Patna High Court
Kirkend Coal Co. vs Commissioner Of Income-Tax, Patna. on 27 January, 1964
Equivalent citations: [1964]52ITR953(PATNA)
JUDGMENT
The Kirkend Colliery was originally acquired by four persons in the year 1894 who carried on the business in partnership. Later on many other persons became interested in the partnership business either by inheritance, survivorship, gift or purchase. In the assessment year 1947-48 the following persons were partners of the fir :
Rs.
As.
Ps.
1. Butto Kristo Roy (H.U.F.) 0 2 8
2. Suniti Bala Devi 0 1 4
3. D.N. Chandra and others 0 4 0
4. Purnendu Narayan and others 0 1 0
5. Krishna Prasad Chatterjee and others 0 3 0
6. Kunj Behari Chandra 0 1 4
7. Lokenath Chandra 0 1 4
8. Mahadev Chandra 0 1 4 For the assessment year 1948-49 the Income-tax Officer started penalty proceedings under section 28 of the Income-tax Act and ultimately levied a penalty under section 28(1)(c) of the Income-tax Act upon the partnership firm. The order imposing penalty is dated the 30th July, 1954. Before the Appellate Tribunal the contention of the assessee was that at the time the order of penalty was made the original partnership firm had been dissolved because of the death of Butto Kristo Roy which took place on the 7th July, 1951. It was contended on behalf of the assessee that the partnership had been dissolved and there was reconstruction of a new firm and, therefore, penalty could not be levied upon the partners of the new firm for any concealment or omission made by the old partnership firm in the assessment proceeding. It appears that on the 7th July, 1951, Butto Kristo Roy died èand his share of 2 annas 8 pies was allotted to the share of Baidyanath Roy on account of a compromise in Partition Suit No. 69 of 1946. Subsequently, in the year 1952, Baidyanath Roy acquired an additional 5 annas 4 pies share of the colliery business and thus became the owner of 8 annas share. By that time the other 8 annas share of the colliery business was acquired by purchase by Bijali Kanti Roy. The result was that in the year 1952 the Kirkend Coal Company was owned by two partners having equal shares, namely, Baidyanath Roy having 8 annas share and Bijali Kanti Roy having the other 8 annas share. Therefore, at the time of the levy of penalty, that is, on the 30th July, 1954, the firm was constituted of two partners, namely, Baidyanath Roy and Bijali Kanti Roy, who had 8 annas share each. The Appellate Tribunal, however, rejected the argument of the assessee that the penalty could not be levied because of the dissolution of the old partnership firm.
Under section 66(1) of the Income-tax Act the Appellate Tribunal has submitted the following question of law for the determination of the High Cour :
"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 as constituted at the time of the levy of penalty was legal and valid?"
When the case came before us in the first instance we found that it was not possible for us to furnish an answer to the question of law referred to us by the Income-tax Appellate Tribunal unless an additional statement of facts was furnished under section 66(4) of the Income-tax Act. We accordingly directed the Income-tax Appellate Tribunal to submit a supplementary statement of the case. We directed the Income-tax Appellate Tribunal to submit its finding o : (1) whether there was a dissolution of the old partnership business constituted between the eight partners for the assessment year 1947-48; (2) at what point of time that partnership business was dissolved; and (3) whether the two partners, Baidyanath Roy and Bijali Kanti Roy, had entered into a new contract of partnership in the year 1952 with regard to the colliery business or whether they continued as partners of the old partnership business as constitution in the year 1947-48. In compliance with our order the Income-tax Appellate Tribunal has now submitted a further statement of the case. Its findings are (1) that the firm which carried on the business during the calendar year 1947 became dissolved on the 7th July, 1951, on the death of Butto Kristo Roy by virtue of section 42(c) of the Partnership Act; and (2) that with effect from the 28th April, 1952, the business was carried on by a partnership constituted of Baidyanath Roy and Bijali Kanti Roy under the instrument dated the 27th August, 1952. The Income-tax Appellate Tribunal has also found that the terms of the partnership which carried on the business during the calendar year 1947 were as set out in the partnership deed dated the 17th October, 1949.
Section 44 of the Indian Income-tax Act at the material time stood as follow :
"Where any business..... carried on by a firm...... has èbeen discontinued..... every person who was at the time of such discontinued..... 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 language of section 44 had been the subject-matter of interpretation by the Supreme Court in C.A. Abraham v. Income-tax Officer, Kottayam and in Commissioner on Income-tax v. S.V. Angidi Chettiar. It was held by the Supreme Court in both these cases that the expression "assessment" used in the sections of Chapter IV of the Income-tax Act is not used merely in the sense of computation of income, and when section 44 declares that the partners or members of the firm or association shall be jointly and severally liable to assessment, it refers to the liability to computation of income under section 23 as well as the application of the procedure for declaration and imposition of tax liability and the machinery for enforcement thereof. It was held accordingly that the imposition of penalty under section 28 in the assessment of a firm, which consisted of two partners, after the death of one of them, was legally valid. It was further held in both these cases that if in the process of assessment of the income of a firm which had discontinued its business, any other liability, such as payment of penalty under section 28 of the Income-tax Act or under section 25(2), or of penal interest under section 18A(4), (6), (7), (8) and (9) is incurred, by virtue of section 44, that penalty or penal interest may also be imposed, notwithstanding the discontinuance of the business. In view of the principle laid down by the Supreme Court it is manifest in the present case that the penalty could be legally imposed upon the partnership constituted for the assessment year 1948-49. This legal position was not disputed by learned counsel appearing on behalf of the assessee. It was, however, contended on its behalf that the penalty could not be legally imposed upon the partnership firm as it was constituted at the time of the levy of the penalty, namely, on the 30th July, 1954. On this date the partnership business was carried on by a new partnership constituted of Baidyanath Roy and Bijali Kanti Roy under the instrument of partnership dated the 27th August, 1952. In our opinion the argument put forward on behalf of the assessee is well founded must be accepted as correct. Upon the facts found by the Appellate Tribunal in the present case it is manifest that the levy of penalty could be legally imposed only upon the firm which was constituted by the eight partners mentioned above for the assessment year 1947-48. In view of the provisions of section 44 of the Income-tax Act as it stood at the material time the partners of that firm would be jointly and severally liable for the payment of the penalty imposed under section 28(1)(c) of the Act. It is, however, not open to the income-tax authorities to impose the èpenalty upon the new firm constituted on the 28th April, 1952, by a fresh partnership deed and constituted of Baidyanath Roy and Bijali Kanti Roy owning 8 annas share each in the business.
For these reasons we hold that in the facts and circumstances of this case imposition of penalty under section 28(1)(c) of the Indian Income-tax Act upon the petitioner firm as it was constituted at the time of the levy of penalty, namely, on the 30th July, 1954, was not legally valid. We accordingly answer the question of law referred by the Income-tax Appellate Tribunal in favour of the assessee and against the income-tax department. There will be no order as to costs with regard to this reference.
Question answered in the negative.