Appeal No 434 of 1960
Appeal by special leave from the judgment and order dated October 4 1956 of the Hyderabad High Court in ITR No 1165 of 1954 55
K N Rajagopal Sastri and D Gupta for the appellant
A V Viswanatha Sastri SN Andley J B Dadachanji Rameshwar Nath and P L Vohra for the respondents
February 22
The Judgment of the Court was delivered by SHAH J
Ms
Bhikaji Dadabhai  Co herein
after called the assessees owned an oil mill at Khammamath in the area of the former State of Hyderabad
For the year of assessment Fasli 1357 October 1 1946 to September 30 1947 the assessees returned an income of Rs 50384 
The Income tax Officer found that the books of account maintained by the assessees were unreliable and by his order dated February 10 1950 he assessed their total income at Rs 163131 
The Income tax Officer had before finalising the assessment issued on December 22 1949 a notice to the assessees under section 40 of the Hyderabad Income tax Act requiring them to show cause why penalty should not be imposed upon them and by order dated October 31 1951 directed the assessees to pay by way of penalty Rs 42000 in addition to the tax
This order was confirmed in appeal by the Appellate Assistant Commissioner
In appeal the Income tax Appellate Tribunal observed that by virtue of the provisions of section 13 1 of the Indian Finance Act 1950 the Hyderabad Income tax Act had ceased to have effect and as the power to impose penalty under section 40 of the Hyderabad Income tax Act was not saved the order imposing penalty was without jurisdiction The Tribunal observed 925  The Income tax Officer may have been in error in imposing the penalty but there was no appeal against the order of the Income tax Officer to the Appellate Assistant Commissioner
Section 421 of the Hyderabad Income tax Act gives a right to an assessee to appeal if he objects to an order under section 40 made by an Income tax Officer
Section 40 ceased to have effect
There can therefore be neither an order under section 40 nor an appeal against the order if an orderhas been wrongly made
The remedy of the assessee lies elsewhere and not by way of an appeal to the Appellate Assistant Commissioner and on that view dismissed the appeal
At the instance of the assessees the following questions were referred by the Tribunal to the High Court of Judicature at Hyderabad 1
Whether on 31 10 1951 the Income tax Officer Warrangal Circle had the power to impose a penalty under section 401 of the Hyderabad Income tax Act in respect of the assessment for the year 1357 F  2
Whether the assessee had a right to appeal against the order of the Income tax Officer imposing the penalty  3
If the Appellate Assistant Commissioner did not have jurisdiction to hear the appeal whether the order of the Appellate Assistant Commissioner is a nullity and therefore the order of the Income tax Officer erroneous though it may stand until it is set aside by a competent authority  The High Court answered the first and the third questions in the negative and the second question in the affirmative
The High Court observed that the Appellate Assistant Commissioner had power to entertain the appeal in which the question of the power of the Income tax Officer to impose a penalty was challenged and the decision of the Appellate Assistant Commissioner was not without jurisdiction
The High Court also proceeded in a petition separately filed by the assessees to direct the Income tax Appellate Tribunal to set aside the order of the Income tax Officer imposing a penalty as a logical 926 consequence of the view the Tribunal had taken regarding the absence of power in the Income tax Officer to levy a penalty
Against the order passed by the High Court this appeal with special leave is preferred
We are in agreement with the High Court that the appeal to the Appellate Assistant Commissioner was competent
Even if the Income tax Officer committed an error in passing the order imposing penalty because the conditions necessary for invoking that jurisdiction were absent an appeal against his order on the ground that he was not competent to pass the order did lie to the Appellate Assistant Commissioner
The Appellate Assistant Commissioner is under the Act constituted an appellate authority against certain orders of the Income tax Officer and exercise of that jurisdiction is not made conditional upon the competence of the Income tax Officer to pass the orders made appealable
The Appellate Assistant Commissioner had as a court of appeal jurisdiction to determine the soundness of the conclusions of the Income tax Officer both on questions of fact and law and even as to his jurisdiction to pass the order appealed from
We are however unable to agree with the High Court that because of the repeal of the Hyderabad Income tax Act by the Finance Act 1950 the power to impose a penalty in respect of the years preceding the date of repeal was lost
The State of Hyderabad merged with the Indian Union during the pendency of the proceedings before the Income tax Officer
Thereafter the Indian Legislature enacted the Finance Act 1950 which by sub section 1 of section 13 in so far as it is material provided  If immediately before the 1st day of April 1950 there is in force in any part B State any law relating to income tax or super tax that law shall cease to have effect except for the purposes of the levy assessment and collection of income tax and super tax in respect of any period not included in the previous year for the purposes of assessment under the Indian Income tax Act 1922  927 Manifestly by section 13 the Hyderabad Income tax Act ceased to have effect as from April 1 1950
But the operation of that Act in respect of levy assessment and collection of income tax and super tax in respect of periods prior thereto for which liability to Income tax could not be imposed under the Indian Income tax Act 1922 was saved
The Judicial Committee of the Privy Council in Commissioner of Income tax Bombay Presidency and Aden vs Messrs Khemchand Ramdas observed  One of the peculiarities of most Income tax Acts is that the word assessment  is used as meaning sometimes the computation of income sometimes the determination of the amount of tax payable and sometimes the whole procedure laid down in the Act for imposing liability upon the tax payer The Hyderabad Income tax Act also used the expression assessment  in different senses
