COMMISSIONER OF INCOME TAX Vs. MASKARA TEA ESTATE

JUDGEMENT

(1.) THE assessee had applied for registration. At long last the matter came up before the Income-tax Appellate Tribunal which by its order dated July 1, 1972, allowed registration to the assessee-firm for the assessment years 1961-62, 1962-63 and 1963-64. Of course, it held, as it was bound to hold, that the assessee was a genuine firm and was entitled to registration. However, the relevant previous year of the assessee, for the assessment year 1963-64, ended on March 31, 1963. Accordingly, the return under Section 139(1) of the I.T. Act, 1961, was due on September 30, 1963. A notice under Section 139(2) was served on the assessee which made an application for extension of time up to December 31, 1963. No application was made for further extension of time. A belated return was filed by the assessee on May 28, 1966, declaring an income of Rs. 47,455. THE Income-tax Officer, for short, "the ITO", completed the assessment at Rs. 53,096 which was reduced to Rs. 50,697 by the appellate authority. THE ITO set afoot penal action against the assessee under Section 271(1)(a). THE ITO was not satisfied with the explanations offered by the assessee and levied penalty at 2% of the tax which came to Rs. 10,951 but he restricted the penalty to Rs. 9,777 being 50% of the tax of Rs. 19,555. THE assessee appealed and contended that its status had been wrongly determined as an unregistered firm for the assessment year (1963-64) and the tax payable by it was wrongly computed at Rs. 19,555 treating it to be so (an unregistered firm). THE assessee relied on the order of the Tribunal dated July 1, 1972, allowing registration for the three assessment years including the assessment year in question. THE assessee contended that the tax payable by it for the assessment year in the status of a registered firm was actually Rs. 1,670 only, and it had paid an advance tax of Rs. 1,855 on December 3, 1962, that is, long before it was to submit the return. As such, no tax was ever in arrears for the year in question; it was entitled to a refund of Rs. 183 as a result of over-payment of advance tax THE Appellate Assistant Commissioner, for short "the AAC", held that no tax was payable by the assessee-firm for the assessment year at the relevant time. So the provisions of Section 271(1)(a) were not attracted and cancelled the penalty order. THE revenue appealed to the Tribunal which upheld the order of the AAC and held that, (i) it was a case of failure to furnish a return ; (ii) at all relevant times the taxpayer was not in arrears; (iii) the taxpayer had paid more than the tax payable by it by way of payment of advance tax under Chap. XVII-C, and (iv) the assessee was not liable to penalty. It turned down the contention of the revenue as to the applicability of the provisions under Section 271(2) of the Act on the facts and circumstances of the case. It held that the legal fiction in Section 271(2) was limited for quantification of penalty of a registered firm, if any penalty was leviable on it under Section 271(1)(a) read with Section 271(1)(a)(i). THE revenue prayed for a reference and the Income-tax Appellate Tribunal, Gauhati Bench, Gauhati, in exercise of its power under Section 256(1) of the Act, has referred the following question for our determination :

(2.) MR. Talukdar, the learned standing counsel for the revenue, submits that Clauses (a), (b) and (c) of Section 271(1) contemplate three different types of defaults. Once a person commits any of these defaults he is "liable to penalty" as Clauses (i), (ii) and (iii) of Section 271(1) prescribe the amounts of penalty imposable for the defaults prescribed under Clauses (a), (b) and (c), respectively. The learned counsel contends that the provisions of Sections 271(1)(a) and 271(2) prescribe the method of computation of penalty and none of them is a "charging provision ". Accordingly, they should receive a construction which makes the machinery for the computation of penalty workable and they should not be interpreted strictly like a charging provision. The learned counsel points to the expression "liable to penalty" in Section 271(2) and submits that a registered firm is liable to penalty if it commits a default prescribed in Section 271(1)(a) and one is not to look at the provisions of Section 271(1)(i) but should consider its penal liability u/s. 271(2). The expression "notwithstanding anything contained in the other provisions of this Act, the penalty imposable under Sub-section (1)..." overrides the provisions of the Act including those contained in Section 271(1)(i). In short, the learned counsel submits that even if a registered firm pays up its entire amount of tax including the assessed tax by way of advance tax under Chap. XVII-C, it is liable under Section 271(2), once it fails to furnish a return without reasonable cause as contemplated under Section 271(1)(a). Accordingly, the counsel submits that the Tribunal has gone wrong in assuming that Section 271(2) did not attract in the instant case as the registered firm had cleared up all its tax arrears by way of advance payment of tax.

(3.) IT has been urged on behalf of the assessee that the provisions of Sections 271(1)(a) and271(1)(I) are penal as it falls under Chap. XXI of the Act styled as "penalty imposable". Dr. Saraf for the assessee has adopted the line of reasoning of the learned Tribunal.