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TMI Blog1987 (3) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... e also taken up and decided along with the Miscellaneous Civil Case No. 43 of 1983. In view of the joint request made by learned counsel for both parties, we sent for the record of Miscellaneous Civil Case No. 97 of 1983 and are deciding the same along with this Miscellaneous Civil Case No. 43 of 1983. The question of law which has been referred by the Tribunal in Miscellaneous Civil Case No. 97 of 1983 is as follows: "Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was correct in law in cancelling the penalty levied under section 271 (1) (a) of the Income-tax Act, 1961?" The judgment in the present Miscellaneous Civil Case No. 43 of 1983 shall govern the disposal of Miscellaneous Civil Case No. 97 of 1983 also. The questions of law referred in these two cases are apparently identical. Before answering these questions, it would be necessary to give in nutshell the relevant facts in each of these two cases. The facts of Miscellaneous Civil Case No. 43 of 1983 are that the asses see is a registered firm executing contract work. It was required to file its return for the year 1973-74 which was delayed. Consequently, penalty proce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. Sub-section (1) of section 271, in so far as it is relevant for the purposes of the present case and on which reliance was placed by learned counsel for the parties, reads as under: "271. (1) If the Income-tax Officer or the Appellate Assistant Commissioner or the Commissioner (Appeals) in the course of any proceedings under this Act, is satisfied that any person (a) has without reasonable cause failed to furnish the return of 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 or section 148 or has without reasonable cause failed to furnish it within the time allowed and in the manner required by sub-section (1) of section 139 or by such notice, as the case may be, or (b) has without reasonable cause failed to comply with a notice under sub-section (1) of section 142 or sub-section (2) of section 143 (or fails to comply with a direction issued under sub-section (2A) of section 142), or (c) has concealed the particulars of his income or furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty (i) in the cases referred to in clause (a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le cause, failed to furnish the return of total income, has to be read with clause (i) together with its Explanation even for deciding the question as to whether the assessee is liable to penalty or not. According to him, the mere fact that clause (i) has been placed separately from clauses (a), (b) and (c) and at a place relevant for determination of the amount of penalty, it cannot be said that the said sub-clause (i) and the Explanation attached thereto had to be ignored for determining the question as to whether the assessee is liable to penalty or not. It was urged that the very purpose of inserting the Explanation in clause (i) was to find out as to whether there was any assessed tax or not payable by the assessee. According to him, in those cases where, on account of the tax being deducted at source under Chapter XVII-B or being paid in advance under Chapter XVII-C, there is no tax liability, the assessee will not be liable to penalty notwithstanding the fact that he may have failed to furnish the return of total income without reasonable cause. The view propounded by learned counsel for the assessee, as seen above, has found favour with the Tribunal. In order to find out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the meaning of section 271(2). When it was found that such a registered firm had rendered itself liable to penalty, then, under the deeming fiction which was contemplated by the latter part of sub-section (2), such a firm should be treated as an unregistered firm and the quantification of penalty should be worked out on the amount which would be imposable on the firm as if it were an unregistered firm. After computation as contemplated by section 271(2), if it could not be said that it was not liable to any tax, then it would riot be impossible to work out the penalty contemplated by the relevant clause. The same principle was reiterated by the Madras High Court in CIT v. Kandaswami Weaving Factory and Co. [1977] 110 ITR 84. It was held that section 271(2) of the Income-tax Act, 1961, dealt with the quantum of penalty imposable in the case of a registered firm and for that purpose, created a fiction. The effect of section 271(2) was to treat a registered firm as an unregistered firm, compute the income of the unregistered firm and assess the tax payable by the said unregistered firm on the income so computed and calculate penalty on that basis. The contention that in view of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istered firm and if it is so treated, then the assessed tax must be treated for calculating it (the penalty) on the basis as if it was an unregistered firm and if that is so, then for every month during which the default had continued, the assessee would be liable to penalty. In Delux Publishing Co. v. Addl. CIT [1981] 127 ITR 782, Division Bench of this court, while interpreting sub-section (2) of section 271 of the Act, held that, by the said sub-section, a fiction had been created and even if the person liable to pay penalty was a registered firm, the penalty imposable shall be the same amount as would be imposable on that firm if that firm were an unregistered firm. It was further pointed out that in the case of a registered firm, the tax assessable had to be worked out as if it was an unregistered firm and on that basis the penalty had to be calculated because the fiction created had to be carried to its logical end. In Maya Rani Punj v. CIT [1986] 157 ITR 330 (SC) it was held that in view of the language used in section 271(1)(a) of the Act, the position is beyond dispute that the Legislature intended to deem the non-filing of the return to be a continuing default-the wro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be unregistered for the purpose of calculating tax liability and on that basis, penalty has to be imposed." In Jain Brothers v. Union of India [1970] 77 ITR 107 (SC), the constitutional validity of sub-section (2) of section 271 of the Act was challenged on the ground that it was discriminatory. Repelling the challenge, it was held as under (at page 118): "Lastly, the challenge to section 271(2) of the Act of 1961 on the ground of contravention of article 14 may be considered. According to that provision, when the person liable to penalty is a registered firm, then not withstanding anything contained in the other provisions of the Act of 1961, the penalty imposable