1977 (3) TMI 15 - HC - Income Tax

Summary

Issues Involved:
1. Whether penalty u/s 271(1)(c) is exigible if no tax is payable by the assessee.
2. Interpretation of section 271(1) and its clauses (i), (ii), and (iii) in relation to penalty imposition.
3. Applicability of section 271(2) to registered firms.

Summary:

Issue 1: Whether penalty u/s 271(1)(c) is exigible if no tax is payable by the assessee.

The Tribunal held that no penalty could be levied on the assessee for concealment of income since its total income was only Rs. 24,990, and under the relevant Finance Act, no tax was payable by it for the first Rs. 25,000. The Tribunal's decision was based on the interpretation that penalty under section 271(1)(c) is not exigible when no tax is payable by the assessee.

Issue 2: Interpretation of section 271(1) and its clauses (i), (ii), and (iii) in relation to penalty imposition.

The court analyzed section 271(1) and its clauses, concluding that the penalty contemplated in all three clauses is a measure of the tax payable by the assessee. If no tax is payable, no penalty can be levied. The court emphasized that the language of clauses (i), (ii), and (iii) indicates that penalty is quantifiable only if tax is payable. The court disagreed with the Gujarat High Court's compartmentalization of section 271(1) into creating penal liability in abstract and quantifying it separately.

Issue 3: Applicability of section 271(2) to registered firms.

The court clarified that section 271(2) applies to the quantification of penalty for registered firms only when sub-section (1) is attracted. Since no tax was payable by the assessee in this case, section 271(2) was not applicable. The court rejected the revenue's argument that section 271(2) imposes penalty liability on registered firms irrespective of tax liability, stating that such an interpretation would unfairly target registered firms alone.

Conclusion:

The court affirmed the Tribunal's conclusion that no penalty u/s 271(1)(c) is exigible when no tax is payable by the assessee. The question referred to the court was answered in the affirmative and in favor of the assessee.