CHINNAPPA REDDY J. -
(1.) R.C. No. 55/1970 arises out of a proceeding for the levy of penalty under s. 273(a) of the IT Act, 1961, in respect of an estimate of the advance tax payable by the assessee for the asst. yr. 1961- 62. R.C. No. 56/1970 arises out of a proceeding for the levy of penalty under s. 221 for default in payment of tax in respect of the asst. yr. 1961-62. R.C. No. 57/70 arises out of a proceeding for the levy of penalty under s. 221 for the default in payment of the tax in respect of the asst. yr. 1962-63.
(2.) ONE Nagapotha Rao and his three sons, Seetharama Rao, Raja and Satyanarayanamurthy, constituted an HUF. In 1947, Seetharama Rao died leaving behind him a widow, Raja Syamala. Nagapotha Rao died in 1950. Raja Syamala filed a suit O.S. No. 47 of 1954 on the file of the Court of the Subordinate Judge, Masulipatnam, for partition and separate possession of her share of the family properties. The suit was decreed. There was considerable controversy whether for purposes of s. 25A of the Indian IT Act, 1922, there was a disruption of the HUF in June, 1955, when Raja Syamala was put in possession of certain properties tentatively, or on 16th March, 1961, when a final decree was passed in the suit allotting the very properties to her finally, or on 9th March, 1962, when the rest of the properties were divided between the remaining members of the family. The controversy was set at rest by the Tribunal in the assessment proceedings where it was held that there was a disruption of the HUF on 16th March, 1961. That finding was also confirmed by us in R.C. No. 57/1970. The three penalty proceedings which are the subject-matter of the three cases now before us were initiated on the basis that the HUF was the assessee. The Tribunal was of the view that the penalties were not leviable as the family had become disrupted on 15th March, 1961. The Tribunal is patently right in regard to the alleged default in payment of tax for the asst. yr. 1962-63. The family had become disrupted before the commencement of the year of account and there could, therefore, be no question of assessing the non-existent HUF or treating it as a defaulter. The question referred to us in R.C. No. 57/1970 has, therefore, to be answered against the Department.
In R.Cs. Nos. 55 and 56 of 1970 Sri (P) Rama Rao, learned counsel for the Department, urged that the assessment for the asst. yr. 1961-62 was completed on 28th Feb., 1966, and, therefore, penalty proceedings were initiated and penalties were imposed under the 1961 Act as provided by s. 297(2)(g) of the 1961 Act. He submitted that under s. 174(4) of the 1961 Act, notwithstanding the disruption of the family during the year of account, the total income of the family in respect of the period up to the date of partition shall be assessed as if no partition had taken place and under s. 171(8), the provisions of s. 171 applied to the levy of a penalty as they applied to the levy of tax in respect of the period up to the date of partition. He argued that the Tribunal was wrong in holding that penalties were not leviable because of the disruption of the family on 5th March, 1961.
Sri Y. V. Anjaneyulu, learned counsel for the assessee, submitted that in the present case the family had become disrupted before the coming into force of the 1961 Act, that under the 1922 Act no penalty could be levied after the disruption of the family and that s. 297(2)(g) did not have the effect of interfering with that vested right. Sri Anjaneyulu urged that s. 297(2)(g) applied only to a situation where penalty was leviable under the 1922 Act, otherwise, he submitted, it would amount to giving retrospective effect to the provisions of s. 297(2)(g). Under the Indian IT Act of 1922, the law was well settled that no order imposing a penalty could be passed against a family, once a partition was recognised under s. 25A of the Act. Sec. 171(8) of the 1961 Act, however, provides for the imposition of a penalty as if there was no partition, in respect of the period up to the date of the partition. The question is whether the provisions of s. 171(8) are attracted to a case where there was disruption of the family before the 1961 Act came into force but where the assessment was completed after the Act came into force. Now, the appropriate stage for the levy of a penalty is after the completion of the assessment proceedings. Though in a certain sense penalty is considered to be additional tax and for certain purposes the word " assessment " is considered to mean the whole procedure for the imposition of liability on the taxpayer including the levy of penalty, it is well-known that a penalty has certain distinct characteristics of its own. It is not necessary to embark upon a discussion of the nature of a penalty but it is sufficient to say that penalty cannot be equated to tax, a proceeding for the levy of penalty must be initiated separately, the finding arrived at in assessment proceedings are not binding in penalty proceedings and the burden of proof is different. If this is borne in mind and if what we said, a moment ago, namely, that the appropriate stage for the levy of a penalty is after the completion of the assessment proceedings is correct, then it becomes clear that the law applicable to proceedings for penalty should be the law prevailing on the date of the completion of the assessment proceedings. Sec. 297(2)(g) puts the matter beyond doubt by enacting that any proceeding for the imposition of a penalty in respect of any assessment for the year ending on 31st March, 1962, or any earlier year, which is completed on or after 1st April, 1962, may be initiated and any such penalty may be imposed under the 1961 