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Commissioner of Income-tax (Central) Vs. Tiwari Jhumarlal Saruplal - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtRajasthan High Court
Decided On
Case NumberD.B. Income-tax Reference Nos. 26 and 27 of 1970
Judge
Reported in[1981]130ITR449(Raj)
ActsIncome Tax Act, 1922 - Sections 34(1) and 63; Income Tax Act, 1961 - Sections 271, 271(1), 274, 297 and 297(2)
AppellantCommissioner of Income-tax (Central)
RespondentTiwari Jhumarlal Saruplal
Advocates: S.M. Mehta, Adv.
Cases ReferredJain Brothers v. Union of India
Excerpt:
.....the notice issued by the ito under section 34, the assessee filed its returns in respect of the assessment years 1949-50, 1951-52, 1952-53 and 1953-54. the reassessment proceedings in respect of each one of these years were completed on march 21, 1964. at the time of passing the order of reassessment, the ito felt satisfied that the assessee had made a deliberate attempt to conceal its income or furnish inaccurate particulars thereof during the relevant years and he, therefore, issued notices to the assessee on march 21, 1964, in respect of all the aforesaid assessment years. it is also undisputed that the reassessment proceedings in respect of the aforesaid assessment years, relating to both the hindaun-karauli and bharatpur sections, were completed on march 21, 1964, and notices for..........of income has been filed before the commencement of this act by any person for any assessment year, proceedings for the assessment of that person for that year may be taken and continued as if this act had not been passed;......(d) where in respect of any assessment year after the year ending on the 31st day of march, 1940,-- (i) a notice under section 34 of the repealed act had been issued before the commencement of this act, the proceedings in pursuance of such notice may be continued and disposed of as if this act had not been passed ;,..... (f) any proceeding for the imposition of a penalty in respect of any assessment completed before the 1st day of april, 1962, may be initiated and any such penalty may be imposed as if this act had not been passed ;(g) any proceeding for the.....
Judgment:

Dwarka Prasad, J.

1. These two references have been made to this court by the Income-tax Appellate Tribunal, Delhi Bench 'A', and the following two questions have been referred at the instance of the Commissioner of Income-tax :

'1. Whether, on the facts and circumstances of the case, the notice issued under Section 271 read with Section 274 of the Income-tax Act, 1961, was valid and the order imposing penalty is unassailable ?

2. Whether, on the facts and circumstances of the case, the Tribunal was correct in holding that the notice issued under Section 271 read with Section 274 of the I.T. Act, 1961, was not valid and was hit by the provisions of Section 297(2)(d)(i) of the said Act?'

2. Further, the under mentioned question has been referred at the instance of the assessee ;

'Whether, on the facts and circumstances of the case, the Tribunal was correct in taking the view that the notices in the case which were addressed to the firm after its dissolution by the death of one of its partners, Tiwari Govind Narain, on June 9, 1957, were valid, within the meaning of Section 63 of the Indian I.T. Act, 1922 ?'

3. The material facts, which have given rise to these references, may be briefly stated :

The asseesee is a firm carrying on business of stone quarrying. Proceedings under Section 34(1)(a) of the Indian I.T. Act, 1922 (hereinafter referred to as 'the old Act'), were initiated against the asscseee and in responseto the notice issued by the ITO under Section 34, the assessee filed its returns in respect of the assessment years 1949-50, 1951-52, 1952-53 and 1953-54. The reassessment proceedings in respect of each one of these years were completed on March 21, 1964. At the time of passing the order of reassessment, the ITO felt satisfied that the assessee had made a deliberate attempt to conceal its income or furnish inaccurate particulars thereof during the relevant years and he, therefore, issued notices to the assessee on March 21, 1964, in respect of all the aforesaid assessment years. As the minimum penalty imposable for each year exceeded Rs. 1,000, the ITO referred the matter to the IAC, New Delhi (Central), who held that the assessee had concealed the income or had furnished inaccurate particulars thereof and imposed penalty upon the assessee in respect of each one of the aforesaid assessment years, under Section 271(l)(c) of the I.T. Act, 1961 (hereinafter referred to as 'the new Act'). The orders in respect of the Hindaun-Karauli section were passed on March 8, 1966, while the orders imposing penalty in respect of Bharatpur section were passed by the IAC on March 9, 1966.

