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PETITIONER: JAIN BROS. & OTHERS

       Vs.

RESPONDENT: THE UNION OF INDIA & OTHERS

DATE OF JUDGMENT: 18/11/1969

BENCH: GROVER, A.N. BENCH: GROVER, A.N. SHELAT, J.M. VAIDYIALINGAM, C.A. RAY, A.N.

CITATION:  1970 AIR  778            1970 SCR  (3) 253  1969 SCC  (3) 311  CITATOR INFO :  R          1971 SC  95  (4)  R          1975 SC 902  (5)  R          1975 SC1234  (25)  R          1975 SC1549  (24)  R          1986 SC 293  (7,8,9,10,12,16)  RF         1988 SC 427  (9)  E          1991 SC2278  (9)

ACT: Income Tax Act, 1922 s. 23(5) as amended by Finance Act 1956 Double Taxation-Taxation of income in the hands of firm  and partners Validity-Income Tax Act, 1961-Sections 297(2)  (g), 271(2)-If contravenes Constitution of India Article 14.

HEADNOTE: A  notice  under s. 22(2) of the Income Tax Act,  1922,  was served on the appellant, a registered firm, calling upon  it to  submit  a return of the income for the  assessment  year 1960-61.   A  return was filed, but not  within  time.   The assessment  was completed in November 1964.  In view of  the ammendment  made by the Finance Act of 1956 in s.  23(5)  of the  Act  of 1922, the tax payable by the firm as  also  the amount  to  be included in the income of  each  partner  was determined.   The  Income Tax Officer also passed  an  order under  Cl. (a) of s. 271 (i) of the Act of 1961  imposing  a penalty for non-compliance with the notice under s. 22(2) of the 1922 Act.  The appellants challenged in a writ  petition the  validity and constitutionality of s. 23 (5) of the  Act of 1922 and s. 297 (2) (g) and s. 271(2) of the Act of 1961. The  High  Court dismissed the petition.  In the  appeal  to this  Court it was contended (i) section 23(5)  was  invalid for the reason that the same income in the hands of both the firm and the partners could not be simultaneously  subjected to  tax; (ii) cl. (g) of s. 297(2) was violative of  Article 14  inasmuch as in the matter of imposition of  penalty  it- discriminated  between two sets of assessees with  reference to  a  particular  date,  namely  completion  of  assessment proceedings  on  or after the first day of April  1962,  the date of commencement of the Act of 1961, the  classification

