members accordingly. If no claim for recording partition is made, or if a claim is made and it is disallowed or the claim is not considered by the Income-tax Officer, the assessment of the Hindu undivided family which has hitherto been assessed as undivided will continue to be made as if the Hindu undivided family has received the income and is liable to be assessed.'

9. In that case the claim under Section 25A was not disposed of before making the assessment and the Income-tax Officer had proceeded to assess the income of the property as if the property of the family had not been partitioned. It was held that the Act contains no machinery authorising an Income-tax Officer to reopen an assessment of a Hindu undivided family relying upon an order recorded under Section 25A(1) of the Act after the order of assessment is made. It was, therefore, held that the order of assessment became final.

10. In view of the decision of the Supreme Court in the above case, it follows that any order of assessment passed by the Income-tax Officer on the basis that the assessee is a Hindu undivided family cannot be affected by a subsequent order passed in proceedings under Section 25A of the Act recognising the partition, though the partition itself might have taken place before the order of assessment.

11. It is, however, argued by Mr. J. V. Srinivasa Rao that though this is the position in regard to the order of assessment made, the position in regard to an order imposing penalty under Section 28(1)(c) of the Act does not stand on the same footing. He urged that Section 25A(1) has no application at all to the proceedings under Section 28(1)(c) of the Act for imposing penalty and, if proceedings are started under the section and an order passed against a Hindu undivided family which was not in existence on the date when the order was passed, the said order would be illegal. In support, of this contention he relied on the following decisions : Commissioner of Income-tax v. K. M. N. N. Swaminathan Cheitiar; [1947] 15 I.T.R. 430 (Mad.) Commissioner of Income-tax v. Sanichar Sah Bhim Sah, [1955] 27 I.T.R. 307 (Pat.).; S.A. Raju Chettiar v. Collector of Madras, [1956] 29 I.T.R. 241 (Mad,).; M. Subbarao & Nageswara Rao v. Commissioner of Income-tax, [1957] 31 I.T.R. 867 (A.P.) and Commissioner of Income-tax v. Mothu Ram Prem Chand, [1967] 63 I.T.R. 638 (Punj.).

12. In Commissioner of Income-tax v. K. M. N. N. Swaminathan Cheitiar, it was observed by the Madras High Court that where an order is made accepting the partition alleged by the assessee, the family must be regarded as having become disrupted on the date of partition as put forward by the assessee. In that case a notice under Section 34 of the Income-tax Act was issued on the 6th July, 1942. The order under Section 25A was passed on 17th August, 1942, whereby the partition said to have taken place on the 21st January, 1940, was accepted. The contention urged on behalf of the Commissioner that the family should be deemed to have continued to be undivided till August 17, 1942. when the order accepting partition was passed was not accepted.

13. In Commissioner of Income-tax v. Sanichar Sah Bhim Sah, the disruption was alleged to have taken place on the 13th February, 1946, and an order accepting that partition was made under Section 25A on March 18, 1949. The proceedings for imposing penalty were started on 23rd March, 1946, and the penalty was actually imposed on the 24th April, 1950. It was held that the Hindu undivided family was not existing on the date the Income-tax Officer started proceedings under Section 28(1)(c) and also on the date the Income-tax Officer imposed the penalty and hence the proceedings were legally invalid since the Hindu undivided family was nonexistent on that date. It was observed that Section 25A refers only to assessment of a Hindu undivided family and does not lay down the machinery for the imposition of a penalty. The argument put forward by the department that Section 25A could be applied even in cases of recovery of penalty imposed on the Hindu undivided family after they had become separated was rejected. The Madras High Court had to consider in 5. A. Raju Cheltiar v. Collector of Madras 1, a case where the proceedings for recovery of penalty were initiated before the date of the alleged partition, but the order imposing the penalty was passed af tei that date. In that case the proceedings were initiated on September 4, 1944, and the penalty was imposed on March 18, 1948. An application was filed under Section 25A on September 18, 1946, which was ordered on December 31, 1948, accepting the partition said to have been made on January 25, 1946. The Madras High Court, following the decision of the Patna High Court in Commissioner of Income-lax v. Sanichar Sah Bhim Sah 2, applied the decision even to a case where the penalty proceedings were initiated earlier to the date of the alleged partition, but the actual order was passed subsequent to that date. It is seen that the facts in this case are almost identical with the present case. The Madras High Court also rejected the contention of the counsel for the department that as the order under Section 25A was passed on December 31, 1948, the Hindu undivided family should be deemed to be in existence till that date. They observed that Section 28 'is a complete code in itself, regulating the procedure for the imposition of the penalties prescribed and the provisions for the assessment and the levy of tax will not as such apply. This court had to consider a similar question in M. Subba Rao & Nageswara Rao v. Commissioner of Income-taxs. In that case the division was effected on April 5, 1943, and an order under Section 25A was passed on February 26, 1946, accepting that partition. The penalty order was passed on January 29, 1947. The decisions of the Patna High Court in Commissioner of Income-lax v. Sanichar Sah Bhim Sah and of the Madras High Court in 5. A. Raju Chettiar v. Collector of Madras, were referred to and their Lordships agreed with the observations in those decisions. It was observed that the assessee who was a Hindu undivided family could be directed to pay the penalty. But, by reason of the disruption of the family at the time the proceedings were initiated, the Hindu family ceased to be a 'person' within the meaning of Section 28 and no penalty could be levied on the family.

14. In Commissioner of Income-tax v. Mothu Ram Prem Chand, the Punjab High Court had to deal with a case where the partition had been effected in December, 1956, and the order under Section 25A accepting that partition was made on January 29, 1960. The question for consideration was whether a penalty order passed on November 26, 1958, against the family was valid. All the decisions referred to earlier were considered by the learned judges and following those decisions it was held that the mere fact that the prior disruption of the family recognised by the income-tax authorities subsequent to the imposition of penalty would not disentitle the family to claim that the imposition was illegal so long as the proceedings for imposition of penalty had not become final and, hence, the imposition of penalty in the instant case on the family after its disruption was illegal.

