Penalty against Hindu undivided family fails where the family had ceased to exist before levy under income-tax law.

Penalty proceedings under section 28 of the Income-tax Act, 1922 are distinct from assessment proceedings, and a Hindu undivided family must exist not only when the proceedings begin but also when penalty is actually levied. The provisions on partition and disruption, including section 25A, preserve liability for assessment purposes but do not extend that principle to penalty. Section 44 likewise does not validate penalty where the family has already ceased to exist. On that reasoning, penalty could not be sustained against the dissolved Hindu undivided family, and the matter was decided in favour of the assessee.

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Issues: Whether penalty under section 28(1)(c) of the Income-tax Act, 1922 could validly be levied on a Hindu undivided family after the family had ceased to exist before the date of levy.

Analysis: Penalty proceedings under section 28 stand on a different footing from assessment or reassessment under section 23. In the case of a Hindu undivided family, the existence of the family is necessary not merely when the proceedings are initiated but also when the penalty is actually levied. The provisions relating to partition and disruption, including section 25A, preserve the liability for assessment purposes and do not extend the same reasoning to penalty. Section 44 also does not assist the revenue, because the machinery of assessment there is tied to section 23 and not to penalty proceedings under section 28. The reference to section 34 in the later Supreme Court decision did not alter this position, as that case concerned reassessment and proceeded on the basis that the power to reassess was already available.

Conclusion: The levy of penalty was invalid in law, as the Hindu undivided family did not exist at the time of levy. The answer is against the revenue and in favour of the assessee.

Final Conclusion: Penalty under section 28 cannot be sustained against a Hindu undivided family unless the family exists both at the commencement of the penalty proceedings and at the stage of levy; the reference was therefore decided for the assessee.

Ratio Decidendi: Penalty proceedings under section 28 of the Income-tax Act, 1922 are distinct from assessment proceedings, and a Hindu undivided family must subsist not only when such proceedings begin but also when penalty is imposed.

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