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thus  being arbitrary depending on the accident of the  date of  completion  of  the  assessment  and  (iii)  s.   271(2) contravened  Article 14, because, in the case  of  assessees other  than registered firms the maximum  penalty  imposable under  s. 271(l)(i) could not exceed fifty per cent  of  the tax  payable  by  the assessee; whereas in  the  case  of  a registered firm the maximum penalty was not made to depend upon the tax   assessed on or payable by such firm. HELD:     (i)  After the Act of 1956 the firm did not  cease to be an assessee; on    the contrary it -was recognised  as a separate entity and was subjected to  tax as such.   There can  be  double taxation if the legislature  has  distinctly enacted  it.   It is only when there are  general  words  of taxation  and they have to be interpreted they cannot be  so interpreted  as  to tax the subject twice over to  the  same tax.   The  Constitution does not  contain  any  prohibition against  double taxation even if it be assumed that  such  a taxation is involved in the case of a firm and its  partners after  the amendment of s. 23(5) by the Act of 1956; nor  is there  any other enactment which interdicts  such  taxation. Even  if s. 23(5) provides for the machinery for  collection and  recovery  of  tax, once the legislature  has  in  clear terms, indicated that the income of the firm can be taxed as also   the  income  in  the  hands  of  the  partners,   the distinction between a changing and a machinery section is of no consequence.  Both sections have to be read together  and construed harmoniously. [258 B, E-G] 254 Commissioner   of  Income  tax, Bombay  South  v.  Murlidhar Jhawar  &  commissioner of Inland Revenue v.  Frank  Bernard Senderson  8  T.C. 38 and Stevens v.  The  Durban-Roddepoort Gold Mining Co. Ltd., 5 T.C. 402 referred to. (ii) The  date,  first  day of April 1962,  which  has  been elected  by the legislature for the purpose of cls. (f)  and (g)  of  s. 297(2) cannot be characterised as  arbitrary  or fanciful.  It is the date on which the Act of 1961  actually came into force, For the application and the  implementation of  the Act of 1961 it was necessary to fix a date  and  the stage of the proceedings which were pending for providing by which enactment they would be governed.  Pending proceedings can be treated by the legislature as a class for the purpose of Art. 14.  There was every justification for providing  in cis.  (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, ’for, the imposition  of penalty can take place only after  assessment has  been completed.  Although penalty has been regarded  as an  additional  tax  in  a certain  sense  and  for  certain purposes,  penalty proceedings are not a continuity  of  the proceedings relating to assessment, where a return has  been filed.   The scheme of s. 274(l) and 275 of the Act of  1961 is that the order of imposing penalty must be made after the completion of the assesment.  The crucial date therefore for the purpose of penalty is the date of such completion.   The mere  possibility that some officer may intentionally  delay the disposal of the case can hardly be a ground for striking down  cl. (g) as discriminatory under Art. 14.  There is  no presumption that officers and authorities who are  entrusted with  responsible duties under th e taxation laws would  not discharge them properly and in a bona fide manner. [262 B,F; 263 D-G] M/s.  Hatisingh Mfg.  Co. Ltd. & Another v. Union of India & Others,  [19601 3 S.C.R. 528, Jalan Trading Co. (P) Ltd.  v. Mill   Mazdoor  Union,  [19671  1  S.C.R.  15,  Gopi   Chand Sarjuprasad  v.  Union of India, 73 I.T.R. 263,  Income  tax

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Officer A-Ward, Agra & Ors. v. Firm Madan Mohan Damma Mal  & Anr., 70 I.T.R. 293 and Third Income tax Officer,  Mangalore v. Damodar Bhat, 71 I.T.R. 806 referred to. (iii)     After the Act of 1956 a registered firm has to pay tax  at  special  reduced rates.  If  the  firm  got  itself registered  the  partners  would  be  entitled  to   certain benefits  and  advantages.  it was,  however,  open  to  the legislature  to say that once a registered firm committed  a default attracting penalty it should be deemed or considered to   be  an  unregistered  firm  for  the  purpose  of   its imposition.  No question of discrimination under Art. 14 can arise in such a situation. [265 B]

JUDGMENT: CIVIL  APPELLATE  JURISDICTION : Civil Appeal  No.  1593  of 1969. Appeal from the judgment And order dated February 25, 1969 of the    Delhi High Court in Civil Writ No. 1247 of 1967. N.   D. Karkhanis, Champat Rai, Nand Gopal, A. T. M. Sampat and E.    C. Agarwala, for the appellants. S.   T. Desai, S. K. Aiyar, R. N. Sachthey, B. D. Sharma and S.P. Nayar, for the respondents. 255 The Judgment of the Court was delivered by Grover, J. This is an appeal by certificate from a  judgment of  the Delhi High Court dismissing a petition  under  Arts. 226 and 227 of the Constitution. Appellant  No.  1  which carries on business  in  Delhi  was registered  as a firm under s. 26A of the Indian Income  Tax Act, 1922.  Appellants .2 to 5 are its partners.  On May 26, 1960, a notice under s. 22(2) of that Act was served on  the firm  calling upon it to submit a return of its  income  for the assessment year 1960-61 (accounting year ending  October 31, 1959).  The return had to be filed within 35 days of the service  of the notice.  It was not filed.  Further  notices were served on two occasions.  It filed a return on November 18,  1961, showing income of Rs. 3,55,566.  The  Income  tax Officer  completed  the  assessment on  November  23,  1964, computing the total income of the firm at Rs. 4,75,368.   In view of the amendment made by the Finance Act of 1956 in. s. 23(5) of the Act of 1922 the tax payable by the firm as also the amount to be included in the income of each partner  was determined.   On the same date i.e. November 23,  1964,  the Income  tax -Officer issued a notice under S. 271 read  with s.  274 of the Income tax Act 1961 calling upon the firm  to show  cause  why an order imposing a penalty should  not  be passed  on  account  of its failure to  furnish  the  return within time.  After considering the explanation submitted by the  assessee  the  Income  tax Officer  made  an  order  on November  19, 1966 under cl. (a) of s. 271(l) of the Act  of 1961  imposing a penalty of Rs. 1,03,434  for  noncompliance with  the  notice  under  S. 22(2) of  the  1922  Act.   The appellants  took the matter in appeal before  the  Appellate Assistant   Commissioner  challenging  the   imposition   of penalty.   Although those proceedings were still  pending  a writ petition was filed on August 26, 1966 in the High Court challenging,    inter   alia,   the   validity    and    the constitutionality  of  s. 23(5) of the Act of 1922  and  ss. 297(2)(g)  and  S. 271(2) of the Act of  1961  respectively. The  High Court did not accede to any of the contentions  of the present appellants and the petition was dismissed. We  may first deal with the attack against S. 23(5)  of  the 192-T  Act.  It is based on the general principle  that  you

