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Calculation of penalty for a registered firm under section 271(1) read with section 271(2) of the Income-tax Act, 1961 based on advance tax paid by partners. Detailed Analysis: Issue 1: Calculation of Penalty for a Registered Firm The judgment addresses the question of whether, for calculating the penalty on a registered firm under section 271(1) and 271(2) of the Income-tax Act, 1961, the advance tax paid by partners should be deducted from the gross tax payable by the firm as if it were an unregistered firm. The court examines the legislative provisions and the application of the fiction created by section 271(2) which treats a registered firm as unregistered for penalty calculation purposes. Analysis: The court emphasizes that the penalty amount is based on the tax payable by the assessee. In the case of a registered firm, the tax liability is determined as if it were unregistered, necessitating the consideration of the total income of the firm. The judgment clarifies that advance tax paid by partners individually cannot be deducted from the tax liability of the firm for penalty calculation. The court rejects the contention that partners' advance tax should be considered as a payment by the firm, highlighting the separate legal entities of the firm and partners for tax purposes. Issue 2: Interpretation of Legislative Provisions The judgment delves into the interpretation of section 271(2) of the Income-tax Act, 1961, which directs that a registered firm be treated as unregistered for penalty computation. The court analyzes the statutory fiction created by this provision and the limits to extending such fictions beyond the language of the statute. Analysis: The court explains that while the statutory fiction requires treating a registered firm as unregistered for penalty assessment, it does not extend to considering partners' advance tax as payment by the firm. The judgment underscores the importance of adhering to the language of the law and not creating additional fictions beyond the statutory framework. It also highlights that considerations of equity do not typically apply in tax law interpretation, suggesting that individual hardships can be addressed through discretionary powers of tax authorities. Conclusion: The judgment resolves the issue by ruling in favor of the department, determining that the tax payable by a registered firm for penalty calculation should not include deductions for advance tax paid by partners. It underscores the legal distinction between the firm and its partners, emphasizing the application of statutory fictions within the confines of the law.
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