The Judgment of the Court was delivered by
Ramaprasada Rao, J.:— In this tax case four assessment years are involved, 1949–50, 1951–52, 1953–54 and 1954-55. The Income-Tax Officer instituted proceedings against the applicant under section 28(1)(b) so far as the assessment years 1949–50 and 1954–55 were concerned and under section 28(1)(c) for the assessment years 1951–52 and 1953-54. As a result of such proceedings, penalties were imposed for the assessment years in question for such non-production of accounts and concealment of income. It is not in dispute that the assessments for the years in question were completed and became final. Such assessments sprung from the returns voluntarily submitted by the applicant as an individual and the revenue also treated him as an individual during the material times when assessment proceedings were originally initiated. The Income-Tax Officer, in exercise of his jurisdiction under section 28 of the Act, levied varied amounts of penalty for the irregularities mentioned above on September 27, 1958, and March 31, 1959, under sections 28(1)(b) and 28(1)(c). It may be noted, however, that the applicant contended that the levy of penalty was not justified and for the first time also contended before the Appellate Assistant Commissioner that during the assessment years in question the applicant was wrongly assessed in the status of an individual and that he ought to have been assessed in the status of a Hindu undivided family, and since the Hindu undivided family became disrupted in 1956, the levy of penalty on the Hindu undivided family after its disruption was illegal and even the initiation and the conclusion of the proceedings against the applicant as an individual and as if he was liable to pay the penalty would equally be illegal. The applicant relied upon an order of the Income-Tax Officer dated December 30, 1961, under section 25A, by which the revenue was satisfied that there has been a complete partition in the family with effect from April 23, 1956. While passing the order under section 25A, the Income-Tax Officer was satisfied that there was evidence to show that the properties and the business built up by the applicant came out of joint family nucleus. Based on such a finding and record made by the revenue under section 25A, the applicant canvassed the legality and propriety of the penalty proceedings and the sustenance of such penalty by the department. The applicant was unsuccessful before the Appellate Assistant Commissioner, and so too before the Tribunal. The Tribunal, however, dealing with the contentions of the applicant, held that, on merits, the levy was justified and on the question of law raised by the applicant it was of the view that the applicant should not be allowed to raise this question as he knew the existence of the Hindu undivided family on the relative dates, when he submitted returns as an individual, and he having induced the revenue to pass orders as if his status was that of an individual, he cannot be allowed to reprobate and take up the position that the earlier assessments were wrong and the person involved in the assessments had the status of a Hindu undivided family. On this sole ground the Tribunal refused to interfere. On a request by the applicant, the following question has been referred to this court for us to render our answer thereon:
“Whether, on the facts and in the circumstances of the case, having regard to the order dated December 30, 1961, under section 25A, the levy of penalty under section 28(1)(b) of the Indian Income-Tax Act, 1922, for the assessment years 1949–50 and 1954–55 and under section 28(1)(c) of the said Act for the assessment years 1951–52 and 1953–54 is valid?”
2. The impugned penalty notices were issued to the applicant in the status of an individual. The merits thereto are not canvassed in this reference.
