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TMI Blog1980 (12) TMI 40X X X X Extracts X X X X X X X X Extracts X X X X ..... t at Rs. 53,096 which was reduced to Rs. 50,697 by the appellate authority. The ITO set afoot penal action against the assessee under s. 271(1)(a). The ITO was not satisfied with the explanations offered by the assessee and levied penalty at 2% of the tax which came to Rs. 10,951 but he restricted the penalty to Rs. 9,777 being 50% of the tax of Rs. 19,555. The assessee appealed and contended that its status had been wrongly determined as an unregistered firm for the assessment year (1963-64) and the tax payable by it was wrongly computed at Rs. 19,555 treating it to be so (an unregistered firm). The assessee relied on the order of the Tribunal dated July 1, 1972, allowing registration for the three assessment years including the assessment year in question. The assessee contended that the tax payable by it for the assessment year in the status of a registered firm was actually Rs. 1,670 only, and it had paid an advance tax of Rs. 1,855 on December 3, 1962, that is, long before it was to submit the return. As such, no tax was ever in arrears for the year in question; it was entitled to a refund of Rs. 183 as a result of over-payment of advance tax The Appellate Assistant Commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... registered firm is liable to penalty if it commits a default prescribed in s. 271 (1)(a) and one is not to look at the provisions of s. 271(1)(i) but should consider its penal liability u/s. 271(2). The expression " notwithstanding anything contained in the other provisions of this Act, the penalty imposable under sub-section (1)... overrides the provisions of the Act including those contained in section 271(1)(i). In short, the learned counsel submits that even if a registered firm pays up its entire amount of tax including the assessed tax by way of advance tax under Chap. XVII-C, it is liable u/s. 271(2), once it fails to furnish a return without reasonable cause as contemplated under section 271(1)(a). Accordingly, the counsel submits that the Tribunal has gone wrong in assuming that s. 271(2) did not attract in the instant case as the registered firm had cleared up all its tax arrears by way of advance payment of tax. To answer the question posed by the Tribunal and to appreciate the contentions of the learned standing counsel, it is necessary to extract the provisions of ss. 271 (1)(a), 271(1)(i) and 271(2). We extract the relevant provisions of ss. 271(1)(a) and 271(1)(i) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tes. The implication of the principle that a taxing statute must be construed strictly is often misunderstood and unjustifiably extended beyond the legitimate field of its operation. We are of the firm opinion that " in a taxing statute one has to look merely at what has been clearly stated. There is no presumption as to a tax/penalty. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used ". We have proceeded in step with the familiar principles laid down by Rowlatt J. in Cape Brandy Syndicate v. IRC [1921] 1 KB 64, 71 (KB). We have merely added the word it penalty ". A penalty is levy of additional tax, as held by the Supreme Court in CIT v. Bikaji Dadabhai Co. [1961] 42 ITR 123. It is true that the scheme of the I.T. Act, 1961, has been changed and Chap. XXI provides for penalty proceedings separately but notwithstanding such changes the Supreme Court in Jain Brothers v. Union of India [1970] 77 ITR 107 reiterated that penalty is an additional tax. It is true that penalty proceedings are penal in nature and character, in the sense that it follows harsh consequences. In our opinion, the true construction of a charging provision includi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax is imposed has to be construed strictly, regardless of the hardship that such a construction may cause either to the treasury or to the taxpayer. If the subject falls squarely within the letter of law he must be taxed, howsoever inequitable the consequences may appear to the judicial mind, If the revenue seeking to tax cannot bring the subject within the letter of the law, the subject is free no matter that such a construction may cause serious prejudice to the revenue. In other words, though what is called equitable construction may be admissible in relation to other statutes or other provisions of a taxing statute, such a construction is not admissible in the interpretation of a charging or taxing provision of a taxing statute.