1967 (12) TMI 20 - HC - Income Tax

Issues Involved:
1. Lawfulness of the levy of penalty under Section 28(1)(a) read with Section 18A(9)(b).
2. Applicability of Section 18A(3) to the assessees.
3. Impact of prior assessments and notices on the applicability of Section 18A(3).
4. Consideration of reasonable cause for non-compliance under Section 18A(3).

Issue-Wise Detailed Analysis:

1. Lawfulness of the Levy of Penalty under Section 28(1)(a) read with Section 18A(9)(b):

The common question referred to the court was whether the levy of penalty under Section 28(1)(a) read with Section 18A(9)(b) is lawful. The court examined the facts of the case, where the applicants, brothers and members of a quondam Hindu undivided family, failed to pay advance tax under Section 18A for the assessment years 1950-51 to 1953-54. The applicants contended that since there was already an assessment on the Hindu undivided family under Section 25A(2) for the year 1941-42, they should be deemed as assessees in law, and Section 18A(3) should not apply to them. The court found that the liability arising from the income earned by the joint family prior to its disruption does not equate to an individual assessment of the applicants' income. Therefore, the levy of penalty under Section 28(1)(a) read with Section 18A(9)(b) was found to be lawful, except for the year 1953-54 in T.C. No. 11 of 1964.

2. Applicability of Section 18A(3) to the Assessees:

The court analyzed the scope of Sections 25A and 18A of the Indian Income-tax Act, 1922. Section 25A deals with the tax liability of a Hindu joint family upon partition, while Section 18A pertains to the payment of advance tax by an assessee. The court concluded that the assessment under Section 25A(2) does not equate to an assessment of the individual members' income. Therefore, the applicants cannot be deemed to be persons who have already been assessed within the meaning of Section 18A(3). The court emphasized that the plain grammatical meaning of the statute should be attributed, and any modification can only be adopted in cases of doubt.

3. Impact of Prior Assessments and Notices on the Applicability of Section 18A(3):

The applicants argued that prior assessments and notices should exempt them from the provisions of Section 18A(3). In T.C. No. 11 of 1964, the applicant contended that a notice under Section 34 for the year 1942-43, followed by an endorsement of "no action" by the Income-tax Officer, amounted to a regular assessment, thus exempting him from Section 18A(3) for the year 1953-54. The court agreed with this contention, referencing the case of V. S. Sivalingam Chettiar v. Commissioner of Income-tax, which held that a "no action" note is an order covered by Section 23(3) of the Act. Therefore, the levy of penalty under Section 28(1)(a) read with Section 18A(b) was not legal for the assessment year 1953-54 in T.C. No. 11 of 1964.

4. Consideration of Reasonable Cause for Non-Compliance under Section 18A(3):

The court noted that the applicants had made representations before the Tribunal, claiming reasonable cause for not complying with Section 18A(3). The applicants argued that ongoing proceedings and notices from prior years provided a reasonable cause for their inaction. The court found that the Tribunal had not adequately considered these representations. The court emphasized that the absence of reasonable cause is a sine qua non for attracting the penal provisions of Section 18A(9) read with Section 28. Therefore, the court directed the Tribunal to reconsider the applicants' contentions regarding reasonable cause before finalizing the proceedings.

Conclusion:

The court concluded that the levy of penalty under Section 28(1)(a) read with Section 18A(9)(b) is lawful, except for the assessment year 1953-54 in T.C. No. 11 of 1964. The court directed the Tribunal to reconsider the applicants' contentions regarding reasonable cause for non-compliance under Section 18A(3) before finalizing the proceedings. There was no order as to costs in both cases.

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