1957 JTR(AP) 8
1957 AIR(AP) 113 ; 1957 1 ALT 274 ; 1957 1 AndhWR 163 ; 1957 ILR(AP) 59 ; 1957 31 ITR 867 ; 1957 KHC 4255
HIGH COURT OF ANDHRA PRADESH
SUBBA RAO,MOHAMMAD AHMAD ANSARI, JJ.
Mahankali Subbarao
Versus
Commissioner of Income-tax, Hyderabad
Case Referred No. 25 of 1953
Decided On : 17-01-1957
The members of a disrupted Hindu undivided family are not liable to pay penalty under S. 28 of the Income-tax Act.
Act Referred :INCOME TAX ACT : S.2(9), S.25(a), S.28
INCOME TAX - PENALTY - HINDU UNDIVIDED FAMILY - DISRUPTION - LIABILITY OF MEMBERS - S. 25-A, 28 - INCOME-TAX ACT.
Fact of the Case:
The assessee, a Hindu undivided family, filed a return for the year 1943-44 declaring a total income of Rs. 32,073. The Income-tax Officer added a sum of Rs. 40,000/- on the ground that the assessee had dealings in black-market and suppressed his income therefrom. He also imposed a penalty of Rs. 21,960/- under S. 28 of the Income-tax Act.
Finding of the Court:
The court held that the members of a disrupted Hindu undivided family are not liable to pay penalty under S. 28 of the Income-tax Act.
Issues: Whether the members of a disrupted Hindu undivided family are liable to pay penalty under S. 28 of the Income-tax Act.
Ratio Decidendi: S. 25-A of the Income-tax Act provides machinery for assessing the disrupted members of a joint Hindu family to income-tax and for collecting the share of the tax payable by each member of that family. However, there is no provision authorising the authorities Concerned to impose a penalty on the members of a divided family. S. 28, which enables the income-tax authorities to impose penalty under the circumstances mentioned therein, says that if the In-come-tax Officer, the Appellate Assistant Commissioner or the Appellate Tribunal in the course of any proceedings under this Act is satisfied that any person has committed the defaults mentioned in cl. (a), (b) or (c), he may direct him to pay penalty in addition to any tax and super tax. Person is defined to include a Hindu undivided family. Therefore, under this section an undivided Hindu family, who is a person, can be directed to pay the penalty. But by reason of the disruption in the family at the time of the proceedings were initiated, the Hindu family ceased to be a "Person" within the meaning of the said section.
Final Decision: The reference was answered in the negative. The assessee was entitled to his costs, which were fixed at Rs. 250/-.
INCOME TAX - PENALTY - HINDU UNDIVIDED FAMILY - DISRUPTION - LIABILITY OF MEMBERS - S. 25-A, 28 - INCOME-TAX ACT.
Fact of the Case:
The assessee, a Hindu undivided family, filed a return for the year 1943-44 declaring a total income of Rs. 32,073. The Income-tax Officer added a sum of Rs. 40,000/- on the ground that the assessee had dealings in black-market and suppressed his income therefrom. He also imposed a penalty of Rs. 21,960/- under S. 28 of the Income-tax Act.
Finding of the Court:
The court held that the members of a disrupted Hindu undivided family are not liable to pay penalty under S. 28 of the Income-tax Act.
Issues: Whether the members of a disrupted Hindu undivided family are liable to pay penalty under S. 28 of the Income-tax Act.
Ratio Decidendi: S. 25-A of the Income-tax Act provides machinery for assessing the disrupted members of a joint Hindu family to income-tax and for collecting the share of the tax payable by each member of that family. However, there is no provision authorising the authorities Concerned to impose a penalty on the members of a divided family. S. 28, which enables the income-tax authorities to impose penalty under the circumstances mentioned therein, says that if the In-come-tax Officer, the Appellate Assistant Commissioner or the Appellate Tribunal in the course of any proceedings under this Act is satisfied that any person has committed the defaults mentioned in cl. (a), (b) or (c), he may direct him to pay penalty in addition to any tax and super tax. Person is defined to include a Hindu undivided family. Therefore, under this section an undivided Hindu family, who is a person, can be directed to pay the penalty. But by reason of the disruption in the family at the time of the proceedings were initiated, the Hindu family ceased to be a "Person" within the meaning of the said section.
Final Decision: The reference was answered in the negative. The assessee was entitled to his costs, which were fixed at Rs. 250/-.
A. Sivarao, for Applicants; V. Vedantachari, for Respondent.
Judgement
SUBBA RAO, C. J. :- The Income-tax Appellate Tribunal, Madras has submitted the following question under S. 66 (1) of the Indian Income-tax Act.