(Under scored by us). In view of the nature and character of a penal provision it must be construed strictly regardless of the hardship that such a construction may cause either to the treasury or to the taxpayer. If a subject falls squarely within the letter of the law he must be penalised, however inequitable the consequences may appear. If, however, the revenue, seeking to penalise a subject, cannot bring him within the letter of the law, a subjec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing a " default " contemplated in cl. (a) is bound or obliged in law or chargeable or responsible or becomes liable to penalty. Cl. (a) undoubtedly defines the nature and character of the defaults but the crux of the matter is whether a person committing such default is automatically liable to penalty ? Is there any class of taxpayers exempted or excepted ? Whether the defaults defined makes all such defaulters " liable to penalty " ? Failure to furnish returns contemplated under cl. (a), in our opinion, defines or enumerates the nature or character of the wrongs or offences, but all such wrongdoers are not liable to penalty if we carefully scrutinise cl. (i). The clause clearly states who shall be chargeable to penalty as well as classifies persons who are not so chargeable or obliged in law to pay penalties. In the event of defaults enumerated in cl. (a) a taxpayer can be penalised if he is also in arrears to pay the amount of tax payable by him and has not paid up his " assessed tax " in the two specified methods of payments, namely, by way of, (i) deduction at source under Chap. XVII-B, or (ii) payment in advance under Chap. XVII-C at all relevant times. If a taxpayer commits d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the High Court in respect of the other cls. of s. 271(1), as they are not the subject-matter for our determination in the instant case. If we analyse the question from another angle, we arrive at the same conclusion. Wrongs or offences may be defined in one provision and penal liabilities pinpointed in the same or other provisions of laws creating liabilities. Even after defining a wrong or offence, some persons are exempted, from penal liabilities. It is to be found in the Indian Penal Code and other laws imposing penalties or creating liabilities. What impelled the law-maker to grant the immunity is not for our consideration. If the subject does not fall squarely within the letter of the law he cannot be penalised, howsoever inequitable the consequences may appear to the judicial mind. However, there is strong force in the submission of Dr. B.P. Saraf that a class of diligent taxpayer, who has duly paid up all his taxes, including the assessed tax, in the manner and method provided in cl. (i) has been exempted. The contention has a strong force but equitable construction has no place in interpreting a charging provision. The view that we have expressed finds ample support f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to penalty u/s. 271(1). It takes the colour of an unregistered firm and the penalty imposable shall be the same as would be imposable on that firm if that firm were an unregistered firm. The penalty imposable shall be in the manner and method provided in s. 271(1)(i). However, the quantum of penalty shall be computed in the manner laid down under cl. (i), but the firm shall be assessed and the penalty imposed as if it were an unregistered firm. The learned counsel for the revenue submits that the non obstante clause in s. 271(2) overrides the provisions of s. 271(1)(i) and if a person committing a default under cl. (a) is a registered firm, its case falls automatically under sub-s. (2); in such an event: it is not required to process the case via s. 271(1)(i). The contention is not tenable for the following reasons: First, to attract the non obstante clause, the main sub-section must, be applicable. The liability of the person must be determined and in doing so, one is to look at the preceding sub-s. (1). On due scrutiny of s. 271(1)(a) as well as cl. (i), if a person is liable and if it happens to be registered firm, sub-s. (2) is attracted. The conditions precedent for the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gal fiction created in sub-s. (2) is to make the machinery for the computation of tax workable without any hindrance. On behalf of the revenue, reliance was placed on Nepoli Restaurant v. CIT [1979] 117 ITR 828, 830 (Kar).The registered firm was found liable to penalty under s. 271(1) and it was contended on behalf of the assessee that sub-s. (2) was applicable only when a registered firm was not liable to pay tax. In other words, the contention was that s. 271(1)(i) applied only in the case of a registered firm " liable to pay tax ". The contention was rejected by Venkataramiah J. It was held that sub-s. (2) was applicable to all registered firms including those not liable to pay tax. It was a case in which cl. (i) was never the subject-matter of determination of the High Court. We respectfully agree with the view expressed in Nepoli Restaurant v. CIT [1979] 117 ITR 828 (Kar). As such, we hold that sub-s. (2) is not attracted in the instant case. The assessee does not fall squarely within sub-s.(2). Even if we consider the view expressed by the revenue as " a reasonable view ", it must be concluded that the penal provisions are capable of alternative meanings and we are bound ..... X X X X Extracts X X X X X X X X Extracts X X X X
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