TaxTMI 
TaxTMI 
1969 (3) TMI 2
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....come-tax Act, 1922, he directed the respondent-firm to pay Rs. 60,000 as penalty. The Appellate Assistant Commissioner in appeal confirmed the order. The Income-tax Appellate Tribunal rejected the contention of the respondent that the order imposing penalty upon the firm after the original firm was dissolved was without jurisdiction. The Tribunal referred, at the instance of the respondent-firm, the following question to the High Court of Patna for opinion: "Whether, on the facts and in the circumstances of the case, the imposition of penalty under section 28(1)(c) of the Indian Income-tax Act, upon the petitioner-firm (respondent) as constituted at the time of levy of penalty was legal and valid ?" The High Court called for a supplem....
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....umption that the source of the power of the Income-tax Officer to impose a penalty was in section 44 of the Indian Income-tax Act, 1922. In so assuming, in our judgment, they were in error. Section 44 of the Indian Income-tax Act, 1922, as it stood at the relevant date, in so far as it is material, provided: "Where any business, profession or vocation carried on by a firm...has been discontinued,...every person who was at the time of such discontinuance...a partner of such firm...shall, in respect of the income, profits and gains of the firm...be jointly and severally liable to assessment under Chapter IV and for the amount of tax payable and all the provisions of Chapter IV shall, so far as may be, apply to any such assessment." The se....
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....t of assessment [sections 3 and 2(2)], and its income is computed under clauses (3) and (4) of section 23 as the income of any other unit. Section 25(1) relates to assessment in case of a discontinued business--whether the business is carried on by a firm or by any other person....... Then there is the special provision relating to assessment when at the time of making an assessment it is found that a change has occurred in the constitution of a firm, or a firm has been newly constituted: section 26(1). The date on which the change has occurred is immaterial: it may be in the year of account, in the year of assessment or even after the close of the year of assessment. The Income-tax Officer has under section 26(1) to assess the firm as cons....
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.... the firm. Where the firm is dissolved, but the business is not discontinued, there being change in the constitution of the firm, assessment has to be made under section 26(1), and if there be succession to the business, assessment has to be made under section 26(2). The provisions relating to assessment on re-constituted or newly constituted firms, and on succession to the business are obligatory. Therefore, even when there is change in the ownership of the business carried on by a firm on re-constitution or because of a new constitution, assessment must still be made upon the firm. When there is succession, the successor and the person succeeded have to be assessed each in respect of his actual share. This scheme of assessment furnishes t....
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....furnishes inaccurate particulars of such income, to direct that such person shall pay by way of penalty, a sum of money not exceeding the amount specified therein in addition to the income-tax and super-tax payable by such person. The expression "person" includes, for the purpose of section 28, a firm registered or unregistered. If there is re-constitution of the firm, by virtue of section 26, the Income-tax Officer will, in imposing the penalty, proceed against the firm. If there is discontinuance of the business, penalty will be imposed against the partners of the firm. Before the Tribunal and the High Court, the case was argued on the footing that section 44 alone was applicable. Whether under the terms of section 26 read with section ....