1980 (1) TMI 16 - HC - Income Tax

Summary

Issues Involved:
1. Validity of the notice issued under section 271 read with section 274 of the Income-tax Act, 1961.
2. Applicability of section 297(2)(d)(i) of the Income-tax Act, 1961, to penalty proceedings.
3. Validity of notices addressed to a dissolved firm under section 63 of the Indian Income-tax Act, 1922.

Detailed Analysis:

1. Validity of the Notice Issued Under Section 271 Read with Section 274 of the Income-tax Act, 1961:
The court examined whether the notice issued under section 271 read with section 274 of the Income-tax Act, 1961, was valid and whether the order imposing penalty was unassailable. The Tribunal had previously held that the penalty proceedings could not be validly initiated under the new Act for assessment years prior to April 1, 1962. However, the court disagreed, stating that the crucial date for determining the applicability of penalty provisions is the date of completion of the assessment proceedings, not the date of the default. The court held that since the assessment proceedings were completed after April 1, 1962, the provisions of section 297(2)(g) of the new Act were applicable, making the notices valid and the penalty orders unassailable.

2. Applicability of Section 297(2)(d)(i) of the Income-tax Act, 1961, to Penalty Proceedings:
The court addressed whether section 297(2)(d)(i) applied to penalty proceedings. The Tribunal had followed the Mysore High Court's decision in Magavi's case, which held that penalty proceedings were part of assessment proceedings and should be governed by the old Act if initiated under section 34 of the old Act. However, the court clarified that section 297(2)(d)(i) does not apply to penalty proceedings. Instead, sections 297(2)(f) and 297(2)(g) specifically govern penalty proceedings. The court concluded that penalty proceedings for assessments completed after April 1, 1962, should be initiated under the new Act, regardless of when the default occurred. Consequently, the court held that the Tribunal's reliance on Magavi's case was misplaced, and the penalty proceedings were rightly initiated under the new Act.

3. Validity of Notices Addressed to a Dissolved Firm Under Section 63 of the Indian Income-tax Act, 1922:
The court also considered whether notices addressed to a dissolved firm were valid. The Tribunal had referred this question at the instance of the assessee. The court cited the Supreme Court's decision in Shivram Poddar v. ITO, which held that a firm remains liable for tax on income earned before its dissolution. The court also referenced CIT v. Devidayal and Sons, where it was held that a firm could be treated as continuing for assessment purposes even after dissolution. In the present case, the firm was reconstituted after the death of one of its partners, and the business continued. Therefore, the court held that the notices addressed to the firm were valid, and the firm remained liable for tax and penalty on its pre-dissolution income.

Conclusion:
The court answered the questions referred by the Tribunal as follows:
1. The notice issued under section 271 read with section 274 of the Income-tax Act, 1961, was valid, and the order imposing penalty was unassailable.
2. The Tribunal was incorrect in holding that the notice was invalid under section 297(2)(d)(i) of the Act.
3. The notices addressed to the dissolved firm were valid under section 63 of the Indian Income-tax Act, 1922.

Both references were disposed of in favor of the revenue.