4. In respect of the Hindaun-Karauli section, during the course of investigation, the ITO found that the assessee had suppressed its income substantially and deliberately concealed its income and diverted the same in the benami name of Ramnarain Brij Mohan and Karauli Stones Marketing Co. Ltd. He, therefore, initiated proceedings under Section 271(1)(c) and the matter was thus referred to the IAC, who passed the order imposing penalty upon the assessee on March 8, 1966.

5. The assessee filed appeals before the AAC, who rejected the various objections raised by the assessee and affirmed the orders passed by the IAC, imposing penalties upon the assessee under Section 271(1)(c) of the new Act, by a consolidated order passed in respect of Hindaun-Karauli and Bharatpur sections. Thereafter, further appeals were filed by the assessee before the Income-tax Appellate Tribunal. The Tribunal, following the decision of the Mysore High Court in S.C. Magavi, Haven v. CIT : [1967]64ITR409(KAR) held that in respect of assessment years 1949-50, 1951-52, 1952-53 and 1953-54, penalty proceedings could not be validly initiated nor penalty could be imposed upon the assessee under Section 271 read with Section 274 of the new Act on account of the provisions of Section 297(2)(d)(ii) of the new Act. However, in respect of the assessment year 1950-51, the Tribunal held that penalty could be validly imposed upon the assessee under Section 271(1)(c) of the new Act, as notice was issued under Section 148 of the new Act and as such the provisions of Section 297(2)(g) of the new Act applied in the matter relating to the imposition of penalty for the said assessment year. However, the Tribunal reduced the quantum of penalty imposed upon the assessee for the year 1950-51, considering the same to be excessive.

6. The Tribunal passed a consolidated order on April 5, 1968, in respect of the Hindaun-Karauli section for the assessment years 1949-50 to 1953-54, while another consolidated order, in respect of Bharatpur section, for all the aforesaid assessment years, was passed by the Tribunal on April 10, 1968. Thereafter, the revenue filed 8 reference applications while the assessee filed 9 applications for making references, in respect of Hindaun-Karauli and Bharatpur sections, relating to the aforesaid assessment years. All these 17 reference applications were disposed of by the Tribunal by a common order dated April 3, 1970, referring the three questions, reproduced above, to this court, two at the instance of the revenue and the third one at the instance of the assessee.

7. It is not in dispute that penalty under Section 271(1)(c) has been imposed upon the assessee in respect of the assessment years prior to April 1, 1962, when the new Act came into force. It is also not in dispute that the proceedings for reassessment under Section 34 of the old Act were initiated in respect of the relevant assessment years, except 1950-51, prior to the promulgation of the new Act and notices for reassessment were issued under Section 34(1 )(a) of the old Act. In respect of the year 1950-51, notices for reassessment were issued under Section 148 of the new Act, after the same came into force. It is also undisputed that the reassessment proceedings in respect of the aforesaid assessment years, relating to both the Hindaun-Karauli and Bharatpur sections, were completed on March 21, 1964, and notices for the imposition of penalty for concealment of income or for disclosing incorrect particulars thereof were also issued to the assessee, in respect of each one of the aforesaid assessment years on March 21, 1964. The ITO, while passing the order of reassessment under Section 148 of the new Act in respect of the year 1950-51 and under Section 34 of the old Act in respect of the other assessment years, felt satisfied that the assessee had made a deliberate attempt to conceal its income and had knowingly furnished incorrect particulars thereof and the same gave rise to the proceedings for the imposition of penalty under Section 271(1)(c) of the new Act.

8. The two questions, which have been referred by the Tribunal at the instance of the revenue, are substantially one and the same, namely, as to whether, in the circumstances mentioned above, a penalty could be imposed upon the assessee under Section 271(1)(c) read with Section 274 of the Act or that the imposition of such penalty was invalid and the provisions of Section 297(2)(d)(i) applied and the penalty proceedings could be only taken against the assessee under the old Act.

