1953 (7) TMI 15 - HC - Income Tax

Summary

Issues Involved:
1. Applicability of Section 28 of the Income-tax Act to registered firms.
2. Interpretation of the term "person" under Section 2(9) of the Income-tax Act.
3. Legality of imposing penalties on registered firms under Section 28(1)(b) of the Income-tax Act.
4. The relevance of the amendment introduced by the 1949 Amendment Act, particularly clause (d) of the proviso to Section 28.
5. The interpretation of the concluding paragraph of Section 28(1) concerning the liability for penalties.

Issue-wise Detailed Analysis:

1. Applicability of Section 28 of the Income-tax Act to Registered Firms:
The primary contention was whether Section 28 of the Income-tax Act applied to registered firms. The assessee argued that a registered firm could not be penalized under Section 28(1)(b) because it was not liable to pay income-tax or super-tax. The Tribunal, however, rejected this argument, stating that the term "person" in the Act included registered firms, and specific references in the Act, such as clause (d) of the proviso to Section 28, indicated that registered firms were liable to penalties.

2. Interpretation of the Term "Person" under Section 2(9) of the Income-tax Act:
The assessee argued that the term "person" as defined in Section 2(9) of the Act referred only to physical persons and not to notional entities like firms. The Tribunal and the Court disagreed, holding that the definition of "person" was not limited to physical persons and included entities like registered firms. This interpretation was supported by the specific mention of registered firms in clause (d) of the proviso to Section 28.

3. Legality of Imposing Penalties on Registered Firms under Section 28(1)(b) of the Income-tax Act:
The Court examined whether penalties could legally be imposed on registered firms. The assessee contended that since a registered firm was not liable to pay income-tax or super-tax, it could not be penalized. The Court, however, interpreted the concluding paragraph of Section 28(1) and held that the words "if any" qualified the liability to tax itself, not just super-tax. Therefore, a registered firm could be penalized even if it was not liable to pay income-tax or super-tax.

4. The Relevance of the Amendment Introduced by the 1949 Amendment Act, Particularly Clause (d) of the Proviso to Section 28:
The assessee argued that the 1949 Amendment Act's insertion of clause (d) in the proviso to Section 28 did not effectively make registered firms liable for penalties. The Court disagreed, stating that clause (d) was intended to quantify the penalty for registered firms by equating them with unregistered firms for penalty purposes. The amendment addressed the gap in determining the penalty amount for registered firms, ensuring they were liable for penalties.

5. The Interpretation of the Concluding Paragraph of Section 28(1) Concerning the Liability for Penalties:
The Court analyzed the concluding paragraph of Section 28(1) and concluded that the words "if any" qualified the liability to tax itself, allowing penalties to be imposed even if no tax was payable. The Court emphasized that the provision allowed for penalties in cases where no income-tax or super-tax was payable, as highlighted by clause (b) of the proviso, which limited penalties to twenty-five rupees for persons with no taxable income. This interpretation meant that registered firms could be penalized under Section 28(1)(b) despite not being liable for income-tax or super-tax.

Conclusion:
The Court affirmed that the imposition of a penalty on a registered firm under Section 28(1)(b) of the Income-tax Act was justified in law. The Commissioner of Income-tax's preliminary objection was overruled, and the reference was answered in the affirmative, confirming that registered firms could be penalized under the relevant provisions of the Income-tax Act. The Commissioner was awarded costs for the reference, and the judgment was certified for two Counsel.