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cannot  tax  the subject twice over to the  same  tax.   The validity  of this provision arises only in this way that  it is the assessment made under it which can form the basis for imposing  the penalty.  The High Court declined  to  examine the  matter  on the ground that the assessment  order  dated November 23, 1964 could not be assailed in the writ petition and that the appellants had debarred themselves from getting any  relief on account of laches and delay.  In our  opinion the point sought to be raised is directly connected 256 with the imposition of penalty.  If the question of  penalty was  -at  large and open to examination the validity  of  s. 23(5) of the 1922 Act, the assessment under which would form the  basis  for  determining the amount  of  penalty,  could certainly be canvassed. Section  23(5) stood as follows after the amendment made  by as. 14 of the Finance Act 1956 "Notwithstanding  anything contained in the  foregoing  sub- sections,  when the assessee is a firm and the total  income of  the  firm has been assessed under subsection  (1),  sub- section (3) or sub-section (4) as the case may be," (a) in the case     of a registered firm, (i)  the  income  tax payable by the firm  itself  shall  be determined; and (ii) the total income of each partner of the firm, including therein  his share of its income, profits and gains  of  the previous  year shall be assessed and the sum payable by  him on the basis of such assessment shall be determined : " In  clause (a), clauses (i) and (ii) were submitted for  the following words "the sum payable by the firm itself shall not be  determined but the total income of each partner of the firm,  including therein  his share of its income, profits and gains  of  the previous year, shall be assessed and the sum payable by  him on the basis of such assessment shall be determined;" After  the  amendment a registered firm was  liable  to  pay income   tax  independently  of  the  tax  payable  by   the individual  partners of the firm on their share of  profits. Prior   to  the  amendment  of  1956  where  the  firm   was unregistered the tax payable by the firm was computed as  in the case of any other entity and the firm itself .had to pay the tax.  If the firm was registered under S. 26A it did not pay  the tax and there was no assessment of  its  liability. Each partner’s share in the firm’s profits was added to  his income  and after determination of the total income of  each partner  the levy was made on him individually.  After  1956 tax  at  low  rate become assessable on  a  registered  firm though it was not liable to pay super tax.  The partners  of the  registered  firm remained liable for being  charged  on their individual assessment to both income tax and super tax in respect of their share in the profits 257 of the firm.  The partner, however, was entitled to  certain rebate under s. 14(2)(aa). The  position  of the appellants is that the  firm  and  its partners  do not constitute a separate entity.   Either  the firm or the partners can be taxed but the same income in the hands of both cannot be simultaneously subjected to tax.  It is well known that under the common law of England a firm is not a jurisitic person.  The firm name is only a compendious expression  to designate the various  partners  constituting it.   Section  3 of the Act of 1922 which  is  the  charging section  treats the firm a distinct entity.  This Court  has laid  down  in Commissioner of Income tax, Bombay  South  v. Murlidhar Jhawar & Purna Ginning & Pressing Factory(’)  that

