1. The question of law is referred to this court under s. 256(1) of the I.T. Act, 1961, runs as follows :
"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in law in upholding the levy of penalties for the assessment years 1954-55 to 1961-62, under s. 271(1)(c) of the Income-tax Act, 1961 ?"
2. The case was originally heard by a Division Bench of this court. Though the learned judges were of the opinion that the facts in the present case were identical with those in Seth Lunidaram Tikamdas v. CIT [1980] 121 ITR 824 (Mad), they were of the view that the attention of the court had not been specifically focused in that case to cases where the exact meaning that has to be assigned to the words "assessment completed" occurring in s. 297(2)(f) and (g) of the Act had been considered. It was in this connection that the learned judges referred to two decisions of the Gujarat High Court in Sheth Gunvantlal Mangaldas v. CIT [1968] 68 ITR 740 and CIT v. Kiranchandra Madhusudan Patel [1975] 98 ITR 141, wherein the scope of the provisions of s. 297(2)(f) and (g) had been specifically considered. In order that the matter may be reconsidered in the light of the said decisions, the case was referred to a Full Bench.
3. The relevant facts leading to the reference are as follows : The assessee is one R. Kuppuswamy Chetty. He is now no more and the reference is pursued by his son, Janakiah Chetty, as the legal representative. Kuppuswamy Chetty was running a business in gunny bags under the name and style of "R. Kuppuswamy Chetty & Sons". In view of his advancing age, he settled all his properties and the business on his son, Janakiah Chetty. The settlement was to take effect from 1st April, 1961. Kuppuswamy Chetty was assessed on the business profits earned up to 31st March, 1961, and Janakiah Chetty was assessed on the business profits earned thereafter. During the assessment for the assessment year 1962-63, on Janakiah Chetty, it was found that there were credits ostensibly as borrowing on hundis. When these transactions were traced backwards, it was found that the relevant credit entries came to be made from 4th June, 1960. The highest amount of the credits shown as borrowings as against the hundis came to Rs. 3,15,000 an on 11th March, 1961, relevant for the assessment year 1961-62. During the accounting year ended on 31st March, relevant for the assessment year 1962-63, the peak or the highest amount of credits on similar borrowings increased to Rs. 6,80,000 as on 15th March, 1962. During the accounting year ended on 31st March, 1963, to 31st March, 1965, relevant for the assessment years 1963-64 to 1965-66, the hundi borrowings gradually decreased, and ultimately during the year ended 31st March, 1965, the borrowings stood squared up. The total amount of Rs. 6,80,000 was partly utilised in investments in properties to the extent of Rs. 4 1/2 lakhs, the balance remaining as circulating capital in the son's business. In his assessment, Janakiah Chetty was not able to prove that the hundi borrowings represented real transactions. It was represented in the statement of disclosure addressed to the Central Board of Direct Taxes, New Delhi, that though the hundi borrowings appeared only in the accounts for the years ended 31st March, 1961, and 31st March, 1962 (assessment years 1961-62 and 1962-63), they did not represent the profits and gains of those two years alone and that they represented the income of earlier years. Accordingly, two petitions of disclosure were filed before the CBDT. The first petition was of Janakiah of 25th February, 1967, in which he pleaded that the hundi credits represented the income of various earlier years. On 22nd February, 1969, the assessee herein, viz., Kuppuswamy Chetty, filed his own disclosure petition under s. 271(4A) of the I.T. Act of 1961 before the Commissioner of Income-tax, Madras-II. In his petition he stated that as the assessments for 1961-62 and the earlier years related to periods in which he was carrying on the business, he may be granted permission to present the petition of disclosure. He prayed for the said income of Rs. 6,80,000 being spread over the assessments for the assessment years 1954-55 to 1961-62. He was also agreeable to pay a penalty of 5% of the tax to be levied on the sums which were offered for assessment. It is unnecessary to detail the amounts offered for assessments in each of the relevant years.
4. The offer of settlement as put forward by the assessee was accepted and the assessee filed revised returns of income on 25th July, 1969, in response to the notice issued under s. 148 of the Act. In the revised return, the assessee admitted the additional amounts of income as shown in the disclosure petition to the Commissioner. The ITO completed the assessment on 17th September, 1969, accepting the revised return of income. As the minimum penalty leviable was more than Rs. 1,000, the matter of levy of penalty was referred by the ITO to the IAC in accordance with the provision of s. 271 of the 1961 Act.
5. Accordingly, he levied the following amounts as penalty :
---------------------------------------------------------------------- Assessment years Amounts of penalty levied
---------------------------------------------------------------------- Rs.
1954-55 2,966 1955-56 8,071 1956-57 8,508 1957-58 12,586 1958-59 11,593 1959-60 11,928 1960-61 14,222 1961-62 6,691 ----------------------------------------------------------------------
The amount so levied as penalty represented the minimum penalty leviable under the Act of 1961, i.e., 20% of the tax avoided in the original assessment.
