V.K. Nataraja Gounder vs The Commissioner of Income Tax

Srinivasan, J.—The question that stands referred to us is:

Whether on the facts and circumstances of the case, the Appellate Tribunal was justified in sustaining the penalty of Rs. 20,000 on the Hindu

undivided family represented by the present kartha in respect of the return, made by the previous kartha u/s 28(1) of the Act?

Kumaraswami Gounder was the kartha of a Hindu undivided family till his death on 2nd January 1950. While examining the accounts relevant to

the assessment year 1948-49, the income tax Officer came across certain unexplained cash-credits of Rs. 16,355 in the suspense account, and

bank deposits of Rs. 13,468, which found no place in the business books. On the date of this discovery, the previous kartha Kumaraswami

Gounder had died and his son Nataraja Gounder had become the kartha of the Assessee, the Hindu undivided family. Nataraja Gounder was

unable to explain the credits in the suspense account and only stated that the amounts should have been given to his late father by some persons

who had no separate ledger accounts. In respect of a sum of Rs. 6,000, one of the items of cash-credit, it was explained that the sum had been

received from a sister of this Natarajan. Out of the unexplained deposits in the bank one item covered Rs. 12,000, in respect of which a demand

draft had been purchased in favour of Natarajan. It was, however, subsequently cancelled and the amount re credited in the bank account. Various

explanations were given, but they were rejected by the Income Tax Officer, who added the two sums. These additions were sustained in appeals

from the assessment.

The income tax Officer took proceedings u/s 28(1)(c) of the Act. He found that an income of Rs. 72,647, had been deliberately concealed by

the Assessee. In response to a notice issued, the Assessee stated that his father was dealing with the family affairs and that he could give no

explanation, as the relevant books were in Court. The income tax Officer held that this explanation did not meet the charge and imposed a penalty

of Rs. 40,000. In the appeal to the Appellate Assistant Commissioner, it was urged on behalf of the Assessee that even if the previous kartha of

the family, Kumaraswami Gounder, was responsible for deliberate concealment, no penalty could be imposed on the succeeding kartha. On merits

also it was contended that no case for the imposition of the penalty was established. The Appellate Assistant Commissioner held that at least in

respect of a part of the unexplained credits, the income tax Officer was not right in taking the view that there was a deliberate concealment. He

thought that the bank deposits stood in a different position. He finally took the view that the amount which could be regarded as income

deliberately concealed for the purpose of penalty proceedings was only Rs. 29,803, and fixed the penalty at Rs. 20,000.

A further appeal was carried to the Appellate Tribunal. It would suffice to state that the Appellate Tribunal rejected the plea of Nataraja

Goundar that he could not be proceeded against under the penalty provisions end dismissed the appeal.

An application u/s 66(1) of the Act, having been rejected by the Tribunal, the Assessee approached this Court u/s 66(2) of the Act, and the

question set out above was directed to be referred to this Court.

The short question that has been argued before us is that on the authority of certain decisions of this Court, penalty cannot be imposed on the

succeeding kartha. We may state that no arguments were addressed to us on the merits of the case, that is to say, no attempt was made to explain

the cash-credits and the bank deposits or to establish that there was no deliberate concealment by the previous kartha, who submitted the return.

We are accordingly confining ourselves only to the question of law, viz., whether the succeeding kartha as representing the Assessee, the Hindu

undivided family, can be subjected to a penalty u/s 28(1)(c) of the Act, in respect of income deliberately concealed by the preceding kartha.

The return in this case was made on 1st July 1949, by Kumaraswami Goundar, the previous kartha. He died on 2nd January 1950. Section 28

of the Act, in so far as it is relevant for our purpose, reads:

Section 28(1): If the income tax Officer, the Appellate Assistant Commissioner or the Appellate Tribunal, in the course of any proceedings under

this Act, is satisfied that any person....

(c) has concealed the particulars of his income or deliberately furnished inaccurate particulars of such income,

he or it may direct that such person shall pay by way of penalty....

What the section accordingly requires is that any person obviously meaning an Assessee, should have concealed the particulars of his income and

that matter should have become evident in the course of any proceedings under the Act either before the income tax Officer, Appellate Assistant

Commissioner or the Appellate Tribunal. In such an event, such person may be directed to pay a penalty. The expressions any person and such

person refer to the same assessable entity. It cannot be denied that in this case, the Hindu undivided family is the Assessee, though under the law a

unit of that description has necessarily to be represented by an individual, the kartha. Though the return is filed by the kartha, he acts on behalf of

the Hindu undivided family, and it is the Hindu undivided family that is the person that figures in the assessment proceedings. The return is in reality

filed by the assessable entity and the section obviously deals only with the assessable entity. The circumstance that the kartha representing the

family field the return does not make this provision applicable individually and personally only to the kartha. The expression that any person has

concealed the particulars of his income indicates beyond the possibility of any doubt that it is the person whose income is in question that becomes

subject to the penal provision. If, therefore, the income in question is that of the Hindu undivided family, it is that unit that is the person that is

referred to in the section. The circumstance that one person has displaced another as the kartha does not affect the liability of the assessable entity

whose income is in question.

So much seems to us to be unmistakably clear from the wording of the provision.

