1972 (7) TMI 5 - HC - Income Tax

Proceedings for levy of penalty u/s 28(1)(c) of Indian Income-tax Act,1922 in respect of a return filed by the previous karta could be initiated even after his death

Issues Involved:
1. Validity of penalty under section 28(1)(c) on the succeeding karta of a Hindu undivided family.
2. Concealment of income and deliberate furnishing of inaccurate particulars.
3. Legal continuity of a Hindu undivided family despite changes in kartaship.
4. Attribution of the karta's consciousness to the Hindu undivided family.
5. Assessment of the Hindu undivided family's liability for the actions of a previous karta.

Issue-wise Detailed Analysis:

1. Validity of Penalty under Section 28(1)(c) on the Succeeding Karta of a Hindu Undivided Family:
The court examined whether the levy of penalty under section 28(1)(c) on the succeeding karta was valid in law. Section 28(1)(c) of the Indian Income-tax Act, 1922, stipulates penalties for concealment of income or deliberate furnishing of inaccurate particulars. The court emphasized that a Hindu undivided family (HUF) is a distinct taxable entity under the Income-tax Act, and any change in kartaship does not affect the legal continuity of the HUF as a juristic entity. The court concluded that proceedings under section 28(1)(c) could be initiated against the HUF even after the death of the previous karta who filed the inaccurate return.

2. Concealment of Income and Deliberate Furnishing of Inaccurate Particulars:
The court identified three essential conditions for liability under section 28(1)(c): (1) concealment of income or deliberate furnishing of inaccurate particulars in the return submitted, (2) such concealment or inaccuracy by the assessee, and (3) the concealment or inaccuracy must be a conscious or deliberate act. The court found that the first condition was satisfied as the deposits of Rs. 54,202 belonged to the assessee and were not disclosed in the return for the assessment year 1948-49. The second condition was also met as the HUF remained the same assessable entity despite the change in kartaship.

3. Legal Continuity of a Hindu Undivided Family Despite Changes in Kartaship:
The court rejected the contention that a change in karta results in a different assessable entity. It held that under the Income-tax Act, an HUF is a juristic entity distinct from its individual members, and any change in kartaship does not disrupt its legal continuity. The court cited the Supreme Court's decision in Narendranath v. Commissioner of Wealth-tax, which affirmed that property in the hands of a single coparcener remains HUF property and does not become individual property.

4. Attribution of the Karta's Consciousness to the Hindu Undivided Family:
The court addressed the argument that the consciousness of the karta in concealing income or furnishing inaccurate particulars cannot be attributed to the HUF. It held that an HUF acts through its karta, who represents the family in all transactions. Therefore, the karta's actions, including conscious concealment of income, are attributable to the HUF. The court referenced the House of Lords' decision in Lennards Carrying Co. v. Asiatic Petroleum Co., which established that a corporation's actions are those of its directing mind and will.

5. Assessment of the Hindu Undivided Family's Liability for the Actions of a Previous Karta:
The court upheld that the HUF, as an assessable entity, could be held liable for the actions of the previous karta. It cited the decision in Nataraja Gounder v. Commissioner of Income-tax, where it was held that the succeeding karta represents the HUF and can be penalized for the previous karta's deliberate concealment of income. The court also distinguished the present case from the Supreme Court's decision in Kapurchand Shrimal v. Tax Recovery Officer, which dealt with corporeal punishment and did not apply to the present context of penal proceedings under section 28(1)(c).

Conclusion:
The court concluded that the levy of penalty under section 28(1)(c) on the assessee as the succeeding karta of the HUF was valid in law. The reference was answered in the affirmative, and costs were awarded to the department.

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