15. There can be no doubt that all these decisions amply support the contention of Mr. J. V. Srinivasa Rao for the assessee that, when an order under Section 25A of the Act accepting a partition has been made, an order imposing a penalty made subsequent to the date of partition on the Hindu undivided family is illegal. Mr. Srinivasa Rao contends that the authority of these decisions remains unaffected by the decision of the Supreme Court in Additional Income-tax Officer, Cuddapah v. Thimmayya 1.

16. It was, however, argued by Mr. Ananta Babu that these decisions require reconsideration. He drew our attention to Section 25A(3) of the Act which says that:

' Where an order under Section 25A(1) has not been passed in respect of a Hindu family hitherto assessed as undivided, such family shall be deemed, for the purposes of this Act, to continue to be a Hindu undivided family. '

17. He submitted that, having regard to the use of the expression 'for the purposes of the Act ', the family must be deemed to continue undivided not only for the purposes of assessment of tax, but for all purposes, including the levy of penalty. He also argued that the expression ' assessment ' bears a comprehensive meaning and takes in the whole procedure and liability on the taxpayer: vide Kalawati Devi Harlalka v. Commissioner of Income-tax, : [1967]66ITR680(SC) . and S. Sankappa v. Income-tax Officer, Bangalore, : [1968]68ITR760(SC) . He drew our attention in particular to the decision in Abraham v. Income-tax Officer, Kottayam, : [1961]41ITR425(SC) In that case the Supreme Court had to consider Section 44 of the Income-tax Act under which :

' Where any business carried on by a firm . . . has been discontinued .... every person who was at the time of such discontinuance. . . .a partner of such firm. . . . shall in respect of the income, profits and gains df the firm be jointly and severally liable to assessment under Chapter IV for the amount of tax payable and all the provisions of Chapter IV shall, so far as may be, apply to any such assessment. '

18. It was held that Section 28 imposing penalty for default is a provision enacted for facilitating the proper assessment of taxable income and the provisions of Section 44 of the Act would apply to such proceedings also. It was held that the word 'assessment' was used in its widest connotation. It was observed that the liability to pay additional tax is designated penalty. Therefore, it was held that, by a fiction, the firm was deemed to continue after discontinuance for the purpose of assessment under Chapter IV which includes all proceedings for penalty under Section 28.

19. Mr. Ananta Babu argued that this principle should equally be applied in the case of a partition of a joint Hindu family and an order under Section 25A. He submitted that, as the Supreme Court had held in Additional Income-tax Officer v. Thimmayya l that notwithstanding the fact that an order has been passed under Section 25A recognising the partition, an assessment has to be made as if the family were undivided until the date of that order, it should follow, having regard to the wide connotation of the word ' assessment ', as laid down in the earlier decisions referred to, as including proceedings relating to penalty, that the family must be deemed to be undivided even for the purposes of penalty proceedings. In this view he submitted that there cannot be any distinction between the orders of assessment as held in Additional Income-tax Officer v. Thimmayya and orders imposing penalty as in the decisions referred to earlier.

20. We feel that there is considerable force in this contention. As one of the decisions relied on by Mr. Srinivasa Rao is a Bench decision of this court and as it is the submission of Mr. Ananta Babu that this decision along with the other decisions require reconsideration, we consider it desirable that this matter should be placed before a Full Bench.

21. It was argued by Mr. Srinivasa Rao that in Abraham v. Income-tax Officer, Kottayam, the decision in M. Subbarao & Nageswara Rao v. Commissioner of Income-tax was referred to by the Supreme Court and no exception was taken to that decision and, hence, it must be taken that it has been approved by the Supreme Court and there is, therefore, no reason to refer the matter to a Full Bench. The Supreme Court made the following observations :

' Counsel for the appellant relying upon Mahankali Subbarao v. Commissioner of Income-tax, [1957] 31 I.T.R 867 (A.P.) in which it was held that an order imposing penalty under Section 28(1)(c) of the Indian Income-tax Act upon a Hindu joint family after it had disrupted, and the disruption was accepted under Section 25A(1) is invalid, because there is a lacuna in the Act, submitted that a similar lacuna, exists in the Act in relation to dissolved firms. But whether on the dissolution of a Hindu joint family the liability for penalty under Section 28 which may be incurred during the subsistence of the family cannot be imposed does not fall for decision in this case ; it may be sufficient to observe that the provisions of Section 25A and Section 44 are not in pari materia. In the absence of any such phraseology in Section 25A as is used in Section 44, no real analogy between the content of that section and Section 44 may be assumed.'

22. We cannot regard these observations as indicating that the Supreme Court was in agreement with that decision. On the other hand, it is expressly stated that the question whether on the dissolution of a joint Hindu family the liability for penalty under section 28 incurred during the subsistence of the family cannot be imposed, does not fall for decision in the case. All that can be said is that the Supreme Court while distinguishing the said decision did not express itself one way or the other about the correctness of that decision.

23. For the reasons above stated we direct that this case may be placed before the hon'ble the Chief Justice for orders as to its being posted before a Full Bench.

Sambasiva Rao, J.

