Case: Commissioner Of Income-Tax, Bihar &amp; Orissa,Patna Vs. M/S. Kirkend Coal Company

1. In determining the taxable income of the respondent firm for the assessment year 1948-49 the Income-tax Officer added to the income returned a sum of Rs. 1,60,000 as undisclosed receipts. The order was confirmed in appeal by the Appellate Assistant Commissioner, and by the Tribunal. The Income-tax Officer had in the meantime commenced a proceeding for the levy of penalty and in exercise of the power under Section 28 (1) (c) of the Indian Income-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.2. The Tribunal referred at the instance of the respondent firm the following question to the High Court of Patna foron 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 constitute at the time of levy of penalty was legal andThe High Court called for a supplementary statement of the case and pursuant thereto the Tribunal submitted a statement on the specified points raised by the order of the High CourtThe firm which carried on the business during the calendar year 1947 was dissolved on July 7, 1951 when Butto Kristo Roy, one of the partners, died.(2) During the previous year 1947 there was no instrument of partnership in existence, but the terms of the or partnership were the same as set out in the partnership deed dated October 17, 1949.(3) The business of the firm was continue with effect from July 8, 1951 by the new firm as successor to the business of the old firm. The terms of the partnership were the same as set out in the deed dated October 17, 1949 and the partners and their shares were also the same except that Baidyanath Roy took the place of Butto Kristo Roy.(4) With effect from April 28, 1952 the business was carried on by a partnership constituted by Baidyanath Roy and Bijali Kanti Roy under an instrument dated August 27, 1952. There was no dissolution of the firm, which was carrying on the business; there was only a change in the constitution of the old from AprilHigh Court held that penalty could be legally levied only upon the original firm constituted in the account year relevant to the assessment year 1948-49 and not upon the new firm constituted under the deed dated April 27, 1952.

Court's reasoning:
8. Section 44 therefore only applied to those cases in which there had been discontinuance of the business and not to cases in the business continued after reconstitution of the firm, or there was succession to the business. Cases of reconstitution of the firm or succession to the business of the firm are covered by Sections 26 (1) and (2).9. "Assessment" in Chapter IV of the Income-tax Act, 1922, includes a proceeding for imposition of penalty. Section 28 of the Act authorises the Income-tax Officer, if satisfied, in the course of any proceeding under the Act that any person has, inter alia, concealed the particulars of his income or deliberately furnished 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 reconstitution 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.10. 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 28, penalty may he imposed upon the new partners for the failure of the partners of the firm constituted in the year of account relevant to the assessment year 1948-49 was never investigated. The question raised by the Tribunal is in terms sufficiently comprehensive to embrace an enquiry whether partners of the firm in existence on July 30, 1954, were liable to be assessed to penalty as successors in interest of the partners of the original firm in existence in the year of account relating to the assessment year 1948-49. But in a reference under Section 66 of the Indian Income-tax Act, 1922 only the question which was either raised or argued before the Tribunal may be answered, even if the language of the question framed by the Tribunal may apparently include an enquiry into other matters which could have been, but were not, raised or argued.