9. It would be proper for the decision of these questions to read the relevant provisions of Section 297(2) of the new Act, which are as under :

'297 (2) Notwithstanding the repeal of the Indian Income-tax Act, 1922 (XI of 1922) hereinafter referred to as the repealed Act),--

(a) where a return of income has been filed before the commencement of this Act by any person for any assessment year, proceedings for the assessment of that person for that year may be taken and continued as if this Act had not been passed;......

(d) where in respect of any assessment year after the year ending on the 31st day of March, 1940,--

(i) a notice under Section 34 of the repealed Act had been issued before the commencement of this Act, the proceedings in pursuance of such notice may be continued and disposed of as if this Act had not been passed ;,.....

(f) any proceeding for the imposition of a penalty in respect of any assessment completed before the 1st day of April, 1962, may be initiated and any such penalty may be imposed as if this Act had not been passed ;

(g) any proceeding for the imposition of a penalty in respect of any assessment for the year ending on the 31st day of March, 1962, or any earlier year, which is completed on or after the 1st day of April, 1962, may be initiated and any such penalty may be imposed under this Act;..... '

10. The Tribunal, following the decision of the Mysore High Court in Magavi's case : [1967]64ITR409(KAR) held that the proceedings for the imposition of penalty were included in the proceedings for assessment for the purposes of Section 297(2)(a) of the new Act and that applying the provisions of Section 297(2)(d)(i), the proceedings for the imposition of penalty are a continuation of the proceedings for assessment. Thus, according to the Tribunal, a penalty could be imposed under the old Act, in respect of assessment relating to the assessment year 1961-62, and any year earlier thereto, under Section 28 of the old Act, as Section 271 of the new Act could apply only to defaults made or discovered in respect of proceedings under the new Act. So far as the proceedings for reassessment under Section 34 of the old Act, which were initiated by the issuance of a notice before the commencement of the new Act, is concerned, Section 297(2)(d)(i) clearly provides that such proceedings shall be continued and disposed of as if the new Act has not been passed. In C.A. Abraham v. ITO : [1961]41ITR425(SC) their Lordships of the Supreme Court held that the expression 'proceedings for assessment' employed in Clause (a) of Section 297(2) of the new Act includes proceedings for imposition of penalty as well. The same view was also taken by their Lordships of the Supreme Court in Kalawati Devi Harlalka v. CIT : [1967]66ITR680(SC) and it was held that the word 'assessment' can bear a very comprehensive meaning, as it can comprehend the entire procedure for ascertaining and imposing liability upon a taxpayer, including the power of revision. However, the aforesaid cases have no bearing on the question as to when proceedings for assessment or reassessment are taken in accordance withthe provisions of Section 34 of the old Act, by virtue of the provisions contained in Section 297(2)(d)(i) of the new Act, and assessment proceedings are completed after the commencement of the new Act, then whether the provisions of the old Act or those of the new Act would be applicable for initiating proceedings for imposition of penalty. Whether penalty proceedings in such cases should be taken under the old Act or under the new Act is a question, which was not the subject-matter of consideration before their Lordships of the Supreme Court either in Abraham's case : [1961]41ITR425(SC) or in Kalawati's case : [1967]66ITR680(SC) .