"Whether the levy of penalty of Rs. 15,000/-on the assesses is valid in law." The assessee, Mahankali Subbarao and Nageswararao, Eluru, was a Hindu undivided family, which carried on business at Eluru and Vijayavada as agents of the Standard Vacuum Oil Co., for sale of petrol, kerosene oil etc. The family comprised of two brothers, Subbarao and Nageswararao. It is now found that they became divided on 05-04-1943. In respect of the year 1943-44, the assessee filed a return on 15-07-1947 declaring a total income of Rs. 32,073.
The Income-tax Officer did not accept the figure but added a sum of Rs. 40,000/- on the ground that the assessee had dealings in black-market and suppressed his income therefrom. He also took proceedings under S. 28 of the Income-tax Act and imposed penalty of Rs. 21,960/- by his order dated 29-01-1947. The question is whether the members of a disrupted family are liable to pay penalty under S. 28 of the Act.
2. Section 25-A of the Income-tax Act reads :
(1) Where, at the time of making an assessment under S. 23, it is claimed by or on behalf of any member of a Hindu family hitherto assessed as undivided that a partition has taken place among the members of such family, the Income-tax Officer shall make such inquiry thereinto as he may think fit, and, if he is satisfied that the Joint family property has been partitioned among the various members or groups of members in definite proportions, he shall record an order to that effect;
Provided that no such order shall be recorded until notices of the inquiry have been served on all the members of the family.
2. Where such an order has been passed ..... the Income-tax Officer shall make an assessment of the total income received by or on behalf of the Joint family as such as if. no partition had taken place, and each member or group of members shall, in addition to any income-tax for which he or it may be separately liable and notwithstanding anything contained in sub-s. (1) of S. 14, be liable for a share of the tax on the income so assessed according 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 and groups of members in accordance with the provisions of S. 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".
3. This section was introduced to provide machinery for assessing the disrupted members of a joint Hindu family to income-tax and for collecting the share of the tax payable by each member of that family. Under the proviso, the members of the erstwhile family are liable to pay the tax assessed jointly and severally. But there is no provision authorising the authorities Concerned to impose a penalty on the members of a divided family.
Section 28, which enables the income-tax authorities to impose penalty under the circumstances mentioned therein, says that if the In-come-tax Officer, the Appellate Assistant Commissioner or the Appellate Tribunal in the course of any proceedings under this Act is satisfied that any person has committed the defaults mentioned in cl. (a), (b) or (c), he may direct him to pay penalty in addition to any tax and super tax. Person is defined to include a Hindu undivided family. Therefore, under this section an undivided Hindu family, who is a person, can be directed to pay the penalty. But by reason of the disruption in the family at the time of the proceedings were initiated, the Hindu family ceased to be a "Person" within the meaning of the said section. The said provisions were the subject of judicial scrutiny both by the Patna High Court and the Madras High Court.
4. A Division Bench of the Patna High Court in the Commissioner of Income-tax, Bihar and Orissa v. Sanichar Sah Bhim Sah, 27 ITR 807 : ((S) AIR 1955 Pat 103) (A) held that there was a lacuna in the Act and that S. 25-A enacted to bring in the disrupted family within the net of taxation failed to provide for imposing and collecting penalty from the members of a divided family. Ramaswami J., after quoting the relevant section, made the following observations at p. 314 (of ITR) : (at p. 105 of AIR) :
"It is manifest that S. 25-A 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 has become disrupted. This is clear from the opening words of S. 25-A (1)". Later on, the learned Judge pointed out :
"It is clear that there is a gap in the provisions of the Act; but it is not the function of the Court to fill up the gap". We respectfully agree with the aforesaid observations.
5. Rajagopalan and Rajagopala Ayyangar, JJ. of the Madras High Court had to consider a similar question in Raju Chettiar v Collector of Madras, 29 ITR 241 : (AIR 1956 Mad 396) (B). The observations of the learned Judges in the context of the applicability of S. 28 (1) of the Act to the members of a disrupted family may usefully be extracted. At p. 244 (of ITR) : (at p. 397 of AIR) the learned Judges observed :
"A Hindu undivided family is within the scope of the expression person; see S. 2(9) of the Act. It was that person the Hindu undivided family that was the assessee. Section 28 (3) requires that the assessee should be heard before an order is passed under S. 28 (1). That assessee had ceased to exist when the order under S. 28 (1) was passed in this case. That Balagurumurthis was heard before the order was passed would not, in the circumstances of the case, satisfy the requirements of S.28 (2).
We are referring to this aspect only to emphasise that there is no machinery provided by the Act to impose the penalty under S. 28 (1) after the assessee has ceased to exist. Section 28 (2) on the other hand provided for the imposition of a penalty, but still the person to be penalised is not the registered firm; but the individual partner."
We agree with the aforesaid observations.
6. The result is that, as the assessee, the Hindu family, became divided before the procedure under S. 28 was invoked the members of the erstwhile family are not liable to be penalised under that section. We, therefore, answer the reference in the negative. The assessee will be entitled to his costs, which we fix at Rs. 250/.
Reference answered.