K.R. Velayudha Mudaliar and Sons vs Additional Commissioner of Income Tax

Ismail, J.—The Income Tax Appellate Tribunal, Madras Bench, u/s 256(1) of the Income Tax Act, 1964, has referred the following

questions of law for the opinion of this court:

Whether the Income Tax Officer was justified in levying a penalty of Rs. 4,890 u/s 271(1)(a) for the assessment year 1964-65 ?

Whether the Income Tax Officer was justified in levying a penalty of Rs. 3,440 u/s 271(1)(a) for the assessment year 1965-66 ?

Whether the Income Tax Officer was justified in levying a penalty of Rs. 6,050 u/s 271(1)(a) for the assessment year 1966-67 ?

Admittedly, in this case, the assessee did not file the returns for the three years in question in time. The actual dates on which the returns were

due and the dates on which the returns were filed and the penalty levied by the Income Tax Officer u/s 271(1)(a) are shown here-under :

Assessment year Due date for filing Date of actual filing Penalty levied by

the return of the returns the Income Tax

Officer

1964-65 30-6-1964 28-2-65 4,890

1965-66 30-6-1965 15-4-66 3,440

1966-67 30-6-1966 23-2-67 6,050

Against the imposition of those penalties, the assessee preferred an appeal to the Appellate Assistant Commissioner. The Appellate Assistant

Commissioner held that the penalty leviable u/s 271(1)(a) should be restricted to 50 per cent. of the tax payable by the assessee as a registered

firm. On this basis, the penalty leviable on the assessee-firm was worked out to Rs. 2,449 for the assessment year 1964-65, Rs. 2,473 for the

assessment year 1965-66 and Rs. 2,727 for the assessment year 1966-67. Aggrieved against the order of the Appellate Assistant Commissioner,

the department took up the matter in appeal to the Tribunal.

Before the Tribunal, the contention of the department was that in view of the fiction created u/s 271(2) that a registered firm has to be treated as

an unregistered firm for the purpose of levying penalty u/s 271(1)(a) the Appellate Assistant Commissioner was not justified in holding that the

penalty leviable u/s 271(1)(a) should be restricted to 50 per cent. of the tax payable by the assessee as a registered firm. The Tribunal, by its order

dated September 13, 1971, accepted this contention of the department, allowed the appeals preferred by the department, set aside the order of

the Appellate Assistant Commissioner and restored the orders of the Income Tax Officer. It is the correctness of this order of the Tribunal that is

challenged in the form of the three questions extracted already, relevant for the three assessment years.

5.Section 271(1)(a)(i) is the relevant section and the same is as follows :

(1) If the Income Tax Officer or the Appellate Assistant Commissioner 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 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 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......

he may direct that such person shall pay by way of penalty,--

(i) in the cases referred to in Clause (a), in addition to the amount of the tax, if any, payable by him, a sum equal to two per cent. of the tax for

every month during which the default continued, but not exceeding in the aggregate fifty per cent. of the tax."" Section 271(2), which is also relevant,

is as follows :

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 this case, from the facts stated above, it is clear that the assessee-firm which was a registered one did not file the returns within the time for all

the three assessment years. Equally, it is now established that the assessee had no reasonable cause for not filing the returns in time because the

assessee did not take any steps against the order of the Appellate Assistant Commissioner holding that the assessee had incurred the liability to

penalty but reducing the quantum of the penalty imposed by the Income Tax Officer. Consequently, the only question that arises for consideration

is as to whether the Tribunal was right in holding that Section 271(2) is applicable to the case and the Appellate Assistant Commissioner was

wrong in bifurcating the section by imposing the penalty as if the assessee was an unregistered firm but restricting the maximum amount to 50 per

cent. of the tax payable by the assessee as a registered firm. As a matter of fact, the Tribunal has stated in its order thus:

Under Section 271(1)(i), the amount of penalty has to be calculated on the basis of the tax payable by the assessee. When penalty has to be

calculated in the case of the registered firm, the tax liability of the firm has to be determined as if the firm was not registered on account of the

fiction created in Section 271(2). The Appellate Assistant Commissioner''s finding that the penalty leviable u/s 271(1)(a) should be restricted to 50

per cent. of the tax payable by the assessee as a registered firm, fails to give effect to Section 271(2) and ignores the fiction created under it. The

Appellate Assistant Commissioner''s further finding that the fiction created u/s 271(2) will apply only to the computation of penalty leviable u/s

271(1)(i) and not to the maximum penalty leviable is totally unwarranted in view of the clear and unambiguous language of Section 271(2). The

fiction created u/s 271(2) will apply for the computation of penalty as well as the ceiling fixed for the levy of penalty. The Appellate Assistant

Commissioner''s finding leads to the anomalous conclusion that the fiction created u/s 271(2) should be limited only to the computation of penalty

and should not be extended to the ceiling fixed for the levy of penalty. Such bifurcation of the fiction created u/s 271(2) is totally unwarranted and

not supported by either Section 271(1)(i) or Section 271(2)......

The learned counsel for the assessee submits that he never supported the theory of bifurcation adopted by the Appellate Assistant

Commissioner and all along the case of the assessee was that Section 271(2) was not at all attracted to the present case because the fiction to

apply should have been created by Section 271(1) itself and the fiction not having been created by Section 271(1) itself, the fiction created u/s

271(2) did not apply, We are unable to appreciate this argument. The language of Sub-section (2) of Section 271 is couched in the widest

possible language and it has got the overriding effect in view of the express provisions contained therein, namely, "" notwithstanding anything

contained in the other provisions of this Act"". Consequently, whether this sub-section finds a place as a separate sub-section or finds a place as a

part of Section 271(1), the language is clear and categorical and applies to the present case. That is the view which we have taken in our judgment

dated April 1, 1976, in P. Subramaniam and Bros. Vs. Commissioner of Income Tax, and in our judgment dated September 13, 1976, in Essorde

Industrial Vs. Commissioner of Income Tax, . Under these circumstances the conclusion of the Tribunal is absolutely unexceptionable and,

therefore, we answer the question referred to this court in the affirmative and against the assessee. There will be no order as to costs.