1979 (11) TMI 46 - HC - Income Tax

Summary

Issues:
1. Interpretation of penalty amount under section 271(2) of the Income Tax Act.
2. Treatment of a registered firm as an unregistered firm for penalty purposes.
3. Calculation of penalty based on total income determined in reassessment.
4. Clarification on the meaning of "assessed tax" for penalty imposition.
5. Comparison between tax payable and tax assessed for penalty determination.

Analysis:
The judgment by the High Court of Madhya Pradesh addressed a reference made by the Income-tax Appellate Tribunal regarding the interpretation of penalty amount under section 271(2) of the Income Tax Act. The specific question raised was whether the tax payable by a firm, for penalty calculation purposes, should be reduced by the amount of tax that would be payable if registration is not granted during the original assessment. The case involved a registered firm assessed for the assessment year 1959-60, with reassessment proceedings resulting in an increased total income. The penalty was imposed under section 271(1)(a) for default in filing the return under section 148.

The court deliberated on the treatment of a registered firm as an unregistered firm for penalty purposes under section 271(2). The argument presented on behalf of the assessee was that the penalty should be calculated based on the tax that would have escaped assessment without reassessment under section 147. However, the court rejected this argument, emphasizing that the assessment of tax involves quantification of total income and final tax calculation. It clarified that in cases of reassessment, tax assessment is not limited to the escaped income but includes the total income for determining the tax liability.

Furthermore, the court provided a detailed explanation on the meaning of "assessed tax" for penalty imposition. It highlighted that the assessed tax includes the tax assessed on the total income, including the escaped income, and not just the difference between the reassessed tax and the original tax. The court referenced a Supreme Court decision to support the distinction between tax payable and tax assessed, leading to an amendment in the relevant tax provision.

In conclusion, the court answered the referred question in the negative, favoring the department and ruling against the assessee. The judgment clarified the calculation of penalty based on the total income determined in reassessment and emphasized the distinction between tax payable and tax assessed for penalty determination.