(23-10-1970)

24. A Hindu joint family consisting of Tatavarthi Narayanamurthy arid his sons was assessed to income-tax on August 29, 1949, on a total income of Rs. 48,413 for the assessment year 1949-50. A tax of Rs. 12,537.07 was imposed. The accounting period was the year which ended with March 26, 1949. This order of assessment was confirmed in appeal by the Appellate Assistant Commissioner of Income-tax, Vijayawada, by his order dated March 5, 1951. The Income-tax Appellate Tribunal also dismissed the appeal preferred by the assessee by its order dated July 3, 1952. Before the assessment was completed, the Income-tax Officer gave notice to the assessee starting proceedings under Section 28(1)(c) of the Income-tax Act, 1922 (hereinafter called ' the Act '). After enquiry the Income-tax Officer found that the assessee had deliberately suppressed certain income and levied a penalty of Rs. 6,000. This order was passed on November 4, 1957. An appeal was preferred against this order imposing penalty, to the Appellate Assistant Commissioner, Vijayawada. While the appeal was pending, an application under Section 25A of the Act was filed on December 18, 1957, claiming that a partition of the joint family had taken place on October 31, 1957. By his order dated November 6, 1958, the Income-tax Officer recognised the position holding that the assets of the family had been divided on October 31, 1957, and the assessment of the family shall be made for the year 1958-59 on its income up to October 31, 1957, and separate assessment shall be made for the income after that date in the hands of each member. A few days after the passing of this order, the appeal against imposition of penalty came up for hearing. There it was contended that since the family had become divided on October 31, 1957, the penalty levied on November 4, 1957, after the disruption of the family, was illegal and that Section 28 of the Act does not authorise imposition of penalty on a family which had become divided. This contention did not find favour with the Appellate Assistant Commissioner, who held by his order dated November 29, 1958, that though the document of partition was executed on October 31, 1957, the house properties were divided on November 6, 1957, and the documents were registered on November 27, 1957. In his view, the partition became effective only after registration of the document which took place only on November 27, 1957, and, therefore, the joint family continued to exist till that day. Since penalty had been imposed long before that, it was quite legal. On the merits of the case, he found that the quantum of penalty was quite reasonable.

25. The matter was carried in further appeal to the Income-tax Appellate Tribunal, Hyderabad Bench. The Tribunal, relying on a decision of this court in Additional Income-tax Officer, Cuddapah v. A. Thimmayya, held that the family had ceased to exist with effect from October 31, 1957, in view of the. order passed by the Income-tax Officer in proceedings under Section 25A of the Act and in consequence there was no 'person' as the Hindu undivided family in existence within the meaning of Section 28, so that any penalty could be imposed on it under that Act. It, therefore, allowed the appeal and held that the levy of penalty could not stand. At the instance of the revenue, it referred the following question to this court under Section 66(1) of the Act.

' Whether, on the facts and in the circumstances of the case, the Income-tax Officer could levy the penalty by his order dated November 4, 1957 ?'.

26. When the reference case came up before a Division Bench of thisCourt, of which one of us, viz., Sambasiva Rao J., was a member, it wasargued on behalf of the revenue that the decision of this court inAdditional Income-tax Officer v. A. Thimmayya, on the basis of which theTribunal allowed the appeal, was reversed by the Supreme Court when thematter was carried in appeal there. That decision is reported in AdditionalIncome-tax Officer v. Thimmayya*. On the other hand, it was argued for theassessee, placing reliance on a number of decisions, that the position inregard to imposing penalty under Section 28(1)(c) does not stand on the samefooting as making an order of assessment and that Section 25A has noapplication at all to proceedings under Section 28(1)(c) and if the proceedings are started under Section 28(1)(c) and an order was passed against a Hindu undivided family which was not in existence on the date when the order was passed, the said order would be illegal. It was argued that the Supreme Court did not overrule the view taken by this court in Additional Income-tax Officer v. A. Thimmayya in so far as the imposition of penalty is concerned. One of the decisions relied on for the assessee was a Bench decision of this court in M. Subbarao and Nageswara Rao v. Commissioner of Income-tax and the learned counsel for the revenue argued that all the decisions require re-consideration in view of the pronouncement of the Supreme Court in Additional Income-tax Officer, Cuddapah v. Thimmayya. The Division Bench then thought it necessary that the case should be decided by a Full Bench. The matter has thus come up before us.

27. Now, the salient facts are the following: The actual partition of the Hindu joint family which is the assessee, took place on October 30, 1957. The order imposing penalty, was passed on November 4, 1957. theorder under Section 25A recognising partition, with effect from October 31, 1957, was passed on November 6, 1958. Therefore, the question we are now called upon to answer is whether the -order of November 4, 1957, though passed before the order under Section 25A but made after the actual partition, is legal.

28. The penalty herein impugned was imposed under section. 28(1)(c) of the Act. In so far as they are relevant, the provisions of Section 28 are in the following 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--......

(c) has 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. . . . (3) No order shall be made under Sub-section (1) or Sub-section (2) unless the assessee or partner, as the case may be, has been heard, or has been given a reasonable opportunity of being heard.'

29. It is manifest from this provision that two conditions should be satisfied before invoking the same. They are (1) a 'person' who has concealed the particulars of his income or deliberately furnished inaccurate particulars thereof, should be in existence; and (2) such person has been given a reasonable opportunity of being heard. Section 2(9) of the Act defines 'person' as including a Hindu undivided family. Thus, a Hindu undivided family is treated as a separate legal entity under the Act, as distinct and separate from its members. If there is a disruption or a partition in such a family, its existence as a legal entity and as a 'person' comes to an end. A combined reading of Clause (c) with the language of the main Sub-section (1) makes it plain that the 'person' who has some time in the past concealed the particulars of his income or deliberately furnished inaccurate particulars thereof is the one on whom a penalty could bo levied. In other words, the same 'person' should continue to be in existence till the penalty is levied. It means that, if that 'person' is not in existence when the penalty is sought to be imposed, no action could be taken under Section 28(1)(c). The position may be tested from another perspective also, Sub-section (3) of Section 28 requires that an opportunity of being heard should be given to the assessee or partner, as the case may be, before any order imposing penalty is made under Sub-section (1) or subsection (2). If the assessee which is a Hindu undivided family has ceased to exist, then there would be no assessee who could be given a reasonable opportunity contemplated by this Sub-section. Nor could there be any partners in a Hindu undivided family. Unlike in a partnership firm, there are no partners in a Hindu undivided family. Consequently, it is impossible to satisfy the provisions of Sub-section (3) giving an opportunity to the assessee in the case of a Hindu undivided family after it is dissolved. Thus no proceedings for imposition of penalty can be taken against a Hindu' undivided family after it got disrupted and ceased to exist in the eye of law. This is the plain meaning of Section 28 under which the penalty now questioned has been imposed.

