2002 (11) TMI 43 - HC - Income Tax

Whether, Tribunal is justified in cancelling the penalty under section 271(1)(a) of the Income-tax Act on the assessee? - the assessee had no other independent income apart from the share income from the firm. Therefore, we hold that since he had no income other than the share income from the firm, the levy of penalty on the assessee is not justified as without relevant particulars of the share income from the firm, the assessee would not have been in a position to file the return. Further, there is no finding that the assessee was responsible for the delayed finalisation of the accounts of the firm nor is there a finding that he was responsible for the delay in filing the return of the firm. - We answer the question as reframed by us in the affirmative, in favour of the assessee and against the Revenue.

Summary

Issues:
- Justification of canceling penalty order under section 271(1)(a) by the Income-tax Appellate Tribunal for partners of penalized firms.
- Applicability of penalty on partners after firms have been penalized for late filing of returns.
- Interpretation of legal principles regarding the imposition of penalties on partners of firms already penalized.

Analysis:
The High Court of Madras considered a case where penalty proceedings under section 271(1)(a) of the Income-tax Act, 1961 were initiated against partners of firms for delayed filing of returns. The partners were also part of firms penalized for the same reason for assessment years 1984-85 to 1986-87. The Assessing Officer imposed penalties on the partners, which were confirmed by the Appellate Commissioner of Income-tax. However, the Income-tax Appellate Tribunal took a different view, stating that penalizing partners again for the same offense as the penalized firms would be unjust. The Tribunal held that partners cannot be penalized under section 271(1)(a) if the firms have already been penalized for the same reason. The Revenue challenged this decision, leading to the tax case before the High Court.

During the proceedings, the counsel for the assessee referred to decisions by other High Courts, including the Allahabad High Court and the Punjab and Haryana High Court, which held that penalties cannot be levied both on the firm and on the partners. The Delhi High Court also considered this issue and laid down factors to determine the imposability of penalties on partners based on various circumstances. However, the Madras High Court focused on the specific case at hand. The court noted that the assessee had only share income from the firms and no other independent income. As the capital gain assessed was also the share of the capital gain from the firm, the court concluded that the levy of penalty on the assessee was not justified. There was no evidence to suggest that the assessee was responsible for the delays in filing returns or finalizing accounts of the firm. Therefore, the court upheld the Tribunal's decision to cancel the penalty imposed on the assessee.

In conclusion, the High Court reframed the question to focus on the justification of canceling the penalty under section 271(1)(a) on the assessee based on the specific circumstances of the case. The court answered the reframed question in the affirmative, ruling in favor of the assessee and against the Revenue. The court did not delve into the broader legal principles but based its decision on the lack of independent income for the assessee and the absence of evidence attributing delays to the assessee. No costs were awarded in this judgment.