11. It may be observed that Section 297(2)(d)(i) does not contain the expression 'proceedings for assessment', which finds place in Clause (a) of Section 297(2) of the new Act. A perusal of the various clauses of Section 297 goes to show that Clauses (f) and (g) of that section exclusively provide for all the contingencies relating to proceedings for imposition of penalty in respect of the assessment year ending on March 31, 1962, or any earlier year. If the assessment in respect of any such period is completed before April 1, 1962, then Clause (f) of Section 297(2) will apply and proceedings for imposition of penalty in such a case could be initiated only under the old Act, as if the new Act has not been passed. But in a case relating to the assessment year ending on March 31, 1962, or earlier years, if the proceedings for assessment are completed on or after 1st April, 1962, then the proceedings for imposition of penalty would be governed by the provisions of Clause (g) of Section 297(2) of the new Act and such proceedings for imposition of penalty could be initiated and penalty could be imposed only under the new Act. The crucial date, for the determination of the question as to whether the penalty could be imposed under the new Act or under the old Act, is the date of completion of the proceeding for assessment or reassessment. If the assessment proceeding is completed prior to 1st April, 1962, the proceeding for imposition of penalty will have to be taken under the provisions of the old Act, but if the assessment proceeding in such a case is completed on or after April 1, 1962, then the proceeding for imposition of penalty can be taken only under the provisions of the new Act. To our mind, Clauses (f) and (g) of Section 297(2) are exhaustive and provide for all the contingencies for the. purpose of initiating and imposing penalty in respect of assessments relating to assessment year ending on March 31, 1962, or earlier years. In Magavi's case : [1967]64ITR409(KAR) their Lordships of the Mysore High Court considered merely the provisions of Clause (g) of Section 297(2) of the new Act and held that it did not provide for all the circumstances which could arise. With great respect, it appears that the provisions of Clause (f) of Section 297(2) do not appear to have been brought to their Lordships' notice. If the provisions of Clause (f) of Section 297(2) are considered along with those of Clause (g) thereof, then it would be amply clear that the two provisions contained inClauses (f) and (g) cover all the circumstances which may arise in respect of imposition of penalty, so far as the assessments relating to assessment year ending on March 31, 1962, or earlier years are concerned. One should not lose sight of the fact that the provisions of Sections 271(1) and 297(2)(g) have to be read together and harmoniously construed. The question that the default was committed by the assessee prior to the new Act came into force is not relevant to the issue, as the imposition of penalty is related not merely to the commission of the default but to the satisfaction of the ITO about the default having been committed by the assessee. Thus, the date of completion of the assessment proceedings is the relevant date for the purposes of deciding as to whether the penalty should be imposed or not in a specified case.

12. The view, which we have expressed above, has also been taken by their Lordships of the Supreme Court in Jain Brothers v. Union of India : [1970]77ITR107(SC) wherein Grover J., speaking for the court, observed as under (p. 117):

'It is true that Clause (a) of Sub-section (1) of Section 271 mentions the corresponding provisions of the Act of 1961 but that will not make the part relating to payment of penalty inapplicable once it is held that Section 297(2)(g) governs the case. Both Sections 271(1) and 297(2)(g) have to be read together and in harmony and so read the only conclusion possible is that for the imposition of penalty in respect of any assessment for the year ending on March 31, 1962, or any earlier year which is completed after the first day of April, 1962, the proceedings have to be initiated and the penalty imposed in accordance with the provisions of Section 271 of the Act of 1961. Thus the assessee would be liable to a penalty as provided by Section 271(1) for the default mentioned in Section 28(1) of the Act of 1922 if his case falls within the terms of Section 297(2)(g).'

13. It was further observed in the aforesaid case (p. 116):

'It is obvious that for the imposition of the penalty it is not the assessment year or the date of the filing of the return which is important but it is the satisfaction of the income-tax authorities that a default has been committed by the assessee which would attract the provisions relating to penalty. Whatever the stage at which the satisfaction is reached, the scheme of Section s 274(1) and 275 of the Act of 1961 is that the order imposing penalty must be made after the completion of the assessment. The crucial date, therefore, for purposes of penalty, is the date of such completion.'

14. In Jain Brothers' case : [1970]77ITR107(SC) their Lordships of the Supreme Court have categorically held that penalty can be imposed under the provisions of the new Act even in respect of defaults, which werecommitted under the old Act, provided they squarely fall within the provisions of Section 297(2)(g) of the new Act. The aforesaid view was again reiterated by their Lordships of the Supreme Court in CIT v. Singh Engineering Works P. Ltd. : [1970]78ITR90(SC) and it was held that if an assessment relating to the year ending on March 31, 1962, or any earlier assessment year, have been completed after April 1, 1962, Section 297(2)(g) of the new Act would be applicable and penalty can be imposed under Section 273 of the new Act, for furnishing inaccurate and untrue estimate in relation to payment of advance tax for that assessment year. Even in the case of the assessee himself, in Tiwari Kanhaiyalal v. CIT : [1975]100ITR5(SC) their Lordships of the Supreme Court, following the decision in Jain Brothers' case : [1970]77ITR107(SC) held that in respect of assessments, relating to the year ending on March 31, 1962, and any earlier year, which were completed after the coming into force of the new Act, proceedings for imposition of penalty have to be initiated under the new Act, in accordance with the provisions of Clause (g) of Section 297(2) of the new Act. In CIT v. Prem Raj Daulatram [D.B. Civil Income-tax Reference No. 39 of 1969, decided on July 19, 1979--see p. 459 infra (Appendix)] it was held that proceedings for imposition of penalty under Section 271(1)(a) of the new Act could be initiated in respect of assessment proceedings completed after April 1, 1962, relating to the assessment year ending on March 31, 1962 or any earlier year.