6. The assessee appealed against the penalties so levied for the respective years before the Tribunal. By its order dated 31st August, 1974, the Tribunal confirmed the penalties as levied and rejected the assessee's contention that the penalty could only be levied under the Act of 1922. In the course of its order, it referred to the recommendation of the Commissioner that only 5% of the tax avoided should be levied as penalty. But in view of the statutory minimum penalty that had to be levied, the Tribunal confirmed the penalty while at the same time making a recommendation to the department to consider the case of the assessee sympathetically, if and when any application for sympathetic consideration was made to it. The terms in which the Tribunal recommended the sympathetic consideration are those which occur in a decision of the Gujarat High Court in CIT v. Ochhavlal Panalal Kothari [1974] 97 ITR 414. The Tribunal has, in disposing of the appeal, relied on its own order dated 30th April, 1974, which was the subject matter of a reference to this court in Seth Lunidaram Tikamdas v. CIT [1980] 121 ITR 824. The assessee, feeling aggrieved by this order, sought a reference and the question of law set out earlier has been referred to this court.
7. The contention of the assessee before us was two-fold viz. :
(1) As the concealment, which has given rise to the penalty, was in the original return filed, and not in the one in the reassessment proceedings, the penalty could only be levied under cl.(g) of s. 297(2), and
(2) Even assuming that s. 297(2)(g) of the Act were to be applied, it is only the machinery provisions of that Act that would be attracted and not the substantive provisions, which fixed the minimum penalty leviable.
We shall deal with these two contentions presently.
8. The Indian I.T. Act of 1922 was replaced by the I.T. Act of 1961 with effect from 1st April, 1962. As a wholly new piece of legislation was being brought into force, Parliament considered it necessary to make elaborate provisions for the repeal of the 1922 Act and for saving a portion of some of its provisions in the manner indicated in s. 297. The provision to the extent relevant may be reproduced below :
"297. Repeals and savings. - (1) The Indian Income-tax Act, 1922 (11 of 1922), is hereby repealed.
(2) Notwithstanding the repeal of the Indian Income-Tax Act, 1922 (11 of 1922) (hereinafter referred to as the repealed Act), -...
(f) any proceeding for the imposition of a penalty in respect of any assessment completed before the 1st day of April, 1962, may be initiated and any such 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 may be imposed under this Act."
9. In Kalawati Devi Harlalka v. CIT [1967] 66 ITR 680, the Supreme Court held that s. 297 was meant to provide as far as possible for all contingencies which may arise out of the repeal of the 1922 Act and that s. 6 of the General Clauses Act, 1897, would not apply because s. 297(2) evidences an intention to the contrary. We have, therefore, no need to consider the applicability of s. 6 of the General Clauses Act, 1897, to the problem before us.
10. A combined reading of cls. (f) and (g) of s. 297(2) would show that in order to determine the law under which the penalty is to be imposed, it is necessary to examine when the relevant assessment was completed. If it was completed before 1st day of April, 1962, then the penalty would have to be imposed under the Act of 1922. as if the new Act had not been passed. If, however, the assessment was completed on or after 31st day of March, 1962, the penalty proceedings would have to be initiated and the penalty imposed under the Act of 1961. In the present case, we have already seen that the relevant reassessments came to be made on 17th September, 1969. In this context, the completion of the original assessments for 1954-55 to 1961-62 would not be relevant, because with reference to the relevant returns for those years, which formed the basis for the original assessments, there was no finding or even a possibility of a finding that there was any concealment which could lead to the levy of penalty. It was only when the credits in the accounts of Janakiah Chetty came to be examined in relation to the assessment for the assessment years 1963-64, that the existence of large credits, as if there were hundi borrowings, came to light. It was at that stage that the son, Janakiah, and the father, the assessee, came forward with certain petitions, which ultimately served as a foundation for the issue of notices under s. 148 and the reassessments on the basis of the returns submitted in pursuance of the said notices. It is thus clear on the facts that there could be no proceedings for the levy of penalty at the time when the original assessments were completed and that even on the assessee's own showing penalty became leviable pursuant to the reassessment proceedings alone.
