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Civil Appeal No. 87 of 1964, decided on 14th January 1966.
(On appeal from the judgment and order of the High Court of West Pakistan, Lahore, dated 4th January 1963, in Writ Petition No. 693 of 1961‑).
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------ S. 44 read with S. 28‑Expression "liable to assessment under Chapter IV" in S. 44‑Scope‑Penalty for deliberate concealment of particulars of income‑Whether can be levied on dissolved firm or its partners‑Words "such assessment" occurring in S. 44‑Whether include proceedings under S. 28.
The Income‑tax authorities imposed a penalty under section 28 of the Income‑tax Act, 1922, on the assessee, a dissolved firm. The assessee attacked the jurisdiction of the Income‑tax authorities on the grounds that‑
(i) after the dissolution of the firm there was no statutory provision for the levy of any penalty either on the firm or on any of the partners of the dissolved firm; and
(ii) as section 44 of the Income‑tax Act, 1922, was not attracted the Income‑tax Officer had no jurisdiction to impose any penalty under section 28 of the Act on, a dissolved firm.
In support of these grounds, it was contended that the expression "assessment" in section 44 has been used merely in the sense of computation of income under section 23 of the Act and not for the purpose of imposing a penalty:
Held, that such a contention cannot be accepted because the expression assessment' has been used in a comprehensive manner so as to include the proceedings for imposition of penalty.
This view finds support from the provisions of Chapter IV of the Act. In this Chapter only section 23 deals with computation of income. There are several other sections in this Chapter which deal with the determination of liability, machinery for imposition of liability and the procedure in that behalf. In this view of the matter the contention that only those sections of Chapter IV will be attracted to section 44, which deal only with the computation of income cannot be accepted.
Failure to file return etc., or to furnish required particulars and concealment of income or improper distribution of profits are penalised by section 28 of the Act. It is evident that this section has been enacted for facilitating proper assessment of taxable income and hence the defaults enumerated therein really relate to the process of assessment. For these reasons it cannot be held that a proceeding for imposition of penalty and a proceeding for assessment of income‑tax are matters distinct and that section 44 will not be attracted to this case. The partners of the firm, therefore, cannot evade the penalty imposed under section 28 by the simple expedient of discontinuing the firm.
C. A. Abraham v. Income‑tax Officer, Kottayam and another A I R 1961 S C 609 and In the matter of Messrs Abdul Karim, Karamat Ullah 1962 P T D 920 ref.
Javed Hashmi, Advocate High Court, briefed with Asad Hussain Zaidi, Advocate Supreme Court, instructed by Messrs Siddiq & Company Attorneys for Appellant.
Abdul Haque, Advocate Supreme Court, instructed by M. B. Khizar Tamimi, Attorney for Respondent.
Dates of hearing: 13th and 14th January 1966.
‑The only question raised in this certificated appeal is as to the validity of a penalty imposed on a dissolved firm under section 28 of the Income‑tax Act and the question arises under the following circumstances:
The appellant firm Muhammadi Oil Mills is a partnership firm. Assessments were made by the Income‑tax Officer on the said firm for the accounting years 1952‑53, 1953‑54 and 1954‑55 on an income of Rs. 73,008, Rs. 37,966 and Rs. 82,151 for each year, respectively. There were three appeals against the said assessments and the Appellate Assistant Commissioner reduced only the assessment for the year 1954‑55, to Rs. 64,647 and rejected the other appeals. The Appellate Tribunal further reduced the said amount to Rs. 48,973 but maintained the assessment for the other years.
On 27th December 1956, the Income‑tax Officer issued notice calling upon the firm to show cause why a penalty should not be imposed under section 28 of the Income‑tax Act for deliberate concealment of the income‑tax for the year 1952‑53. As the said notice was not served on the assessee firm, another show‑cause notice was issued on the 9th August 1957. On 28th December 1957, similar notice has served on the assessee firm for the year 1953‑54.
On 29th August 1958, A. M. K. Malik, a partner of the assessee‑firm wrote to the Income‑tax Officer objecting to the imposition of penalty on the ground that the said firm had been dissolved on 31st March 1958.
On 31st May 1961, the Income‑tax Officer by three separate orders imposed penalties upon the firm of Rs. 1,000 for the year 1952‑53, Rs. 4,000 in respect of the year 1953‑54 and Rs. 6,000 in respect of the year 1954‑55.
On 23rd October 1961, the firm filed a petition to the High Court praying for a writ of certiorari for quashing the said orders on the following grounds:‑
(i) that with the abrogation of the Constitution on 7th October 1958, the proceedings for imposition of penalty had abated;
(ii) that penalty could not be imposed on a firm which was not in existence;
(iii) that as no notice under section 28 of the Act was issued for the year 1953‑54, imposition of penalty for that year was illegal; and
(iv) that the Income‑tax Officer was not competent to impose this penalty.
The last ground was not argued before the High Court. . As an appeal under the Income‑tax Act was pending, the learned Judges declined .to deal with ground No. (iii). They were, however, unable to accept the other grounds, namely, grounds Nos. (i) and (ii).