In certain sections for instance sections 31 and 39 the expression is used as in the sense of mere computation of income in other sections it is used in the sense of determination of liability and in certain other sections in the sense of machinery for imposing liability and procedure in that behalf
By the Finance Act 1950 the Hyderabad Income tax Act was expressly kept alive in respect of periods which include the assessment year in question for purposes of levy assessment and collection of income tax
The High Court expressed the view that the word assessment in section 13 1 included the whole procedure for imposing liability upon the taxpayer but not to the procedure for imposing a penalty
They thought that the Hyderabad Income tax Act dealt with liability to pay income tax and penalty in distinct provisions both relating to imposition and recovery and that if the Legislature had intended to keep alive the Hyderabad Income tax Act for all purposes including the levy of penalty with respect to any particular year or years of assessment it could have said so in terms clear and unambiguous instead of limiting the operation only to  levy assessment and collection In the view of the High Court imposition of penalty 1 1938 LR 65 IA 236 928 was not a necessary concomitant or incident of the process of assessment levy and collection of tax
The High Court proceeded upon the view that by saving the Hyderabad Income tax Act for the purposes
of levy assessment and collection of income tax the entire procedure for imposing liability to pay tax and
for collection of tax was saved but penalty not being tax provisions relating to imposition of and collection of penalty did not survive the repeal of the Hyderabad Income tax Act
This Court considered in C A Abraham vs The Income tax Officer Kottayam1 the question whether the expression  assessment  as used in section 44 of the Indian Income tax Act included the procedure for imposition of penalty in respect of a dissolved firm and it was observed The expression assessment  used in these sections provisions of Ch
IV of the Indian Income tax Act is not used merely in the sense of computation of income and there is in our judgment no ground for holding that when by section 44 it is declared that the partners or members of the association shall be jointly and severally liable to assessment it is only intended to declare the liability to computation of income under section 23 and not to the application of the procedure for declaration and imposition of tax liability and the machinery for enforcement thereof
By section 28 the liability to pay additional tax which is designated penalty is imposed in view of the dishonest or contumacious conduct of the assessee This court regarded penalty as an additional tax imposed upon a person in view of his dishonest or contumacious conduct
It is true that under the Hyderabad Income tax Act distinct provisions are made for recovery of tax due and penalty but that in our judgment does not alter the true character of penalty imposed under the two Acts
Nor are we able to agree that because in respect of the  the Indian Tariff Act 1934 the  the Central Excise and Salt Act 1944 and the Indian Post Offices Act 1898 which were extended 1  929 to the whole of India by section 11 of the Finance Act 1950 and the provisions corresponding thereto were repealed by the proviso and it was expressly provided that the previous operation of the corresponding law or any penalty forfeiture or punishment ordered in respect of an offence committed against any such law or any investigation legal proceeding or remedy in respect of such penalty forfeiture or punishment or any such investigation legal proceeding or remedy may be instituted continued or enforced and any such penalty forfeiture or punishment may be imposed as if the Act had not been passed that under sub section
1 of section 13 it was intended to prohibit the authorities otherwise competent in that behalf fro commencing or continuing the proceeding for levying penalty even if the circumstances justify such a course
The scheme of the statutes specified in section 11 and which are repealed by sub section
2 of section 13 are somewhat different from the scheme of the Indian Income tax Act
Because by sub section
1 of section 13 of the Finance Act 1950 the Hyderabad Income tax Act was to cease to operate as on April 1 1950 except for the purposes of levy assessment and collection of income tax and super tax whereas in respect of other Acts specified in section 11 substantially provisions similar to those contained in section 6 of the General Clauses Act were enacted an intention that proceedings for penalty may be commenced and continued under the Acts specified in section 11 whereas no such proceedings may be commenced or continued under the Hyderabad Income tax Act is not indicated
We are of the view that the High Court erred in holding that the proceedings for imposing the penalty could not be continued after the enactment of section 13 1 of the Finance Act 1950
The appeal will therefore be allowed and the answer to the first question will be recorded in the affirmative
On the view taken by us it is unnecessary to passany orders on the petition under article 226 of the Constitution which was presented to the High Court
The appellant will be entitled to his costs of the appeal in this Court and in the High Court
Appeal allowed


Summary:
Against an order imposing penalty under section 461 of the Indian Income tax Act on account of failure to pay an instalment of Income tax an appeal was preferred
Though the memorandum of appeal was presented with the period of limitation the tax was paid after the period of limitation prescribed for presenting the appeal had expired
Held that the expression  No appeal shall lie  in the proviso to section 302 of the Indian Income tax Act means that the appeal cannot be held to be properly filed until the tax is paid and not that no memorandum of appeal may be presented
The effect of proviso to section 30 sub section
1 read with sub section
2 of the Act is that the appeal will be deemed to be filed on the date when the tax due is paid and the question will then have to be decided whether there is sufficient cause for condonation of delay