1973 (8) TMI 28 - HC - Income Tax

When penalty is levied on the registered firm treating it as unregistered, whether penalty for same offence can be levied on the partners held that penalty for concealment of income cannot be levied, once in the hands of the firm and again in the hands of its partners.

Summary

Issues:
- Interpretation of penalty provisions under section 271(1)(c) of the Income-tax Act, 1961 regarding imposition of penalty on partners of a firm already penalized as unregistered firm.
- Application of tax and penalty principles in the context of a registered firm treated as an unregistered firm for penalty purposes.

Analysis:
The judgment pertains to a reference under section 256(1) of the Income-tax Act, 1961, involving a consolidated statement for assessment years 1960-61 to 1965-66 where a common question of law arose. The case involved an assessee who was a partner in a partnership firm where a search revealed income concealment leading to supplementary assessments and penalty proceedings under section 271(1)(c) of the Act. Penalties were imposed for each assessment year, including against the partners. The Tribunal considered whether imposing a penalty on partners for the same concealed income penalized at the firm level was legal.

Section 271(1)(c) allows penalty for income concealment, with "person" including a firm under section 2(31). Notably, section 271(2) specifies penalty for registered and unregistered firms, treating them differently for penalty imposition. In this case, the registered firm was treated as unregistered for penalty purposes, where tax is levied on the entire firm income akin to an unregistered firm, differing from a registered firm where partners bear tax based on their shares.

The judgment highlighted that a firm, though an assessable unit, is not a legal entity, making tax on a firm essentially a tax on partners. The principle of avoiding double taxation of the same income for partners of unregistered firms is enshrined in section 86(iii) concerning tax payment. The court reasoned that this principle should extend to penalties as well, preventing double punishment for the same income. Referring to precedent, the court equated penalty to additional tax and emphasized that a person cannot be punished twice for the same offense, applying the same logic to penalty imposition on partners of a penalized unregistered firm.

Ultimately, the court held in favor of the assessee, ruling that imposing penalties on partners for income already penalized at the firm level would amount to double punishment, contrary to the law. The judgment emphasized the application of tax and penalty principles, ensuring consistency in treatment to avoid unjust consequences. The decision favored the assessee, granting costs and affirming that penalty cannot be levied twice on the same income, aligning with principles of tax and penalty laws.