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partners   of  an  unregistered  firm  might   be   assessed individually  or they might be assessed collectively in  the status of an unregistered firm.  But the same income  cannot be  assessed  twice, once in the hands of the  partners  and again  in  the hands of the unregistered firm.   It  follows that even in the case of a registered firm the same  income, namely,  of the firm and the partners arising out  of  their share  in  the firm cannot be subjected to tax  twice.   The classic dictum of Rowlatt J., in The Commissioner of  Inland Revenue  v. Frank Bernard Sanderson(’) illustrating the  two stages  of passage of money has been invoked.  This is  what the learned judge said in his inimitable words "It is often said, but not always understood, that in Income tax the same income is not taxed twice.  That means that you cannot tax it more than once on one passage of money in  the form of one sort of income.  If a man earns Pound 100 by his profession and gives it to his son to clothe himself, or  to his daughter, for the year, the son or the daughter does not pay  income tax; there is only one passage of the  money  in the form of that income.  If a man earns E 100, and pays  it to  somebody  else  for  services rendered  in  a  trade  or profession  by  that other person, the sum  of  Pounnds  100 enters  upon another passage in another form of income,  and therefore attracts Income Tax again." There  is a good deal of fallacy in the argument  raised  on behalf of the appellants.  In the first place, according  to the  scheme of the Income tax Acts a firm and  its  partners are  distinct  entities,  So  far as  the  Act  of  1922  is concerned S. 2(2) which defines the assessee would obviously include  a  firm under S. 3(42) of the General  Clauses  Act which  provides  that  a person  includes  "any  company  or association  or body of individuals whether incorporated  or not".  ’For the purpose of assessment at all crucial stages (1) 60 I.T.R. 95.          (2)) 8 T.C. 38. 258 under  ss. 22 and 23 it is the firm which is treated  as  an assessee, Thus even before the amendment of S. 23(5) in 1956 the  character  ,of the firm as a separate entity  was  well established.  The firm, however, did not pay any tax  itself and  the assessment was made on the individual  partners  in accordance with the provisions of that section.  After  1956 the firm did not cause to be an assessee; on the contrary it was recognised as a separate entity and was subjected to tax as  such.  Murlidhar Jhawar’s(l) case can hardly be of  much assistance  as it related to an unregistered firm and to  an assessment of accounting year ending November 6, 1953.   The provisions  which came up for consideration had no  parallel to  those made in respect of registered firm by  an  express amendment  of  S.  23(5) by the Finance Act  of  1956.   The facile  analogy  ,of passage of money given by  Rowlatt  J., will not carry the matter further where the statute has made an  express  provision for the income of the  firm  and  the income  in  the hands of the partners being both  liable  to tax. It is not disputed that there can be double taxation if  the legislature  has  distinctly enacted: it.  It is  only  when there  are  general words of taxation and they  have  to  be interpreted  they  cannot be so interpreted as  to  tax  the subject  twice  over to the same tax (vide  Channell  J.  in Stevens  v. The Durban-Roddepoort Gold Mining  Co.  Ltd.(’). The  Constitution does not contain any  prohibition  against double  taxation even if it be assumed that such a  taxation is involved in the case of a firm and its partners after the amendment of s. 23 (5) by the Act of 1956.  Nor is there any other enactment which interdicts such taxation.  It is  true