30. In this case, the facts disclose that the actual partition of the assessee Hindu undivided family took place., on October 31, 1957. The order dated November 6, 1958, made under Section 25A recognised that partition with effect from October 31, 1957. The order imposing penalty was, however, subsequently passed on November 4, 1957. That means, the penalty was imposed on a family which had got disrupted. The learned counsel for the revenue has not attempted to sustain the view of the Appellate Assistant Commissioner that the partition did not come into effect until the partition deed was registered, and rightly so in our view. It is well-settled that once the registration of a partition deed is made, it takes effect from the date of the actual partition. It must, therefore, be proceeded on the basis that the actual partition in the family came about on October 31, 1957.

31. Sri P. Rama Rao, learned counsel for the revenue, however, endeavours to invoke Section 25A to his aid in order to sustain this penalty. His argument is that irrespective of the date on which the Hindu undivided family got disrupted or was divided, for the purposes of assessment as well as imposing penalty, it is the date of the order recognising the partition that is material. For, in his submission, until that order is passed, such family shall be deemed to continue to be a Hindu undivided family. It is, therefore, necessary to read that section. It is as follows:

' Assessment after partition o] a Hindu undivided family.--(1) Where, at the time of making an assessment under Section 23, it is claimed by or on behalf of any member of a Hindu family hitherto assessed as undivided that a partition has taken place among the members of such family, the Income-tax Officer shall make such inquiry thereinto as he may think fit, and, if he is satisfied that the joint family property has been partitioned among the various members or groups of members in definite portions he shall record an order to that effect:

Provided that no such order shall be recorded until notices of the inquiry have been served on all the members of the family.

(2) Where such an order has been passed, or where any person has succeeded to a business, profession or vocation formerly carried on by a Hindu undivided family whose joint family property has been partitioned on or after the last, day on which it carried on such business, profession or vocation, the Income-tax Officer shall make an assessment of the total income received by or on behalf of the joint family as such, as if no partition had taken place, and each member or group of members shall, in addition to any income-tax for which he or it may be separately liable and notwithstanding anything contained in Sub-section (1) of Section 14, be liable for a share of the tax on the income so assessed according to the portion of the joint family property allotted to him or it; and the -Income-tax Officer shall make assessments accordingly on the various members or groups of members in accordance with the provisions of Section 23 :

Provided that all the members and groups of members whose joint family property has been partitioned shall be liable jointly and severally for the tax assessed on the total income received by or on behalf of the joint family as such. (3) Where such an order has not been passed in respect of a Hindu family hitherto assessed as undivided, such family shall be deemed, for the purposes of this Act, to continue to be a Hindu undivided family.'

32. It has to be noted that this provision has nothing to do with the imposition of penalty. It concerns with the assessment of a Hindu undivided family wherein a partition has taken place. The scheme of the Act is while Section 23 deals with assessment of an assessee, Section 25 provides for the assessment in cases of discontinued business. Likewise, Section 25A which was inserted by the Indian Income-tax (Amendment) Act, 1928, is concerned with the assessment after partition of a Hindu undivided family. Its effect is that a Hindu undivided family, which was being assessed as such, shall continue to be assessed in the same status, notwithstanding partition that has been effected amongst its members. However, if a claim is made during the course of an assessment, that there has been a partition in the family, the assessing authority is required to issue notice to other members of the family and to make a proper order after due enquiry, if it is satisfied about the partition. Where an order under Section 25A(1) is passed, the assesment has to be made in accordance with the provisions of Sub-section (2). But, where no order under Sub-section (1) is passed, the Hindu undivided family is deemed to continue for the purposes of the Act, in spite of the fact that it has indeed ceased to be in existence, This is the fiction created by Sub-section (3) of Section 28 of the Act. It is obvious that Sub-section (3) operates in all cases where no order under Sub-section (1) is made irrespective of the reason for not making such order. The absence of such an order may be due to no claim having been made by any member of a family, or such a claim having been made but refused, or due to the fact that right up to the finalisation of the assessment proceedings by the Tribunal, the proceedings under Section 25A(1) might have continued to be pending for some reason or the other.

