Artisan Press Ltd. vs The Income Tax Appellate Tribunal and Another

Rajagopala Ayyangar, J.—Three points have been urged by the learned Counsel for the petitioner in support of the challenge to an order of

the Income Tax Appellate Tribunal imposing a penalty u/s 28(1)(c) of the Income Tax Act impugned in this writ petition : (1) that the Appellate

Tribunal was functus officio on the date when the proceedings for the levy of penalty were initiated; (2) that there was no identity between the party

against whom the penalty was levied and the assessee who submitted the incorrect return in which the correct particulars of income were not

disclosed; and (3) that the order of the Tribunal levying the penalty did not satisfy the requirements of a judicial order.

The order impugned was one by the Income Tax Appellate Tribunal which imposed a penalty of Rs. 1000 on the petitioner Messrs. Artisan

Press, Limited. The concerned assessment year was 1953-54 and the Company had preferred an appeal to the Income Tax Appellate Tribunal

feeling itself aggrieved by the assessment order passed by the Officer and confirmed by the Appellate Assistant Commissioner. The appeal was

heard on 6th October, 1955 and the hearing concluded on 7th October, 1955. One of the items of dispute raised before the Tribunal related, to a

claim by the assessee to deduct certain commissions said to have been paid in computing its total income. This payment had been disallowed by

the departmental authorities on legal grounds and the propriety of this disallowance was challenged before the Tribunal. At the hearing of the

appeal, however, the members of the Tribunal examined the accounts of the assessee for the purpose of finding out whether the payment had in

fact been made. In passing, it may be mentioned, that the payment was said to nave been made to one of the directors of the Company by name

Ponnambalam. The Tribunal examined the ledger and finding that the entry in relation to this payment was by way of interpolation, directed the

assessee to produce the cash-book and supporting vouchers. All these were produced on 7th October, 1955, on which date, the Tribunal

concluded the hearing and completed their order u/s 33(4). In the course of this order the Tribunal recorded:

As, in our opinion, the assessee has concealed its income and has deliberately furnished particulars thereof in the return for the assessment year

1953-54 in the manner set out above, a notice u/s 28 is issued calling on the assessee to show cause why a penalty u/s 28(1)(c) should, not be

imposed.

The order u/s 33(4) which, as stated before, was dated, 7th October, 1955,-was despatched to the assessee and was served on him on 13th

October, 1955. Meanwhile in pursuance of the direction contained in the paragraph which I have extracted a notice u/s 28(3) was despatched on

10th October, 1955, and was served on the assessee on 10th October, 1955, itself. The assessee (the petitioner here), appeared in answer to the

notice and submitted the three objections which I have mentioned in the opening of the judgment to the imposition of the penalty. These were

overruled and the Tribunal proceeded to impose the penalty of Rs. 1000. Hence this petition.

It would possibly be convenient to dispose of second and third objections before dealing with the first.

The party who submitted deliberately the incorrect return claiming the payment of commission was the Artisan Press, Limited. The point urged

was that as by the date of the penalty proceeding this company had gone into voluntary liquidation there was no identity between it and the party

who submitted the incorrect return. This contention is obviously untenable and was properly rejected. A company exists until dissolution and

merely because its activities are reduced and its commercial operations cease and its directors cease to manage it, it does not mean that it ceases

to exist or that it has become transformed into a new entity. It is still a company, a unit of assessment with its identity unchanged.

The second point urged was that the order imposing the penalty did not disclose that the matter of concealment had been considered by the

Tribunal bearing in mind the explanation submitted by the company to the notice calling for the assessee''s explanation. This again is wholly without

substance because nothing more was urged in the answer than an assertion of the reality of the payment. The fact that the Tribunal had prima facie

satisfied themselves regarding the concealment before the notice u/s 28(3) was issued and expressed that satisfaction in their order u/s 33(4) could

not be a ground for questioning the legality of the order imposing the penalty because on the scheme of the Act and in the very nature of things the

notice to show cause should be preceded by a prima facie satisfaction regarding the concealment. If the Tribunal found that no further explanation

was offered at the stage of objection than at the stage of the hearing of the appeal when the entire matter was discussed, they could do nothing else

than to repeat their previous order and that is what happened in the present case.

The objection as regards the jurisdiction of the Tribunal to pass the order was rested on the terms of Section 28 as explained by the decision of

this Court in Sivagaminatha Moopanar and Sons Vs. Income Tax Officer, II Circle, Madurai and Another, . The passage relied on read:

In our opinion the proceedings for the levy of a penalty must be initiated by an authority when such authority was in seisin of the assessment or

other proceedings in the course of which it is found that the assessee has brought himself within the mischief of Section 28. When once the notice

has been issued the jurisdiction of that authority to continue the proceedings is not dependent upon the continuance of other proceedings in the

course of which the penalty proceedings came to be initiated.

The point urged was that the order u/s 33(4) was passed on 7th October, 1955, when the assessment proceedings before the Tribunal terminated.

The notice u/s 28(3) was dated 10th October, 1955 and on this account it was contended that on the date when this notice was issued the

Tribunal had ceased to have jurisdiction to issue the certificate.

The Tribunal rejected this contention by a line of reasoning which I am unable to endorse. They stated that as the order u/s 33(4) was served on

the assessee only on 13th October, 1955, the assessment proceedings must be taken to have been continued till that date, and that as the notice

u/s 28(3) was served on the assessee on 10th October, 1955, itself the terms of Section 28(1) and the passage in the decision I have extracted

earlier were satisfied. This reasoning, however, ignores the fact that the order of the Tribunal u/s 33(4) was effective from the date of its issue and

did not depend for its validity or operation on its service on the assessee. The date of service on the assessee though it may be relevant for any

proceedings such as those u/s 66(1), etc., is wholly irrelevant for the matter under discussion. The accident therefore that the order issued on 10th

October, 1955, was served earlier than the order in the appeal, dated 7th October, 1955,cannot be any proper basis for holding that the

assessment proceedings before the Tribunal continued till 10th October, 1955, to enable the Tribunal to take proceedings u/s 28 on the asessee.

On the facts of the present case, I have reached the conclusion that the penalty proceedings were initiated at a time when the Tribunal was

seized of the assessment proceedings. In the first place even in the order u/s 33(4) the Tribunal had made it clear that they were issuing a notice u/s

28(3) to the assessee. The matter did not stop with this, for I find from the records of the Tribunal which have been called for in pursuance of the

rule nisi issued in this case, that on 7th October, 1955 itself they passed a direction to issue notice to the assessee u/s 28 in conformity with their

order in appeal. No doubt the office prepared a draft of the notice only on 10th October, 1955, which after being approved by the members of

the Tribunal was despatched on the same day. The order in the notes paper, dated 7th October, 1955, was in my judgment, the initiation of the

penalty proceedings. ""To initiate"" means to ""originate"" or ""to take the first step"" and even if the paragraph in the order u/s 33(4) which I have

extracted is not itself the initiation or the first step in the proceedings, the direction to the office to issue a notice on 7th October, 1955, was

certainly such a step. The terms of Section 28(1) were thus satisfied and the order impugned was within the jurisdiction of the Tribunal.

In this view, I have not considered it necessary to deal with the other contentions which Mr. Rama Rao Saheb urged in support of the legality of

the impugned order.

The petition fails and is dismissed with costs.

Counsel''s fee Rs. 150.