The Commissioner Of Income Tax, Madras And Another v. S. V. Angidi Chettiar

January ,9. I J ,-t f !140 SW~J!jNE[:OP,R'l;'-RlpPOR~S·.f~Q.621 SUPP. I ? ... _ __. • THE COMMISSIONER. OF ~QPME TAXA ,-. ,.·, '. ,!>fi\'DR~~,A~R A~O'.If.I;ER ~. -.~rt~ l f (l).. " l ANGIDI CHETTIAR'-$.'y. (B:P.:Sf.NkA, c. J., J. L. r(Apm·'. 11:r. E:rnlvATef.c.uH, J. C: SHAH and J. R .. MunHOLii:AR, J,J.)' ~ Income #a)j-Penalt11 61, • ' ,•] \l pn 1 concealed income-'-Power ' I lo itliJ!Ose penally 6'n A~regislerea firm· after dissolution-0.qndition ,Jo• the ~xercise 'O.f ,.iufis{Ji'ition b11 Tncci~-tax Officer-Indian Incp11JeJa:t'Ac~, J92Z.(Jt•cf1.922J. ss. 28,' 44. 1/ A registered fim;i' c6ncealed Particulars of incorn! ""'bile syb111ittin_g _its, ~etur.i.l§ fordbb'i v.ars 1947-48, 1949-50 and /9oq-s~, .. The, .1 Irlpolije-t'!I'. ,Offi~er imposed penalty under s.2\l. (l) of the Indian Income-tax Act, 19?2. • Tlie High Court was moved for a Wtit of certiofari, subllJ.i;ting that the Incqme-tax Qfficenc;ould hot impose jjehalty under ,the said S':,ctioQ,as he ~&9. in(o1mation that ,.the .registered firm was ?issolv!'d ·an Awjl j3 .• l?~.l. hY. ?l:r~~m~nt,,;ind in any event on M"av·5, 19S3, by theJl.e~•h, of on.e pf,tl\e., partners. The Higll Cb'lfrt issued tlit \\Ii-ft '!i.nd' qtashecf If ( • the I' order imposing P pena l ty. • . He(d;tthat the.ptin'ciple lfaid llof>t in ·o. A. Abraha"if case [196li ~. S.-C. ,&, 7J5,5, 1 i• as'rlluch'app1icable to a register-of ed th~irl!l 1e 1Act a~. "or ~o the an unrrgistei;ed fjrm., , context jn \\1 hich...it..-~occurs Thor~ is -.nothing in to jndicate· that s.4{ it does not apply to regi~'tercd firm. ~ "!"! Held, further'; ·thit lhe 'pe~a'iiy provision;' u~cl~r s. ~8 would ij\ the"evsn;.of t~e default cbotemplated br els. (_a) (b) or (c) be applicable 1n the course of assessment of a reins-tered firm. If tlie registf'rerl firm is exposed to liability of paying penalty because ~t ha1t commiltrd any of the defa-ults contemplated hy els. (a), lb) or \c) by virtue of s.44 the asse~sn1ent proceedings are liable to be continued against the rf'gistered firm evcrn after Ji·.-.sulution as if it has r.ot been dissolved .. .. The power to impose pena!ty under. s. ¥8 depends upon the satiifaction of the IncoJie.tax Off1crr in the course nf proceedi~gs under the i~ct. It cannot le exercised if he is not sathfied about the existence of CAnditions specified in cl. (a), (b) or (c) Lefore the proccedin~s arc concluded. The procc~dings f'1r levy of penalty has, ,ho\vever1 not to be con1-1nenced by the Incorne-tax Offi~er, befo1c complr.tion of the asseSSII}ent proc:eedings by hini. Sa~isfaction before the con- 641 2 S.C.R. SUPREME COURT REPORTS JB6Z clusion of the proceeding under the Act and not the issue of notice of intimation of any step for imposing penalty is a condition for the . exercise of the jurisdiction. T 1u Comntilsio111r of lncom..tax, M•dr.., v. S. V.Antidi Chcttiar 0. A. Abraham v. Income-tax Officer, Kottayam, [1961] 2 S. C. R. 765, applied. MareddevKrishna Reddy v. Income-tax Officer, Tenali [1957] 31 I. T. R. 678 and Khushiram Murarilal v. Commias-ioner of Income-tax, Central, Calcutta, [1954] 25 I. T. R. 572, approved. CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 6 to 8 of 1961. Appeals from the judgment and order dated Mav 3, 1957 of the Madras High Court in Writ Petition Nos. 943 to 945 of 1955. K. N. Rajagopala Sastri and P.D. Menon, for the appellants. V. S. Venkataram and K. P. Bhat, for respon- flents. 1962. January 18.-The Judgment of the Court was delivered by SHAH, J.-These a,re three appeals with certifi- SMA]. cates of fitness granted by the High Court of Madras against orders passed in Petitions for the issue of writs of certiorari setting aside orders imposing penalty upon the firm of Messrs. S. V. Veerappan Chettiar & Co. passed by the Income-tax Officer under s. 28(l)(c) of the Indian Income-tax Act. 1962 1962 Four persons carried on business in cloth at Virudhunagar in the name and style of S. V. Veerappan Chettiar & Co.