ANNAIAH M M Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS is a reference at the instance of the assessee under section 256(1) of the Income-tax Act, 1961. The question of law referred for our opinion are :

(2.) THE assessee by notice dated March 6, 1964, issued under section 139(2) of the Income-tax Act, 1961 (hereinafter referred to as "the Act") was required to file his return of income for the assessment year 1964-65, on or before the 15th of October, 1964. On October 13, 1964, the assessee asked for time for filing the return up to October 31, 1964. On the said application no order was passed by the Income-tax Officer. On October 17, 1964, the assessee was served with a notice issued by the Income-tax Officer under section 274 read with section 271(1)(a). THE assessee filed his return only on February 6, 1965, showing an income of Rs. 57,697. THE assessee had paid by way of advance tax a sum of Rs. 15,430; with his return he paid a sum of Rs. 3,627 under section 140A of the Act. By the assessment order made on March 3, 1965, the tax on the total income of the assessee was determined at Rs 23,539 13. After adjusting the advance tax and the tax paid under section 140A, a notice of demand was issued to the assessee claiming the balance sum of Rs. 4,482 13. THE assessee submitted his explanation for not filing the return on the due date. THE Income-tax Officer was not satisfied with the said explanation and he proceeded to levy penalty which he levied at 2 per cent for the default period of three months on the whole of the tax of Rs. 23,539 13 and the penalty levied was Rs. 1,412 34.

(3.) SIR A. R. Srinivasa Rao, the learned counsel for the assessee, submitted that he does not press the first question of law and restricted his arguments to the second question. According to the learned counsel for the assessee, the penalty under section 271(1)(a)(i) has to be computed not on the amount of tax assessed but on the balance amount of tax payable as per the demand notice under section 156. He further contended that the Central board of Direct Taxes, New Delhi, had issued a circular to the department to the effect that the net amount of tax payable by the assessee for the purposes of section 271(1)(a) is to be arrived at excluding the tax deducted at source as well as the advance tax actually paid by the assessee under sections 207 to 219 of the Act, and that the said direction is binding on the department by virtue of section 119 of the Act. The learned counsel argued that the Income-tax Officer conceded before the Appellate Assistant Commissioner who has referred to the circular issued by the Central Board of Direct Taxes that the penalty had to be computed on the net amount of tax payable after giving deduction to the advance tax paid.