TMI Blog1991 (12) TMI 102X X X X Extracts X X X X X X X X Extracts X X X X ..... h Shri Madan Lal. Sh. Madan Lal, the assessee claims, being senior-most member of the HUF, was acting as karta and hence in that capacity was custodian of the surplus funds of the said HUF-Kulwant Rai Sons. The HUF is said to have deposited Rs. 60,000 with the consent and concurrence of the members of the HUF. It is also claimed on behalf of the assessee that Kulwant Rai Sons is represented through its karta Madan Lal who is a partner in the respondent assessee-firm also. It is further claimed that the said Shri Madan Lal along with other partners of the respondent assessee-firm became partner in his individual capacity but representing his HUF. 3. The revenue being not satisfied with the stand of the assessee, held that the HUF is a single entity and the version of the assessee that each coparcener invested Rs. 15,000 from his share of HUF's funds is not correct as there is no partition in the HUF. It further held that the entire money is that of HUF and not independently of the coparceners. Yet further that there is only a single deposit of Rs. 60,000 in the books of account of the respondent assessee-firm in the name of Kulwant Rai Sons HUF. Other stand of the assessee t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uthority has misconceived the position on facts and in law. Yet further she has contended that even if loan is taken or a deposit is made by a partner, though she has not admitted the averment of the assessee that it was a deposit by a partner, she contended that qua the respondent assessee-firm and the depositor, there has to be held as relationship of a 'person' with 'other person'. 6. On the first issue about there being no opportunity to the assessee vis-a-vis reliance of the ld. first appellate authority on the order-sheet entries, she contended that a procedural irregularity does not merit quashing of the penalty order since it only amounted to supervening and curable irregularity and the ld. first appellate authority should have sent back the matter so that the officer imposing the penalty could have taken the proceedings from that loose end - Guduthur Bros. v. ITO [1960] 40 ITR 298 (SC) is relied upon for this proposition. She further emphasised that contravention/violation of a procedure is an irregularity while if it is of mandate then it is an illegality. In short, she supported the penalty order and assailed the order of the ld. first appellate authority, which order, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... If a person takes or accepts any loan or deposit in contravention of the provisions of section 269SS, he shall be liable to pay, by way of penalty, a sum equal to the amount of the loan or deposit so taken or accepted." Section 269SS deals with the topic "Mode of taking or accepting certain loans and deposits". It was inserted by the Finance Act, 1984 w.e.f. 1-4-1984. In relation to assessment year under appeal, it reads as under: "S. 269SS. No person shall, after the 30th day of June, 1984, take or accept from any other person (hereafter in this section referred to as the depositor), any loan or deposit otherwise than by an account payee cheque or account payee bank draft if,--- (a) the amount of such loan or deposit or the aggregate amount of such loan and deposit; or (b) on the date of taking or accepting such loan or deposit, any loan or deposit taken or accepted earlier by such person from the depositor is remaining unpaid (whether repayment has fallen due or not), the amount or the aggregate amount remaining unpaid; or (c) the amount or the aggregate amount referred to in clause (a) together with the amount or the aggregate amount referred to in clause (b), is twen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 10. Usually, others, other persons or things: others in the medical profession, others who follow his example. 11. some person or thing else: Surely some friend or other will help me - adv. 12. otherwise; differently (usually fol. by than): we cannot collect the rent other than by suing the tenant...." Oxford Universal Dictionary defines the word 'other' in the following terms: "Other-adj. 1. alternative, additional, being the remaining one or set of two or more, has no other income; try the other shoe; my other friends. 2. not the same, wouldn't want her to be other than she is. - n. pronoun the other person or thing, whereas the others? - adv. otherwise, other ranks, soldiers other than commissioned officers, the other day or week etc. a few days or weeks etc. ago, the other world, life after death." 12. First coming to the reasoning of the learned first appellate authority that Since the assessee was not allowed adequate opportunity to argue his case, the penalty merits to be quashed and which she did. We will set aside this aspect of the case since we do not concur with her reasoning inasmuch as a procedural irregularity results in a supervening irregularity which is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ily. The Hon'ble Supreme Court held that the managing director's remuneration was, as between the managing director and the HUF, the income of the family and should be assessed in its hands. The ratio of the decision does not help the assessee who has strongly relied upon since the issue before the Hon'ble Supreme Court was different in its entirety. 16. Coming to R.M. Chidambaram Pillai's case their Lordships, on the facts of that case, held that the firm is not a legal person even though it has some attributes of personality. In Income-tax Law, a firm is a unit of assessment by special provisions but is not a full person. Since a contract of employment requires two distinct persons, viz., the employer and the employee, there cannot be a contract of service, in strict law, between a firm and one of its partners. Payment of salary to a partner represents a special share of the profits. Hence, salary paid to a partner retains the same character of the income of the firm. Their Lordships, inter alia, referred to the famous decision in the case of Addanki Narayanappa v. Bhaskara Krishnappa AIR 1966 SC 1300. The case of Dulichand Laxminarayan was also referred to. 17. In the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nery within the meaning of section 34(3)(b), read with section 2(47). Their Lordships answered the question in favour of the assessee holding that section 34(3)(b) was not applicable to the case and the development rebate allowed to the firm could not be withdrawn. 20. Next comes the famous case of Sunil Siddharthbhai v. CIT [1985] 156 ITR 509 (SC). In this case, the Hon'ble Supreme Court has held that where a partner of a firm makes over capital assets which are held by him to a firm as his contribution towards capital, there is a transfer of a capital asset within the terms of section 45 of the Income-tax Act, 1961, because an exclusive interest of the partner in personal assets is reduced, on their entry into the firm, into a share interest. On page 516 of this report, their Lordships approved their own decision in Malabar Fisheries Co.'s case. Their Lordships observed that they have no hesitation in accepting the general proposition, that a partnership firm is not a separate legal entity and that the assets owned by the partnership are collectively owned by the partners. 21. In this case, the firm is constituted of four partners, viz., S/Sh. Madan Lal, Rajinder Paul, Yash P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of section 269SS. 24. Now comes the question of levy of penalty. Section 271D already stands reproduced in the body of this order. Penalty provisions have been held by the Hon'ble Supreme Court of India as penal in character and quasi-judicial in nature. An order imposing penalty for failure to carry out a, statutory obligation is the result of a quasi-criminal proceeding and penalty will not ordinarily be imposed unless the party is obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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