TMI Blog1995 (5) TMI 97X X X X Extracts X X X X X X X X Extracts X X X X ..... alties. He determined the tax payable as if the firm was not registered and on that basis he computed penalty under section 271(2) of the Act. The assessee filed appeal before the CIT (Appeals). The CIT(A) held that there was dispute amongst partners and that two of the partners had gone abroad and that there was sufficient cause for delay in filing the returns. The CIT(A) further held that the tax deducted at source was far in excess of the tax payable by the assessee as a registered firm and as such no penalty was leviable. According to the CIT(A) provisions of section 271(2) were not attracted because of the fact that the tax deducted at source was in excess of the tax payable by the assessee as a registered firm. He therefore cancelled the penalties. The department is now in appeals before us and the common ground raised is that the CIT(A) erred in cancelling the penalties levied by the ITO under section 271(1)(a) of the Act when in fact and in law the assessee-firm was liable for the said penalty in view of the provisions of section 271(2) of the Act. The second ground raised is that the CIT(A) erred in holding that quarrels amongst partners constituted reasonable cause for de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. Provisions of section 271(2) would not be applicable. 5. There is difference of opinion among the High Courts on the point whether penalty was leviable on a registered firm when the tax deducted at source and advance tax paid by the firm together exceeded the tax payable by the registered firm on assessment. It is not necessary to discuss all those decisions in which conflicting views are expressed because no useful purpose would be served by such discussion. We are bound by the decision of the Bombay High Court and Supreme Court. Consequently what we have to see is as to what is the view that could be taken on the basis of the Bombay High Court decision and Supreme Court decision. 6. In this connection the latest decision of the Supreme Court in Ganesh Dass Sreeram v. ITO [1988] 169 ITR 221 is important. That decision is on levy of interest under section 139 of the Act. For failure to file return within time allowed by sub-section (1) of section 139, two consequences follow. One consequence is that assessee becomes liable to pay interest. The other consequence is that the assessee becomes liable to pay penalty under section 271(1)(a) of the Act. Thus liability for interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st does not arise. For the same reason where the entire amount of tax had already been paid being deducted at source or paid in advance, the question of imposing any penalty does not arise because no tax is actually due. 8. Delhi Bench of the Tribunal in the case of Luxmi Cutpiece Bhandar v. ITO [1989] 31 ITD 421 compared the provisions of section 139(8) of the Act which were considered by the Supreme Court in the above decision and the provisions of section 271(1)(a) read with section 271(2) and found that the provisions, so far as material to the point in controversy, were identical. The Tribunal therefore held that in view of the decision of the Supreme Court referred to above the point in controversy should be decided in favour of assessee and against the department. We agree with the interpretation put on the decision of the Supreme Court by the Delhi Bench of the Tribunal. 9. The said decision of the Supreme Court was considered by Rajasthan High Court in the case of CIT v. Builders Engineers Co. [1989] 175 ITR 317. The Rajasthan High Court noted that there was difference of opinion on the question whether penalty to be imposed on a registered firm under section 271(1)(a) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in favour of the assessee. 11. There are three decisions of the Bombay High Court which have all been rendered prior to the decision of the Supreme Court. They are- CIT v. Janata Trading Co. [1984] 150 ITR 676 (Bom.) CIT v. N.G.K. Electrical Industries [1987] 163 ITR 513 (Bom.) CIT v. Govindram Co. [1987] 168 ITR 613 (Bom.). As far as the decision in Janata Trading Co.'s case is concerned, the facts narrated indicate that the tax payable by the firm was nil not because the assessed tax and tax deducted at source exceeded the tax determined on assessment but because of the fact that self-assessment tax had been paid at the time of filing of the return and as a result of payment of self-assessment tax, tax payable came to nil Cases where the tax payable is reduced to nil because of self-assessment tax stand on a different footing. Those cases are bound to be decided against the assessee. However, those cases in which the tax payable on assessment is reduced to nil because of deduction of advance tax and tax deducted at source are bound to be decided in favour of the assessee in view of decision of the Supreme Court referred to above. This difference arises because of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oint has been decided in favour of the assessee. It is submitted on behalf of the department that penalty is not compensatory. We are of the opinion that the observation that interest was compensatory does not make any difference. The Supreme Court was interpreting the words under section 139(8) and on interpretation of those words the Supreme Court