9911796707
TMI Blog1978 (3) TMI 61X X X X Extracts X X X X X X X X Extracts X X X X ..... mposable on the assessee who was a partner of a registered firm on which also a separate penalty under s. 271(1)(a) was imposed ? (2) Whether, on the facts and in the circumstances of the case, a penalty less than 2% of the tax for each month of default is imposable in law when the return of income was filed in response to a notice issued under s. 22(2) of the Indian I.T. Act, 1922 ? " The assessee is a partner in a registered firm styled "M/s. Chhotalal Keshavram, Rajnandgaon". In the assessment year 1959-60, the relevant accounting year being October 24, 1957, to November 12, 1958, the assessee was served with a notice by the ITO, Rajnandgaon, under s. 22(2) of the Indian I.T. Act, 1922, to file a return of his income on July 6, 1959. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wal of its registration, the assessability to tax of the assessee remained dormant. The ITO, therefore, could not have treated the assessee to be in default, as the assessment of the firm was completed only on March 5, 1964, and it was only on that date that the assessee's liability to tax was ascertained with reference to s. 23(5)(a) of the 1922 Act. The Tribunal referred to the decision of the Privy Council in Arunachalam Chettiar v. CIT [1936] 4 ITR 173 and observed that both the firm and the individual partners have to make return under the I.T. Act. It also held that after applying the provisions of ss. 23(3), 23(5)(a) and 23(6) of the 1922 Act, the ITO only determined the share income of the partner and at that stage no liability at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld virtually amount to a double punishment for the same offence. In support of his contention, he places reliance on Addl. CIT v. Smt. Triveni Devi [1974] 97 ITR 390 (All). We are afraid, these contentions cannot prevail. The firm and the individual partner are each required to render a return of total income and each may be required to produce accounts or documents: Arunachalam Chettiar v. CIT [1936] 4 ITR 173 (PC). It is not disputed that the firm is treated as an entity distinct from the persons who constitute the firm. Under s. 4(1) read with s. 2(23) (of 1961 Act), a firm is a unit of assessment. Merely because the application of the partners for renewal of the registration of the firm under s. 26A of the 1922 Act was pending before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issued to him under s. 22(2) of the Act. The whole controversy turns on the construction of s. 271(2) of the I.T. Act, 1961, which reads: " (2) When the person liable to penalty is a registered firm or an unregistered firm which has been assessed under clause (b) of section 183, then, notwithstanding anything contained in the other provisions of this Act, 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." In our view, the legal fiction contained in s. 271(2) is for a limited purpose, i.e., for computation of the amount of penalty on the registered firm, treating it to be an unregistered firm. The key to the construction of the section is the wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be treated as an unregistered firm for the computation of penalty... The logical conclusion of the fiction created by section 271(2) is to treat a registered firm as an unregistered firm and to assess the tax on the total income of the firm for the purpose of imposing penalty. But the language used in the section does not permit the extension of this fiction by treating advance tax paid by the partners of such a firm as advance tax paid by the firm. Extension of this nature would amount to creating a fiction upon fiction which is not permissible." We are in respectful agreement with the construction placed by Singh J. on the ambit of s. 271(2) of the Act. This aspect has been dealt with in Kanga and Palkhivala's Income-tax Act, 7th E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ometimes the minimum penalty, which is now fixed by section 271(1), may, when so computed, look disproportionate to the lapse which is sought to be penalised in cases where the partners may have paid substantial advance tax on the income of the firm. But considerations of equity have seldom, if ever, any application in construing an Act like the Income-tax Act. Hardship of any individual case can, however, be avoided by the Income-tax Officer or the Appellate Assistant Commissioner deciding in his discretion not to impose any penalty or the Commissioner reducing or waiving the amount of minimum penalty by exercising his power under sub-section (4A)." May be, learned counsel for the assessee is perhaps right in contending that s. 271 (1)(a ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