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that S. 3 is the general charging section.  Even if S. 23(5) provides  for the machinery for collection and  recovery  of the tax, Once the legislature has, in clear terms, indicated that the incomes of the firm can be taxed in accordance with the  Finance Act of 1956 as also the income in the hands  of the  partners,  the  distinction between a  charging  and  a machinery  section is of no consequence.  Both the  sections have to be read together and construed harmoniously.  It  is significant  that similar provisions have also been  enacted in  the  Act  of 1961.  Sections 182 and 1  8  3  correspond substantially  to S. 23 5 ) except that the old section  did not  have a provision similar to sub-section (4) of s.  182. After  1956,  therefore,  so far  as  registered  firms  are concerned  the  fax  payable by the firm  itself  as  to  be assessed and the share of each partner in the income of  the firm has to be included in his total income and assessed  to tax  accordingly.   If any double taxation is  involved  the legislature itself has, in express words, sanctioned it.  It is  not  open to any one thereafter to  invoke  the  general principles that the subject cannot be taxed twice over. (1) 60 I.T.R. 95.            (2) 5 T.C. 402. 259 We may now deal with the challenge to the  constitutionality and  validity  of  s. 297(2)(g) of the Act  of  1961.   That provision  appears in Chapter XXIII and is a part of s.  297 which  deals  with  repeals and  savings.   Sub-section  (1) provides  that the Act of 1922 is repeated.  Clause  (a)  of sub-s.  (2)  says that notwithstanding the  repeal  where  a return  of income has been filed before the commencement  of the  Act  of  1961 by any person  for  any  assessment  year proceedings for the assessment of that person for that  year may  be  taken and continued as if the Act of 1961  had  not been  passed.   According to clause (b) where  a  return  of income  is filed after the commencement of the Act  of  1961 the  assessment  has  to  be made  in  accordance  with  the procedure specified in the Act of 1961.  Clauses (f) and (g) are in these words : (f)  "any  proceeding  for the imposition of  a  penalty  in respect  of any assessment completed before the 1st  day  of April  1962,  may be initiated and any such penalty  may  be imposed as if this Act had not been passed; (g)  any  proceeding  for  the imposition of  a  penalty  in respect  of any assessment for the year ending on  the  31st day  of March 1962, or any earlier year, which is  completed on or after the 1st day of April, 1962, may be initiated and any such penalty may be imposed under this Act". The submission on behalf of the appellants has been that cl. (g)of  s.  297(2)  is violative of Art. 14  inasmuch  as  it creates a discrimination between two sets of assessees  with reference  to  a  particular  date,  namely,  completion  of assessment  proceedings on or after the first day  of  April 1962. In other words the assessees have been classified into two groups for imposition of penalty; the first group is  of those assessees whose assessments have been completed before first  April  1962.  In  their  case,  the  proceedings  for imposition  of penalty have to be initiated and the  penalty imposed under the Act of 1922 [vide clause (f)]. The  second group of assessees whose assessment is completed on or after the  first day of April 1962 have to be proceeded  with  for the  imposition of penalty in respect of any assessment  for the year  ending  on 31st day of March 1962 or  any  earlier year under the Act  of  1961.  The penalty has  also  to  be imposed in their case under the latter Act. It all  depends, therefore,  on the sweet will of the Income tax  Officer  to complete  the assessment before the first day of April  1962

