TaxTMI 
TaxTMI 
2004 (4) TMI 40
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....ied in confirming the order passed by the Appellate Assistant Commissioner holding that as the penalty was imposed on the firm for delay in filing the return, no penalty was leviable on the assessee, who was a partner of the firm under section 271(1)(a) of the Income-tax Act, 1961?" In all the ten cases, the same question has been referred and in five reference cases, namely, Tax Cases Nos. 27,28,29,30 and 33 of 1989, the opposite party is Md. Ehtesam and in the other five Tax Cases Nos. 31,32,34,35 and 36 the opposite party is Md. Ezaz. The matter relates to imposition of penalty for not filing the return within time for the assessment years 1973-74, 1974-75, 1975-76, 1976-77 and 1977-78. The matter also relates to the assessment years 1....
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....d as there was no reasonable cause for not filing the return within time. Both the partners appeared and filed their show cause and took three pleas for not levying the penalty. The said pleas are as follows: "(i) the only source of income is share income from the firm. Since the firm did not file any return, he could not know his share income; (ii) the assessment of the firm was made as URF and his share income had been taken which was exempted under section 86(iii); and (iii) the proceeding under section 147(a) initiated was, in fact, ab initio without jurisdiction, particularly because petition under section 273A and under section 245C filed are pending." The assessment proceedings concluded and best judgment assessment was made unde....
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....nt years 1973-74 to 1977-78 and, accordingly, cancelled the penalty. The Department filed an appeal before the Income-tax Appellate Tribunal, Patna, against the orders passed by the appellate authority and the Tribunal concurred with the opinion of the appellate authority and held that we agree with the orders passed by the appellate authority that the penalty orders in the cases against the assessees/opposite parties were not justified. The Tribunal did not refer the matter to this court at the instance of the Department and thereafter an application was filed before this court for a direction to the Tribunal to refer the aforesaid question of law and this court by order dated July 17,1990, directed the Tribunal to refer the aforesaid qu....
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....f separate persons and as such the imposition of penalty on the firm is, in substance, imposition on the partners and once the penalty which is the nature of additional tax has been imposed on the firm, which in substance, is penalty on the partners, the partners cannot again be penalised under section 271(1)(a) of the Act. He also submitted that even if it is treated that the firm and partners are different entities and penalty can be imposed against both under section 271(1)(a) of the Act, in view of the admitted fact that the only source of income of the partners was the income from the firm and as the firm has not filed the return, the partners did not know the share of the income and as such they also did not file the return and theref....
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....as been levied for concealment of income of the firm, penalty cannot be imposed with regard to concealment of the income in the hands of the partner. In this connection it is useful to refer to the relevant paragraph of the said judgment: "Now, a firm, even though it is an assessable unit for purposes of the income-tax, is not a legal person or a juridical entity. Thus, any tax imposed upon a firm is in fact a tax upon the partners. That is why a provision has been made in clause (iii) of section 86 that tax is not payable by a person who is a partner of an unregistered firm in respect of a portion of the income of the firm upon which tax is payable by the firm. This provision has been enacted to avoid double taxation of the same income in....
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.... question of double penalty was not considered at all in the case of Amritlal Somabhai [1979] 116 ITR 833 by the Madhya Pradesh High Court. Thus, the Punjab and Haryana High Court also held that once the penalty has been imposed upon the firm under section 271(1)(a), penalty cannot be imposed again on the partners as the penalty imposed on the firm is, in fact, a penalty imposed on the partners. The settled law is that the firm is not a legal entity even though it has some attributes of personality. In other words, it is a collection of separate persons. It is also settled law that the penalty is an additional tax and in a case where the only source of partner is income of the firm and the firm has been imposed penalty for not filing the r....