decided the point in favour of the assessee. The words in section 271(1) are identical and as such those words would be interpreted in the same manner. There would be absolutely no reason to interpret those words in a manner different from the manner in which the Supreme Court has interpreted the identical words under section 139(8) of the Act. Consequently we reject the submission of the department. Taking into account all the circumstances, the decision of the Supreme Court in the case of Ganesh Dass Sreeram should be applied in penalty proceedings under section 271(1)(a) of the Act and as such no penalty should be held leviable when tax determined on assessment does not exceed the advance tax paid by a registered firm together with the tax deducted at source. On the facts of the present case, the penalty would not be leviable. Conseq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case and having regard to the provisions of section 271(2) of the Income-tax Act, 1961, any penalty was leviable against the assessee-firm under section 271(1)(a) of the said Act?" The question was answered in the affirmative and in favour of the revenue. The Bombay High Court referred to the decisions on questions in the earlier cases of Janata Trading Co. and N.G.K. Electrical Industries. 4. In the case of Janata Trading Co., the ITO imposed penalty on a registered firm on the basis of gross tax payable treating it as an unregistered firm in terms of section 271(2) of the Income-tax Act, 1961. There was a contention on the part of the assessee to adjust the self-assessment tax paid under section 140A. The Tribunal held that as the tax payable in the status of registered firm was nil, no penalty was imposable on the assessee. At the instance of the CIT, the following two questions were referred to the High Court, viz: "1. Whether, on the facts and circumstances of the case, the Tribunal was justified in holding that the amount of tax on which the computation of penalty leviable against the assessee-firm under section 271(1)(a)(i) read with section 271(2) of the Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tered firm after dissolution, inter alia, held that if a registered firm committed any of the defaults contemplated by clause (a), (b) or (c) of section 28 of the Income-tax Act, 1922, the fact that under section 23(5) of the said Act no tax was payable by the registered firm by itself did not prevent a penalty being imposed on the firm, in view of the fiction created by clause (d) of proviso to section 28 of the 1922 Act which is similar to the fiction under section 271(2) of the Income-tax Act, 1961. 7. The Supreme Court in the case of Jain Bros. v. Union of India [1970] 77 ITR 107, at page 108 observed as under: "It is open to the Legislature to say that once a registered firm committed a default attracting penalty it should be deemed or considered to be an unregistered firm for the purpose of imposition of penalty. No question of discrimination under Article 14 can arise in such a situation. There is nothing to prevent the Legislature from giving the benefit of a reduced rate to a registered firm for the purpose of tax but withholding the same when it committed a default and became liable to imposition of penalty." From the aforesaid observation of the Supreme Court, it i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aiver or reduction by the ITO in special circumstances, levy of penalty is discretionary depending upon the reasonable cause adduced. Secondly, the Supreme Court in the case of Jain Bros, held as under: "Although penalty has been regarded as an additional tax in a certain sense and for certain purposes, penalty proceedings are not essentially a continuation of the proceedings relating to assessment where a return has been filed." Therefore, the conclusion arising from the judgment of the Supreme Court in the case of Ganesh Dass Sreeram and the order of the Delhi Bench of the Tribunal in Luxmi Cut piece Bhandar's case ipso facto could not be applied to the penalty proceedings under section 271(1)(a) of the Income-tax Act, 1961. The fact that the Rajasthan High Court in the case of Builders Engineers Co. has interpreted the judgment of the Supreme Court as applicable to penalty in the case of registered firm in favour of the assessee while those judgments in favour of the department were not rendered after the judgment of the Supreme Court, would not justify the application of the ratio in view of the fact that three judgments of the Bombay High Court, namely in Janata Trading Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ution. 10. In view of the aforesaid facts and reasons, I hold that penalty is to be imposed under section 271(1)(a) as there was no reasonable cause for the delay in filing the return of income. Consequently, the order of the CIT(A) is set aside and reversed and that of the ITO is restored. 11. In the result, appeals are allowed. REFERENCE UNDER SECTION 255(4) OF THE INCOME-TAX ACT, 1961 The Members of the Bench who have heard these appeals had differed in their opinion on the following common point, viz.: "Whether, on the facts and in the circumstances of the case and in law the penalty imposed by Income-tax Officer under section 271(1)(a) of the Income-tax Act, 1961 is liable to be cancelled or liable to be confirmed?" Therefore, the case is referred to the President, Income Tax Appellate Tribunal for being assigned to Third Member in terms of section 255(4) of the Income-tax Act, 1961. THIRD MEMBER ORDER Per Shri Chander Singh (Accountant Member) - This case has come to me as a Third Member on a difference of opinion between the learned Members of the Pune Bench. I shall briefly narrate the relevant facts. 