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TMI Blog1971 (8) TMI 67X X X X Extracts X X X X X X X X Extracts X X X X ..... ts income at Rs. 1,95,132. On this amount of income shown and keeping in view the status of the registered firm the tax payable by it was Rs.16,655, after giving credit of advance tax paid amounting to Rs. 7,564, the tax payable by the assessee was determined at Rs. 9,101.84. The Income-tax Officer also levied penal interest in the sum of Rs. 596 under section 139(1) of the Act. The assessee having failed to file its return of income by 30th June, 1962, the Income-tax Officer started penalty proceedings against it. The assessee explained its failure to file the return in time on the ground that its books of account were not audited. This explanation was not accepted by the Income-tax Officer as showing a reasonable cause for not having filed the return in time and he levied a penalty of Rs. 14,530 under section 271(1)(a) of the Act. The penalty was calculated at the rate of 2 per cent. per month on the tax due from the assessee from 22nd October, 1962. Feeling aggrieved by the order of the Income-tax Officer, the assessee filed an appeal before the Appellate Assistant Commissioner who held that the penalty should have been levied for five months. Before the Income-tax Officer, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at in computing the quantum of penalty, all the tax paid by the firm as well as by its partners should be taken into account. The Tribunal held that the assessee's default for non-compliance of the provisions of section 139(1) of the Act continued from 21st October, 1962, till 13th March, 1963, on which date the notice under section 139(2) of the Act was served on the assessee. In other words, the Tribunal held that for the purposes of computation of penalty the default of the assessee in terms of section 139(1) of the Act would be for four months only. The Tribunal further held that the assessee had been treated as an unregistered firm, all the taxes that were paid by the firm as well as by its partners were to be taken into account for the determination of tax on which penalty is to be levied under the Act. On the application of the Commissioner of Income-tax, the Tribunal has referred the following questions of law for the opinion of this court : " (1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that all the taxes paid by the partners could be taken into account for determination of quantum of penalty payable by the firm under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statutory obligation cast upon him to submit his return of income before the 30th June of the assessment year as contemplated by sub-section (1) of section 139 of the Act. In this view of the matter it was submitted that the assessee had committed default from 1st December, 1962, till 15th April, 1963, when the return was filed. From June 30,1962, till November 30, 1962, the period of default is to be condoned in view of the automatic extension of time granted in the circular letter issued by the Central Board of Direct Taxes which enabled an assessee to file the return of income up to 30th November, 1962, for the assessment year 1962-63. To substantiate this argument the learned counsel drew support from Commissioner of Income-tax v. Indra and Company. In the said case, Messrs. Indra and Company, a registered firm under the Act, and one of its partners, Shri Jiwanlal Maheshwari, had to submit their income-tax returns on or before 30th June, 1962, as required under section 139(1) of the Act. They sought extension of time from the Income-tax Officer, who on two occasions extended time up to 30th September, 1962. The assessee did not file the return even during the extended time. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t may be pointed out that before taking any assessment proceedings, it is incumbent on the Income-tax Officer to issue notice under sub-section (2) of section 139. Such a view would mean that any person liable to pay income-tax may sit comfortably without any fear of the imposition of penalty and not furnish his return as required under section 139(1) and wait till a notice is given to him under section 139(2) and then file a return within the time mentioned in that notice. This view does not appeal to us. An argument has been addressed to us that as soon as a notice is issued under sub-section (2) of section 139 giving time for furnishing the return, it must be taken that the Income-tax Officer had condoned whatever the default may have been in not furnishing, the return under sub-section (1) of section 139. Unless there is any express order for condonation of such default, we cannot take it that the Income-tax Officer, merely because he has issued a notice under section 139(2) to a person who has not filed the return under section 139(1), must be taken to have condoned his default in not furnishing the return under section 139(1)." There appears to be force in the contention of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. v. Income-tax Officer, District I(B) Ward, Kanpur. In that case the assessee, on 22nd June, 1964, received a notice under section 139(2) of the Act directing it to file a return of its total income for the assessment year 1964-65. It was required to file the return by 25th July, 1964. On 24th July, 1964, he filed an application seeking extension of time by 30th August, 1964. The application was not granted. Since the appellant had not filed a return within the time allowed it became liable for payment of interest as also to the imposition of penalty. A contention was raised by the assessee that according to section 139(1) of the Act it was entitled to file the return of his income for the relevant assessment year up to 30th September, 1964, and that the Income-tax Officer could not require him to file it earlier under section 139(2). The argument advanced on behalf of the assessee was that resort to sub-section (2) of section 139 of the Act could only be made when the period for filing a return voluntarily under section 139(1) had expired, and that the notice served upon him under section 139(2) requiring it to file a return on or before 25th July, 1964, was illegal. In the al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of his discretion under section 139(2). In this view of the matter the default in the instant case was committed by the assessee with effect from 1st December, 1962, as an automatic extension of time to submit the return stood granted up to 30th November, 1962, on the basis of a circular letter issued by the Central Board of Direct Taxes and the default continued till 15th April, 1963, when the assessee submitted its return of income in compliance with the notice served upon it by the Income-tax Officer in pursuance of the provisions of section 139(2). The plain language of sub-section (2) of section 139 cannot be strained to hold that the assessee was absolved of its statutory obligation from filing a return of its income voluntarily under section 139(1) and the default committed in not filing the return cannot be taken note of for initiating proceedings for imposition of penalty and that the period of default shall cease from the date when the notice under section 139(2) issued by the Income-tax Officer to the assessee requiring it to furnish a return of its income within 30 days from the date of service of the notice. We are, therefore, of the opinion that, on the facts and in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th during which the default continued, but not exceeding in the aggregate fifty per cent. of the tax;. . . . " According to the above-quoted section the Income-tax Officer can direct that an assessee who has without reasonable cause failed to furnish the return of his total income which he was required to furnish under sub-section (1) of section 139 or by notice given under sub-section (2) of section 139, shall pay by way of penalty in addition to the amount of tax, if any, payable by him, a sum equal to 2% of the tax for every month during which the default continued, but not exceeding in the aggregate 50% of the tax. This brings us back to the question that we have already posed above, namely, what do the words "tax, if any, payable by him", mean? The learned counsel appearing for the revenue has contended that the words "tax payable" connote the amount of tax assessed while the learned counsel for the respondent on the other hand has suggested that the words "tax payable" would signify the amount of tax which a person is required to pay after giving him rebate for the tax already deposited by him. This question was considered in Vir Bhan Bansi Lal v. Commissioner of Income-tax. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x to which an assessee has been assessed." We are inclined to follow the view taken by the Punjab High Court. The words "tax, if any, payable by him" as used in section 271(1)(i) would, without doubt, mean "the tax which has been assessed on an assessee and is chargeable" and by no stretch of imagination it could mean the residuary of the tax to be paid by him after making adjustment of the tax already deposited by him. The word "tax" has been defined in section 2(43). According to the said section "tax" in relation to the assessment year commencing on the first day of April, 1965, and any subsequent assessment year means income-tax chargeable under the provisions of this Act, and in relation to any other assessment year income-tax and super-tax chargeable under the provisions of this Act prior to the aforesaid date." If the definition of the term "tax" means "income-tax chargeable" under the provisions of the Act it is difficult to interpret that the words "payable by him" would mean anything different than the "income-tax chargeable" under the provisions of the Act. To our mind the words "payable by him" cannot mean anything else than "income-tax chargeable" from an assessee afte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... registered firm as if it were an unregistered firm for the purposes of imposing penalty. It would be relevant here to examine a Bench decision in Commissioner of Income-tax v. Chhotelal Kanhaiyalal. In that case the assessee filed the return of income for the assessment year 1958-59 on 8th July, 1959. The return was filed 11 months after the due date by which it should have been filed. The firm was registered in the assessment year. The firm deposited a sum of Rs. 2,500 by way of advance tax. The firm was assessed on a total income of Rs. 85,797. The assessment was made on 25th May, 1965. Penalty proceedings were also started against the firm under section 271. A question arose in that case as to what amount of advance tax was to be deducted in order to find out the exact amount of tax the firm had to pay on the basis that it was an unregistered firm. The contention of the department in that case was that only the amount deposited in advance by the firm could be deducted while the assessee submitted that the advance tax deposited by the partners of the firm individually in connection with the assessment of their individual income in respect of their respective shares in the profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The learned counsel for the respondent cited a case, Sahu Rajeshwar Nath v. Income-tax Officer, C-Ward, Meerut, in which their Lordships of the Supreme Court held that where a person does not dispute that he was a partner of the unregistered firm for the relevant accounting year, the Collector could lawfully proceed to execute the certificate for demand of income-tax under section 46(2) of the Income-tax Act, 1922, against that person and recover the income-tax from him. In that case the question that required determination was that when a firm not registered under the Act is assessed to income-tax and a notice of demand was issued against the firm, whether a separate notice of demand was necessary against the partner of the firm when the tax assessed against the firm was sought to be recovered from a partner. On the basis of this authority, the learned counsel for the respondent urged us to hold that if the notice of demand against an unregistered firm could be executed against a partner, it would be appropriate to take into consideration the amount of tax deposited by the partner of that firm while assessing the penalty at 2% on the tax payable by the firm. We are unable to ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f penalty levied at 2% per month for four months on Rs. 34,217.55 came to Rs. 2,737.44. The Tribunal accepted the contention of the assessee and held that tax payable by it was the tax ultimately determined to be so payable after giving credit for all the payments made towards the tax liability. The Tribunal, accordingly, reduced the penalty to Rs. 2,737. At the instance of the department a question of law, "Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that in calculating the penalty leviable under section 271(1)(i) of the Income-tax Act, 1961, the amount paid by the assessee under the provisional. assessment under section 23B of the Indian Income-tax Act, 1922, was to be deducted from the amount of tax determined under section 23(3) of that Act in order to determine the amount of tax on which the computation of penalty was to be based and in reducing the amount of penalty imposed on the assessee to Rs. 2,737?" was referred to the High Court. The court held that unless on the day the penalty is being imposed some amount of tax remained outstanding or payable by the assessee no penalty could be imposed at all and that the penalty was ..... X X X X Extracts X X X X X X X X Extracts X X X X
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