1973 (3) TMI 52 - HC - Income Tax

Summary

Issues Involved:
1. Competency of the Income-tax Officer to impose a penalty on a Hindu undivided family (HUF) that had ceased to exist due to partition.
2. Applicability of Section 18A(3) of the Indian Income-tax Act, 1922, to the assessee.

Issue-wise Detailed Analysis:

1. Competency of the Income-tax Officer to Impose Penalty on a Non-existent Entity:
The primary issue was whether the Income-tax Officer could impose a penalty on the Hindu undivided family (HUF) after it had ceased to exist due to partition. The court examined the provisions of Section 25A of the old Act and Section 171 of the new Act to address this issue.

Section 25A of the Old Act:
Section 25A was designed to address the difficulty of assessing and recovering tax from a HUF that had partitioned after earning income but before the assessment. According to Section 25A(3), if no order recognizing partition was passed, the HUF would be deemed to continue for the purposes of the old Act. This legal fiction allowed the imposition of penalties as if the HUF still existed.

Section 171 of the New Act:
Section 171 of the new Act provided a similar mechanism for recognizing partition for the purposes of the new Act. However, the court clarified that an order under Section 171(3) of the new Act could not be used to displace the legal fiction created by Section 25A(3) of the old Act. The court emphasized that the provisions of Section 297(2)(f) required the income-tax authorities to ignore the new Act while imposing penalties under the old Act.

Conclusion:
Since no order recognizing partition was passed under Section 25A(1) of the old Act, the legal fiction in Section 25A(3) continued to operate. Therefore, the HUF was deemed to continue for the purposes of the old Act, allowing the Income-tax Officer to impose the penalty.

2. Applicability of Section 18A(3) of the Indian Income-tax Act, 1922:
The second issue was whether the assessee was liable to file an estimate of advance tax under Section 18A(3) of the old Act and whether the failure to do so attracted a penalty.

Section 18A(3) of the Old Act:
Section 18A(3) required any person who had not been assessed before to submit an estimate of advance tax if their total income was likely to exceed a certain threshold. The court clarified that "not hitherto been assessed" meant that no assessment had been completed, not merely that a notice had been issued.

Facts of the Case:
The assessee had not been assessed for any year prior to 1956-57. A notice under Section 22(2) was served on the assessee on 21st May, 1956, but no assessment was completed before 15th March, 1957. Therefore, the assessee fell within the description of a person "who has not hitherto been assessed" and was liable to file an estimate of advance tax before 15th March, 1957.

Tribunal's Findings:
The Tribunal held that since no assessment under Section 23 or provisional assessment under Section 23B was made before 15th March, 1957, the assessee was liable to file an estimate of advance tax. The failure to do so without reasonable cause attracted a penalty under Section 28(1)(a) read with Section 18A(9)(b).

Conclusion:
The court agreed with the Tribunal's findings that the assessee was liable to file an estimate of advance tax and had failed to do so without reasonable cause, thereby attracting the penalty.

Final Judgment:
The court answered the question in the affirmative, holding that it was competent for the Income-tax Officer to impose a penalty on the assessee under Section 18A(9)(b) of the Indian Income-tax Act, 1922. The assessee was ordered to pay the costs of the reference to the Commissioner.