33. But, Sri Rama Rao argues that the statute by virtue of Sub-section (3) of Section 25-A has introduced a fiction making the passing of the order under Sub-section (1) of Section 25A a crucial dividing line in the status of the family. According to him, until the order is passed, the family should be deemed to continue as undivided, irrespective of the date on which the jointness of the family was disrupted. In other words, he wants to read the word ' where ' occurring in Sub-section (3) as meaning ' until '. If this interpretation were to be accepted, it leads to an incongruity. It is to be noticed that every sub-section of Section 25A starts with the word ' where '. It is the accepted rule of construction that a word occurring in the same section should be given the same meaning throughout, though it is capable of more than one meaning. Applying that principle, if the word ' where ' occurring in Sub-section (1) is to be understood as ' until ', it makes no sense. It would then read ' until at the time of making an assessment under Sub-section (3) it is claimed by any member of a Hindu undivided family'. The meaning of the word ' until' does not obviously fit into the sub-section. Similar is the case with the word ' where ' in Sub-section (2) also, It will not be consistent with reading that word as meaning 'until'. Therefore, understanding the word 'where' in Sub-section (3) as ' until ' would be wholly inconsistent with this guiding principle of interpretation of statutes. That word, in the context of the section, could only mean 'cases in which '. Sub-section (3) should, therefore, be construed as merely referring to cases in which orders under Sub-section (1) have not been passed. That appears to us as the natural and logical meaning of that provision. Sub-section (2) in its turn provides for cases where such orders have been passed. No indication of point of time can be spelt out of Sub-section (3) of Section 25A. Sub-section (3) simply means that in the case in which no order under Sub-section (1) has been passed, the family shall be deemed to continue as a Hindu undivided family. If, on the other hand, such an order has been passed the fiction introduced by the sub-section does not apply. In such a case Sub-section (2) applies and the order recognising the partition becomes operative. We have already referred to the contents of that order. It said that there was a partition in the family with effect from October 31, 1957. It went further and directed that the Hindu joint family should be assessed as such only up to October 31, 1957, and, thereafter, the members of the erstwhile family should be assessed individually. Thus, the material point of time is the date, in this case; it is October 31, 1957, with effect from which the partition of the joint family has been accepted by the income-tax authorities. The penalty having been imposed on November 4, 1957, it is a penalty which is imposed on a 'person', viz., the erstwhile Hindu joint family, which is not in existence. Division Benches of the High Courts of Punjab and Haryana and Madras have taken the same view in regard to the interpretation of Sub-section (3) of Section 25A in Commissioner of Income-tax v. Mothu Ram Prem Chand and Raju Chettiar v. Collector of Madras.

34. Learned counsel for the revenue, however, lays great stress on the words ' for the purposes of this Act' and argues that the family must be deemed to continue undivided for all the purposes of the Act which include not only assessment but also penalty. Reliance is placed on State of Andhra Pradesh v. Godavarthi Kasiviswanatham, [F.B.].. This contention is not of any avail to the revenue in the light of the construction we have laid on Sub-section (3). If an order under Sub-section (1) of Section 25A has not been made, the consequences which the learned counsel contemplates may follow. But in the case of an order having been made, that order becomes effective for the purposes of the Act. It should be noticed that Sub-section (2) provides for a case where an order has been passed. In such cases, the Income-tax Officer is required to make an assessment of the total income in the manner laid down therein and Sub-section (3) will have no application to them. The words 'for the purposes of this Act' occurring in Sub-section (3) do not, therefore, carry the case of the department any further.

35. A further submission is made that the word 'assessment' is a comprehensive expression capable of including penalty as well. The consequence then would be that penalty proceedings also could be made under Section 25A. This argument cannot be countenanced at all. There is a specific provision in the Act providing for imposition of penalties and that is Section 28. When there is a specific provision, proceedings should be taken only thereunder and not under any other provision. Section 28 alone, therefore, governs the case of imposing penalties for concealment of income or improper distribution of profits. Penalty in this case was imposed on the assessee on the ground that it had deliberately suppressed a large portion of the sales effected by it and concealed the correct particulars of the income derived from such sales. Therefore, the validity of the penalty proceedings will have to be tested only from the perspective of Section 28.

36. In this connection, reference may be usefully made to Section 44 of the Act which concerns with the liability in the case of firm or association discontinued or dissolved. Sub-section (2) thereof enables the Income-tax Officer, the Appellate Assistant Commissioner or the Appellate Tribunal to impose or direct the imposition of penalty, if any firm or association of persons is guilty of any of the acts specified in Clause (a) or Clause (b) or Clause (c) of Sub-section (1) of Section 28. Sub-section (3) specifically makes all the provisions of Chapter IV, so far as may be, applicable to any assessment or imposition of penalty made under Section 44. Section 28 occurs in Chapter IV. The wording of Section 25A is not in pari materia with Section 44. It merely provides for the assessment of a Hindu undivided family after partition. It does not contain the clause, as in the case of Section 44, that all the provisions of Chapter IV shall, so far as may be, apply to any such assessment. Therefore, Section 28 cannot be invoked while making an assessment under Section 25A (vide Mareddi Krishna Reddy v. Income-tax Officer, Tenali, [1957] 31 I.T.R. 678 (A.P.) C. A, Abraham v. Income-tax Officer, Kottayam and Commissioner of Income-tax v. Mothu Ram Prem Chand).

37. The foregoing discussion yields the following conclusions :

1. For imposing penalty for concealment of income or improper distribution of profits of a Hindu undivided family proceedings will have to be taken only undersection 28 and Section 25A does not provide for imposition of any such penalty.

2. In order to impose penalty under Section 28, the 'person' which expression includes Hindu undivided family, must be in existence on the date of such imposition,

3. When an order under Section 25A(1) is passed recording a partition of a Hindu undivided family, that family ceases to be a Hindu undivided family and a 'person' for the purposes of Section 28 with effect from the date of actual partition as recorded by the said order. In such cases the date of such an order is not material and Sub-section (3) of Section 25A has no application. It is only the date of actual partition as recorded in the order made under Sub-section (1) of Section 25A that is material and determines the actual date of cessation of the Hindu undivided family within the meaning of Section 28.

38. We will now proceed to consider the case law on the question. Before we go to Additional Income-tax Officer v. A. Thimmayya basing on which the Tribunal has allowed the appeal, and the decision of the Supreme Court in Additional Income-tax Officer v. Thimmayya, it would be useful to refer to a few decisions of this court rendered earlier than the above two decisions. The first of them is Mahankali Subba Rao and Nageswara Rao v. Commissioner of Income-tax. In that case, the penalty under Section 28 was imposed on 29th January, 1947. But, the order under Section 25A(1) accepting the division of the Hindu undivided family with effect from 5th April, 1943, was passed on 26th February, 1946. Subbarao C.J., speaking for the Bench, observed at page 870 :

' But, by reason of the disruption in the family at the time the proceedings were initiated, the Hindu family ceased to be a ' person ' within the meaning of the said section.'