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or to complete it thereafter in order to make the provisions of  the  Act of 1922 or the Act of 1961  applicable  in  the matter of initiation of proceedings for and imposition of  a penalty. A fortuitous event of the assessment being 260 made on or after first April 1961 has no reasonable relation with the object of legislation.  It is further pointed  that under  cl.  (a) of s. 297(2) where a return has  been  filed before the commencement of Act of 1961 i.e. first April 1962 the  proceedings for assessment have to be taken  under  the Act of 1922.  If the assessment has to be made under the Act of 1922 there seems to be no rationale behind the provisions contained in clauses (f) and (g) which introduce an apparent inconsistency  and  contradiction with what is  provided  by clause  (a).  Logically, it is claimed, the proceedings  for imposition  of penalty should have followed the same  course as the assessment where the return of income has been filed. Penalty  partakes of the character of an additional tax  and therefore  its  imposition should not have  been  completed, particularly, when under clauses (a) and (b) it is the  date of filing of the return which governs the procedure relating to assessment under one Act or the other. Under  S.  22(2) of the Act of 1922 the Income  tax  officer could serve a notice requiring any person whose total income was of such amount as to render him liable to income tax  to furnish   within   a  specified  period  a  return  in   the prescribe  form  setting forth his total income  during  the previous  year. Under S. 28 if the Income tax  Officer,  the Appellate  Assistant Commissioner or the Appellate  Tribunal in  the  course of any proceedings, was satisfied  that  any person had, without reasonable cause, failed to furnish  the return of his total income which he was required to  furnish by  notice given under s. 22 it could be directed that  such person  shall  pay  by way of penalty, in  addition  to  the amount of income tax and super tax payable by him, a sum not exceeding  1/ 2 times that amount. Sub-section (4)  provided that  no prosecution for an offence could be  instituted  in respect of the same facts on which penalty had been  imposed under the section, Sub-F section (6) made it obligatory  for the  Income tax Officer to obtain the previous  approval  of the  Inspecting Assistant Commissioner before  imposing  any penalty. In the Act of 1961 the provisions   relating     to penalties are contained in Chapter XXI. Section 27 1 (1) (a) deals  with the failure to furnish a return. If  the  Income tax  officer or the Appellate Assistant Commissioner in  the course  of any proceedings under the Act is  satisfied  that such a default has  been committed without reasonable  cause he may direct that such person shall pay by way of  penalty, in addition to the amount of tax payable by him, a sum equal to  2% of the tax for every month during which  the  default continues,  but  not exceeding in the aggregate 50%  of  the tax.  Section  275(l)  provides that  no  order  imposing  a penalty shall be made unless the assessee has     been heard or has been given a reasonable opportunity of being    heard. Section 275 lays down the period of limitation for  imposing a penalty. Such an order cannot be passed after the                             261 expiration  of two years from the date of the completion  of proceedings  in  the  course of which  the  proceedings  for imposition  of  a penalty have been commenced.   It  may  be mentioned  that  in Chapter XXII dealing with  offences  and prosecutions  a  provision  has  been made  in  s.  276  for punishment  with fine in case of failure without  reasonable cause  or  excuse to furnish in due time a return  under  s. 139(2) which Was equivalent to s. 22(2) of the Act of  1922.

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As  the present case relates only to a penalty  having  been imposed on account of the failure to furnish a return we may notice  the  main  changes made in the Act of  1961  in  the matter  of  imposition of penalty for such a  default.   The first departure from the Act of 1922 is that no  prosecution could be instituted under the Act of 1922 in respect of  the same  facts on which a penalty had been imposed.  Under  the Act  of  1961  a penalty can be imposed  and  a  prosecution launched on the same facts.  The second change is that under the Act of 1922 the Income tax Officer could not impose  any penalty  without  the previous approval  of  the  Inspecting Assistant Commissioner.  Under the 1961 Act no such previous approval  is  necessary.  Thirdly the Act of  1922  did  not prescribe  any minimum amount of penalty.  According to  the Act  of  1961 the penalty cannot be less  than  the  minimum prescribed.  This is of course subject to the Commissioner’s power of reduction.  Fourthly the maximum penalty  imposable in a case where there has been a failure to file a return in compliance  with a notice issued by the Income  tax  Officer has been reduced under the Act of 1961.  Lastly there was no time limit in the Act of 1922 for passing of a penalty order but  under  the Act of 1961 a period of two years  has  been prescribed  by s. 275 as stated above.  Thus  whereas  under the Act of 1922 a defaulting assessee had certain protection in  the  matter of prosecution no such protection  has  been afforded  under the Act of 1961; but the maximum  amount  of penalty  which can be imposed has been reduced and a  period of  limitation  has been prescribed for  passing  a  penalty order  which  is  of  distinct  advantage  to  a  defaulting assessee.   It is not possible to accept the  suggestion  on behalf  of  the  appellants that  the  substantive  and  the procedural  provisions relating to penalty contained in  the Act of 1961 are altogether onerous. Now the Act of 1961 came into force on first April 1962.  It repealed the prior Act of l 922.  Whenever a prior enactment is  repealed and new provisions are enacted the  legislature invariably   lays   down  under  which   enactment   pending proceedings shall be continued and concluded.  Section 6  of the General Clauses Act 1897 deals with the effect of repeal of an enactment and its provisions apply unless a  different intention appears in the statute.  It is for the legislature to decide from which date a particular CI(NP)70-2 262 law  should come into operation.  It is not disputed and  no reason has been suggested why pending proceedings cannot  be treated  by  the legislature as a class for the  purpose  of Art. 14.  The date, first April 1962 which has been selected by  the legislature for the purpose of cis. (f) & (g) of  S. 297(2) cannot be characterised as arbitrary or fanciful.  It is  the.  date on which the Act of 1961 actually  came  into force.   For the application and the implementation  of  the Act of 1961 it was necessary to fix a date and the stage  of the  proceedings which were pending for providing  by  which enactment  they  would  be  governed.   According  to  M/S’. Hatisingh  Mfg.   Co.  Ltd. & Another v. Union  of  India  & Others(’), the State is undoubtedly prohibited from  denying to  any  person  equality  before  the  law  or  the   equal protection  of the laws but by enacting a law which  applies generally  to all persons who come within its ambit as  from the date on which it becomes operative no discrimination  is practiced.   In  that case although a distinction  had  been made  with  reference  to  s.  25FFF(l)  of  the  Industrial Disputes Act 1947 as inserted by Act 18 of 1957 between  em- ployers  who  had  closed their undertakings  on  or  before November 27, 1956 and those who had done so after that date,

