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TMI Blog1979 (12) TMI 43X X X X Extracts X X X X X X X X Extracts X X X X ..... taken into consideration ? " The question for each year is thus identical except for the year. The assessee is a firm carrying on business in operating transport vehicles. The firm filed a return of income for the assessment year 1966-67 admitting a total income of Rs. 76,946. The ITO made the assessment on the total income of Rs. 5,41,087. Penalty proceedings under s. 271(1)(c) were also initiated and the matter was referred to the IAC under s. 274(2) of the Act as required by the provisions then in force. After completion of the assessment, the assessee came to a settlement with the department, according to which, the income as determined, viz., Rs. 5,41,087 was accepted and the assessee wanted that the minimum penalty in accordance with law should alone be levied for the relevant assessment year. The IAC, after giving the assessee the necessary opportunity, levied Rs. 73,679 as penalty rejecting the assessee's contention that under s. 271(2), it was to be treated as an unregistered firm and the deduction for the annuity deposit payable by the unregistered firm should be allowed from the total income assessed, and the minimum penalty computed accordingly. On appeal before th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the firm having substantial income may seek to avoid tax liability by not filing an application for registration. If they filed an application for registration of the firm and if the firm was assessed as a registered firm, then, as seen already, they are liable to pay tax on the total income including the apportioned income earned by the firm. This would attract tax at higher rate. In order to plug this kind of loophole by the firm not applying for registration, s. 183 enables the ITO to treat the firm as a registered firm even if the firm had not applied for registration. If a firm were registered, then, as pointed out earlier, its liability to tax was comparatively small. Section 271 contemplates levy of penalty only on the basis of the tax payable by the particular assessee. In order to see that the registered firms do not escape the proper amount of penalty leviable on them, the law has provided that the registered firms should be treated as unregistered firms for the purpose of levy of penalty. In other words, the tax due on the basis of the firm being unregistered will have to be calculated and the appropriate amount of penalty which lies between the minimum and the maxi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the annuity deposit is required to be made ...... " Sub-section (2) of section 280-O provides for the manner of adjustment or deduction of the annuity deposit made. It is required to be deducted from the income, if any, under the head " Salaries " and thereafter from the income under any other head. Considering the question purely as a question of interpretation of s. 280-O it would be clear that the annuity deposit " required to be made " under Chap. XXII-A would have to be allowed as deduction. Subsequently, this provision has been amended so that if no payment was made, no deduction would be admissible and if the annuity deposit was less than what was actually due or required to be made under Chap. XXII-A, then, the deduction would be confined to the actual amount paid. The question for our consideration is, whether in the present case, where no annuity deposit was actually made by the assessee, the assessee would be eligible for the deduction of the said amount for the purpose of computation of penalty treating the firm as an unregistered firm. The language of the provision, viz., " required to be made under this chapter " envisages deduction being given of the amount en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue submitted that s. 271(2) indicated a statutory fiction of treating a registered firm as an unregistered firm and that the fiction had to be confined only to its legitimate limits. He submitted that, if so confined, the assessee would not be eligible for deduction of the annuity deposit. We are unable to agree with him. Section 271(2), which has already been extracted, clearly provides for the computation of tax treating the registered firm as an unregistered firm. The provisions applicable to an unregistered firm include ss. 280A, 280C and 280-0. We will have to give full effect to these provisions also in making the computation of the tax due from the unregistered firm in order to enable the computation of penalty leviable on it. We cannot stop half way imagining that we have reached the limit to the statutory fiction. Though this question in the present form did not arise for consideration in P. Subramaniam Bros. v. CIT [1977] 106 ITR 508, the interpretation to be placed on s. 271(2) was set out by this court in the following words (p. 511) : " The argument of the learned counsel for the assessee is that the fiction created by sub-section (2) is only for the purpose of p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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