39. In rendering this judgment, the learned Chief Justice relied on the decision of the Patna and Madras High Courts in Commissioner of Income-tax v. Sanichar Sah Bhim Sah and Raju Chetiiar v. Collector of Madras respectively. Ramaswami J., speaking for the Bench in the Patna case, observed at page 314 that:

' It is manifest that Section 25A refers to assessment of a Hindu undivided family which had become separated in the course of the assessment year. The section does not, in my opinion, lay down the machinery for the imposition of penalty on a Hindu undivided family which had become disrupted. This is clear from the opening words of Section 25A.'

40. In the Madras case it was observed at page 244 :

' Section 28(3) requires that the assessee should be heard before an order is passed under Section 28(1). That assessee had ceased to exist when the order under Section 28(1) was passed in this case , ... we are referring to this aspect only to emphasise that there is no machinery provided by the Act to impose the penalty under Section 28(1), after the assessee has ceased to exist. Section 28(2) on the other hand provided for the imposition of a penalty, but still the person to be penalised is not the registered firm, but the individual partner.'

41. In its decision in Mahankali Nageswara Rao's case the Division Bench agreed with the aforesaid observations of the Patna and Madras High Courts and held that Sub-section (3) of Section 25 was no hurdle in the way of the assessee in that case.

42. In Mareddi Krishna Reddy v. Income-tax Officer, Tenali Subbarao C.J. and Mohd. Ahmed Ansari J. pointed out that Section 25A only refers to the assessment of a Hindu undivided family which had become divided in the course of the assessment year and it does not empower the Income-tax Officer to impose a penalty on the divided members of a Hindu family. Once again, the decisions in Commissioner of Income-tax v. Sanichar Sah Bhim Sah and Raju Chettiar v. Collector of Madras 2 were referred to.

43. There the learned judges stated that:

' Section 44 of the Income-tax Act makes applicable all the provisions of Chapter IV of the Act (one of the sections of which is Section 28) to an assessment in the case of a partnership which has discontinued its business, and in such an assessment the Income-tax Officer has jurisdiction to impose a penalty under Section 28(1)(c) (which occurs in Chapter IV) for concealment of income and recover the penalty from the partners.'

44. We will now proceed to consider the decision of this court in Additional Income-tax Officer, Cuddapah v. A. Thimmayya and the decision of the Supreme Court which was rendered in appeal against it. There, a Hindu undivided family was assessed to tax for the years 1941-42 to 1946-47 on various dates between September 30, 1948, and November 30, 1950. Even earlier than these assessments, a member of the family had applied on 20th of March, 1948, under Section 25A for an order recording a partition in the family. An order was accordingly passed on 30th June, 1952, holding that the partition must be deemed to have been effected on 2nd November, 1946. The Income-tax Officer, however, sought to recover from two members of the erstwhile undivided family, the tax assessed on it without apportioning the tax. That was sought to be done by means of an order on a company directing deduction from their salaries. The two members thereupon applied to the High Court for a writ of certiorari to quash that order. The writ petition first came up before a learned single judge, who issued a mandamus to the officer to apportion the tax payable by the family. The department carried the matter in appeal. The standing counsel for the revenue contended before the Division Bench that the family should be regarded as continuing to be undivided till 30th June, 1952, which was the date on which the Income-tax Officer passed his order under Section 25A(1) recording the partition in the family. The contention was that on that date alone the family could be said to have been disrupted. The Division Bench repelled this argument by stating at page 1006:

' It is true that so long as no order is passed under Section 25A, the family will be deemed to be joint. But when that order gives recognition to the partition with reference to a particular date, by a legal fiction, the order must be deemed to have been made on that date. To hold it otherwise would be to ignore the operation of the order recognising the partition from an anterior date. The order in question has introduced the fiction that it was made on November 2, 1946.

Therefore, for all legal purposes, it must be deemed to have been made on the date from which it was intended to take effect. The department, having chosen to give effect to the order recognising the partition from an anterior date, has to follow the consequences that flow from it,'

45. The learned judges therefore held that recording the partition, though made on 30th of June, 1952, should be treated as having been made on 2nd November, 1946, and as such was in existence on the dates when the assessments were made. Thereupon, it was held that the passing of an order under Section 25A(1) recognising the partition in the Hindu undivided family did not affect the assessments of the family as such, and, therefore, it was not open to the petitioners to question the validity of the assessments made on the family and the only relief they could ask for was only that of apportionment. In the result the appeals were dismissed.

46. The department once again carried the matter in appeal to the Supreme Court and the same is reported in Additional Income-tax Officer, Cuddapah v. A. Thimmayya. The Supreme Court, while examining the scheme of Section 25A, observed at page 672:

' If no claim for recording partition is made, or if a claim is made, and it is disallowed or the claim is not considered by the Income-tax Officer, the assessment of the Hindu undivided family which has hitherto been assessed as undivided will continue to be made as if the Hindu undivided family has received the income and is liable to be assessed.

Failure to make an order on the claim made does not affect the jurisdiction of the Income-tax Officer to make an assessment of the Hindu family which had hitherto been assessed as undivided. The Income-tax Officer may assess the income of the Hindu family hitherto assessed as undivided notwithstanding partition, if no claim in that behalf has been made to him or if he is not satisfied about the truth of the claim that the joint family property has been partitioned in definite portions, or if on account of some error or inadvertence he fails to dispose of the claim. In all these cases his jurisdiction to assess the income of the family hitherto assessed as undivided remains unaffected, for the procedure for making assessment of tax is statutory. Any error or irregularity in the assessment may be rectified in the manner provided by the statute alone, and the assessment is not liable to be challenged collaterally.'

