Law:

Section:

Section 271(1)(c) of Income-tax Act, 1961 [Corresponding to section 28(1)(c) of Indian Income-tax Act, 1922] - Penalty - For concealment of income - Assessment year 1950-51 - Whether where income in question, concealment of which was subject matter of section 28 of 1922 Act proceedings, was income of HUF, no penalty could be imposed on karta of erstwhile family after disruption - Held, yes FACTS The assessee had been assessed as an individual for the assessment year 1950-51. In the course of the assessment proceedings for that year, it was discovered that two sums had been debited in the names of the two sons of the assessee. The assessee stated that he had advanced these moneys to the two sons to enable them to carry on independent businesses in groundnut decortication. The relevant accounts of the two sons purported to disclose losses, but the ITO computed the profits of their business. It was further held by the ITO that the businesses were not the independent businesses of the two sons but were ventures which belonged to the assessee and were conducted by the assessee himself. As all the accounts were maintained by the assessee in his books and there was a free flow of funds from the assessee's business to the sons' business and vice versa, the ITO concluded that the income from these businesses should be added to that of the assessee's regular business, and an assessment was made accordingly. Thereafter, the ITO imposed a penalty under section 28(1)(c) of the 1922 Act. The assessee's appeals against imposition of penalty failed. On reference : HELD It appeared that by an order made under section 25A of the 1922 Act, the ITO accepted the position that the HUF consisting of the assessee and his sons became disrupted on 13-4-1946. It was also found that the family had all along been joint and that fact stood fully confirmed by an examination of the account books for the years 1912 to 1927. The business itself had been held in certain appeals to be joint family business. Accordingly, even assuming that the penalty provisions were attracted, in view of the disruption of the family, no penalty could be imposed on the karta of the erstwhile family, after…

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