Mr. K. Srinivasan, learned Counsel for the Assessee, relies upon Hariram v. Commissioner of income tax ILR (1956) Mad. 179 in support of

his argument that the succeeding kartha cannot be penalised for the acts of his predecessor. In the above decision, one S carried on a business and

was assessed in the status of Hindu undivided family consisting of himself and his minor son H. S died and the guardian of H submitted the return

for an accounting period during which the father had been alive. The income tax Officer held that there had been a suppression of income. There

was no finding, however, that H himself was in charge of his estate or that his guardians were in any way responsible for any suppression of

income. The learned Judge held that in order to penalise H, he must have himself concealed his income and that that requirement not having been

satisfied, penalty could not be levied on him. At first sight, it would appear as if this decision would apply to the facts of the present case. The

learned Judges observe:

In this case, the person charged with and found guilty of having effected the concealment of income was Hariram Sait. The concealment, to bring it

within the scope of Section 28(1)(c), must be a concealment of Hariram Sait''s income, and it must also have been a concealment of which

Hariram Sait was conscious. The finding of the income tax Officer, which was accepted by the Assistant Commissioner and eventually by the

Tribunal, was that it was Hariram Sait''s father, Sokkalal, who was mainly responsible for the suppression of the income.... There was no finding

either by the taxing authorities or by the Appellate Tribunal that Hariram himself was in charge of his estate or that his guardians were in any way

responsible for any concealment or suppression of income. The requirement of Section 28(1)(c) being that Hariram to be penalised must have

himself concealed his income, and that requirement not having been satisfied, we have to hold that there was no basis at all for the Tribunal to come

to the conclusion, that Hariram should be penalised to the extent of Rs. 10,000.

Relying upon this observation, the learned Counsel for the Assessee urges that the present kartha, Nataraja Goundar, was not responsible for the

return that was made by his father, the then kartha, and if there was any concealment he, Nataraja Goundar was not conscious of any such

concealment. Without attempting to decide the question, it seems to us implicit that even if this test of consciousness on the part of the succeeding

kartha is called for, it would appear from the records that at least in respect of a sum of Rs. 12,000, which was the subject-matter of a demand

draft, Natarajan could not possibly plead ignorance. To our minds, however, the observations we have extracted above have been too broadly

phrased. It is apparent from those observations that the learned Judges took note of the fact that the person who was responsible for the

concealment of the income was the kartha of the Hindu undivided family, while the person that was proceeded against u/s 28(1)(c) was an

individual. The identity of the two persons was in law, at any rate, distinct and that seems to us to be the underlying trend of the observations of the

learned Judges. Indeed, we find that in a later reference dealt with by the same two learned Judges in Radha Rukmani Ammal v. Commr. of Inc.-

tax (1956) 31 ITR 704 they refer to the above decision and explain it precisely on the grounds that we have set out. They observe:

Whether in such circumstances the principle laid down by us in Hariram v. Commissioner of income tax ILR (1956) Mad. 179, could be extended

does not arise for consideration either. It is not therefore necessary for us to determine in these proceedings the limits of the principle laid down in

Hariram v. Commissioner of income tax ILR (1956) Mad. 179, except to observe that in that case the Assessee, Hariram Sait, on whom penalty

was levied, was assessed not in the status of a Hindu undivided family but in his individual status.

The learned Judges themselves appear to have thought that whatever principle was laid down in the Hariram Sait case must be confined to the

facts of that case.

In Radha Rukmani Ammal v. Commissioner of income tax (1956) 31 ITR 704, 709, the learned Judges again reiterated their view that where

the kartha of a Hindu undivided family had made some fictitious entries in the account books and also omitted to enter some receipts and had died

before malting a return of the income, the succeeding kartha who made the return of the income has shown in the accounts could not be penalised

u/s 28(1)(c), unless it can be shown that the succeeding kartha was conscious that any entries were fictitious or that any item of income was

concealed by his predecessor. In that case, one Subbarayalu Chettiar was the original kartha who had died, leaving two minor sons, with their

mother Radha Rukmani Ammal as their guardian. It was the guardian who filed the return based on the accounts maintained by her deceased

husband. On the discovery that certain items of income had been omitted and other items were fictitious, penalty proceedings were started. But an

important feature that was relied upon by the learned Judges was that when the preceding kartha Subbarayalu Chettiar had made certain false

entries in his accounts or had omitted certain receipts from the accounts, at the best, he could only be said to have made preparations to conceal

his true income. He himself had not submitted any return and it was the guardian of the minors who made the return on the basis of the entries in the

accounts. The learned Judges observe:

At best it could only amount to preparations made by him to conceal his true income from the income tax Officer. It was quite possible that,

despite these omissions, he was prepared to disclose his true income if he had an opportunity to file a return before the income tax Officer. Before

he had that opportunity he died. He did not therefore himself conceal anything from the assessing authority within the meaning of Section 28(1)(c),

though he provided himself with facilities for concealment, which, if he had effected that concealment, would have brought him within the scope of

Section 28(1)(c). The preparation to conceal is not concealment within meaning of Section 28(1)(c).

It is on that basis that the decision proceeded when the learned Judges finally held that when the mother of the minors filed the return, she could

not be said to have concealed any particulars of the income. This case also to our minds proceeded on facts peculiar thereto. In the present case,

however, the preceding kartha had in fact filed a return, consciously and deliberately, concealing his income and had laid himself open to the penal

provisions of Section 28(1)(c). The succeeding kartha only represented the unit, viz., the Hindu undivided family in respect of whose income the

preceding kartha had filed the offending return. It follows, therefore, that considering the Hindu undivided family as the person contemplated in

Section 28(1)(c), there is no doubt that all the requirements of Section 28(1)(c) are satisfied.

We accordingly answer the question referred to us in the affirmative and against the Assessee. The Assessee will pay the costs of the

department.