11. In C. V. Govindarajulu Iyer v. CIT [1948] 16 ITR 391 (Mad) where an assessee had not furnished a return of his total income as required under s. 22(1) of the Indian I.T. Act, 1922, but no notice under s. 22(2) was issued within the relevant period it was held that the ITO was competent in the course of the proceedings taken by him under s. 34 of the 1922 Act to assess such income and to levy a penalty for the failure without reasonable cause to furnish a return pursuant to the notice under s. 22(1). Rajamannar C.J. and Yahya Ali J. held that so long as the proceedings under s. 34 related to the assessment for the same period as the original assessment, the ITO would be competent to levy a penalty on any ground open to him under the relevant provision, viz. s. 28(1) even though it related to the prior proceedings. This decision was considered by the Supreme Court in N. A. Malbary and Bros. v. CIT [1964] 51 ITR 295. In that case, the assessee did not include the profit of a business in Bangkok for the assessment year 1951-52, nor did it comply with the notice of the ITO for the production of the accounts relating to the Bangkok branch. The ITO estimated the profits of the Bangkok branch at Rs. 37,500 and completed the assessment on 31st January, 1952. At the same time, he initiated penalty proceedings and levied Rs. 20,000 as penalty on 22nd January, 1954. In the course of the assessment for 1952-53, the books of the Bangkok branch were produced on 17th August, 1953, and they showed that the assessee had made a profit of Rs. 1,25,520 for the assessment year 1951-52. The ITO issued a notice under s. 34 of the Indian I.T. Act, 1922, for the assessment year 1951-52. The assessee submitted a return showing the correct profits. Thereafter, the ITO issued a notice under s. 28(3) of the 1922 Act on April 8,1954, and levied a second penalty of Rs. 68,501 for a concealment of income in the original return. The Supreme Court held that the penalty under s. 28 had to be correlated to the amount of tax which would have been evaded if the assessee had got away with the concealment and that when the ITO ascertained the true facts and realised that a much higher penalty was leviable, he had jurisdiction to recall the earlier order imposing a penalty on the basis of the estimated income of Rs. 37,500 and pass another order imposing a higher penalty. In the course of the judgment, the Supreme Court noticed that, in the return that was filed in the proceedings under s. 34, the assessee had furnished correct particulars and that he had not committed any default in connection therewith. The penalty notice was, therefore, taken to have been issued in respect of the concealment of the income in the original return and the levy was upheld. In the judgment, reference was made to the decision of this court in C. V. Govindarajulu Iyer v. CIT [1948] 16 ITR 391. An observation in that case, to the effect that if the ITO, who passed the assessment order did not impose a penalty, then he would have no power to impose it in the reassessment proceedings, was noticed. The Supreme Court did not think that Rajamannar C.J. wished to state the qualification on the power of the ITO as a proposition of law and that it was not necessary for the purposes of the case before him. They did not wish to be understood as subscribing to the said observation. But subject to the above, the decision was noticed with apparent approval.
12. Thus, it is indisputable that the ITO has the power to impose a penalty in the course of the reassessment proceedings even if the return filed in the reassessment proceedings did not manifest any concealment and the concealment was only in the original return. Apart from reference to any authority, a reading of s. 297(2)(f) and (g) would clearly show that it is necessary only to find out as to when the relevant assessment, in the course of which the penalty proceedings have been taken, was completed. If the relevant assessment came to be made before 1st April, 1962, then one would have to ignore the existence of the 1961 Act and proceed on the basis of the Act of 1922. If the assessment was completed on or after 1st of April, 1962, the levy of penalty would have to be considered only in the light of the 1961 Act. It has already been seen in the present case that the relevant assessments, which had given rise to the present penalty proceedings, were completed on 17th September, 1969, that is, after 1st April, 1962, and that, therefore, the power to levy penalty is to be found in the 1961 Act and not in the 1922 Act. This power to levy penalty under the new law for an offence committed at a time when the old Act was in force is a statutory consequence following the specific language of s. 297(2)(g) and this principle is applicable only to situations arising out of the transaction from the 1922 Act to the 1961 Act.
13. Mr. K. Ramgopal, the learned counsel for the assessee, contended that in order to attract s. 297(2)(g) both the original as well as the reassessments should have been completed on or after 1st April, 1962. We are unable to accept this contention. The word "assessment" has been defined in s. 2(8) of the 1961 Act as including "reassessment". The definition provision would, of course, apply only if there is nothing repugnant in the subject or the context. The learned counsel was not in a position to show how the definition of s. 2(8) is not be read into s. 297(2)(g). Thus, so long as the reassessment for a year ending on 31st March, 1962, or any earlier year was completed on or after 1st April, 1962, the proceedings for penalty could be initiated and penalty could be imposed under the Act of 1961. There is no warrant in the provision, as worded for the view that both the original and the reassessment should be completed on or after 1st April, 1962, in order that s. 297(2)(f) and (g) should apply.
14. We may now consider the earlier decisions of this court rendered in the context of s. 297(2)(f) and (g). In CIT v. V. G. Panneerdas and Co. [1978] 112 ITR 225, the assessment for the years 1959-60, 1960-61 and 1961-62 were made under s. 23(3) of the Indian I.T. Act of 1922 on February 29, 1964. The relevant returns had been submitted prior to 1st April, 1962. The penalty proceedings came to be initiated by issuing a notice on May 26, 1965. Orders levying penalty were made on February 25, 1966. The assessee conceded that the particulars of income had been concealed or inaccurate particulars had been furnished and that the penalties were thus exigible. The only contention was that the provisions of the 1922 Act were applicable and not those of the 1961 Act. After extracting a passage from the decision of the Supreme Court in Jain Brother v. Union of India [1970] 77 ITR 107, it was held that the question referred to had to be answered in favour of the revenue in the sense that the Act of 1961 alone were applicable.