3. The legality and sustenance of the same is questioned. The levy of penalty is questioned by the applicant on the main ground that on the date when the penalty was levied by the revenue either under section 28(1)(b) or section 28(1)(c) of the Act, the family was not joint and such a factum of disruption of the family as envisaged by a deed of partition dated April 23, 1956, having been recorded by an order dated December 30, 1961, under section 25A(1) of the Act, the levy of penalty is not valid. It was so contended on the authority of S.A Raju Chettiar v. Collector of Madras [1956] 29 I.T.R 241. and M. Subba Rao and Nageswara Rao v. Commissioner of Income-Tax [1957] 31 I.T.R 867., that the taxing officers had no jurisdiction to levy of penalty. The argument proceeds that the order under section 25A(1) of the Act irretrievably recognises a Hindu undivided family until April 23, 1956, and thereafter “the person” of a Hindu undivided family being absent no proceedings to impose penalty can be initiated or penalty levied in consequence thereof on such a non-existing person. The fact that, during the assessment years in question, the applicant purported to submit returns as an individual or the consequential assessments made on him during the material period as an individual would not make any difference, if, as a matter of fact, there is no dispute that the assessments should have been made in those years on the Hindu undivided family and not on the individual as such. Mr. K. Srinivasan refers to the order made under section 25A(1) wherein it is stated that the assessee has produced evidence to show that the house properties and the business built up by the applicant have come out of family nucleus. Strong reliance is placed on the remand report of the Income-Tax Officer dated March 11, 1961, to support the argument that the income assessed in the hands of the applicant during the relevant years should be deemed to be the income of the Hindu undivided family. Whilst thus the applicant intends to avoid the penalty, the revenue contends that an order under section 25A(1) being prospective in operation and since penalty proceedings are in effect to impose additional tax, the applicant cannot complain. Mr. Balasubrahmanyan proceeds that the ratio in Commissioner of Income-Tax v. K.M.N.N Swaminathan Chettiar applies to the instant case. His further argument is that, for the assessment years 1949–50 and 1954–55, penalty was imposed because of non-production of accounts and for the years 1951–52 and 1953–54 on the basis of concealment of income. Such contumacies ought not to be ignored without being noticed by the revenue, as under section 28 penalty is imposed as part of machinery for assessment of tax liability and, though it is designated as penalty, it is additional tax. Mr. Balasubrahmanyan, however, rightly conceded that the reasoning of the Tribunal that the levy of penalty cannot be challenged because the applicant filed returns earlier as an individual and allowed assessments to be made as if “the person” concerned is an individual and therefore it cannot be presumed that there was ever a joint family at all during the relevant years, is not supportable.
4. Under the Income-Tax Act, a person includes a Hindu undivided family. Section 3, which is the charging section, enables the revenue to tax the total income of the previous year of every Hindu undivided family. No option is given to the officer to elect and assess individual coparceners as is available to him in the case of individual members belonging to an association of persons. Once the factual existence of a Hindu undivided family is conceded either directly or indirectly, it is not open to the Income-Tax Officer to assess individual members thereof during the continuance of such an united family. That such a Hindu undivided family existed till April 23, 1956, is indisputable, since the order under section 25A(1) though invariably posterior to the date of disruption of the joint family, virtually concedes the existence in fact of such a family until the date of partition. The order under section 25A(1) recording that a partition has been effected is only declarative of the united existence of the Hindu family till the date of partition. To mean otherwise, would lead to anomalous results. The order under section 25A(1), which is necessarily based on a deed of partition and the evidence adduced in support thereof, is bound to be on a date later than the partition deed. Once the order is recorded, it is indisputable that, the revenue recognises that, prior to the date of partition, there was a Hindu undivided family and, after the partition it ceased to exist. In this case, the order under section 25A(1) was passed on December 30, 1961, recording a partition on April 23, 1956.
5. It follows that the family of which the applicant was a member was a Hindu undivided family till April 23, 1956. The assessments made on the applicant during the relevant years as an individual is distinct and separate and is not relatable or referable to the Hindu undivided family of which he was a member. Admittedly, he was not assessed as a karta of the family, nor did he represent himself as such. No doubt, it appears strange, in the peculiar circumstances of this case, as to how an order under section 25A(1) was recorded at all. But having been so recorded, it has to be fully implemented. Therefore, his conduct, however contumacious it may be, cannot be attributed to the Hindu undivided family, which was concurrently in existence at that time as a legal person under the fiscal law who can be charged to tax as a distinct legal entity. There is no estoppel by conduct in such cases. The reasoning of the Tribunal is, therefore, not sound.
