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TMI Blog1959 (3) TMI 67X X X X Extracts X X X X X X X X Extracts X X X X ..... sment for the three years was completed after that date. Having come to his notice during those proceedings that the assessee had concealed part of the income, the Income-tax Officer started penalty proceedings under section 28(1)(c) of the Act by the issue of a notice under section 28(3) for each of the three years and ultimately certain amounts were levied as penalties. This was carried in appeal to the Appellate Assistant Commissioner before whom it was urged that, as this firm was not in existence at the time of the initiation of the penalty proceedings, it was not competent for the Department to invoke section 28(1) of the Act. This proposition was not accepted by the Appellate Assistant Commissioner with the result that the appeal was dismissed. In a further appeal to the Tribunal, this contention was repeated and it prevailed with the Tribunal. The Tribunal accepted the appeal as it thought that the decisions of the Madras and Patna High Courts in Raju Chettiar v. Collector of Madras [1956] 29 ITR 241 and Commissioner of Income-tax v. Sanichar Sah Bhim Sah [1955] 27 ITR 307 respectively supported the contention of the assessee. At the instance of the Department, the Tribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Could the last part of the sentence in that section have the effect that is attributed to it by the Department? The answer of the counsel for the Department is that such a power is implicit in that clause. In support of this theory, reliance is placed on a judgment of a Bench of this court in Mareddi Krishna Reddy v. Income-tax Officer [1957] 31 ITR 678, which was followed by a Bench of the Kerala High Court in Abraham v. Income-tax Officer [1958] 33 ITR 287 without any discussion. On the other hand, the stand taken by the counsel for the assessee is that section 44 does not authorise the Revenue to impose penalties as section 28 is inapplicable to a case falling under section 44 and calls in aid Veerappan v. Commissioner of Income-tax [1957] 32 ITR 411 which dissented from Mareddi Krishna Reddy's case (supra). The principle of Veerappan's case (supra) was followed by the Mysore High Court in Sadianna Shetty v. Second Additional Income-tax Officer [1958] 33 ITR 692 The learned counsel for the assessee urges that the law stated in the second set of rulings is correct and that Mareddi Krishna Reddy's case (supra) requires reconsideration. The main point for decisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... metimes the computation of income, sometimes the determination of the amount of tax payable and sometimes the whole procedure laid down in the Act for imposing liability upon the taxpayer. The Indian Income-tax Act is no exception in this respect . We do not think that this passage lends any support to the contention of Sri Ramachandra Rao. It only means that the assessment may not only be the computation of the income or the determination of the amount of tax payable but it may have reference to the whole procedure prescribed in the Act for levying liability upon a taxpayer. That does not, in any way, indicate that it embraces penalty. The liability referred to, in our opinion, could have reference only to liability to pay the tax and not the penalty. In this opinion of ours, we are reinforced by the judgment of Chagla, C.J., who spoke for the Bench in Commissioner of Income-tax v. Jagdish Prasad Ramnath [1955] 27 ITR 192. Says the learned Chief Justice, after adverting to the remarks of the Privy Council already extracted: But, in our opinion, it is clear that when the Privy Council referred to imposing liability upon the taxpayer, the liability was the liability to pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is latter section, which is in contradistinction to recovery of tax under section 46, provides for the recovery of any sum imposed by way of penalty under the various provisions, which are set out there and also interest payable under the provisions of section 18A. All these provisions show that the Legislature kept in mind this distinction and that is the reason why they took care to employ two different expressions and made it plain that the word assessment cannot be construed to mean penalty also. In this context, Commissioner of Income-tax v. Muthukaruppan Chettiar [1939] 7 ITR 29 is apposite. It was remarked by the Full Bench of the Madras High Court that the word assessment is used in the Act in two senses, the process of determining the amount of profit or loss and the process of levying tax but if there is nothing repugnant in the context, the word refers to the former. Another argument advanced by Sri M.S. Ramachandra Rao was that the proceedings for the levy of penalty are a part of the assessment proceedings and if the assessment could be made in regard to income of the dissolved firm, it is equally permissible to impose penalty, if such a course is warranted by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l introduce irreconcilability between the two. It is a cardinal rule of construction that a statute has to be so interpreted as to harmonise each part of it. The collocation of the words in the last part of the section clearly establishes that the assessment spoken of there is in relation to the tax payable by the partners. The two expressions as used there interrelate to each other. Further, the Legislature has made it perfectly clear that the provisions of Chapter IV were applicable to such assessment, which in the context obviously refers to assessment mentioned earlier, i.e., that in regard to profits, income and gains. Thus, the applicability of Chapter IV is limited to the computation of income or levy of tax. It is also to be borne in mind that Chapter IV is made applicable only as far as may be, which means as far as possible or necessary, i.e., in so far as they govern the assessment of income, profits and gains. The provisions of Chapter IV have to be extended to assessments under section 44 for the reason that it is that Chapter that devises the machinery for making the assessment and realising the tax imposed. It is because the acceptance of the theory that the wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of section 28 are incorporated into section 44, the individual partners will be different from the one that is said to have suppressed the income, i.e., the partnership. One of the reasons that weighed with the Bench that decided Raju Chettiar v. Collector of Madras in coming to the conclusion that penalty could not be levied on the disrupted joint family was this factor, viz., the non-existence of the joint family at the time when the penalty was sought to be levied. We may here extract the passage that contains the rule: A Hindu undivided family is within the scope of the expression 'person': see section 2(9) of the Act. It was that 'person', the Hindu undivided family, that was the assessee. Section 28(3) requires that the assessee should be heard before an order is passed under section 28(1). That assessee had ceased to exist when the order under section 28(1) was passed in this case. That Bala Gurumurthi was heard before the order was passed, would not, in the circumstances of the case, satisfy the requirements of section 28(2). We are referring to this aspect only to emphasise that there is no machinery provided by the Act to impose the penalty u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could not rely on section 44, there was no other section in the Act, which would authorise it to assess the income of a dissolved firm, but he contended that discontinuance included dissolution. I am unable to accept that contention, because although the dissolution of a firm must involve discontinuance of its business, the converse need not necessarily be true and a firm may conceivably continue to exist after deciding to discontinue its business as firms very often do for various purposes, such as collecting their debts . These remarks are merely obiter because the parties throughout proceeded on the footing that section 44 applied to' the case of a dissolved firm and the learned Judge himself has mentioned this. We express our respectful disagreement with these observations as the language of the section does not warrant this conclusion. Section 44, as it stood prior to the passing of the Income-tax (Amendment) Act, 1939, had not in contemplation an association of persons. By section 49 of that Act, the present section 44 was substituted for the old section 44. The words dissolved and dissolution were used with regard to an association of persons for the reason that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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