-hereinafter ca.!led the firm. The firm was registered under Art. 26A of the Indian Income.tax Act, 1922, for the assess-ment years 19!7-48, 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 1962 1}, c-.;,,;..,,, of l•eomNax,Madtas v. S. V, A111idi CMu1ot S/WiJ; 642 SUPREilE COURT REPORTS [Hlu:?] SUPP. year 1949-50 :-nd Rs. 5,000(.for the year 1950-51. Against the orders imposing ponalty, one of the partners of the firm moved the Commissioner of Income-tax, Madras in revision but without succeBB. Thereafter, petitions under Art. 226 of the Constitu-tion for issur of writs of certiorari or other appro· priate writs oalling for records relating to the orders dated May 20, 1954, passed by the Income-tax Officer, Virudhunagar, in respect of tho three assess-ment orders and tho record relating to the order of the Commissioner and for quaahing tho 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 <liBBolved on April 13, 1951, and intimation in that behalf was given to the Income-tax Officer, and that in any event the furn 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 s. 28( I) make an order imposing penalty after dissolution of the firm. The High Court accepted the plea of the petitioners and directed that the orders of the Income-tax Officer dated May 20, 1954, and the further action of the Commissioner thereon declining to revise the order of the Incom'l-tax Officer in each of the peti· tions be set aside. Against the orders paBBed by t.he liigh Court the Commissioner appPals to this Court. This Court in a recent judgment--C. A. Abraham v. Income-tax Officer, Kottayam (')-held that the Income-tax Offioer had power under s. 28 of the Income-tax Act to impoee penalty in the course of aBBessment of a firm even if the firm stood at the date of tho order diBBolved by the death of one of its partners. In so holding, this Court observed that s. 44 of the Income· tax Act sets up machinery for assessing tax liability of a firm which has discontinued its business and that the expres· sion "assessment" in the different sections of (I) [1961) 2 S.C.R. 765. Chapter IV of the Income-tax Act was not used merely in the sense of computation of income, and whens. 44 declared that the partners or members of the firm shall be jointly and severally liable to assessment, it referred to the liability to computa-tion of income under s.23 as well as the application of the procedure• for declaration and imposition of tax liability and the machinery for enforcement thereof. 1962 1962 Counsel for the appellants, however, con-tended that C. A. Abraham's rose was one of an un-registered firm and the principle of that case has no application where the firm is a registered firm. But s. 44 makes the provisions of Chapter IV, so far as may be, applicable to assessment when any business, profession or vocation carried on by a firm h-ts been discontinued : the section declares liability of all discontinued firms and not merely of unregis-tered firms. There is nothing in s. 44 or the context in which it occur to indicate that it does not apply to registered firms. This Court in C. A. Abraham's rose approved the decision of. the Andhra Pradesh High Court in Mareddy Krishna Re,ddy 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 s. 28 can be imposed against a regis-tered firm either before or after dissolution, even if the defaults set out in els. (a), (b) or (c) are proved. This, counsel submits, is the result of the scheme of the Act under s. 23(5) for asaessment 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 c~mrt 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 appollant is liable to be rejected. Even if the appellant is permitted to raise the contention there G I) [1957] 31 l. T. R. 678. 1962 The Commissioner of lnrom11-t~.Y, M adr•s '"· s. V. Angidi- CMUiar SluzhJ. 