47. Having stated the position in these terms, the learned judges proceeded to consider whether an order of assessment which had become final was liable to be reopened under Section 25A. Pointing out that the Income-tax Officer proceeded to assess the income of the family as if the property of the family had not been partitioned, the court held that the Act contained no machinery authorising an Income-tax Officer to reopen an assessment of a Hindu undivided family relying upon an order made by him under Section 25A(1) after the order of assessment was made. Once the orders of assessment were confirmed, it has observed that:

' It was not open to the Income-tax Officer to reopen the orders of assessment, relying upon the order recording the partition, and to seek to subvert orders which had become final under the seal of the Income-tax Appellate Tribunal.'

48. The learned judges held that, in that view, the High Court was in error in holding that an order of assessment which had become final was liable to be reopened under Section 25A(2) by the Income-tax Officer, when an order under Section 25A(1) was passed by him subsequent to the order of assessment. It is only on this point the Supreme Court did not agree with the conclusion of the High Court. It did not overrule the view of the High Court that when the order under Section 25A(1) gives recognition to the partition with reference to a particular date, by a legal fiction the order must be deemed to have been made on that date. Ultimately, however, the Supreme Court dismissed the department's appeal on the ground that in the absence of an order under Section 25A and the consequential proceedings under Sub-section (2), liability to pay tax must rest upon the property of the Hindu undivided family and it cannot be enforced against the members of the family personally. The Income-tax Officer, it was held, was incompetent to resort to Section 46(5) to attach the remuneration earned by the members of the erstwhile undivided family. In this view the order of the High Court was confirmed and the appeals were dismissed.

49. It should be noted that this case dealt only with the question of assessment under Section 25A and was not concerned with the problem of imposing penalty under Section 28. Further, there is nothing in this decision which would go contrary to the view we have expressed. Here, in the case before us, the order of penalty has not become final and is not being questioned in a collateral proceeding, but is impugned directly in an appeal.

50. Some other High Courts also have considered this problem. In Jankidas Mohanlal v. Commissioner of Income-tax, [1964] 54 I.T.R. 254 (Pat). a Division Bench of the Patna High Court was dealing with a case of a Hindu undivided family which had filed an application on 21st October, 1957, claiming disruption of the family with effect from 18th February, 1957. That order was passed on 31st of July, 1958. But, in the meanwhile, the Income-tax Offer passed an order under Section 28(1)(c) imposing a penalty on 23rd of January, 1958. It was the legality of this order that was considered by the Patna High Court in that case. The Division Bench held that:

' The imposition of penalty under Section 28(1)(c) of the Income-tax Act, 1922, upon a Hindu undivided family would be legally valid only if both the following conditions were satisfied, namely, that the Hindu undivided family was existent on the date on which the Income-tax Officer started the proceeding, and it was also existent on the date on which the Income-tax Officer imposed the order of penalty.'

51. Following the decisions in Commissioner of Income-tax v. Sanichar Sah Bhim Sah, Raju Chettiar v. Collector of Madras and C. A. Abraham v. Income-tax Officer, Kottayam, it was finally decided that the order of penalty made on 23rd of January, 1958, after the actual disruption of the family effected on 18th February, 1957, was invalid.

52. After the decision of the Supreme Court in Additional Income-tax Officer, Cuddapah v. Thimmayya, the Punjab and Haryana High' Court had an occasion to go into this question in Commissioner of Income-tax v. Mothu Ram Prem Chand. In this case, the family was disrupted on 31st of March, 1956, but the registered partition deed was executed in December, 1956. During the course of the assessment proceedings for 1957-58, the assessee filed an application on 13th of March, 1957, praying for an order under Section 25A of the Act. The order under Section 25A(!) was passed on January 29, 1960, accepting the partition with effect from 31st March, 1956. The order imposing penalty on the family was made on 26th November, 1958. The validity of the imposition of this penalty was challenged in the case. All the arguments advanced before us were put forward in that case also. After an exhaustive review of the case law including the decision of the Supreme Court in Thimmayya's case, the learned judges repelled all those contentions and held that the imposition of penalty on February 13, 1959, was bad in law, as the assessee-Hindu undivided family had already disrupted on 31st of March, 1956. Referring to the judgment of the Supreme Court in Thimmayya's case, the learned judges observed that nothing has, however, been said in that judgment which goes contrary to the law laid down by the Madras High Court in Raju Chettiar's case.

53. In P.S. Kandaswamy Mudaliar v. Commissioner of Income-tax, : [1969]72ITR212(Mad) . the Madras High Court was dealing with the case of a Hindu undivided family, on which penalty under Section 28 was levied on 27th September, 1958, and 31st March, 1959. These impositions of penalties were questioned relying upon an order under Section 25A made on 30th December, 1961. In that order it was recorded that there was a partition in the family with effect from 23rd April, 1956. The Division Bench held that the levy of penalties on the family after its disruption was not valid, as no penalty could be imposed on a person which did not exist factually on the date of initiation of penalty proceedings and on the date when the order for levy of penalty was made. After referring to the view expressed by the Supreme Court in C.A. Abraham v. Income-tax Officer and Commissioner of Income-tax v. Bhikaji Dadabhai and Co., : [1961]42ITR123(SC) that the penalty imposed under a taxing statute upon a 'person' in view of his dishonest or contumacious conduct was in the nature of an additional tax, the learned judges observed that:

'... yet the fundamental concept which springs from the above is that the ' person ' on whom the ' additional tax' is levied or sought to be levied must be the same person and should be in existence on the date of the order ... In principle, the jurisdiction to levy penalty in such circumstances is not in any way different. Viewing penalty as additional tax, the Income-tax Officer may not be in a position to impose such penalty on a Hindu undivided family which he has solemnly recorded as having been partitioned.'

