K.N. Seth, J.
1. The Income-tax Appellate Tribunal, Allahabad, has referred the following questions for the opinion of this court:
'1. Whether, on the facts and in the circumstances of the case, the Tribunal was in law justified in upholding the order cancelling penalty in spite of the provision of Section 171(8) of the Income-tax Act, 1961 ?
2. Whether, on the facts and in the circumstances of the case, the Department is justified in law in raising (the question of) the applicability of Section 171(8) (in an) application filed Under Sections 256(1) and 256(2) 7'
2. Facts necessary to answer the questions referred are as follows :
For the assessment year 1970-71 the assessee, an HUF, filed a return showing an income of Rs. 16,100. During the course of the assessment proceedings it was found that the assessee had understated the income of his residential house and claimed more than double the amount paid as house and water taxes. Further, income arising out of the sale of a truck was not disclosed and sales of bricks were suppressed. When confronted with these facts the assessee filed a revised return on June 21, 1971, showing a total income of Rs. 21,663. Assessment was completed on that very day, on almost the same income. The ITO initiated penalty proceedings under Section 271(1)(c) of the I.T. Act and issued a show-cause notice. No explanation was furnished by the assessee. The ITO levied a penalty of Rs. 4,462 under Section 271(1)(c) of the Act. It may also be noted that the assessee claimed that the HUF disrupted on August 2, 1969, and consequently income for the period November, 1968, to July, 1969, fell to be assessed in the assessment year 1970-71, the assessee's previous year being the Diwali year. The order accepting the fact of partition was passed on the same date on which the assessment was made, i.e., June 21, 1971. The order imposing the penalty was passed on 30th March, 1974.
3. In the appeal against the order imposing the penalty the stand taken by the assessee was that the assessee became non-existent after August 1, 1969, the date on which the partition took place and in any case on June21, 1971, when the ITO passed the order under Section 171 accepting the assessee'sclaim of disruption and, consequently, no penalty could be imposed on the assessee. The AAC upheld the contention of the assessee and cancelled the penalty. The appeal preferred by the Revenue was dismissed by the Tribunal on the reasoning that the date on which the penalty order was passed, i.e., 30th March, 1974, the HUF on which the penalty had been imposed, was no longer in existence. It had ceased to exist with effect from August 1, 1969, when the partition took place and the fact of partition was accepted by order dated June 21, 1971. Section 171 deals with assessment after partition of an HUF. Sub-section (1) provided that a Hindu family hitherto assessed as undivided shall be deemed for the purposes of this Act to continue to be an HUF, except where and in so far as a finding of partition has been given under this section in respect of the HUF. Sub-section (4) provides :
'Where a finding of total or partial partition has been recorded by the Income-tax Officer under this section, and the partition took place during the previous year,--
(a) the total income of the joint family in respect of the period up to the date of partition shall be assessed as if no partition had taken place ; and...'
4. It is thus obvious that in a case where an order has been made recording the partition of joint family property, the total income of the joint family has to be computed up to the date of partition and also determine the tax payable by the joint family as such, as if no partition had taken place and as if the joint family was still in existence. Sub-section (8) of Section 171 reads as follows :
'(8) The provisions of this section shall, so far as may be, apply in relation to the levy and collection of any penalty, interest, fine or other sum in respect of any period up to the date of the partition, whether total or partial, of a Hindu undivided family as they apply in relation to the levy and collection of tax in respect of any such period,'
5. This sub-section expressly enacts that the provisions of the section apply in relation to the levy and collection of any penalty, interest, fine or other sum in respect of any period up to the date of total or partial partition, as they apply in relation to the levy and collection, of tax, i.e., with regard to the levy and collection of penalty relating to assessment up to the date of partition, it has to proceed on the basis as if no partition had taken place and also that the joint family was still in existence. The fact that the order recording partition was passed prior to the order levying penalty would be of no consequence in view of the express provision of Sub-section (8).
6. In some earlier decisions rendered under the 1922 Act, e.g., in C1T v. Tatavarthy Narayanamurthy : 83ITR58(AP) and CIT v.Nathimal Gaya Lal : 89ITR190(All) , it was held that the provisions of Section 25 A of the 1922 Act did not apply to penalty proceedings. The Supreme Court has now ruled in Gauri Shankar Chandrdbhan v. CIT : 103ITR772(SC) , that even under that section a Hindu joint family once assessed as undivided was deemed to continue to be an HUF for all the purposes of the Act till an order accepting the partition was passed under that section, and, therefore, a penalty could be imposed on a disrupted family even while its application for recognizing the partition was pending. In view of Sub-section (8) of Section 171, the power to levy and collect any penalty, interest, fine or other sum in respect of any period up to the date of the partition is recognized under the present Act. Section 275 of the Act provides for bar of limitation for imposing penalties. Under this provision no order imposing a penalty can be passed after the expiration of a period of two years from the end of the financial year in which the proceedings, in the course of which action for imposition of penalty has been initiated, are completed. The order imposing penalty was passed within the period prescribed by law.
