Retrospective penalty liability barred where a registered firm was not punishable under the law when the default occurred.

A registered firm that was not itself liable to pay tax could not be penalised under Section 28 for non-compliance with a notice under Section 22(4) of the Income-tax Act, 1922, because the law in force on the date of default did not authorise such penalty. The later amendment treating a registered firm as unregistered could not be applied retrospectively to create a new offence or fasten liability for conduct that was not punishable when committed. The penalty was therefore invalid and could not be sustained against the assessee.

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Issues: Whether a penalty could validly be imposed on a registered firm for failure to comply with a notice under Section 22(4) of the Income-tax Act, 1922, in light of the subsequent amendment to Section 28.

Analysis: A registered firm, by virtue of Section 23(5), was not itself liable to pay tax, and the penalty under Section 28 could attach only to an assessee liable to tax. On the date of the default and notice, the law did not authorise a penalty against a registered firm for such non-compliance. The later amendment seeking to treat a registered firm as unregistered could not be given retrospective effect so as to create a new offence and fasten liability for an act which was not punishable when committed.

Conclusion: The penalty was invalid and could not be sustained against the assessee.

Final Conclusion: The reference was answered in the negative, affirming that no penalty could lawfully be imposed on the registered firm on the facts found.

Ratio Decidendi: A statutory amendment cannot retrospectively create penalty liability for a default that was not punishable under the law in force when the default occurred, especially where the assessee was not otherwise liable to tax.

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