644 SUPREME COURT REPORTS [l!l62] SlJPP. is, in our judgment, no force in it. Section 28(1) of the Act (in so far as it is mat..rial to these appeals) providP-s : 1962 Tiu C!1mmiriio~ of lnc11mt-'4x, .ll adras '. S. V. A t1&idi Clutti4r Shah]. "If the Income-tax Officer x x x x x x in the course of any proceedings und<·r this Act is satisfied that any person- (a} has without reasonablo <',ause failed to furnish the return of his total income which he was required to furnish by notice given under sub-B<'ction ( 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) bas concealed the particulars of his income .or deliberately furnished inaccurate particulars of ~uch income, he or it may direct tba.t such persons shall by way of penalty, in the case referred to in els.use (a), in addition to the amount of the income-tax and super-tax, if any, payable by him, & sum not exooeding one and a ha.If tim<'s that amount, and in the caBCB referred to in clauses (b) and (c), in addition to any tax payable by .him, a sum not exceeding one and a half times the amount of the income-tax and super-tax, if any, which would have been avoided if the income as returned by such person had been acoopted as the correct income". The expreBBio11 "person" is defined in s. 2(a) of the Act as· including "a Hindu undivided family and a local authority". That evidently is not an exhaustive definition and recourae 1962 1962 is permissible to the. General Clauses Act whioh says in s. 3( 42) that a "person" includes "any company or association or body of individuals whether incorporated or not." A firm is manifestly a body of individuals and would therefore fall within the definition of "person", and may be exposfld to an order for payment · of penalty in the circumstances set out in cl!. (a}, (b) and (c} of s. 28 of the Income-tax Act. That a firm, registered or unregistered, may be liable to pay penalty has been further clarified by proviso (d) which declares the quantum of penalty payable by fiims, registe-red as well as unregistered. Counsel for the appellant however contends . that even if a fi~m be regarded as a person within the meaning of the operative part of s. 28 and the proviso thereof, because of an obvious defect in drafting no liability for payment of penalty can be imposed upon a registered firm and in support of that contention he relies upon the last clause of the Ist sub-section which provides for imposition of penalty "in addition to any tait payable by him". Counsel submits that only the person liable to pay tax, may if found guilty of wrongful conduct specified in. els. (a), (b) and (c) be ordered to pay penalty, and. by the scheme adopted by the Legislature for imposing tait liability upon registe-red firms under s. 23(5) tax is never payable by a registered firm. Counsel says that when the Legislature by Act 40of1940 enacted cl. (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 ofthe firm, and so long as 4n obligation was not imposed upon the firm to pay tax by an adequate amendment of s. 23 (5), the li&bility though quantified W&!l unenf9rce&ble. It is urged that there were two defects in s. 28(1), as origina.lly drafted : ( 1) that t)te (ltinalty could be 1962 Thi Commissiorur of InerJme-tax, .tl adriJs v, 8. V. Angidi Chettiar Shah]. 7111 CommUJiofw of ltu#t•IU, Madras v. s. v. Jl.,iii · Cittti.r 5hhJ. 6!6 SUPREME COURT REPORTS [1062] SUPP. imposed only upon a person who was liable to pa.y income-tax or super-tax, and (2) that the penalty which may be imposed wa.s a. multiple of the income-tax and super-tax if any, which would have been a.voided if the income as returned by such person would bavo been accepted as the correct income, and by tho enactment of ol. (d) to the proviso, the second defect was removed, but not first. In support of this argument, counsel relied upon s. 23(5) as it stood, before it waa amended by s. 14 ofthe Finance, Act of 1956. The clause provided that where an assossee is a. firm and the total income of the firm ha.a been &BBessed under sub-s. (1), sub·s. (3) or sub-s. (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 income, profits or gaina of the previous year ahall be asseBSed and the sum payable by him on the basis 0f such assossment shall be determined. Under this scheme the income of the registered firm was to be computed but ta.x was not a&l!CBl!ed on the total income of the registered firm : the income was distributed aocording to the terms of the agreement amongst the partnel'I of the registered firm, and added to the separate income of the partners and ta.x was levied on the partners individually. Relying upon this scheme of levying tax, it was urged by counsel for the respondent that as the registered firm was not liable to pay tax it could not be rendered liable to pay penalty under s. 28 ( 1) ( c). Section 28, a.a it was originally enacted, was 1962