6. If such is the only plausible interpretation and the legal consequence of an order recorded under section 25A(1), can penalty be imposed on a Hindu undivided family which did not exist factually on the date of initiation of such proceedings and on the date when the order for levy of penalty is made? The query has to be answered in the negative. Though, as laid down by the Supreme Court in C.A Abraham… v. Income-Tax Officer, Kottayam…., and in Commissioner of Income-Tax v. Bhikaji Dadabhai & Co., the penalty imposed under a taxing statute upon a person in view of his dishonest or contumacious conduct is in the nature of an additional tax, yet the fundamental concept which springs from the above is that the “person” on whom the “additional tax” is levied or sought to be levied must be the same person and should be in existence on the date of the order. As pointed out by the Supreme Court in Additional Income-Tax Officer, Cuddapah v. Thimmayya, the Income-Tax Act contains no machinery authorising the Income-Tax Officer to re-open, under section 34 of the Act, an assessment of a Hindu undivided family relying upon an order recorded under section 25A(1) subsequent to the passing of the assessment order and seek to subvert orders which have become final. In principle, the jurisdiction to levy penalty in such circumstances is not in any way different. Viewing penalty as additional tax, the Income-Tax Officer may not be in a position to impose such penalty on a Hindu undivided family which he has solemnly recorded as having been partitioned. The decision in Commissioner of Income-Tax v. K.M.N.N Swaminathan Cheltiar relied upon by Mr. Balasubrahmanyan is not applicable. That was a case where the individual, who was a coparcener in the quondam Hindu undivided family and who was served with a notice under section 34, submitted a return as karta of the family. This fact was noticed by the learned judges and the decision apparently rested on such a factual finding. Again the Income-Tax Officer cannot, after being apprised of an order under section 25A(1), initiate or levy the penalty or sustain it. The orders for imposing penalty under section 28(1)(b) for the years 1949–50 and 1954–55 were made on September 27, 1958, and March 31, 1959, respectively. So also the orders under section 28(1)(c) for the years 1951–52 and 1953–54 were made on September 27, 1958, and March 31, 1959, respectively. By then the family became divided, because the deed of partition was on April 23, 1956. While canvassing the propriety of the levy of penalties as above, the applicant raised before the revenue that he was wrongly describing himself as assessee and that the income ought to have been assessed as on a Hindu undivided family.
7. As already stated, this was enquired into and found in favour of the assessee resulting in the order under section 25A(1). After such a decision on status it is highly irregular to levy and sustain the penalty as an individual, on the only ground that the applicant's behaviour is blameworthy and indeed has no moral basis. In a tax law, morality has no place and it is the strict rule of fiscal law that has to prevail. In our view, even though the applicant has given the go-by to the voluntary state of affairs as maintained by him prior to the penalty proceedings, yet he can do so if he can. On the strength of the order under section 25A(1), what is the available remedy to the applicant if he is to suffer the penalty? He cannot file a suit against the other members of the joint family as section 67 prohibits him: see the decision in Kalwa Devadattam v. Union of India [1963] 49 I.T.R S.C 165.. He cannot avail himself of the provisions of the Act regarding rectification of assessments as such assessments were made on him as an individual. Should he still be bound to pay the penalty? In our view, he need not, if he could legally avoid it. As pointed out by a Division Bench of this court in Gnanambika Mills Ltd. v. Commissioner Of Income-Tax, Madras.:
“It should be remembered that though penalty may be in the nature of additional tax, the levy is of a penal character. We have already pointed out that the nature and scope of enquiry and the findings that should be arrived at in the two proceedings are not common and that though the findings in assessment or reassessment orders may be relevant and may even be prima facie evidence in proceedings under section 28, they are by no means conclusive in the latter proceedings.”
8. Ubi jus ibi remedium. The applicant has a right to invoke the order under section 25A(1) to maintain that penalty cannot be sustained on a non-existent Hindu undivided family. Reliance was, therefore, rightly placed by Mr. Srinivasan on the ratio in S.A Raju Chettiar v. Collector of Madras. The learned judges observed:
“In order that proceedings under section 28 of the Income-Tax Act for imposing a penalty on a Hindu undivided family may be initiated two requirements have to be satisfied: (i) the family must be in existence when the proceedings are initiated, and (ii) it must also be in existence on the date the order imposing the penalty on that family as a ‘person’ is passed.”
9. In the instant case at least the second requirement is absent. Again, Subba Rao C.J, as he then was, speaking for the Division Bench in M. Subba Rao & Nageswara Rao v. Commissioner of Income-Tax, held:
“….that, though section 25A of the Income-Tax Act makes the divided members of a Hindu undivided family jointly and severally liable for the tax payable by the undivided family there is no provision in the Income-Tax Act authorising the taxing authorities to levy a penalty on the members of a family after they have become divided in respect of concealment of income of the family, and that the penalty imposed could not, therefore, be recovered from the two members after the disruption of thae family.”
10. We have in more places than one pointed out that to sustain such a penalty would be to ignore totally the impinge, content and legal effect of the order recognising the partition in the family as evidenced by the deed of partition dated April 23, 1956.
11. In the result the query is answered in the negative and in favour of the assessee with costs. Advocate's fee Rs. 250.