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it was held that Art. 14 had not been violated. According to the arguments on behalf of the appellants  Art. 14  is attracted because the classification which  has  been made  is purely arbitrary depending on the accident  of  the date  of the completion of the assessment.  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 cis. (f) and (g)  that  the date of the completion of the assessment would be determined of,  the enactment under which the proceedings  for  penalty were to be held.  It may be that the legislature  considered that  a separate treatment should be given in the matter  of assessment  itself and under cis. (a) and (b) of  s.  297(2) the point of time when a return of income had been filed was made  decisive for the purpose of application of the Act  of 1922 or the Act of 1961.  But merely because the legislature in  its  wisdom  decided to give a  different  treatment  to proceedings  relating  to penalty it is  difficult  to  find discrimination  with regard to the classification which  has been made in cis. (f) and (g) which are independent in  cis. (a)  and  (b).   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. [1] [1960] 3 S.C.R. 528. 263 The majority decision in Jalan Trading Co. (P) Ltd. v.  Mill Mazdoor  Union(’)  hardly affords any parallel.   There  are retrospective  operation  of the Payment of Bonus  Act  1965 which came into force in May 29, 1965 was made by s. 33, the provisions of which were held to be violative of Art. 14, to depend on the pendency on that date of any dispute regarding payment  of bonus relating to any accounting year from  1962 onwards.   The year 1962 had apparently no  connection  with the date on which the Act came into operation which was  May 29, 1965. It is well settled that in fiscal enactments the legislature has  a larger discretion in the matter of classification  so long  as  there is no departure from the rule  that  persons included  in  a  class  are  not  singled  out  for  special treatment.   It is not possible to say that  while  applying the penalty provisions contained in the Act of 1961 to cases of persons whose assessments are completed after first April 1962  any class has been singled out for special  treatment. 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  income tax  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(l) and 275 of the Art 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. It  is  equally difficult to understand  the  argument  that because  it rests with the Income tax Officer  to,  complete the  assessment by a particular date it will depend  on  his fiat whether the penalty should be imposed under the Act  of 1922 or under the Act of 1961.  There is no presumption that officer  or authorities who are entrusted  with  responsible duties  under  the taxation laws would  not  discharge  them properly and in a bona fide manner.  If in a particular case

