TMI Blog1962 (1) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... s. S. V. Veerappan Chettiar Co. passed by the Income-tax Officer under section 28(1)(c) of the Indian Income-tax Act. Four persons carried on business in cloth at Virudhunagar in the name and style of S. V. Veerappan Chettiar Co.--hereinafter called the firm. The firm was registered under section 26A of the Income-tax Act, 1922, for the assessment years 1947-48, 1949-50 and 1950-51. The firm concealed particulars of its income in submitting its returns, and the Income-tax Officer, Virudhunagar, in the course of assessment proceedings directed, by order dated May 20, 1954, payment of penalty of Rs. 20,000 for the year 1947-48, Rs. 10,000 for the year 1949-50 and Rs. 5,000 for the year 1950-51. Against the orders imposing penalty, one of the partners of the firm moved the Commissioner of Income-tax, Madras, in revision but without success. Thereafter, petitions under article 226 of the Constitution for issue of writs of certiorari or other appropriate writs calling for records relating to the orders dated May 20, 1954, passed by the Income-tax Officer, Virudhunagar, in respect of the three assessment orders and the record relating to the order of the Commissioner and for quash ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y to registered firms. This court in Abraham's case approved the decision of the Andhra Pradesh High Court in Mareddy Krishna Reddy v. Income-tax Officer, Tenali which was a case of a registered firm, which was dissolved before imposition of penalty. Counsel then argued that, in any event, no penalty under section 28 can be imposed against a registered firm either before or after dissolution, even if the defaults set out in clauses (a), (b) or (c) are proved. This, counsel submits, is the result of the scheme of the Act under section 23(5) for assessment of tax liability of a registered firm. This plea was not set up in the petition, and there is no reference to it in the judgment of the High Court and even in the statement of the case filed in this court there is no trace of it. On that ground alone the plea raised by the appellant is liable to be rejected. Even if the appellant is permitted to raise the contention there is, in our judgment, no force in it. Section 28(1) of the Act (in so far as it is material to these appeals) provides : " If the Income-tax Officer . . . in the course of any proceedings under this Act is satisfied that any person-- (a) has without reason ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the person liable to pay tax may if found guilty of wrongful conduct specified in clauses (a), (b) and (c) be ordered to pay penalty, and by the scheme adopted by the Legislature for imposing tax liability upon registered firms under section 23(5) tax is never payable by a registered firm. Counsel says that when the legislature by Act 40 of 1940 enacted clause (d) of the proviso, only the quantum of penal liability of a registered firm was declared but the liability could not still be enforced because by the substantive provision, it depended solely upon the existence of an enforceable obligation of the firm, and so long as an obligation was not imposed upon the firm to pay tax by an adequate amendment of section 23(5), the liability though quantified was unenforceable. It is urged that there were two defects in section 28(1), as originally drafted : (1) that the penalty could be imposed only upon a person who was liable to pay income-tax or super tax, and (2) that the penalty which may be imposed was a multiple of the income-tax and super-tax, if any, which would have been avoided if the income as returned by such person would have been accepted as the correct income, and by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tered firm, on an income equal to the firm's total income. But the provision relating to imposition of liability to pay penalty by registered firms was clearly expressed. The assumption that the expression " any tax " used in section 28(1) is intended to indicate that there must be some tax payable by the assessee before penalty could be imposed is wholly unwarranted. The futility of the assumption is exhibited by the terms of clause (b). Penalty may be imposed for failure to comply with the notice under sub-section (4) of section 22 or sub-section (2) of section 23 even if the assessee has no assessable income. To the imposition of a penalty liability to pay tax by the person against whom the penalty is sought to be imposed is therefore not a condition precedent. The Calcutta High Court in Khusiram Murarilal v. Commissioner of Income-tax was called upon to deal with the submission made before us in this case. In that case the question which fell to be determined was whether imposition of a penalty on a registered firm under section 28(1)(b) of the Income-tax Act was justified in law. It was urged in that case on behalf of the assessee-a registered firm-that inasmuch as under se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a registered firm. If a registered firm is exposed to liability of paying penalty, by committing any of the defaults contemplated by clause (a), (b) or (c) by virtue of section 44, notwithstanding the dissolution of the firm the assessment proceedings are liable to be continued against the registered firm, as if it has not been dissolved. Counsel contended that in any event, penalty for the assessment year 1949-50 could not be imposed upon the assessee firm because there was no evidence that the Income-tax Officer was satisfied in the course of any assessment proceedings under the Income-tax Act that the firm had concealed the particulars of its income or had deliberately furnished inaccurate particulars of the income. The power to impose penalty under section 28 depends upon the satisfaction of the Income-tax Officer in the course of proceedings under the Act; it cannot be exercised if he is not satisfied about the existence of conditions specified in clauses (a), (b) or (c) before the proceedings are concluded. The proceeding to levy penalty has, however, not to be commenced by the Income-tax Officer before the completion of the assessment proceedings by the Income-tax Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X
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