ADDITIONAL COMMISSIONER OF INCOME TAX Vs. KHANCHAND THAKURDAS

JUDGEMENT

(1.) At the instance of the Additional Commissioner of Income-Tax, Mysore, Bangalore, the Income-Tax Appellate Tribunal, Bangalore Bench. has referred under Sec.256(1) of the Income-Tax Act, 1961 (hereinafter referred to as the 'Act') the following question :

(2.) Sec.271(1) (a) provides that if the Income-Tax Officer or the Appellate Asst Commr in the course of any proceedings under the Act, is satisfied that any person has without reasonable cause failed to furnish the return of total income which he was required to furnish under subsection (1) of Sec. 139 or by notice given under sub-section (2) of Sec. 139 cr Sec. 148 or has without reasonable cause failed to furnish it within the time allowed and in the manner required by sub-seed) of Sec. 139 or by such notice, as the case may be, he may direct that such person shall pav a certain amount by way of penalty as provided therein on the basis of the tax payable by him Sub-sec(2) of that section further provides that when the person liable to penalty is a registered firm or an un-registered firm which has been assessed under clause(b) of Sec. 183. then, notwithstanding anything contained in the other provisions of the Act, the penalty imposable under sub-sec,(l) shall be the same amount as would be imposable on that firm if that firm were an un-registered firm. The last part of sub-sec(2) of Sec.271 requires the authorities concerned to treat a registered firm as an un-registered firm for the purpose of levying of penalty. It follows that for all inte-nts and purposes to which the fiction incorporated in sub-sec(2) of Sec.271 is applicable, the assessee should be treated as an un-regisered firm. The penalty imposable on the assessee would, therefore, be the penalty imposable on it if it were an un-registered firm. In order to determine it, it is necessarv to determine the tax payable by it, if it were an un-registered firm. Chapter 22A of the Act which dealt with -annuity deposits was applicable to an un-registered firm. Sec.280C required during the relevant year an un-registered firm to deposit a certain amount computed on the basis of its income as annuity deposit. Sec.280-O which was also- in Chap.22A provided that notwithstanding anything to the contrary contained in the provisions of the Act relating to the computation of income chargeable under any head of income, the annuity deposit required to be made under this Chapter should, subject to the provisions of sub-sec (2), be allowed as a deduction in computing the total income assessable for the assessment year in respect of which the annuity deposit was required to be made. The income-tax payable by the un-registered firm has, therefore, first to be determined after allowing deduction for the annuity deposit which the un-registered firm was required to make. During the relevant period, the law did not pro- vide that such a deduction should not be made unless the annuity deposit had actually been made. If, however, the annuity deposit had not actually been made, there were other provisions of law authorising the authorities concerned to recover it. But, the fact that such a deposit had not been made, had no effect on the right of the assessee to claim a deduction in respect of the Annuity deposit which was required to be made by him under Sec.280-O.The penalty payable under Sec.271(1) read with subsec (2) thereof has, therefore, to be determined after allowing the benefit under Sec.280-O to the assessee in the computation of the tax payable.

(3.) Sri S.R.Kajashekara Murthy, learned Counsel for the Revenue, however, argued that as the assessee was a registered firm and as a registered firm, it was not liable to make annuity deposit under Chap.22A of the Act, it would be inappropriate to extend the benefit of Sec.280-O to . We cannot agree with this submission. When once the law requires a certain set of circumstances to be assumed for a given purpose, we should give full effect to that deeming provision and we should not take into/ consideration any other factor which would be inconsistent with the intendment of law. This view of ours receives support from the observations made by Lord Asquith of Bishopstone in East End Dwellings Co Ltd v. Finsbury thorough Council(1952 AC.109 132.) which read as follows :