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TMI Blog1969 (11) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer completed the assessment on November 23, 1964, computing the total income of the firm at Rs. 4,75,368. In view of the amendment made by the Finance Act of 1956 in section 23(5) of the Act of 1922 the tax payable by the firm as also the amount to be included in the income of each partner was determined. On the same date, i.e., November 23, 1964, the Income-tax Officer issued a notice under section 271 read with section 274 of the Income-tax Act, 1961, calling upon the firm to show cause why an order imposing a penalty should not be passed on account of its failure to furnish the return with time. After considering the explanation submitted by the assessee the Income-tax Officer made an order on November 19, 1966, under clause (a) of section 271(1) of the Act of 1961, imposing a penalty of Rs. 1,03,434 for non-compliance with the notice under section 22(2) of the 1922 Act. The appellants took the matter in appeal before the Appellate Assistant Commissioner challenging the imposition of penalty. Although those proceedings were still pending a writ petition was filed on August 26, 1966, in the High Court challenging, inter alia, the validity and the constitutionality of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unregistered the tax payable by the firm was computed as in the case of any other entity and the firm itself had to pay the tax. If the firm was registered under section 26A it did not pay the tax and there was no assessment of its liability. Each partner's share in the firm's profits was added to his income and after determination of the total income of each partner the levy was made on him individually. After 1956, tax at low rate become assessable on a registered firm though it was not liable to pay super-tax. The partners of the registered firm remained liable for being charged on their individual assessment to both income-tax and super-tax in respect of their share in the profits of the firm. The partner, however, was entitled to certain rebate under section 14(2)(aa). The position of the appellants is that the firm and its partners do not constitute a separate entity. Either the firm or the partners can be taxed but the same income in the hands of both cannot be simultaneously subjected to tax. It is well-known that under the common law of England a firm is not a juristic person. The firm name is only a compendious expression to designate the various partners constituting i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... individual partners in accordance with the provisions of that section. After 1956 the firm did not cease to be an assessee ; on the contrary it was recognised as a separate entity and was subjected to tax as such. Murlidhar Jhawar's case can hardly be of much assistance as it related to an unregistered firm and to an assessment of the accounting year ending November 6, 1933. The provisions which came up for consideration had no parallel to those made in respect of a registered firm by an express amendment of section 23(5) by the Finance Act of 1956. The facile analogy of passage of money given by Rowlatt J. will not carry the matter further where the statute had made an express provision for the income of the firm and the income in the hands of the partners being both liable to tax. It is not disputed that there can be double taxation if the legislature has distinctly enacted it. It is only when there are general words of taxation and they have to be interpreted, they cannot be so interpreted as to tax the subject twice over to the same tax (vide Channell J. in Stevens v. Durban-Roodepoort Gold Mining Co. Ltd.). The Constitution does not contain any prohibition against double tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penalty may be imposed as if this Act had not been passed ; (g) any proceeding for the imposition of a penalty in respect of any assessment for the year ending on the 31st day of March, 1962, or any earlier year, which is completed on or after the 1st day of April, 1962, may be initiated and any such penalty maybe imposed under this Act. " The submission on behalf of the appellants has been that clause (g) of section 297(2) is violative of article 14 inasmuch as it creates a discrimination between two sets of assessees with reference to a particular date, namely, completion of assessment proceedings on or after the first day of April, 1962. In other words, the assessees have been classified into two groups for imposition of penalty ; the first group is of those assessees whose assessments have been completed before 1st April, 1962. In their case, the proceedings for imposition of penalty have to be initiated and the penalty imposed under the Act of 1922 (vide clause (f)). The second group of assessees, whose assessment is completed on or after the first day of April, 1962, have to be proceeded with for the imposition of penalty in respect of any assessment for the year ending ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vided that no prosecution for an offence could be instituted in respect of the same facts on which penalty had been imposed under the section. Sub-section (6) made it obligatory for the Income-tax Officer to obtain the previous approval of the Inspecting Assistant Commissioner before imposing any penalty. In the Act of 1961, the provisions relating to penalties are contained in Chapter XXI. Section 271(1)(a) deals with the failure to furnish a return. If the Income-tax Officer or the Appellate Assistant Commissioner in the course of any proceedings under the Act is satisfied that such a default has been committed without reasonable cause, he may direct that such person shall pay by way of penalty, in addition to the amount of tax payable by him, a sum equal to 2% of the tax for every month during which the default continues, but not exceeding in the aggregate 50% of the tax. Section 274(1) provides that no order imposing a penalty shall be made unless the assessee has been heard or has been given a reasonable opportunity of being heard. Section 275 lays down the period of limitation for imposing a penalty. Such an order cannot be passed after the expiration of two years from the da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t repealed the prior Act of 1922. Whenever a prior enactment is repealed and new provisions are enacted the legislature invariably lays down under which enactment pending proceedings shall be continued and concluded. Section 6 of the General Clauses Act, 1897, deals with the effect of repeal of an enactment and its provisions apply unless a different intention appears in the statute. It is for the legislature to decide from which date a particular law should come into operation. It is not disputed and no reason has been suggested why pending proceedings cannot be treated by the legislature as a class for the purpose of article 14. The date, 1st April, 1962, which has been selected by the legislature for the purpose of clauses (f) and (g) of section 297(2) cannot be characterised as arbitrary or fanciful. It is the date on which the Act of 1961 actually came into force. For the application and the implementation of the Act of 1961 it was necessary to fix a date and the stage of the proceedings which were pending for providing by which enactment they would be governed. According to Hatisingh Mfg. Co. Ltd. v. Union of India, the State is undoubtedly prohibited from denying to any pers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that date of any dispute regarding payment of bonus relating to any accounting year from 1962 onwards. The year 1962 had apparently no connection with the date on which the Act came into operation which was May 29, 1965. It is well-settled that in fiscal enactments the legislature has a larger discretion in the matter of classification so long as there is no departure from the rule that persons included in a class are not singled out for special treatment. It is not possible to say that while applying the penalty provisions contained in the Act of 1961 to cases of persons whose assessments are completed after 1st April, 1962, any class has been singled out for special treatment. It is obvious that for the imposition of penalty it is not the assessment year or the date of the filing of the return which is important but it is the satisfaction of the income-tax authorities that a default has been committed by the assessee which would attract the provisions relating to penalty. Whatever the stage at which the satisfaction is reached, the scheme of sections 274(1) and 275 of the Act of 1961, is that the order imposing penalty must be made after the completion of the assessment. The c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 297(2)(g). We may usefully refer to this court's decision in Third Income-tax Officer, Mangalore v. Damodar Bhat with reference to section 297(2)(j) of the Act of 1961. According to it in a case falling within that section in a proceeding for recovery of tax and penalty imposed under the Act of 1922, it is not required that all the sections of the new Act relating to recovery or collection should be literally applied, but only such of the sections will apply as are appropriate in the particular case and subject, if necessary, to suitable modifications. In other words, the procedure of the new Act will apply to cases contemplated by section 297(2)(j) of the new Act mutatis mutandis. Similarly, the provision of section 271 of the Act of 1961 will apply mutatis mutandis to proceedings relating to penalty initiated in accordance with section 297(2)(g) of that Act. Lastly, the challenge to section 271(2) of the Act of 1961 on the ground of contravention of article 14 may be considered. According to that provision when the person liable to penalty is a registered firm then notwithstanding anything contained in the other provisions of the Act of 1961, the penalty imposable under sub- ..... X X X X Extracts X X X X X X X X Extracts X X X X
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