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TMI Blog1962 (1) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... edings 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 quashing the penalty orders were filed by two partners of the firm in the High Court at Madras. It was submitted by the petitioners that by agreement between the partners the firm stood dissolved on April 13, 1951, and intimation in that behalf was given to the Income-tax Officer, and that in any event the firm stood dissolved on May 5, 1953, when one of the partners died and the Income-tax Officer could not, in exercise of the power under section 28 (1) make an order imposing penalty after dissolution of the firm. The High Court accepted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 reasonable cause failed to furnish the return of his total income which he was required to furnish by notice given under sub-section (1) or sub-section (2) of section 22 or section 34 or has without reasonable cause failed to furnish it within the time allowed and in the manner required by such notice, or (b) has without reasonable cause failed to comply with a notice under sub-section (4) of section 22 or sub-section (2) of section 23, or (c) has concealed the particulars of his income or deliberately furnished inaccurate particulars of suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 enactment of clause (d) to the proviso, the second defect was removed, but not the first. In support of this argument, counsel relied upon section 23(5) as it stood, before it was amended by section 14 of the Finance Act of 1956. The clause provided that where an assessee is a firm and the total income of the firm has been assessed under sub-section (1), sub-section (3) or sub-section (4), as the case may be, the sum payable by the firm shall not be determined but the total income of each partner of the firm, including therein his share of its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion (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 section 28(1)(b) a person can be made liable to pay penalty, in addition to the amount of income-tax and super-tax, if any, payable by him in cases falling under clauses (b) and (c), no order for payment of penalty can be made against a registered firm, because under the Income-tax Act no tax is made payable by the firm. Chief Justice Chakravartti, speaking for the court, observed : "...even when construed by its own language the concluding paragraph of section 28(1) cannot be said to make it a condition precedent that a person must be liable to p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Satisfaction before conclusion of the proceeding under the Act, and not the issue of a notice or initiation of any step for imposing penalty is a condition for the exercise of the jurisdiction. There is no evidence on the record that the Income-tax Officer was not satisfied in the course of the assessment proceeding that the firm had concealed its income. The assessment order is dated the 10th of November, 1951, and there is an endorsement at the foot of the assessment order by the Income-tax Officer that action under section 28 had been taken f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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