15. The decision of the Supreme Court in Jain Brothers v. Union of India [1970] 77 ITR 107 followed in the decision cited above arose on the following facts :
A firm filed a return on 18th November, 1961, for the assessment year 1960-61 showing an income of Rs. 3,55,566. The ITO completed the assessment on November 23, 1964, computing the total income of the firm at Rs. 4,75,368. On the same day, he issued a notice under s. 271 read with s. 274 of the I.T. 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 within time. After considering the explanations submitted by the firm the ITO made an order on November 19, 1966, under s. 271(1)(a) of the Act of 1961 imposing a penalty of Rs. 1,03,434 for noncompliance with the notice under s. 22(2) of the 1922 Act. Apart from filing an appeal under the I.T. Act itself, the assessee filed a writ petition challenging, inter alia, the validity and the constitutionality of s. 297(2)(g) and s. 271(2) of the Act of 1961. The High Court declined to issue a writ and the assessee carried the matter in appeal to the Supreme Court. If the 1922 Act would apply, there was no minimum penalty leviable. However, under the 1961 Act, the penalty leviable was statutorily fixed, viz., as a sum equal to 2% of the tax for every month during which the default continued, but not exceeding in the aggregate 50% of the tax (see s. 271(1)(a)). In the course of the judgments, their Lordship observed at p. 117 as follows :
"We are further unable to agree that the language of section 271 does not warrant the taking of proceedings under that section when a default has been committed by failure to comply with a notice issued under section 22(2) of the Act of 1922. It is true that clause (a) of sub-section (1) of section 271 mentions the corresponding provisions of the Act of 1961 but that will not make the part relating to payment of penalty inapplicable once it is held that section 297(2)(g) governs the case. Both section 271(1) and 297(2)(g) have to be read together and in harmony and so read the only conclusion possible is that for the imposition of a penalty in respect of any assessment for the year ending on March 31 1962, the proceedings have to be initiated and the penalty imposed in accordance with the provisions of section 271 of Act of 1961. Thus, the assessee would be liable to a penalty as provided by section 271(1) for the default mentioned in section 28(1) of the Act of 1922 if his case falls within the terms of section 297(2)(g)."
16. It was this passage, which was taken as directly governing the answer to the question referred in CIT v. V. G. Panneerdas and Co. [1978] 112 ITR 225 (Mad).
17. In the later decision of this court is Seth Lunidaram Tikamdas v. CIT [1980] 121 ITR 824, the original assessments on the assessee for the assessment years 1954-55 to 1960-61 were complete prior to April 1, 1962. The assessments were reopened and the reassessments were made on the basis of settlement petitions field on January 12, 1967, and on February 20, 1969, resulting in additions to the income originally assessed. The penalty was levied by the IAC under the provisions of the 1961 Act and the Tribunal confirming the levy of penalty held that as the reassessments were completed after 1st April, 1962, the default committed by the assessee in not filing a return or filing a return giving inaccurate particulars of income could be penalised under the Act of 1961, and that the rate of penalty would also be that prescribed in the 1961 Act in view of s. 297(2)(g) of that Act. The Tribunal specifically rejected the plea of the assessee that as the original assessment had been made long before April 1, 1962, s. 297(2)(f) alone would apply, and not s. 297(2)(g) on the ground that the concealment of income in the return was detected only at the time o the reassessment proceedings and that, therefore, the material date would be the date when the reassessments came to be made, for the purpose of a determination of the applicability of s. 297(2)(f) or (g). On a reference to this court it was held that s. 297(2) made a distinction between the assessment made before April 1, 1962, and those made after that date and that in respect of the former category of cases the penalty proceedings could be initiated and penalty imposed under the Act of 1922, while in respect of assessments completed after April 1, 1962, the penalty proceedings had to be initiated and penalty imposed only under the provisions of the 1961 Act. In view of the statutory provisions, it was pointed out that one had to proceed on the basis of the date of completion of the assessment and not on the basis when the offences of concealment were committed. The imposition of penalty under the 1961 Act was considered to be valid and justified.
18. We are unable to see any substance in the submission that the distinction between s. 297(2)(f) and (g) were not noticed or appreciated in that case. At p. 826, the argument before the Tribunal has been extracted as follows :
"Before the Tribunal the assessee contended that the offence of concealment is with reference to the original returns and as the original assessments were completed before April 1, 1962, the date of commencement of the 1961 Act, the penalty proceedings must have been initiated and penalty levied under the provisions of the 1922 Act, in view of s. 297(2)(f)."