54. Ultimately, the judgment ended with the statement that to sustain such a penalty would be to ignore totally the impinge, content and legal effect of the order recognising the partition in the family as evidenced by the deed of partition dated April 23, 1956. In the course of the judgment the learned judges also referred to the Supreme Court decision in Thimmayya's case and pointed out that:

' The Income-tax Act contains no machinery authorising the Income-tax Officer to reopen, under Section 34 of the Act, an assessment of a Hindu undivided family relying upon an order recorded under Section 25A(1) subsequent to the passing of the assessment order and seek to subvert orders which have become final. '

55. In C.P. Venkataraman v. Commissioner of Income-tax, : [1970]75ITR65(Mad) ; the same Division Bench of the Madras High Court which decided P. S. Kandaswamy Mudaliar v. Commissioner of Income-tax, considered the case of an assessee who was originally assessed as an individual. The Tribunal, in appeal against the assessment, however, corrected the status of the assessee to that of a Hindu undivided family. Penalty proceedings which were commenced against the assessee as an individual were continued as such without the correction being made and the levy of penalty was sustained by the Tribunal. On a reference the Division Bench held that:

' The assessee in the penalty proceedings not being one who was assessed, the status of the assessee having been corrected in the appeal before the Tribunal to that of a Hindu undivided family, the levy of penalty was not justified. '

56. Thus, we find full support to the view we have taken and that the Supreme Court has not said anything in Additional Income-tax Officer v. Thimmayya which is contrary to it.

57. Sri Rama Rao has, however, invited our attention to a decision of the Allahabad High Court in Commissioner of Income-tax v. Gauri Shanker Chandra Bhan, : [1972]83ITR83(All) (Appendix) infra.. There, for the assessment year 1947-48, the assessee was assessed in the status of a Hindu undivided family. The Income-tax Officer passed an order under Section 25A in 1962, recording a partition of the family with effect from 22nd June, 1956. In the meanwhile, penalty proceedings were commenced against the family on 15th March, 1957, and ultimately by an order dated 20th March, 1958, a penalty was imposed. The court held that: .

' Under Section 25A the Income-tax Officer had jurisdiction to pass an order levying penalty on the assessee so long as no order recording partition was made. The order levying penalty was validly made on the 'date of the order and the subsequent order recording partition with effect from a date antecedent to the order levying penalty would not render the order imposing penalty illegal. '...

58. The learned Chief Justice, speaking for the court, observed at page 86 (infra) that :

' The position in 1958 was that no order had by that time been passed by the Income-tax Officer under Section 25A of the Act. In the year 1958 the Income-tax Officer was fully entitled to the benefit of subsection (3) of Section 25A of the Act. The decision of the Supreme Court in Additional Income-tax Officer v. A. Thimmayya is a clear authority for the view that the Income-tax Officer had jurisdiction to pass an order on 20th March, 1958, imposing penalty. '

59. With respect, we cannot agree, for the reasons we have already stated with this statement of law. At the same time, it was observed in that case that the matter was open for reconsideration in appeal. In this case, the order of penalty has not become final and is, therefore, open for reconsideration. In fact, the Tribunal allowed the appeal of the assessee reconsidering the matter and finding that the penalty was illegally levied. The fact remains that when the order imposing penalty was passed on November 4, 1957, there had been disruption of the family. In view of these circumstances the assessee challenged the validity of the order. There is no doubt that we can consider its validity in a reference case arising out of an appeal against the order imposing penalty. True, the matter would not have been open for reconsideration if the order imposing penalty had become final, and could not be questioned in collateral proceedings as laid down by the Supreme Court in Thimmayya's case. But so long as the matter has not become final the validity of the penalty order can be questioned and decided with reference to Section 28. Once an order recording the partition has been passed, as we said, there is no question of Section 25A(3) governing the case of a penalty.

60. The learned counsel for the revenue further submits that the order dated November 6, 1958, recognising the partition was passed after the finalisation of assessment for the year 1949-50 in respect of which the penalty in question had been imposed, and, therefore, it has to be ignored. Relying on an observation of the Supreme Court in Kalwa Devadattam v. Union of India, : [1963]49ITR165(SC) . it is submitted that the liability of the Hindu undivided family arises not later than the close of each account year and account period, for which the tax is assessed. Since it is not the case of the assessee that the family was partitioned before the liability of the undivided family to pay the penalty arose, the assessee could not take protection under an order passed in the course of a subsequent assessment year. In other words, the contention is that the order under Section 25A(1) can become effective only in respect of the year of assessment subsequent to the one in which the claim for disruption is made. But, we find no substance in this argument. The order under Section 25A(1) becomes effective from the date which is specified in the order itself as the date on which the joint family was disrupted. In this case the Income-tax Officer recognised and recorded that the assessee-family got disrupted on October 31, 1957. That means, even according to the department, there was no joint family in existence from that date. There was no joint family on November 4, 1957 (the day on which the order imposing penalty was passed), so that, it could be said that there was a 'person' in existence on whom penalty could be levied on that day. It is immaterial whether the penalty sought to be imposed is in respect of a much earlier period. The crucial consideration is that the 'person' in this case, the Hindu undivided family, must be in existence on the date on which penalty is sought to be imposed. Since no such person existed on November 4, 1957, it must follow that the order is an illegal one.

61. Reference is also made to Laxmi Narayan Bhadani v. Commissioner of Income-tax, [1951] 20 I.T.R. 62 (Pat). That decision has no material bearing on the question now under consideration. There, the Supreme Court was dealing with the scope of sections 25A and 34 of the Act. It was laid down that once an order under Section 25A(1) is passed, the Income-tax Officer should calculate the amount of tax payable and apportion the same amongst the members of the family. Thus, this decision does not in any way help in the solution of the problem on hand. Thus, we find no substance in any of the objections raised by the revenue to the correctness of the order of the Tribunal. We have no hesitation in agreeing with the Tribunal and answering the question referred by the Tribunal under Section 66(1) in the negative and hold that the Income-tax Officer could not levy the penalty by his order dated November 4, 1957, on a Hindu undivided family which got disrupted on October 31, 1957. The reference is, accordingly, answered in favour of the assessee. The assessee will have his costs from the revenue. Advocates' fee Rs. 250.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //