TMI Blog1972 (1) TMI 38X X X X Extracts X X X X X X X X Extracts X X X X ..... of 15 months in filing the return. The assessee disclosed an income of Rs. 2,99,323 for purposes of assessment, but the Income-tax Officer assessed the income at Rs. 3,11,234 and made the assessment on 24th November, 1965. The assessee was required to pay a tax amounting to Rs. 20,751. It will be necessary to mention that the Income-tax Act, 1961 (hereinafter referred to as " the 1961 Act ") came into force on the 1st of April, 1962. The return was filed, as already observed, on 30th of May, 1962. Therefore, under the provisions of section 297(2)(b) of the 1961 Act, the assessment had to be made in accordance with the procedure prescribed in the 1961 Act. Thus, the assessment was made under the said Act. The Income-tax Officer initiated the penalty proceedings for filing of the delayed return on 24th March, 1965. The proceedings were initiated Under section 271(1)(a) read with section 297(2)(g) of the 1961 Act. The assessee filed his reply to the notice on 1st of January, 1967, and urged the following contentions, which I have verbatim reproduced from the order of the Income-tax Officer dated 20th March, 1967: " (i) That provisions of the 1961 Act for initiating penalty proc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave been issued before the assessment order was passed. (vi) Coming to the merits of the case the assessee has stated that the Organisation set up by Kuthialas to deal with income-tax matters was unavoidably pre-occupied with the preparation and submission of appeals and, therefore, the return was delayed. According to the assessee it was a sufficient cause for not filing the return in time. It has been further stated that the penalty, for whatever period the levy of penalty be considered unavoidable, should not be greater than what would have been imposed under the old Act. All these contentions were repelled by the Income-tax Officer and on the basis of a default in filing the return for a period of 15 months, the tax on total income assessed worked out to Rs. 2,14,100. This was by reason of the result of application of section 297(2)(g) read with section 271(2) and a penalty was levied at the rate of 2 per cent. per month which came to Rs. 64,230. The assessee preferred an appeal against this order to the Appellate Assistant Commissioner of Income-tax. The Appellate Assistant Commissioner rejected the appeal. The assessee then moved the Income-tax Appellate Tribunal. Befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ealt with and no answer to it is returned. The only questions that were hotly debated before us are the first three questions. I now propose to deal with them in their chronological order. Question No. 1: The contention of Shri Chadda on this part of the question is rather novel. In order to appreciate his contention, it will be proper to set out the relevant provisions of the 1961 Act. They are: " 2. In this Act, unless the context otherwise requires ...... (39) ' registered firm ' means a firm registered under the provisions of clause (a) of sub-section (1) of section 185 or under that provision read with sub-section (7) of section 184. " " 271. (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 withont 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 ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is that a firm has to be registered under the 1961 Act before sub-section (2) of section 271 can come into play. Therefore, though the assessee-firm was registered under the 1922 Act and it was so assessed to tax, the penalty can only be imposed on the tax to which it 'was assessed under section 271(1). He buttresses his contention by recourse to some well-known propositions, namely, that a taxing statute should be strictly construed, that if two interpretations are possible, the interpretation benefiting the taxpayer should be adhered to, and that the fiction employed in section 271(2) cannot be employed in the case of a firm not registered under the 1961 Act. After carefully examining the contentions of the learned counsel, I am clearly of the view that they have simply to be stated to be rejected. In fact, the matter is concluded by the decision of the Supreme Court in lain Brothers v. Union of India , and reference in this connection may be made to the following paragraph therein : " We are further unable to agree that the language of section 271 does not warrant the taking of proceedings under that section when a default has been committed by failure to comply with a notic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the procedure of the 1961 Act was applied to the assessee and in a way the assessee is one under the 1961 Act. The assessee was assessed as a registered partnership and, therefore, the status of the assessee having become final, being not challenged at any stage of the proceedings before the department or the Tribunal, it is not open to the assessee to say that it is not a registered firm because there is no registration under section 2(39) of the 1961 Act. In the matter of penalty, section 271 is to apply with its full vigour provided there is a default which calls for the application of section 271 or brings that provision into play, but once that provision applies it will apply with its full vigour. To take a different view would be to nullify both sections 297(2)(g) and also section 271 of the 1961 Act. In fact, Mr. Chadda is on the horns of a dilemma, for if the assessee is to be treated as an unregistered firm for it is not a registered firm as Mr. Chadda contends, then of course it is an unregistered firm and in that situation the same result would follow. For purposes of an unregistered firm, the tax liability has been calculated at Rs. 2,14,100 and the tax penalty under s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... firm. All assessments are made on the basis of the status of the assessee because the liability to tax varies with the status of the assessee and, therefore, if the assessee has suffered an assessment on the basis of a particular status and has not disputed that status, it is not open to the assessee to dispute it for the purpose of the penalty proceedings. As earlier observed, it is only the procedure of the 1961 Act which has stepped in to complete the assessment and by reason of section 297(2)(g), the provisions, of section 271 come into operation. Those provisions must be taken to their logical end and there can be no stopping half way. At the time when the penalty proceedings were initiated, the Income-tax Officer had to determine who was the assessee who committed the default. It was open to the assessee to say that he did not commit the default, but so far as the status of the assessee is concerned it was finalised as soon as the assessment was made. In the penalty proceedings there is no scope for the revision of that status. It is unfortunate that by reason of the application of section 271 the penalty is much more than the tax paid, but then it is open to the legislature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid by the firm, that tax being Rs. 20,751. It is not even contended that the tax of Rs. 2,14,100 has not been calculated after giving benefit to the firm of any advance tax paid by it, but what is maintained is -that the amount of tax so determined should be further reduced by the amount of advance tax paid by the partners, representing their share of profits in the firm. This argument cannot be accepted. The benefit of deduction of advance tax can only be given to the assessee whose income has been. The partners' income was assessed in their own individual capacities. The firm's income was assessed in its own individual capacity. Therefore, there can be no question of giving benefit to one individual for the act of another individual. If the argument of Mr. Chadda was to be accepted, this result would necessarily follow. There is no dispute that the tax due is one which is quantified after the return has been pr d and credit has been given for the advance tax. See in this connection Venkatachalam, Income-tax Officer v. Bombay Dyeing and Manufacturing Co. Ltd. and Commissioner of Income-tax v. S. Teja Singh. But this principle has no application to the facts of the present case. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... If advance tax is paid by a partner, it is in the partner's assessment that credit will be given. It is no doubt true that the income on which a partner of a registered firm pays advance tax will include his share in the profits of the firm, but the advance tax so paid is paid by the partner and not by the firm and adjustment of this payment can be given to the partner in his final assessment and not to the firm. Will the legal position be different when a registered firm is assessed on the footing that it is an unregistered firm for imposing penalty ? Section 271(2) of the Income-tax Act, 1961, creates a statutory fiction by directing a registered firm to be treated as an unregistered firm for the computation of penalty. It has been well said that the rules of construction ' hunt in pairs '. So, in construing a provision creating a statutory fiction, two rules operate; the statutory fiction should be carried to its logical conclusion, but the fiction cannot be extended beyond the language of the section by which it is created or by importing another fiction. The solution is found by harmoniously applying the rules. The logical conclusion of the fiction created by section 271(2) is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld indicate that the " two per cent." specified therein was a reducible minimum. It appears to me that by using the expression di equal to two per cent." the legislature has conveyed the same meaning as it conveyed by the use of the expression " not less than ", for " equal to ", as already stated, in its dictionary meaning, means " neither less nor more ". This view of mine finds full support from the decision of the Rajasthan High Court in Commissioner of Income-tax v. Venichand Magenlal, wherein on a similar question it is observed thus: " Section 271(1)(i) speaks in unequivocal terms that in the can$ referred to in clause (a) a sum equal to 2% of the tax for every mouth during which the default continues, but not exceeding in the aggregate 50% of the tax was to be the amount of penalty. This means that the penalty to be imposed is to be calculated at 2% of the tax for every month during which the default continues, but the maximum limit was 50% of the tax. That clause (i) does not lay down any The view taken by the Tribunal is minimum limit as has been- provided in section 271(1)(iii), just as in section 271(1)(iii) both the minimum and maximum limits have been prescribed, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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