19. After referring to the Tribunal's rejection of the assessee's submission and after setting out the question referred to this court, at p. 827, it was observed as follows :
"The original assessments have been completed on the basis of the returns filed by the assessee for the various assessment years before April 1, 1962. The reassessment proceedings were completed after April 1, 1962, and it is only thereafter that penalty proceedings were initiated to impose penalty as per s. 271(1)(c). On these facts, the question for considerations is whether the initiated of penalty proceedings and imposition of penalty are to be governed in the present case by the provisions of the Indian I.T. Act, 1922, as contended by the assessee, or whether they are to be governed by the I.T. Act, 1961, as contended by the revenue."
20. The respective stands of the counsel for the assessee and for the department are traceable only to s. 297(2)(f) and (g), as the case may be. The learned judges have referred to two other decisions of this court in CGT v. C. Muthukumaraswamy Mudaliar [1975] 98 ITR 540 and CWT v. Sundarapandian [1978] 114 ITR 367, and have pointed out that in both these decisions the question of the scope or ambit of s. 297(2)(f) or (g) had not to be considered, as neither the G.T. Act nor the W.T. Act, relevant in those cases, contained any parallel provision. It is, thus, on a consideration of all the relevant provisions that this court has taken the view that s. 297(2)(g) applied to those facts.
21. The two decisions cited in the order of reference to the Full Bench, and relied on before us by the learned counsel for the assessee may now be considered in order to examine whether any view different from the one taken in the two earlier decisions of this court in CIT v. V. G. Panneerdas and Co. [1978] 112 ITR 225 and Seth Lunidaram Tikamdas v. CIT [1980] 121 ITR 824, requires to be taken.
22. In Sheth Gunvantlal Mangaldas v. CIT [1968] 68 ITR 740 (Guj), the relevant facts were as follows : The ITO called upon the assessee by a demand notice under s. 18A(1) of the 1922 Act to pay advance tax in four equal instalments falling on June 15, 1961, September 15, 1961, December 15, 1961, and March 15, 1962. The assessee failed to pay the installment that fell due on December 15, 1961. By a letter dated August 24, 1962, the ITO required the assessee to pay immediately the tax due. In default of payment, the notice was to be treated as one for showing cause why a penalty for the non-payment of tax on the due date should not be levied. The assessee did not pay the amount as required by the ITO's letter, nor did he show cause against the levy of penalty for non-payment of the tax on the due date. The ITO thereupon imposed Rs. 3,575 as penalty under s. 46(1) of the I.T. Act of 1922. The penalty order was confirmed on appeal by the AAC and also by the Tribunal. The question referred was whether the penalty imposed upon the assessee for the non-payment of tax was valid and legal. Reliance was placed by the revenue in support of the levy of penalty on s. 297(2)(f) and (g). The learned judges of the Gujarat High Court considered that the notice of demand under s. 18A of the 1922 Act could be said to be an assessment and that if the issuing of such notice could be said to be the completion of such an assessment, then the proceedings for the imposition of penalty for the non-payment of advance tax under s. 18A could be initiated and the penalty might be imposed as if the Act of 1961 had not been passed, i.e., as if the Act of 1922 still remained in force. The learned judges referred to s. 18A imposing a liability to pay advance tax, and s. 23B, imposing a liability in respect of the tax due under the return filed by the assessee, and observed at p. 749 as follows :
"The demand of advance payment of tax under section 18A and the passing of order of provisional assessment under section 23B are different stages in the comprehensive procedure for imposing the tax liability upon the taxpayer in respect of the taxable income brought to charge for a particular assessment year. The stage of the procedure laid down in section 18A is completed as soon as the demand notice is issued. The stage of provisional assessment is completed as soon as the order of provisional assessment under section 23B is issued and the regular assessment is completed when the assessment order is passed by the Income-tax Officer under section 23. Therefore, when section 297(2)(f) speaks of 'any assessment completed before the 1st day of April, 1962, ' what is contemplated is the completion of any stage or anything in the process of assessment and if such step or stage is completed before 1st April, 1962, when the proceedings for the imposition of penalty in respect of that stage may be initiated and such penalty may be imposed as if the Act of 1961 had not been passed. This being the case, in our opinion, the words : 'any assessment completed before the 1st day of April, 1962' in the context in which they occur and occurring as they do in a repealing section have to be interpreted as meaning ' any stage in the procedure of imposing the tax liability upon the taxpayer'. That being the case, it is clear that the notice of demand having been issued under section 18A prior to 1st April, 1962, that particular stage in the assessment was completed in the case of the each of the three assessees and the proceedings for the imposition of penalty in respect of that completed stage could be taken under section 46(1) of the Act of 1922 as if the Act of 1961 had not been passed".