15. In view of the decision of their Lordships of the Supreme Court in Jain Brothers' case : [1970]77ITR107(SC) and for the reasons given by us earlier, we are respectfully unable to agree with the view taken by their Lordships of the Mysore High Court in Magavi's case : [1967]64ITR409(KAR) and hold that in the case of the assessee, as the assessment proceedings relating to all the relevant assessment years were completed on March 21, 1964, much after the coming into force of the new Act and so the provisions of Section 297(2)(g) would apply and the proceedings for imposition of penalty were rightly initiated under Section 271 read with Section 274 of the new Act. As has been explained by us earlier, Section 297(2)(d)(i) has no relevance to the proceedings for imposition of penalty, in cases where the assessments, though relating to earlier years, are completed after the coming into force of the new Act. Consequently, notices issued under Section 271 read with Section 274 of the new Act were validly issued and the order of imposition of penalty cannot be assailed on that ground. Question No. 1, which has been referred at the instance of the revenue, is, therefore, answered in the affirmative, while question No. 2 is answered in the negative and in favour of the revenue.

16. So far as the question, which has been referred by the Tribunal at the instance of the assessee is concerned, we may observe that the matterstands concluded by the decision of their Lordships of the Supreme Court in Shivram Poddar v. ITO : [1964]51ITR823(SC) wherein it was held by their Lordships that if a firm has been dissolved but its business has not been discontinued, there being merely a change in the constitution of the firm, the assessment can be made in respect of the firm. Even after the discontinuance of the business of the firm, it does not cease to be liable to pay tax on the income earned by it during its existence and a procedure different from the one prescribed in Chap. IV of the old Act could not apply to the assessment of income of such a firm. Thus, a notice which is issued in respect of a dissolved firm, under Section 34(1)(a) of the old Act read with Section 22(2) thereof, addressed to a person, who was a partner of the firm before the dissolution of the firm, calling upon him to submit a return was a valid notice. In CIT v. Devidayal and Sons : [1968]68ITR425(Bom) a Division Bench of the Bombay High Court held that even after the discontinuance of the business of a firm, either by dissolution or otherwise, the firm can be treated as continuing so far as the assessment of its pre-dissolution income is concerned and the assessment or reassessment of such a firm after its dissolution, under Section 44 of the Indian I.T. Act, 1922, could be made, in the same manner under Chap. IV as if the said firm had not discontinued its business. In that case, a notice for reassessment under Section 34(1)(a) was addressed in the name of the dissolved firm and such a notice was served upon a person who was a partner of the firm before its dissolution. It was held that the service of such a notice, addressed to the firm, on a person who was a partner thereof before its dissolution, was a valid and proper service of notice under Section 34(1) of the Act. In the present case, one of the partners of the firm, Tiwari Govind Narain, expired on June 9, 1957, and the notice for reassessment under Section 34(1) of the old Act was addressed to the firm. The business of the firm was also continued, even after the death of Tiwari Govind Narain, and the firm was reconstituted. The firm was liable for payment of income-tax in respect of the income received by it before its reconstitution and also for imposition of penalty, irrespective of the death of one of its partners, Tiwari Govind Narain. The question, which has been referred at the instance of the assessee is, therefore, also answered in the affirmative and in favour of the revenue.

17. Both the references are disposed of in the manner indicated above.


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