FALSHAW C.J. - These are six connected income-tax references (Nos. 34 to 39 of 1962) made to this court by the Commissioner under the provisions of section 66(1) of the Patiala Income-tax Act of 2001 Bk. arising out of the assessment to income-tax of six different firms, Messrs. Tulsi Dass Jashan Lal Kuthiala of Doraha, Messrs. Jaswant Rai Kalu Ram of Dhuri, Messrs. Bhagwan Singh Amrik Singh of Sangrur, Messrs. Walaiti Ram Ved Parkash of Sunam, Messrs. Kasturi Lal Sita Ram of Narwana and Messrs. Bhagwan Singh Amrik Singh-Gurbux Singh and Chanan Ram of Sangrur, in respect of the assessment year 2006 Bk., i.e., 1949-50.
In each case the Income-tax Officer had issued a general notice by publication in the press and other prescribed manners as required by section 22(1) of the Patiala Income-tax Act calling on all persons whose total income during the previous year exceeded the maximum amount which was not chargeable to income-tax to furnish returns of their total income and total world income during the relevant year within the prescribed period. The details are immaterial for the purpose of the question involved, it being sufficient to state that in the various cases either the return furnished by the assessee within the time was found to be incorrect or no return was filed within the prescribed period, and the income of the assessee was assessed after further proceedings in accordance with the provisions of the Act.
Section 28(1) of the Act read :
'28. (1) If the Income-tax Officer, the Appellate Assistant Commissioner of 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 sub-section (1) or sub-section (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 sub-section (4) of section 22 or sub-section (2) or section 23, or
(c) has 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...'
In each case proceedings were taken by the Income-tax Officer under section 28(1) as a result of which he found each of the assessees liable to pay penalty which varied in amount from Rs. 802.00 in the case of Messrs. Jaswant Rai Kalu Ram to Rs. 7,924.00 in the case of Messrs. Bhagwan Singh Amrik Singh-Gurbux Singh and Chanan Ram.
All the assessees filed appeals against the orders imposing these penalties and all the appeals were accepted by the Appellate Assistant Commissioner who set aside the orders imposing the penalties in a brief order which is in similar terms in each case as follow :
'Leaving aside the merits of the case a preliminary objection was raised that the Income-tax Officer had no jurisdiction to impose a penalty after the 1st of April, 1950, under the Patiala Income-tax Act. This view has also been accepted by the Kerala, Hyderabad and Punjab High Court : vide Velayudham v. Additional Income-tax Officer, Trivandrum; Bhikajee Dadabhai & Co. v. Commissioner of Income-tax and Nabadwip Chandra Roy v. Commissioner of Income-tax. I am, therefore, of the opinion that no penalty could have been imposed in this case after the 1st of April, 1950, under the Patiala Income-tax Act. The penalty of Rs........ imposed on.... is therefore wholly remitted.'
The amount of the penalty and the date of the order of the Income-tax Officer is different in each case.
The provisions of section 66 of the Patiala Income-tax Act are different in some respects from those of the corresponding section in the Indian Income-tax Act. It is provided in section 66(1 :
'66. (1) If in the course of any assessment under this Act or any proceedings in connection therewith a question of law arises, the Commissioner may, either on his own motion or on reference from any income-tax authority subordinate to him, draw up a statement of the case and refer it with his own opinion thereon to the High Court.'
Two questions have been framed by the Commissioner in each cas :
'(1) Whether in view of section 13 of the Indian Finance Act, 1950, penalty under section 28 of the Patiala Income-tax Act, 2001 Bk., could be levied for the assessment year 2006 Bk. (1949-50) after April 1, 195 ?
(2) Whether, on the facts and in the circumstances of the case, penalty of Rs....... levied by the Income-tax Officer was invali ?'
The appropriate amount is mentioned in the second question in each reference. It is clear from the statement of the case that the Commissioner considered the references necessary on account of the fact that the decision of the Hyderabad High Court, which was one of the three decisions all on the same point relied on by the Appellate Assistant Commissioner, had been overruled by the Supreme Court. The decision of the Supreme Court is in Commissioner of Income-tax v. Bhikaji Dadabhai and Co. It is clear that the provisions of the Hyderabad Income-tax Act was similar to those of the Patiala Act regarding the imposition of penalty, and Hyderabad, like the States comprising the Patiala and East Punjab States Union, had merged with the Indian Union. Section 13(1) of the Indian Finance Act of 1950 provide : 'If immediately before the 1st day of April, 1950, there is in force in any Part B State... any law relating to income-tax or super-tax... that law shall cease to have effect except for the purposes of the levy, assessment and collection of income-tax and super-tax in respect of any period not included in the previous year for the purposes of assessment under the Indian Income-tax Act, 1922...' The position after this law was enacted thus was that for assessment years after the 1st April, 1950, income-tax was to be assessed in States like Hyderabad and Pepsu in accordance with the provisions of the Indian Income-tax Act, but that assessments for the previous assessment years up to 1949-50 were to be covered by the provisions of the repealed State Act. The question which arose in these circumstances was whether the imposition of penalties under section 28(1) of the Patiala Income-tax Act, or the corresponding provisions in other Part B State Acts, was to be regarded as covered by the words 'for the purposes of the levy, assessment and collection of income-tax'. This point arose in references to the three High Courts, including this court, whose judgments were cited and followed by the Appellate Assistant Commissioner and all these courts were of the opinion that the imposition of penalties did not fall under 'the levy, assessment and collection of income-tax'.
However, on the appeal of the Commissioner of Income-tax, Andhra Pradesh, the Supreme Court took the contrary view and held that 'penalty imposed under a taxing statute upon a person in view of his dishonest or contumacious conduct was in the nature of an additional tax, and the fact that under the Hyderabad Income-tax Act distinct provisions were made for recovery of tax due and penalty did not alter the true character of penalty imposed under the Income-tax Acts of India and Hyderabad'. It was therefore held that the proceedings for imposing penalty initiated under section 40 of the Hyderabad Income-tax Act could be continued after the enactment of section 13(1) of the Finance Act, 1950, and the order levying penalty was therefore valid. This decision obviously settles the matter and in each case the answer to the first of the questions framed must be in the affirmative. The answer to the second question cannot be given without some qualification. It must be said that the levy of penalty as such was not invalid, but at the same time it is clear that some further order is called for from the Appellate Assistant Commissioner who has not gone into the merits at all in any of the cases, with the result that it will still be necessary to decide whether in each of the cases the order imposing the penalty was justified on the facts and circumstances of the cases and whether, if the imposition of any penalty was justified, the amount imposed in each case was appropriate.
Since the order of the Appellate Assistant Commissioner was based on the decisions of three High Courts, including this court, at the time when it was made, and the primary justifications of the references is the subsequent overruling of the basis of those decisions by the Supreme Court, I consider it is a fit case in which the parties may be left to bear their own costs.
A. N. GROVER J. - I agree.