23. The order under s. 46(1) of the 1922 Act was, therefore, considered to be a valid and legal order. We are not here concerned with any proceedings for the levy of penalty in respect of a default coming within the scope of. s. 18A of the 1922 Act, so as to examine the applicability of the said decision. The observations made in the said case have to be considered in the light of the problem of levy of penalty in respect of a default in the payment of advance tax under s. 18A of the Act.
24. There is another decision of the same court consisting of the same learned judges in CIT v. Kiranchandra Madhusudan Patel [1975] 98 ITR
141. In that case, an HUF had not been assessed prior to the assessment year 1956-57. For the assessment year 1956-57 a notice under s. 22(2) of the Act of 1922 was served on the assessee on May 21, 1956, and it was pending. For the assessment year 1957-58, the last day for filing an estimate of advance tax was March 15, 1957. The assessee did not file any such estimate, though the income for the relevant previous year was likely to exceed the maximum amount not chargeable to tax. The ITO, while making the assessment on the assessee (HUF) for the assessment year 1957-58 on March 15, 1958, issued a notice to the assessee to show cause why penalty should not be imposed on it under s. 28(1)(a) read with s. 18A(9) of the Act of 1922 for having failed to comply with the provisions of s. 18A(3). The penalty was imposed on November 20, 1965. In the meantime there was a partition of the HUF, and during the assessment for 1963-64 there was a claim for passing an order under s. 171(3) of the I.T. Act of 1961, on the ground that there had been a total partition of the family with effect from February 12, 1962. This partition was accepted. The contention of the assessee in the penalty proceedings was that on the date when the penalty order was made, there was no family in existence and that it was not competent on the part of the ITO to make the order of penalty against a non-existent entity. It was held that s. 297(2)(f) applied and that the proceedings for the levy of penalty, according to the provisions of the Act of 1922, were valid and legal. It was also held that under s. 25A of the 1922 Act, so long as an order under that section had not been made, the HUF would be deemed for the purpose of that Act to continue and the proceedings for the levy of penalty could be initiated and penalty levied on the HUF under that Act as if the family had not ceased to exist. It was pointed out that the legal fiction enacted in s. 25A(3) continued to operate in its full strength and vigour and the assessee must be held to continue to be an HUF for the purpose of imposition of penalty under the old Act. As there was admittedly no order recognising the partition of the property under s. 25A(1), and as the order passed on June 21, 1966, recognising the partition with effect from February 12, 1962, was an order made under s. 171(3) of the Act of 1961, it did not affect the question of the liability of the HUF to penalty governed by the provisions of the old Act. In other words, the order under s. 171(3) made on June 21, 1966, recognising the partition with effect from February 12, 1962, did not affect the liability to penalty on the joint family, which continued to exist, as no order under s. 25A had been passed. In the course of the said decision, a passage from Sheth Gunvantlal Mangaldas v. CIT [1968] 68 ITR 740 (Guj) occurring at p. 749 has been extracted at p. 147 of CIT v. Kiranchandra Madhusudan Patel [1975] 98 ITR 141 (Guj) and at p. 148 the learned judges pointed put as follows :
"It may be pointed out that, even apart from this decision which places a wide interpretation on the language of section 297(2)(f), it is apparent that what section 18A(3) requires the assessee to do is to pay in advance the tax which may be found due on assessment and, therefore, penalty for failure to comply with the provision of section 18A(3) would be penalty in respect of the assessment for the assessment year in question and if the assessment is complete before 1st April, 1962, section 297(2)(f) would be attracted. The proceedings for imposition of penalty for failure to comply with the provisions of section 18A(3) which was initiated on 15th March, 1958, was, therefore, liable to be continued and the penalty liable to be imposed according to the provisions of the old Act as if the new Act had not been passed. The income-tax authorities were required to ignore the new Act was if it were not on the stature book and to continue the proceeding for imposition of penalty having regard to the provisions of the old Act. It is, therefore, by reference to the provisions of the old Act that we must judge whether penalty could be validly and lawfully imposed on the assessee at the date when the order for penalty was made".
It was held that penalty could lawfully be imposed.
25. It may be pointed out that the relevant assessment for the assessment year 1957-58 was completed in that case on 15th March, 1958. Thus, taking the date of the assessment order as the basis, the case clearly fell within the ambit of s. 297(2)(f). The discussion in that case has to be correlated to the above facts. We do not find anything in these two decisions, which would suggest a need for a reconsideration of the view taken by this court in the two decisions in CIT v. V. G. Panneerdas and Co. [1978] 112 ITR 225 (Mad) and Seth Lunidaram Tikamdas v. CIT [1980] 121 ITR 824 (Mad).
