1970 (10) TMI 17 - HC - Income Tax

Leviability of penalty on HUF on 4th November,1957 which got disrupted on 31st October, 1957

Summary

Issues Involved
1. Legality of penalty imposition under section 28(1)(c) of the Income-tax Act, 1922, on a Hindu undivided family (HUF) post-partition.
2. Applicability of section 25A of the Income-tax Act, 1922, to penalty proceedings.
3. Interpretation of "person" under section 28 and its existence at the time of penalty imposition.
4. Impact of partition recognition date on penalty imposition.

Issue-wise Detailed Analysis

1. Legality of Penalty Imposition Under Section 28(1)(c)
The core issue was whether the penalty imposed on November 4, 1957, on a Hindu undivided family (HUF) that had partitioned on October 31, 1957, was legal. The court held that the penalty could not be imposed on a family that had ceased to exist by the date of imposition. The judgment emphasized that for a penalty to be valid under section 28(1)(c), the "person" (which includes an HUF) must be in existence at the time of penalty imposition.

2. Applicability of Section 25A to Penalty Proceedings
The court analyzed whether section 25A, which deals with the assessment after the partition of an HUF, also applied to penalty proceedings. The court concluded that section 25A does not provide for the imposition of penalties. It is concerned solely with the assessment of a partitioned HUF. The court stated, "Section 25A has nothing to do with the imposition of penalty. It concerns with the assessment of a Hindu undivided family wherein a partition has taken place."

3. Interpretation of "Person" Under Section 28
The court interpreted the term "person" under section 28, which includes an HUF. The judgment clarified that for a penalty to be imposed, the "person" must be in existence at the time of the penalty imposition. The court stated, "If there is a disruption or a partition in such a family, its existence as a legal entity and as a 'person' comes to an end." Therefore, if the HUF had ceased to exist by the date of penalty imposition, no penalty could be levied.

4. Impact of Partition Recognition Date on Penalty Imposition
The court examined the significance of the partition recognition date under section 25A. It was held that the date of actual partition, as recorded by the order under section 25A(1), is crucial. The court stated, "It must, therefore, be proceeded on the basis that the actual partition in the family came about on October 31, 1957." Hence, the penalty imposed on November 4, 1957, was on a non-existent entity, rendering it illegal.

Conclusion
The court concluded that:
1. Penalty proceedings must be taken under section 28, not section 25A.
2. The "person" must exist at the time of penalty imposition.
3. The date of actual partition, as recorded under section 25A(1), determines the cessation of the HUF.
4. The penalty imposed on a disrupted HUF is invalid.

The reference was answered in favor of the assessee, holding that the Income-tax Officer could not levy the penalty by his order dated November 4, 1957, on an HUF that had partitioned on October 31, 1957.