Act. Their Lordships of the Supreme Court in Jain Brothers vs. Union of India (1970) 77 ITR 107 (SC) held that the crucial date for purposes of penalty was the date of the completion of the assessment ; they said : "There can be no manner of doubt that penalty has to be calculated and imposed according to the tax assessed. It follows that imposition of penalty can take place only after assessment has been completed. For this reason there was every justification for providing in cls. (f) and (g) that the date of the completion of the assessment would be determinative of the enactment under which the proceedings for penalty were to be held ......... Although penalty has been regarded as an additional tax in a certain sense and for certain purposes it is not possible to hold that penalty proceedings are essentially a continuation of the proceedings relating to assessment where a return has been filed ...... It is obvious that for the imposition of penalty it is not the assessment year or the date of the filing of the return which is important but it is the satisfaction of the IT authorities that a default has been committed by the assessee which would attract the provisions relating to penalty. Whatever the stage at which the satisfaction is reached, the scheme of ss. 274 (1) and 275 of the Act of 1961, is that the order imposing penalty must be made after the completion of the assessment. The crucial date, therefore, for purposes of penalty, is the date of such completion. "
(3.) IT is clear from the decision of their Lordships that the effect of s. 297(2)(g) is to attract all the provisions relating to penalty in the 1961 Act to cases where assessments are completed after 1st April, 1962, though they relate to earlier years. Such provisions, it was pointed out later in the same decision, were not to be literally applied but mutatis mutandis. Sri Y. V. Anjaneyulu, learned counsel for the assessee relied on the decision of the Supreme Court in Jani vs. Induprasad Devshanker Bhatt (1969) 72 ITR 595 (SC). The facts of that case were as follows : For the asst. yr. 1947-48 an assessment order was made on 31st Jan., 1952. On 27th March, 1956, the ITO issued a notice under s. 34(1)(a) of the Indian IT Act of 1922, and proceeded to assess the assessee. The assessment was however, set aside by the AAC on 5th Jan., 1963, on the ground that there was no proper service of notice on the assessee. By that time the 1922 Act had been repealed and the IT Act, 1961, had come into force w.e.f. 1st April, 1962. The provisions of the new Act enlarged the time for taking action for assessment or reassessment in the case of certain escaped income from eight to sixteen years. Taking advantage of the provisions of the new Act the ITO once again issued a notice on 4th Jan., 1963, purporting to be under s. 147(a) of the new Act. The assessee objected to the issue of the notice under the 1961 Act, and claimed that action under the old Act had become barred and such action could not be revived under the provisions of the new Act. The objection of the assessee was upheld by the Supreme Court who observed :
"IT is admitted in this case that the right ...... was barred under the old Act before the new Act came into force. In our opinion, it is not permissible to construe s. 297(2)(d)(ii) of the new Act as reviving the right of the ITO to reopen the assessment which was already barred under the old Act. The reason is that such a construction of s. 297(2)(d)(ii) would be tantamount to giving of retrospective operation to that section which is not warranted either by the express language of the section or by necessary implication. The principle is based on the well-known rule of interpretation that, unless the terms of the statute expressly so provide or unless there is a necessary implication, retrospective operation should not be given to the statute so as to affect, alter or destroy any right already acquired or to revive any remedy already lost by efflux of time ...... We consider that the language of the new section must be read as applicable only to those cases where the right of the ITO to re-open the assessment was not barred under the repealed section. "
Sri Anjaneyulu submitted that s. 297(2)(d)(ii) was analogous to s. 297(2)(g) and, just as a right already lost under the 1922 Act could not be revived by virtue of the 1961 Act, a right which did not exist under the provisions of the 1922 Act could not be exercised taking advantage of the provisions of the new Act. The argument of Sri Anjaneyulu is not without attraction nor devoid of any force. We have given our thought to it. Not without some hesitation, we have arrived at the conclusion that we cannot accept it. We think that s. 297(2)(g) has the effect of attracting the provisions of s. 171(8) even to cases where the family became disrupted before 1st April, 1962, but the assessment was completed after 1st April, 1962. Our reason is that proceedings for the levy of penalty are independent proceedings and the appropriate stage for the levy of a penalty is after the completion of the proceedings. Therefore, the critical date which determines the applicability of the law is the date of completion of the assessment. The distinction between the case before the Supreme Court and the present case is : there the right to reopen the assessment arose and became extinguished under the old Act, whereas in the present case the occasion for the levy of penalty arose after the new Act had come into force, and the penalty proceedings had, therefore, to be initiated under the new Act. The assessee had no vested right regarding the law applicable to the levy of penalty until the date of completion of the assessment.;