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Issues Involved:
1. Jurisdiction of the Income-tax Officer to levy penalties on a dissolved firm. 2. Applicability of Section 44 of the Income-tax Act to penalty proceedings under Section 28(1)(c). Detailed Analysis: Jurisdiction of the Income-tax Officer to Levy Penalties on a Dissolved Firm: The primary issue addressed in this judgment is whether the Income-tax Officer had the jurisdiction to levy penalties under Section 28(1)(c) of the Income-tax Act on a firm that had been dissolved. The firm in question was registered under Section 26A for the assessment years 1947-48, 1948-49, and 1949-50 and was dissolved on April 13, 1951. Penalty notices were issued on March 20, 1950, September 27, 1950, and November 15, 1951, respectively. The penalties were eventually levied on May 20, 1954, by which time the firm had ceased to exist, and one of the partners had died. The court emphasized that the "person" liable to be penalized under Section 28(1)(c) must be in existence at the time the penalty is imposed. Since the firm was dissolved on April 13, 1951, it ceased to exist in the eyes of the law, and thus, the penalties levied on May 20, 1954, were beyond the jurisdiction of the Income-tax Officer. Applicability of Section 44 of the Income-tax Act to Penalty Proceedings Under Section 28(1)(c): The court examined whether Section 44 of the Income-tax Act, which deals with the liability of partners in a dissolved firm, authorized the Income-tax Officer to levy penalties under Section 28(1)(c). Section 44 states that every person who was a partner at the time of discontinuance or dissolution shall be jointly and severally liable to assessment under Chapter IV and for the amount of tax payable. The court referred to the case of Mareddi Krishna Reddi v. Income-tax Officer, where it was held that Section 44 authorized the levy of penalties even after the dissolution of a firm. However, the court disagreed with this interpretation, stating that the levy of a penalty under Section 28(1) cannot be equated to an assessment under Chapter IV within the meaning of Section 44. The court clarified that penalties under Section 28(1) are distinct from tax assessments and are not covered by the joint and several liability provisions of Section 44. The court further elaborated that Section 28(1) proceedings are distinct from assessment proceedings and that the levy of penalties is not a part of the assessment process. The court cited previous judgments, including Commissioner of Income-tax v. Sanichar Sah Bhim Sah and Raju Chettiar v. Collector of Madras, which held that penalties could only be levied on a person in existence at the time of imposition. The court concluded that Section 44 did not authorize the Income-tax Officer to levy penalties on a dissolved firm, as the penalties are not considered a tax, and the provisions of Chapter IV do not apply to penalty proceedings under Section 28(1). The court noted that there is a lacuna in Section 44, similar to that in Section 25A, as neither provides for the imposition of vicarious liability for penalties. Conclusion: The court ruled that the Income-tax Officer did not have the jurisdiction to levy penalties on the dissolved firm and that Section 44 did not authorize such penalties. Therefore, the orders of the Income-tax Officer dated May 20, 1954, and the subsequent order of the Commissioner declining to revise the order were set aside. The second petitioner was entitled to costs in one of the writ petitions, while no order as to costs was made in the other two petitions.
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