COMMISSIONER OF INCOME TAX Vs. CHHOTELAL KANHAIYALAL

JUDGEMENT

(1.) THIS is a reference under Section 256(1) of the Income-tax Act, 1961. The question referred to this court by the Income-tax Appellate Tribunal is as under :

(2.) THE assessee-respondent is a firm having four partners. THE relevant year is 1958-59, the return for which was filed by the firm on 8th July, 1959, i.e., it was filed 11 months after the due date. In the assessment year the firm was registered and had made a deposit of Rs. 2,500 by way of advance tax. THE assessment of the firm was finally made on 25th May, 1965, on a total income of Rs. 85,797. In the meanwhile penalty proceedings were started under Section 271 of the Income-tax Act, 1961. THE relevant part of Section 271 is as follows :

(3.) THIS sub-section creates a fiction in law. Although the firm against which penalty is to be imposed is a registered firm therefore not liable to pay tax, yet that firm has to be assumed to be unregistered for the purpose of calculating tax liability and on that basis penalty has to be imposed.