The only ground on which the validity of the proceedings taken by the Income‑tax Officer was attacked before us was that after the dissolution of the firm there was no statutory provision for the levy of any penalty either on the firm or on any of the partners of the dissolved firm: It was contended that as section 44 of the Act was not attracted to this case, the Income‑tax Officer had no jurisdiction to impose a penalty under section 28 on a dissolved firm.
Section 44 of the Income‑tax Act at the relevant time was as follows:
"Where any business, profession or vocation carried on by a firm or association of persons has been discontinued, or where an association of persons is dissolved, every person who was at the time of such discontinuance or dissolution a partner of such firm or a member of such association shall, in respect of the income, profits and gains of the firm or association, be jointly and severally liable to assessment under Chapter IV and for the amount of tax payable and all the provisions of Chapter IV shall, so far as may be, apply to any such assessment."
Section 44 says that a dissolved firm is liable to assessment. It also provides for the joint and several liability of the partners of a dissolved firm for the assessment and payment of tax. The section further adds that "all the provisions of Chapter IV shall so far as may be apply to any such assessment." We have therefore, to consider the scope of the expression "liable to assessment under Chapter IV".
Section 28 which is one of the sections in Chapter IV provides for the imposition of penalty for the concealment of any income bar, or the improper distribution of profits. Hence the question is: Whether the imposition of penalty could be equated to assessment under Chapter IV' within the meaning of section 44 of the Act. In other words, will expression such assessment' include within it proceedings taken under section 28 of the Act It was contended that the expression assessment' has been used merely in the sense of computation of income under section 23 of the Act and not for the purpose of imposing penalty.
We are unable to accept the above contention because the expression assessment' has been used in a comprehensive manner so as to include the proceedings for imposition of penalty. This view finds support from the provisions of Chapter IV of the Act, In this Chapter only section 23 deals with computation of income. There are several other sections in this Chapter which deal with the determination of liability, machinery for imposition of liability and the procedure in that behalf. Reference in this connection may be made to sections 18‑A, 24‑B, 25, 25‑A, 29, 31, 33, 34 and 35, of this Chapter. It was therefore, rightly pointed out in the case of C. A. Abraham v. Income‑tax Officer, Kottayam and another that (AIR 1961 SC609).
"The expression assessment' used in these sections is not used merely in the sense of computation of income and there is in our judgment no ground for holding that when by section 44 it is declared that the partners or members of the association shall be jointly and severally liable to assessment, it is only intended to declare the liability to computation of income under section 23 and not to the application of the procedure for declaration and imposition of tax liability and the machinery for enforcement thereof. Nor has the expression, all the provisions of Chapter IV shall so far as may be apply to such assessment' a restricted content; in terms it says that all the provisions of Chapter IV shall apply so far as may be to assessment of firms which have discontinued their business. By section 28, the liability to pay additional tax which is designated penalty is imposed in view of the dishonest con tumacious conduct of the assessed."
In the matter of Messrs Abdul Karim, Karamat Ullah (1962 P T D 920) the High Court of West Pakistan has also correctly stated at page 924.
"We have no doubt that the words jointly and severally liable to assessment under Chapter IV and for the amount of tax payable and all the provisions of Chapter IV shall, so far as may be apply to any such assessment' include the entire process and incidence of assessment as provided in Chapter IV which includes imposition of penalty under section 28 (1) (c)."
In this view of the matter we are unable to accept the contention that only those sections of Chapter IV will be attracted to section 44 which deal only with the computation of income.
Now section 28 (1) is in these terms:-----
"28 (1) If the Income‑tax Officer, the Appellate Assistant Commissioner or the Appellate Tribunal, in the course of any proceedings under this Act, is satisfied that any person.
(a) has without reasonable cause failed to furnish the return of his total income which he was required to furnish by notice given under subsection (1) or subsection (2) of section 22 or section 34 or has without reasonable cause failed to furnish it within the time allowed and in the manner required by such notice; or
(b) has without reasonable cause failed to comply with a notice under subsection (4) or subsection (4‑A) of section 22 or subsection (2) of section 23; or
(c) has either in the said proceedings or in any earlier proceedings relating to an assessment in respect of the same previous year, concealed the particulars of his income or deliberately furnished inaccurate particulars of such income, he or it may direct that such person shall pay by way of penalty, in the case referred to in clause (a), in addition to the amount of the income‑tax and super‑tax, if any payable by him, a sum not exceeding one and a half times that amount, and in the cases referred to in clauses (b) and (c), in addition to any tax payable by him, a sum not exceeding one and a half times the amount of the income‑tax and super‑tax, if any, which would have been avoided if the income as returned by such person had been accepted as the correct income:"
Thus failure to file return etc., or to furnish required particulars and concealment of income or improper distribution of profits are penalised by this section. It is evident that this section has been enacted for facilitating proper assessment of taxable income and hence the defaults enumerated therein really relate to the process of assessment. For the above reasons we are unable to hold that a proceeding for imposition of penalty and a proceeding for assessment of income‑tax are matters distinct and that section 441 will not be attracted to this case. The partners of the firm therefore, cannot evade the penalty imposed under section 28 by the simple expedient of discontinuing the firm.
This appeal fails and is accordingly dismissed. As the learned counsel for the respondent sought permission to appear in this case at a very late stage, we do not make any order as to costs.
S. Q. Appeal dismissed.
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