under sub-section (1) shall be the same amount as would be imposable on that firm if that firm were an unregistered firm. It is pointed out that in the case of assessees other than registered firms, the maximum penalty imposable under section 271 (1) (1) cannot exceed in the aggregate 50% of the tax payable by the assessee ; whereas in the case of registered firm, the maximum penalty is not made to depend upon the tax assessed on or payable by such firm. On the contrary, the registered firm will have to pay the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) and 27l(1)(ii) only prescribe the method of computation of penalty and none of them was a charging provision and consequently they could not be relied on while determining the question as to whether the unregistered firm was liable to penalty or not, was held to be without any substance. According to that decision, once it was found that there was no assessed tax payable by the registered firm, there would be no liability of penalty notwithstanding the fact that the said firm had made a default in submitting its return. The next case on which reliance was placed by learned counsel for the assessee was CIT V. Ganesh Das Sreeram (Firm) [1983] 141 ITR 946. This decision is also of the Gauhati High Court as was the decision in case of Maskara Tea Estate [1981] 130 ITR 955. The principle laid down in the said case of Maskara Tea Estate was reiterated in this case also. Reliance was then placed by Shri Gupta on the decision of the Andhra Pradesh .High Court in P. Venkata Krishnayya Naidu and Son v. CIT [1984] 150 ITR 545. The decision of the Gauhati High Court in the case of Maskara Tea Estate [1981] 130 ITR 955 has been followed by the Andhra Pradesh High Court also. Further, deal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to file the return of its total income within the time specified in section 139(1) without reasonable cause, appears to be justified. As penalty was imposable upon the assessee, the provisions of section 271(1)(a)(i) shall have to be read along with the provisions of section 271(2) and the quantum of penalty has to be worked out on the assessed income after treating the assessee-firm as an unregistered firm for the purpose of quantification of the amount of penalty imposable upon it." Now, we shall refer to that part of the submission made by Shri Gupta whereby he has made an attempt to distinguish the cases relied on by learned counsel for the Department. In regard to the decision of the Madras High Court in Kandaswami Weaving Factory and Co.'s case [1977] 110 ITR 84, it was urged by Shri Gupta that the said decision has to be read in the light of the distinction brought out by the same High Court in CIT v. Fomra Brothers [1980] 122 ITR 312, where it was held that the case reported in Kandaswami Weaving Factory and Co.'s case [1977] 110 ITR 84 was one where payment was made not as advance tax under Chapter XVII-C but before the penalty order and consequently, the Explanation ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iar's case [1962] 44 ITR 739 was distinguished by Shri Gupta on the ground that it was a case dealing with section 28 of the Act of 1922 and neither clause (i) of sub-section (1) of section 271 nor its Explanation came up for consideration before the Supreme Court in that case. The decision of the Supreme Court in Maya Rani Punj's case [1986] 157 ITR 330 was distinguished by Shri Gupta on the ground that, in that case, the year of assessment was 1961-62. According to him, even on the merits, the only thing which was held in that case was that the default of non-filing of return would be a continuing default. It was further pointed out by Shri Gupta that it was not a case of a registered firm. Shri Gupta also placed reliance on the observations made in para 19 of the report in that case that if there was default, penalty could be imposed only if there was sanction of law. On a conspectus of the various decisions referred to above, what emerges is that there are apparently two views which have found favour with regard to the interpretation of section 271 (1)(a) and sub-section (2) of that section in the matter of imposition of penalty vis-a-vis a registered firm. One view is that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he circumstances and on the facts of that particular case, but, on that ground alone, the enunciation of law in regard to the provisions considered in those cases cannot just be ignored. In the background referred to above, the question which falls for consideration is as to whether there is any good ground on the basis of which decisions of this court of three Division Benches which find support from the observations of the Supreme Court in the cases already referred to above, are capable of being ignored by us on the ground that there are some distinguishing features therein as urged by learned counsel for the assessee. In our opinion, there is no good ground for doing so. While interpreting a provision which deals with penalty, it cannot be lost sight of that the main purpose of such a provision is to ensure compliance with the provisions of the Act. Filing of a return within the relevant time, as contemplated by the Act, is one of the requirements of the Act. Clause (a) of sub-section (1) of section 271 of the Act was apparently enacted to ensure compliance with the requirement of the return being filed within the prescribed period. From a perusal of the decisions in Chotel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the mere default in compliance with any of the provisions contained in clauses (a), (b) or (c) of sub-section (1) of section 271 of the Act was sufficient to visit the assessee with penal consequences. If any change in this established rule of interpretation was contemplated to be made by Parliament while enacting the Amending Act of 1974, which would have had the effect of making a departure from the established interpretation in regard to penalty provisions contained in section 271 and even in regard to the corresponding penalty provision in the 1922 Act, it was expected that specific provision should have been made making the intention of Parliament clear and not to leave the matter to varying interpretations. In this background, in our opinion, it is apparent that it was never intended while enacting the Amending Act that clause (i) together with its Explanation, was to be read as an exception to clause (a) of sub-section (1) of section 271 of the Act. As is apparent from the decision of the Supreme Court in CIT v. Vegetable Products Ltd. [1973] 88 ITR 192, there was a divergence of opinion among various High Courts on the question as to whether, while computing the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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