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any mala fide action is taken that ran always be  challenged by  an  assessee  in appropriate proceedings  but  the  mere possibility  that some officer may intentionally  delay  the disposal of a case can hardly be a ground for striking  down clause  (,a,)  as  discriminatory under  Art.  14.   We  are clearly  of the view, i n concurrence with the decisions  in Gopi Chand Sarjuprasad v. Union of India(2 ) and Income  tax Officer A-Ward, Agra & Ors. v. Firm Madan Mohan Damma Mal  & Anr.(3),  that no discrimination was practised  in  enacting that clause which would attract the application of Art.  14. The classification made is (1) [1967] 1. S.C.R. 15. (2) 73 I.T.R. 263. (3) 70 I.T.R. 293. 264 based on intelligible differentia having reasonable relation to   the  object  intended  to  be  achieved.   The   object essentially was to prevent the evasion of tax. We  are further unable to agree that the language of s.  271 does  not  warrant  the taking  of  proceedings  under  that section  when  a default has been committed  by  failure  to comply  with  a notice issued under S. 22(2) of the  Act  of 1922.   It  is true that cl. (a) of sub.-s. (1)  of  S.  271 mentions the corresponding provisions of the Act of 1961 but that will’ not make the part relating to Davment of  penalty inapplicable  once it is held that s. 297(2)(g) governs  the case.   Both  ss.  271(l)  and 297(2)(g)  have  to  be  read together  and  in harmony and so read  the  only  conclusion possible is that for the imposition of a penalty in  respect of  any assessment for the year ending on March 31, 1962  or any earlier year which is completed after first day of April 1962  the proceedings have to be initiated and  the  penalty imposed  in accordance with the provisions of s. 271 of  the Act of 1961.  Thus the assessee would be liable to a penalty as  provided by s., 271(l) for the default mentioned  in  s. 28(l) of the Act of 1922 if his case falls within the  terms of  S.  297(2)(g).  We may usefully refer  to  this  Court’s decision  in Third Income tax Officer, Mangalore v.  Damodar Bhat(l) with reference to S. 297(2) (j) of the Act of  1961. According  to it in a case falling within that section in  a proceeding for recovery of tax and penalty imposed under the Act of 1922 it is not required that all the sections of  the new  Act  relating  to  recovery  or  collection  should  be literally  applied but only such of the sections will  apply as  are appropriate in the particular case and  subject,  if necessary,  to suitable modifications.  In other words,  the procedure of the new Act will apply to cases contemplated by s.  297 (2) (j) of the new Act mutatis mutandis.   Similarly to  the  provision of s. 271 of the Act of 1961  will  apply mutatis   mutandis  to  proceedings  relating   to   penalty initiated in accordance with s. 297 (2) (g) of that Act. Lastly the challenge to S. 271(2) of the Act of 1961 on  the ground  of  contravention  of Art.  14  may  be  considered. According  to  that  provision when  the  person  liable  to penalty  is a registered firm then notwithstanding  anything contained  in  the other provisions of the Act of  1961  the penalty  imposable under subs. (1) shall be the same  amount as  would  be, imposable on that firm if that firm  were  an unregistered  firm.  It is pointed out that in the  case  of assessees  other than registered firms the  maximum  penalty impossible under S. 271(l)(i) cannot exceed in aggregate 50% of the tax payable by the assessee; whereas in the case of a registered firm the maximum penalty is not made to depend (1)  71 I.T.R. 806. 265

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upon  the tax assessed on or payable by such firm.   On  the contrary  the  registered  firm will have to  pay  the  same penalty  as  an unregistered firm which may far  exceed  the maximum  limit  of 50% prescribed by  the  above  provision. This,    according    to   the    appellants,    constitutes discrimination  under  Art. 14 of the Constitution.   Now  a firm when registered is treated as a separate entity  liable to  tax.  After 1956 it has to pay tax at a special  reduced rate.   If  a firm got itself registered the  partners  were entitled  to  certain  benefits  and  advantages.   It  was, however,  open  to  the  legislature  to  say  that  once  a registered  firm committed a default attracting  penalty  it should  be deemed or considered to be an  unregistered  firm for the purpose of its imposition.  No question of discrimi- nation  under  Art. 14 can arise in such  a  situation.   We fully  share  the  view of the High  Court  that  there  was nothing  to prevent the legislature from giving the  benefit of  a reduced rate to a registered firm for the  purpose  of tax  but withhold the same when it committed a  default  and became liable to imposition of penalty. The appeal fails and it is dismissed with costs. R.K.P.S.                                             Appeal. dismissed. 266