COMMISSIONER OF INCOME TAX Vs. BUILDERS ENGINEERS COMPANY

JUDGEMENT

(1.) THIS is a reference under Section 256(1) of the Income-tax Act, 1961 ("the Act"), at the instance of the Revenue to decide the following question of law, namely :

(2.) THE relevant assessment year is 1978 79. THE assessee was a registered firm which was required to file the return on or before June 30, 1978. However, the assessee filed the return late on November 28, 1978. THE Income-tax Officer on completing the assessment determined the tax payable by the assessee at Rs. 25,000. However, the tax deducted at source amounted to Rs. 40,000 approximately with the result that the assessee became entitled to refund of a considerable amount which he had deposited in excess of the tax found payable by him. In spite of this situation, the Income-tax Officer initiated penalty proceedings against the assessee on the ground of late filing of the return under Section 271(1)(a)(i)(b) read with Section 139(1) of the Act. THE Income-tax Officer rejected the assessee's contention that since there was no "assessed tax" according to its meaning given in the Explanation to Sub-clause (i)(b) of Clause (a) of Sub-section (1) of Section 271, because the tax deducted at source was in excess of the amount of tax found payable by the assessee, there was no question of levying any penalty. This contention of the assessee was, however, accepted by the Commissioner (Appeals) in appeal and thereafter by the Tribunal in further appeal. Hence, this reference at the instance of the Revenue.

(3.) LEARNED counsel for the Revenue placed reliance on Sub-section (2) of Section 271 to contend that a registered firm is to be treated as an unregistered firm when penalty is imposable on it under Sub-section (1) and, therefore, the tax liability of an unregistered firm being greater, there would be some tax due as a result of the registered firm being treated as an unregistered firm. It was urged that on this basis, it would be possible to hold that there is some tax due on which penalty can be calculated according to the above provision. We find it difficult to accept this contention and to use it for construing Section 271(1)(a)(i)(b) in the manner suggested by the Revenue. In the first place, Sub-section (2) of Section 271 is attracted for quantification of the penalty only when it is imposable under Sub-section (1). In that event the registered firm loses the benefit of registration and the penalty for which it has become liable has to be calculated depriving it of the benefit of registration and treating it as an unregistered firm. This does not mean that for the purpose of deciding the liability for penalty under Sub-section (1), effect has to be first given to Sub-section (2) of Section 271 in order to make the formula for calculating the penalty under Sub-section (1) workable. That apart, this argument based on Sub-section (2) of Section 271 can obviously be relied upon for construing Sub-section (1) thereof only when the assessee is a firm and not when the assessee belongs to any other category of "person" defined in Section 2(31) of the Act. It is obvious that the benefit of Sub-section (2) of Section 271 not being available in the case of an assessee other than a registered firm, the impracticability of imposing any penalty under Section 271(1)(a)(i)(b) in a case where the tax due is nil is not met by this argument. This is another reason to support the view that Sub-section (2) of Section 271 cannot be used in the manner suggested on behalf of the Revenue.