Penalty law follows assessment completion date; disrupted HUF cannot be penalised for a later year after it ceased to exist.

Penalty proceedings were treated as independent of assessment, so the governing law was the law in force when assessment was completed. On that basis, section 297(2)(g) of the Income-tax Act, 1961 applied to penalty proceedings completed after 1 April 1962 even for earlier assessment years, and the prior disruption of the Hindu undivided family did not confer any vested right to avoid the new penalty regime. However, for the later assessment year where the family had already disrupted before the year of account began, the non-existent HUF could not be treated as an assessee in default, so penalty under section 221 was not sustainable for that year.

---

---

Issues: (i) Whether penalty proceedings initiated after 1 April 1962 in respect of an assessment year ending on 31 March 1962 or earlier are governed by the Income-tax Act, 1961, even where the Hindu undivided family had disrupted before the Act came into force; (ii) whether penalty under section 221 of the Income-tax Act, 1961 could be levied against the assessee-HUF for the assessment year 1961-62 and 1962-63.

Issue (i): Whether penalty proceedings initiated after 1 April 1962 in respect of an assessment year ending on 31 March 1962 or earlier are governed by the Income-tax Act, 1961, even where the Hindu undivided family had disrupted before the Act came into force.

Analysis: Penalty proceedings were treated as independent of assessment proceedings, and the appropriate stage for levy of penalty was held to arise only after completion of assessment. On that footing, the law applicable to penalty was the law in force on the date the assessment was completed. Section 297(2)(g) of the Income-tax Act, 1961 was held to attract the penalty provisions of the 1961 Act to assessments completed on or after 1 April 1962, even if they related to earlier years, and the provisions were to operate mutatis mutandis. The objection based on the pre-1961 disruption of the family was rejected as the assessee had no vested right to avoid the penalty law that came into force before the assessment was completed.

Conclusion: The question was answered in favour of the Revenue; penalty under the 1961 Act was leviable notwithstanding the prior disruption of the Hindu undivided family.

Issue (ii): Whether penalty under section 221 of the Income-tax Act, 1961 could be levied against the assessee-HUF for the assessment year 1961-62 and 1962-63.

Analysis: For the assessment year 1962-63, the family had already disrupted before the commencement of the year of account, so the non-existent Hindu undivided family could not be treated as an assessee in default. As to the additional objection that no notice of demand had been served, that contention was not entertained because it had not been raised before the subordinate authorities, and in any event the record indicated service of notice on the assessee.

Conclusion: The question was answered in favour of the Revenue for the 1961-62 assessment year and against the Revenue for the 1962-63 assessment year, with the levy under section 221 not sustainable for 1962-63.

Final Conclusion: The reference was disposed of by upholding the applicability of the 1961 Act to penalty proceedings completed after its commencement, while holding that penalty could not be sustained against the disrupted family for the later assessment year.

Ratio Decidendi: For penalty purposes, the controlling date is the completion of assessment, and penalty provisions in the later Act apply to earlier assessment years when the assessment is completed after the new Act comes into force; however, a disrupted Hindu undivided family cannot be treated as liable for penalty for a period when it no longer existed.

---