The members of a disrupted Hindu undivided family are not liable to pay penalty under S. 28 of the Income-tax Act.

SUBBA RAO, C. J. :- The Income-tax Appellate Tribunal, Madras has submitted the following question under S. 66 (1) of the Indian Income-tax Act.

"Whether the levy of penalty of Rs. 15,000/-on the assesses is valid in law." The assessee, Mahankali Subbarao and Nageswararao, Eluru, was a Hindu undivided family, which carried on business at Eluru and Vijayavada as agents of the Standard Vacuum Oil Co., for sale of petrol, kerosene oil etc. The family comprised of two brothers, Subbarao and Nageswararao. It is now found that they became divided on 05-04-1943. In respect of the year 1943-44, the assessee filed a return on 15-07-1947 declaring a total income of Rs. 32,073.

The Income-tax Officer did not accept the figure but added a sum of Rs. 40,000/- on the ground that the assessee had dealings in black-market and suppressed his income therefrom. He also took proceedings under S. 28 of the Income-tax Act and imposed penalty of Rs. 21,960/- by his order dated 29-01-1947. The question is whether the members of a disrupted family are liable to pay penalty under S. 28 of the Act.

2. Section 25-A of the Income-tax Act reads :

(1) Where, at the time of making an assessment under S. 23, it is claimed by or on behalf of any member of a Hindu family hitherto assessed as undivided that a partition has taken place among the members of such family, the Income-tax Officer shall make such inquiry thereinto as he may think fit, and, if he is satisfied that the Joint family property has been partitioned among the various members or groups of members in definite proportions, he shall record an order to that effect;

Provided that no such order shall be recorded until notices of the inquiry have been served on all the members of the family.

2. Where such an order has been passed ..... the Income-tax Officer shall make an assessment of the total income received by or on behalf of the Joint family as such as if. no partition had taken place, and each member or group of members shall, in addition to any income-tax for which he or it may be separately liable and notwithstanding anything contained in sub-s. (1) of S. 14, be liable for a share of the tax on the income so assessed according to the portion of the joint family property allotted to him or it; and the Income-tax Officer shall make assessments accordingly on the various members and groups of members in accordance with the provisions of S. 23 :

Provided that all the members and groups of members whose joint family property has been partitioned shall be liable jointly and severally for the tax assessed on the total income received by or on behalf of the joint family".

3. This section was introduced to provide machinery for assessing the disrupted members of a joint Hindu family to income-tax and for collecting the share of the tax payable by each member of that family. Under the proviso, the members of the erstwhile family are liable to pay the tax assessed jointly and severally. But there is no provision authorising the authorities Concerned to impose a penalty on the members of a divided family.

Section 28, which enables the income-tax authorities to impose penalty under the circumstances mentioned therein, says that if the In-come-tax Officer, the Appellate Assistant Commissioner or the Appellate Tribunal in the course of any proceedings under this Act is satisfied that any person has committed the defaults mentioned in cl. (a), (b) or (c), he may direct him to pay penalty in addition to any tax and super tax. Person is defined to include a Hindu undivided family. Therefore, under this section an undivided Hindu family, who is a person, can be directed to pay the penalty. But by reason of the disruption in the family at the time of the proceedings were initiated, the Hindu family ceased to be a "Person" within the meaning of the said section. The said provisions were the subject of judicial scrutiny both by the Patna High Court and the Madras High Court.

4. A Division Bench of the Patna High