TMI Blog1969 (3) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... rder was confirmed in appeal by the Appellate Assistant Commissioner, and by the Tribunal. The Income-tax Officer had, in the meantime, commenced a proceeding for the levy of penalty and in exercise of the power under section 28(1)(c) of the Indian Income-tax Act, 1922, he directed the respondent-firm to pay Rs. 60,000 as penalty. The Appellate Assistant Commissioner in appeal confirmed the order. The Income-tax Appellate Tribunal rejected the contention of the respondent that the order imposing penalty upon the firm after the original firm was dissolved was without jurisdiction. The Tribunal referred, at the instance of the respondent-firm, the following question to the High Court of Patna for opinion: "Whether, on the facts and in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vied only upon the original firm constituted in the account year relevant to the assessment year 1948-49 and not upon the new firm constituted under the deed dated April 27, 1952. The Tribunal and the High Court approached the problem before them on the assumption that the source of the power of the Income-tax Officer to impose a penalty was in section 44 of the Indian Income-tax Act, 1922. In so assuming, in our judgment, they were in error. Section 44 of the Indian Income-tax Act, 1922, as it stood at the relevant date, in so far as it is material, provided: "Where any business, profession or vocation carried on by a firm...has been discontinued,...every person who was at the time of such discontinuance...a partner of such firm...sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t attract the application of section 44 of the Act.... The reason for this distinction appears from the scheme of the Income-tax Act in its relation to assessment of the income of a firm. A firm whether registered or unregistered is recognised under the Act as a unit of assessment [sections 3 and 2(2)], and its income is computed under clauses (3) and (4) of section 23 as the income of any other unit. Section 25(1) relates to assessment in case of a discontinued business--whether the business is carried on by a firm or by any other person....... Then there is the special provision relating to assessment when at the time of making an assessment it is found that a change has occurred in the constitution of a firm, or a firm has been newly con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstitution. A firm discontinuing its business may be assessed in the manner provided by section 25(1) in the year of account in which it discontinues its business; it may also be assessed in the year of assessment. In either case it is the assessment of the income of the firm. Where the firm is dissolved, but the business is not discontinued, there being change in the constitution of the firm, assessment has to be made under section 26(1), and if there be succession to the business, assessment has to be made under section 26(2). The provisions relating to assessment on re-constituted or newly constituted firms, and on succession to the business are obligatory. Therefore, even when there is change in the ownership of the business carried on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax Act, 1922, includes a proceeding for imposition of penalty. Section 28 of the Act authorises the Income-tax Officer, if satisfied, in the course of any proceeding under the Act that any person has, inter alia, concealed the particulars of his income or deliberately furnishes inaccurate particulars of such income, to direct that such person shall pay by way of penalty, a sum of money not exceeding the amount specified therein in addition to the income-tax and super-tax payable by such person. The expression "person" includes, for the purpose of section 28, a firm registered or unregistered. If there is re-constitution of the firm, by virtue of section 26, the Income-tax Officer will, in imposing the penalty, proceed against the firm. If ..... X X X X Extracts X X X X X X X X Extracts X X X X
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