26. After referring to the two decisions of the Gujarat High Court mentioned above, the following observation is to be found in the referring order :
"We are also of opinion that what is contemplated under section 297(2)(f) and (g) of the words 'assessment completed' is the completion of any stage and not necessarily the ending in the process of assessment and if such step or stage is completed before the 1st of April, 1962, then the proceedings for imposition of penalty in respect of that stage will have to be initiated under the provisions of the old Act and not under the new Act." (see p. 240 supra) :
With respect we are unable to agree with this view. Whatever may be the position in relation to the penalty proceedings with reference to the default, if any, under s. 18A or s. 23B of the Act of 1922, we do not consider that the expression "assessment completed", found in these provisions, has to be understood as the completion of any stage and not necessarily the ending of the process of assessment. The process of assessment starts with the issue of a notice and has several stages, viz., (1) the issue of notice; (2) the submission of the return; (3) the issue of notice for the production of account books or other evidence; (4) the completion of the assessment; and (5) the issue of a demand notice. The levy of penalty is not contemplated with reference to any of these stages of assessment except (1) and (4). Section 28 of the Act of 1922 opens with the words :
"If the Income-tax Officer,... in the course of any proceedings under this Act, is satisfied that any person -........
(c) has concealed the particulars of his income of deliberately furnished inaccurate particulars of such income,
he........ may direct that such person shall pay by way of penalty,...... 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 :......."
27. The provision thus contemplates attention being paid to the return and to the assessment. If there was a concealment in the return, then the penalty was leviable. The amount of penalty was to be calculated on the basis of the difference between the tax payable on the assessment and on the basis of the return. The language of s. 28 does not require any other stage being taken note of. Section 271 of the 1961 Act contains more or less similar words and, therefore, we have only to see whether there was any assessment and whether in relation to the said assessment the income as shown in the return can be taken as involving any concealment. If there was a concealment, then the levy of penalty would have to follow. It has already been seen that in the light of the decision of the Supreme Court in N. A. Malbary and Bros. v. CIT [1964] 51 ITR 295, the ITO has power to levy penalty with reference to the concealment in the original return, even though there was no concealment in the return submitted in pursuance of a notice of reassessment. What is relevant in the present case is the reassessment, and so long as it took place on or after 1st April, 1962, the provisions of the 1961 Act would have to be applied. Consequently, the view taken in the decisions of this court cannot be said to be erroneous.
28. Even on the basis that the 1961 Act had to be applied in accordance with s. 297(2)(g), the contention urged is that only the machinery provisions of the 1961 Act would have to be applied and not the substantive provisions. In other words, the contention urged is that though the procedure contemplated by s. 271 may be applied, the quantum of penalty would have to be determined only in the light of s. 28 of the Act of 1922. It is in this context that our attention was drawn to a decision of the Supreme Court in Govinddas v. ITO [1976] 103 ITR 123. In that case, the ITO had found that there was a partial partition of an HUF on November 15, 1955. From and after the said date the family ceased to be a partner in two firms, and only two of its erstwhile members were the partners in those firms in their individual capacity. The two firms were subjected to reassessments for the assessment years 1950-51 to 1956-57. Consequent on these reassessments, notices were issued to the family under s. 148 of the I.T. Act of 1961, and reassessments were made on 26th March, 1970, for the assessment years 1950-51 to 1956-57. On 25th March, 1971, the ITO purported to make certain orders applying s. 171(1) of the 1961 Act, by apportioning the tax assessed on the HUF for the relevant assessment years amongst the members proportionately. There were subsequent rectification orders in relation to the amount allocated among the members of the HUF.
29. The members of the family challenged the orders passed by the ITO, which had the effect of imposing personal liability on them in relation to the tax allocated among them. Section 171(6) and (7) enables the ITO to allocate the tax liability among the members and the recover from them personally the share of the tax liability so allocated. This led to the filing of writ petition challenging the action of the ITO on the ground that where the assessment of the HUF was made under the provisions of the Indian I.T. Act of 1922, there was no provision for imposing a personal liability on the members of the HUF. The High Court held that such personal liability could be cast on the members of the HUF under sub s. (6) read with sub-s.(7) of s. 171. The Supreme Court pointed out that s. 171(6) applied only to the situation where the assessment of an HUF was completed under the provisions of the Act and that it could have no application where the assessment of an HUF was completed under the provisions of the 1922 Act. As section 25A of 1922 Act did not impose any personal liability on the members in cases of partial partition, applying s. 171(6) would be to give a retrospective operation to that provision; such operation could be given either by the express language or by necessary implication. It was further held that s. 297(2)(d)(ii) of the Act of 1961, which was sought to be applied in that case and which contains the words "all the provisions of this Act shall apply accordingly", merely referred to the machinery provided under the new Act and did not import any substantive provision of the new Act. It was also held that only the machinery of assessment was attracted and not the other provisions.
30. It may be seen that the controversy in that case was whether the words contained in s. 297(2)(d)(ii) would attract the operation of s.
171. Section 297(2)(d) provides :
"(2) Notwithstanding the repeal of the Indian Income-tax Act, 1922 (11 of 1922) (hereinafter referred to as repealed Act), - ........
