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1965 (3) TMI 13 - HC - Income Tax


Issues:
Assessment of income from sons' businesses, imposition of penalty under section 28(1)(c), validity of penalty post disruption of Hindu undivided family.

Assessment of income from sons' businesses:
The assessee was assessed for the assessment year 1950-51, where it was found that sums were debited in the names of his sons for their businesses. The Income-tax Officer concluded that these businesses actually belonged to the assessee and added their income to his regular business. The assessee argued that the businesses were independent and suffered losses, questioning the computation of profits by the Income-tax Officer. The court noted that the businesses' losses were not considered for reducing the assessee's profits, indicating they were not his businesses. The court found merit in the argument put forth by the assessee's counsel.

Imposition of penalty under section 28(1)(c):
After the assessment, penalty proceedings were initiated under section 28(1)(c) for concealing income. The Income-tax Officer imposed a penalty of Rs. 7,500, which was upheld in successive appeals. The assessee contended that the penalty imposition was not valid in law, especially post the disruption of the Hindu undivided family. The court examined previous cases and observed that the penalty could not be imposed on the karta of the erstwhile family after disruption. The court considered the plea of good faith advanced by the assessee and found that the penalty imposition was not valid in the given circumstances.

Validity of penalty post disruption of Hindu undivided family:
The court analyzed a previous case where it was established that for penalty proceedings under section 28, the family should be in existence both at the initiation and imposition of the penalty. The court rejected the department's argument that the family's personality continues post-disruption for penalty proceedings. It was emphasized that section 28 is a penal provision targeting the contumacious assessee, and vicarious penalty imposition on another person is not permissible. The court concluded that the income in question belonged to the Hindu undivided family, and as the penalty was imposed after the family's disruption, it could not be validly imposed on the karta post-disruption.

In conclusion, the court ruled in favor of the assessee, finding that the penalty imposition under section 28(1)(c) was not valid in law. The court considered the disruption of the Hindu undivided family and the nature of the businesses in question while making this determination. No costs were awarded in light of the peculiar circumstances of the case.

 

 

 

 

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