TMI Blog1970 (10) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... uiry the Income-tax Officer found that the assessee had deliberately suppressed certain income and levied a penalty of Rs. 6,000. This order was passed on November 4, 1957. An appeal was preferred against this order imposing penalty, to the Appellate Assistant Commissioner, Vijayawada. While the appeal was pending, an application under section 25A of the Act was filed on December 18, 1957, claiming that a partition of the joint family had taken place on October 31, 1957. By his order dated November 6, 1958, the Income-tax Officer recognised the position holding that the assets of the family had been divided on October 31, 1957, and the assessment of the family shall be made for the year 1958-59 on its income up to October 31, 1957, and separate assessment shall be made for the income after that date in the hands of each member. A few days after the passing of this order, the appeal against imposition of penalty came up for hearing. There it was contended that since the family had become divided on October 31, 1957, the penalty levied on November 4, 1957, after the disruption of the family, was illegal and that section 28 of the Act does not authorise imposition of penalty on a fami ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re started under section 28(1)(c) and an order was passed against a Hindu undivided family which was not in existence on the date when the order was passed, the said order would be illegal. It was argued that the Supreme Court did not overrule the view taken by this court in Additional Income-tax Officer v. A. Thimmayya in so far as the imposition of penalty is concerned. One of the decisions relied on for the assessee was a Bench decision of this court in M. Subbarao and Nageswara Rao v. Commissioner of Income-tax and the learned counsel for the revenue argued that all the decisions require re-consideration in view of the pronouncement of the Supreme Court in Additional Income-tax Officer, Cuddapah v. Thimmayya. The Division Bench then thought it necessary that the case should be decided by a Full Bench. The matter has thus come up before us. Now, the salient facts are the following : The actual partition of the Hindu joint family which is the assessee, took place on October 30, 1957. The order imposing penalty, was passed on November 4, 1957. The order under section 25A recognising partition, with effect from October 31, 1957, was passed on November 6, 1958. Therefore, the ques ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... If the assessee which is a Hindu undivided family has ceased to exist, then there would be no assessee who could be given a reasonable opportunity contemplated by this sub-section. Nor could there be any partners in a Hindu undivided family. Unlike in a partnership firm, there are no partners in a Hindu undivided family. Consequently, it is impossible to satisfy the provisions of sub-section (3) giving an opportunity to the assessee in the case of a Hindu undivided family after it is dissolved. Thus no proceedings for imposition of penalty can be taken against a Hindu undivided family after it got disrupted and ceased to exist in the eye of law. This is the plain meaning of section 28 under which the penalty now questioned has been imposed. In this case, the facts disclose that the actual partition of the assessee Hindu undivided family took place on October 31, 1957. The order dated November 6, 1958, made under section 25A recognised that partition with effect from October 31, 1957. The order imposing penalty was, however, subsequently passed on November 4. 1957. That means, the penalty was imposed on a family which had got disrupted. The learned counsel for the revenue has not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the portion of the joint family property allotted to him or it ; and the Income-tax Officer shall make assessments accordingly on the various members or groups of members in accordance with the provisions of section 23 : Provided that all the members and groups of members whose joint family property has been partitioned shall be liable jointly and severally for the tax assessed on the total income received by or on behalf of the joint family as such. (3) Where such an order has not been passed in respect of a Hindu family hitherto assessed as undivided, such family shall be deemed, for the purposes of this Act, to continue to be a Hindu undivided family. " It has to be noted that this provision has nothing to do with the imposition of penalty. It concerns with the assessment of a Hindu undivided family wherein a partition has taken place. The scheme of the Act is while section 23 deals with assessment of an assessee, section 25 provides for the assessment in cases of discontinued business. Likewise, section 25A which was inserted by the Indian Income-tax (Amendment) Act, 1928, is concerned with the assessment after partition of a Hindu undivided family. Its effect is that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment under sub-section (3) it is claimed by any member of a Hindu undivided family ". The meaning of the word " until " does not obviously fit into the sub-section. Similar is the case with the word " where " in sub-section (2) also, It will not be consistent with reading that word as meaning " until ". Therefore, understanding the word " where " in sub-section (3) as " until " would be wholly inconsistent with this guiding principle of interpretation of statutes. That word, in the context of the section, could only mean " cases in which ". Sub-section (3) should, therefore, be construed as merely referring to cases in which orders under sub-section (1) have not been passed. That appears to us as the natural and logical meaning of that provision. Sub-section (2) in its turn provides for cases where such orders have been passed. No indication of point of time can be spelt out of sub-section (3) of section 25A. Sub-section (3) simply means that in the case in which no order under sub-section (1) has been passed, the family shall be deemed to continue as a Hindu undivided family. If, on the other hand, such an order has been passed the fiction introduced by the sub-section does not a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be countenanced at all. There is a specific provision in the Act providing for imposition of penalties and that is section 28. When there is a specific provision, proceedings should be taken only thereunder and not under any other provision. Section 28 alone, therefore, governs the case of imposing penalties for concealment of income or improper distribution of profits. Penalty in this case was imposed on the assessee on the ground that it had deliberately suppressed a large portion of the sales effected by it and concealed the correct particulars of the income derived from such sales. Therefore, the validity of the penalty proceedings will have to be tested only from the perspective of section 28. In this connection, reference may be usefully made to section 44 of the Act which concerns with the liability in the case of firm or association discontinued or dissolved. Sub-section (2) thereof enables the Income-tax Officer, the Appellate Assistant Commissioner or the Appellate Tribunal to impose or direct the imposition of penalty, if any firm or association of persons is guilty of any of the acts specified in clause (a) or clause (b) or clause (c) of sub-section (1) of section 28. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r section 25A(1) accepting the division of the Hindu undivided family with effect from 5th April, 1943, was passed on 26th February, 1946. Subbarao C.J., speaking for the Bench, observed at page 870 : " But, by reason of the disruption in the family at the time the proceedings were initiated, the Hindu family ceased to be a 'person' within the meaning of the said section. " In rendering this judgment, the learned Chief Justice relied on the decision of the Patna and Madras High Courts in Commissioner of Income-tax v. Sanichar Sah Bhim Sah and Raju Chettiar v. Collector of Madras respectively. Ramaswami J., speaking for the Bench in the Patna case, observed at page 314 that : " It is manifest that section 25A refers to assessment of a Hindu undivided family which had become separated in the course of the assessment year. The section does not, in my opinion, lay down the machinery for the imposition of penalty on a Hindu undivided family which had become disrupted. This is clear from the opening words of section 25A. " In the Madras case it was observed at page 244 : " Section 28(3) requires that the assessee should be heard before an order is passed under section 28(1). Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndivided family, the tax assessed on it without apportioning the tax. That was sought to be done by means of an order on a company directing deduction from their salaries. The two members thereupon applied to the High Court for a writ of certiorari to quash that order. The writ petition first came up before a learned single judge, who issued a mandamus to the officer to apportion the tax payable by the family. The department carried the matter in appeal. The standing counsel for the revenue contended before the Division Bench that the family should be regarded as continuing to be undivided till 30th June, 1952, which was the date on which the Income-tax Officer passed his order under section 25A(1) recording the partition in the family. The contention was that on that date alone the family could be said to have been disrupted. The Division Bench repelled this argument by stating at page 1006 : " It is true that so long as no order is passed under section 25A, the family will be deemed to be joint. But when that order gives recognition to the partition with reference to a particular date, by a legal fiction, the order must be deemed to have been made on that date. To hold it other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mains unaffected, for the procedure for making assessment of tax is statutory. Any error or irregularity in the assessment may be rectified in the manner provided by the statute alone, and the assessment is not liable to be challenged collaterally. " Having stated the position in these terms, the learned judges proceeded to consider whether an order of assessment which had become final was liable to be reopened under section 25A(2). Pointing out that the Income-tax Officer proceeded to assess the income of the family as if the property of the family had not been partitioned, the court held that the Act contained no machinery authorising an Income-tax Officer to reopen an assessment of a Hindu undivided family relying upon an order made by him under section 25A(1) after the order of assessment was made. Once the orders of assessment were confirmed, it has observed that : " It was not open to the Income-tax Officer to reopen the orders of assessment, relying upon the order recording the partition, and to seek to subvert orders which had become final under the seal of the Income-tax Appellate Tribunal. " The learned judges held that, in that view, the High Court was in error in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e satisfied, namely, that the Hindu undivided family was existent on the date on which the Income-tax Officer started the proceeding, and it was also existent on the date on which the Income-tax Officer imposed the order of penalty. " Following the decisions in Commissioner of Income-tax v. Sanichar Sah Bhim Sah, Raju Chettiar v. Collector of Madras and C. A. Abraham v. Income-tax Officer, Kottayam, it was finally decided that the order of penalty made on 23rd of January, 1958, after the actual disruption of the family effected on 18th February, 1957, was invalid. After the decision of the Supreme Court in Additional Income-tax Officer, Cuddapah v. Thimmayya, the Punjab and Haryana High Court had an occasion to go into this question in Commissioner of Income-tax v. Mothu Ram Prem Chand. In this case, the family was disrupted on 31st of March, 1956, but the registered partition deed was executed in December, 1956. During the course of the assessment proceedings for 1957-58, the assessee filed an application on 13th of March, 1957, praying for an order under section 25A of the Act. The order under section 25A(1) was passed on January 29, 1960, accepting the partition with effect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned. " Ultimately, the judgment ended with the statement that to sustain such a penalty would be to ignore totally the impinge, content and legal effect of the order recognising the partition in the family as evidenced by the deed of partition dated April 23, 1956. In the course of the judgment the learned judges also referred to the Supreme Court decision in Thimmayya's case and pointed out that : " The Income-tax Act contains no machinery authorising the Income-tax Officer to reopen, under section 34 of the Act, an assessment of a Hindu undivided family relying upon an order recorded under section 25A(1) subsequent to the passing of the assessment order and seek to subvert orders which have become final. " In C. P. Venkataraman v. Commissioner of Income-tax, the same Division Bench of the Madras High Court which decided P. S. Kandaswamy Mudaliar v. Commissioner of Income-tax, considered the case of an assessee who was originally assessed as an individual. The Tribunal, in appeal against the assessment, however, corrected the status of the assessee to that of a Hindu undivided family. Penalty proceedings which were commenced against the assessee as an individual were continu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eration. In fact, the Tribunal allowed the appeal of the assessee reconsidering the matter and finding that the penalty was illegally levied. The fact remains that when the order imposing penalty was passed on November 4,.1957, there had been disruption of the family. In view of these circumstances the assessee challenged the validity of the order. There is no doubt that we can consider its validity in a reference case arising out of an appeal against the order imposing penalty. True, the matter would not have been open for reconsideration if the order imposing penalty had become final, and could not be questioned in collateral proceedings as laid down by the Supreme Court in Thimmayya's case. But so long as the matter has not become final the validity of the penalty order can be questioned and decided with reference to section 28. Once an order recording the partition has been passed, as we said, there is no question of section 25A(3) governing the case of a penalty. The learned counsel for the revenue further submits that the order dated November 6, 1958, recognising the partition was passed after the finalisation of assessment for the year 1949-50 in respect of which the penal ..... X X X X Extracts X X X X X X X X Extracts X X X X
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