(d) where in respect of any assessment year after the year ending on the 31st day of March, 1940, -
(i) a notice under section 34 of the repealed Act had been issued before the commencement of this Act, the proceedings in pursuance of such notice may be continued and disposed of as if this Act had not been passed;
(ii) any income chargeable to tax had escaped assessment within the meaning of that expression in section 147 and no proceedings under section 34 of the repealed Act in respect of any such income are pending at the commencement of this Act, a notice under section 148 may, subject to the provisions contained in section 149 or section 150, be issued with respect to that assessment year and all the provisions of this Act shall apply accordingly."
31. It is in the context of s. 297(2)(d)(ii) that it was held that only the machinery provisions were attracted, and that s. 171, which was considered to be a substantive provision throwing a liability on the individual members, was held to be not attracted. As section 297(2)(f) or (g) are not worded in the same manner as in s. 297(2)(d), it is not possible to apply the above decision.
32. The contention of the learned counsel for the assessee is that, in any event, only the procedural part of s. 271 would be attracted and not the substantive part relating to the minimum penalty leviable. We do not consider that s. 271 can be split up in this manner. In the case before the Supreme Court it was possible to consider that s. 143 or s. 144 of the new Act was alone applicable, and that s. 171 could not also be applied. The application of s. 143 or s. 144, as the case may be, was possible without reference to s. 171. It was in that context it was held that s. 171 was not attracted. In the present case it is not possible to split up s. 271 as procedural in part and substantive in part, as it is an integral provision, involving certain consequences if the conditions contemplated for the levy of penalty were established. Excluding the portion of the provision relating to minimum penalty would be to rewrite the provision. The statute has to be taken as it is, and, no liberty can be taken with it. We, therefore, see no substance in the submission that only the machinery part of s. 271 could be attracted.
33. Thus, considered from any aspect, there is no scope for accepting any of the submissions of the assessee. Consequently, the question referred is answered in the affirmative and in favour of the revenue.
34. Before parting with the case, we think it necessary to refer to one aspect which has escaped the attention of all the authorities so far. The assessee filed on February 22, 1969, a petition under s. 271(4A) (annex C-2 to the case stated), in which he agreed to pay a penalty of 5% of the tax to be levied on the basis of the disclosure. Section 271(4A) was added by the I.T. (Amend) Act, 1965, with effect from March 12, 1965, and was deleted by the T.L. (Amend) Act, 1970, with effect from April 1, 1971. This provision gave power to the Commissioner to reduce or waive the amount of minimum penalty, if he was satisfied that such person had, voluntarily and in good faith, made a full and true disclosure of the particulars of his income. It is not clear from the records why the Commissioner did not think it proper to act on this provision himself, and, instead, only recommended levy of 5% on the tax as penalty. The ITO was obviously of the view that s. 271 was applicable and, as the minimum penalty leviable exceeded Rs. 1,000, the levy of penalty had to be dealt with by the IAC. The IAC levied 20% of the tax as penalty presumably on the view that the penalty was leviable under s. 271(1)(c) as it was in force for some years. That provision, to the extent material, ran, until it was substituted, with effect from April 1, 1968, as follows :
"If the Income-tax Officer......... in the course of any proceedings under this Act, is satisfied that any person....
(c) has concealed the particulars of his income or furnished inaccurate particulars of such income.
he may direct that such person shall pay by way of penalty, -
(iii) in the cases referred to in clause (c), in addition to any tax payable by him, a sum which shall not be less than twenty per cent. but which shall not exceed one and a half times the amount of the tax, if any, which would have been avoided if the income as returned by such person had been accepted as the correct income."
By the Finance Act, 1968, a new clause (iii) was inserted, and the new clause ran as follows :
"(iii) in the cases referred to in clause (c), in addition to any tax payable by him, a sum which shall not be less than, but which shall not exceed twice, the amount of the income in respect of which the particulars have been concealed or inaccurate particulars have been furnished."
35. The amended provision, in force from April 1, 1968, linked the quantum of penalty to the amount of income concealed, as contrasted with the tax avoided which was relevant before the amendment. The penalty order in this case was passed on March 15, 1972, and the provision fixing the minimum of 20% was not in force. The penalty levied in this case is thus based on a provision which was not in existence on the date of levy. It would have been necessary to consider the legality of the penalty order, if such a question had been raised by the department. The assessee would be prejudiced or put in a worse position than he is as a result of the Tribunal's order, if we were to hold that the minimum penalty leviable is equal to the income concealed. We would, therefore, leave the anomaly there. We thought it necessary to refer to this aspect only because we do not want it to be understood as if we are in any way affirming the correctness of the order of penalty in so far as aspects other than those dealt with earlier are concerned.
36. The revenue will be entitled to its costs. Counsel's fee Rs. 500 one set.