JUDGMENT M. C. DESAI C.J. - This reference arises out of proceedings for the recovery of penalty under section 28(1)(c) of the Income-tax Act and the question that we are called upon to answer is :
"Whether, on the facts and in the circumstances of the case, the imposition of the penalty under section 28(1)(c) on the Hindu undivided family was legally justified ?"
A Hindu undivided family consisting of Ram Kumar and others was assessed to income-tax after an amount of Rs. 28,000 and odd recorded in its accounts as a deposit made by Sita Ram had been treated as income of the assessee. Sita Ram was Ram Kumars sons wifes brother and had no means. The business that he carried on was a petty business and he could not have possessed the huge amount of Rs. 28,000 which could be deposited by him with the Hindu undivided family. He maintained no accounts and did not even pay income-tax. There was no person bearing the name of Sita Ram carrying on the business which he said he was carrying on in the locality and a letter written to Sita Ram carrying on business was returned undelivered. He also did not explain why he carried the amount of Rs. 28,000 in his pocket for depositing it with the Hindu undivided family. For these reasons the explanation offered by the assessee that the money was deposited by Sita Ram was held to be false and it was treated as undisclosed income made by the assessee and was added to its other income. Thereafter, it is said that the Hindu undivided family underwent partial partition, i.e., it partitioned the business while retaining its joint status and retaining other property as joint. Subsequently, a notice for starting proceedings under section 28(1)(c) was served upon the Hindu undivided family and the penalty of Rs. 8,100 was imposed on it. The assessee challenged the imposition of the penalty on two grounds : (1) that after the partial partition a penalty could not be imposed upon it; and (2) that there was no proof that it had concealed the particulars of its income from its return or accounts. Both the pleas were rejected by the Income-tax Officer and also by the Tribunal. Then as its instance the Tribunal submitted the statement of the case.
It has not been found that the Hindu undivided family was disrupted after the assessment order was passed and before the penalty order was passed. All that was alleged on behalf of the assessee was that there was a partial partition of the property previously held by the Hindu undivided family, but it is said in Mullas Hindu Law, 12th edition, at page 503, that it is open to the members of a joint family to make a division and severance of interest in respect of a part of the joint estate while retaining their status as a joint family and holding the remaining property as property of a joint and undivided family. Consequently, the Hindu undivided family continued in spite of the alleged partition of the business and an order under section 28(1)(c) imposing penalty upon it could be passed. Section 25A(3) of the Income-tax Act lays down that a Hindu undivided family is to be presumed to retain its status for all purposes of the Act so long as a certificate under section 25A(1) is not issued. In this case no certificate under section 25A(1) was issued before the penalty proceedings were commenced and, therefore, the family was to be presumed to be undivided. This principle was applied in a similar case by the Kerala High Court in Govardan Hathi Bhai & Co. v. Income-tax Officer, Mattancherry.
The Income-tax Officer found that the assessee had concealed particulars of its income by disguising the income of Rs. 28,000 and odd as a deposit made by Sita Ram. It was not merely a case of his not accepting the explanation offered by the assessee; he actually found it to be false for the reasons stated above. When he found it to be false and held that the amount was income derived by the assessee it meant that the assessee concealed particulars of its income by disguising it as a deposit made by Sita Ram and became liable to a penalty under section 28(1)(c). The assessee relied upon Commissioner of Income-tax v. Gokuldas Harivallabhdas and Khemraj Chagganlal v. Commissioner of Income-tax. In the former case it was observed by Chagla C.J. and S. T. Desai J. that it is open to the department, where the explanation of the assessee is found to be false, to treat the receipts appearing in the account books of the assessee as income from undisclosed sources though it is not possible to infer from the falsity of the assessees explanation that the receipt necessarily constituted income of the assessee and that the proceedings under section 28(1)(c) is a penal proceeding and the department is under a duty to prove that the assessee was guilty of the offence of concealment of particulars of the income. In the other case also it was observed that the fact that an assessee is not able to establish by evidence the explanation offered does not mean that it was false or that he had been guilty of deliberate suppression of the particulars of his income. But Ramaswami C.J. and Kanhaiya Singh J. observed at page 527 that if the explanation offered by the assessee is deliberately false it is possible to argue that there is material justifying the imposition of penalty under section 28(1)(c). Here the finding given by the Income-tax Officer was that the explanation offered by the assessee was deliberately false. This court has held in Lal Chand Gopal Das v. Commissioner of Income-tax that :
"If a receipt is income but is disguised in the accounts or in the return as a non-assessable receipt, it is clearly a case of concealment of the particulars or of furnishing inaccurate particulars of income and a penalty under section 28(1)(c) can be imposed on the assessee."
Thus both the grounds on which it was contended that no penalty could be imposed fail. We answer the question in the affirmative.
We direct that a copy of this judgment under the seal of the court and the signature of the Registrar shall be sent to the Income-tax Appellate Tribunal as required by section 66(5) of the Income-tax Act. The Commissioner of Income-tax shall get his costs which we assess at Rs. 200 from the assessee. Counsels fee is assessed at Rs. 200.
Question answered in the affirmative.