7. Learned counsel for the assessee referred to Sub-section (2) of Section 189 andcontended that there was no express provision in the Act authorisingimposition of penalty in the case of a disrupted HUF as there was in thecase of a firm where any business or profession carried on by it has beendiscontinued or where a firm has been dissolved. This argument ignoresthe provision contained in Sub-section (8) of Section 171 which has to be read alongwith Sub-section (4)(a). These provisions give express authority for the levyand collection of penalty in respect of a period up to the date of partition,where the HUF has been disrupted.
8. With regard to the second question referred for our opinion, it was urged that since the Revenue did not specifically raise the question of applicability of Section 171(8) either before the ITO or the AAC and was raised for the first time before the Tribunal in the application under Section 256(1), the Department was not justified in raising the question of the applicability of Section 171(8). We are not impressed by this argument. The stand taken by the Department throughout was that it was competent for the ITO to impose penalty in respect of the period up to the date of partition. The mere fact that reference was not made to the provision of the Act which empowered the ITO to levy the penalty could not debar the Revenue from referring to the relevant provisions of the Act for the first time at the stage of the application under Section 256(1) of the Act. In the application under Section 256(1) the Department did not take any new stand but only brought to the notice of the Tribunal the relevant provisions of the Act which justified its action. Reference to the provisions of the Act in support of the action taken could not be equated with the raising of anew question of law or of fact which had not been canvassed earlier and may not be permitted to be raised for the first time before the Tribunal. The decision of the Supreme Court in CGT v. Smt. Kusumben D. Mahadevia : 122ITR38(SC) , to which a reference was made by the learned counsel, is of no assistance to the assessee. In that case, the bone of contention between the assessee and the Revenue was whether the value of the shares should be determined on the basis of the profit-earning method, as claimed by the assessee, or the proper method of valuation would be to take the mean of two values, one arrived at by applying the profit-earning method and the other by applying the break-up method as pleaded by the Revenue. The Tribunal upheld the stand taken by the assessee. The Revenue made an application to the Tribunal for referring to the High Court the following question of law :
'Whether the Tribunal is right in holding that the shares of an investment company has to be valued only on the basis of the yield without taking into account the assets owned, and reflected in the balance-sheet ?'
9. The application for reference was rejected on the ground that no referable question of law arose out of the order of the Tribunal. The application made to the High Court for calling a reference met with the same fate. Before the Supreme Court the Revenue urged that the valuation of the shares should have been made on the basis of the breakup method by reason of Rule 10(2) of the G.T. Rules. After upholding the decision of the Tribunal that no referable question of law arose out of the order of the Tribunal, the Supreme Court observed that a question of law can be said to arise out of the order of the Tribunal only if it is dealt with by the Tribunal or is raised before, though not decided by the Tribunal, and a question of law not raised before the Tribunal and not dealt with by it in its order cannot be said to arise out of its order, even if on the facts of the case stated in the order the question fairly arises. The Supreme Court further observed that it was obvious that this question sought to be raised on behalf of the Revenue was neither raised before the Tribunal nor decided by it and the only argument advanced before the Tribunal was that the mean of the values arrived at on an application of the profit-earning method and the break-up method should be taken to be the value of the shares. There was no argument addressed to the Tribunal that the break-up method should be adopted because that was the method prescribed by Rule 10, Sub-rule (2), and the Tribunal had, therefore, no occasion to deal with such argument. In the case in hand, the question before the AAC as well as the Tribunal was the order levying penalty on the disrupted HUF in respect of the period up to the date of partition and the same question was raised in the referenceapplication. It is true that the provision contained in Section 171(8) was referred to for the first time in the application for reference but that provision was referred to only in support of the stand taken by the Revenue. No fresh question of law cropped up for consideration because of the reference to the provision of the Act, which, it was claimed, provided the authority to levy the penalty. The Department was justified in law in raising the question of applicability of Section 171(8) at the stage of the reference application.
10. Our answer to question No. 1 is in the negative, against the assessee and in favour of the Revenue and the answer to question No. 2 is in the affirmative, in favour of the Revenue and against the assessee. The Revenue is entitled to costs which are assessed at Rs. 250.