2. For assessment years 1979-80 and 1981-82, the penalt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ass Sreeram. The learned Judicial Member noticed that the said decision was on levy of interest under section 139 of the Act. In his opinion, for failure to file the return in time allowed by sub-section (1) of section 139, two consequences follow, one consequence is that assessee becomes liable to pay interest and the other consequence is that the assessee becomes liable to pay penalty under section 271(1)(a) of the Act. However, in his opinion, the provisions of section 139 for the levy of interest and the provisions of section 271(1)(a) for the levy of penalty for the delay in filing the returns of income were pari materia. By placing reliance on the Supreme Court judgment in the case of Ganesh Dass Sreeram, he came to the conclusion that the assessee was not liable to penalty under section 271(1)(a) of the Act as the tax deducted at source was far in excess than the assessed tax in the case of a registered firm. In this connection, he discussed some other case law favourable to the assessee. He accordingly upheld the order of the CIT(A). 5. The learned Accountant Member, however, did not wholly agree with the proposed order of the learned Judicial Member. He however, concurre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that it is an unregistered firm. It cannot be said that no penalty can be imposed on a registered firm, because the penalty as calculated under the provisions of the latter portion of sub-section (1) upon the basis that it is a registered firm would be nil He also pointed out that the said sub-section (2) of section 271 contains a non obstante clause, which overrides the provisions of sub-section (1) of section 271. In this regard, the learned Senior departmental representative, placed reliance on the following decisions of the Bombay High Court: (1) Govindram Co.'s case (2) Janata Trading Co.'s case (3) N.G.K. Electrical Industries' case. 8. The learned departmental representative also discussed at length the decision of the Supreme Court in the case of Ganesh Dass Sreeram. He pointed out that the said decision is inapplicable as it deals with the levy of interest under section 139 of the Act. The payment of interest on delay in filing the return of income is automatic and is compensatory in nature while the imposition of penalty under section 271(1)(a) is punitive. The two provisions therefore, are not pari materia and are different in nature and application. The lear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jump to section 271(2) to stamp the registered firm with liability of penalty. In this background, it is clear that the principle laid down by the Supreme Court in Ganesh Dass Sreeram's case that where the tax determined on assessment is less or equal to the tax paid, there is no question of levy of interest and the firm will be treated as unregistered firm in that case even under section 271(1)(a). The learned counsel also drew our attention to the decision of the Andhra Pradesh High Court in the case of P. Venkata Krishnayya Naidu Son v. CIT [1984] 150 ITR 545 and pointed out that if there is no assessed tax, the assessee, including a registered firm, does not incur the liability to penalty and consequently, the provisions of section 271(2) of the Act shall have no application. The provisions contained in section 271(2) of the Act come into operation for quantification of the penalty leviable in the case of a registered firm only after the liability to penalty arises strictly in accordance with clauses (i), (ii) and (iii) of section 271(1) and not otherwise. He also pointed out that the Supreme Court has rejected the S.L.P. in this case as in [1991] 189 ITR (St.) 117. To buttre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should be taken in view of the decision of the Supreme Court in the case of CIT v. Vegetable Products Ltd [1973] 88 ITR 192. The learned counsel thus concluded his arguments strongly supporting the reasonings of the learned Judicial Member. 13. In reply, the learned Senior Departmental representative contended that the powers of Third Member are limited to the dispute as per the reference under section 255(4) of the Act. The judicial decisions now relied upon by the learned counsel are, therefore, not material and, therefore, need not be considered. The learned departmental representative also stated that as per the provisions of the Act, the assessed tax means, assessed tax on an unregistered firm. He therefore, pointed out that the learned Accountant Member has taken the correct view of the legal points. 14. I have heard the parties to the dispute in the light of judicial precedents relied upon. For the purpose of my decision, the provisions of sub-section (2) of section 271 are extracted below: "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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for such firms, the firm having been treated as an unregistered firm may become liable to penalty under section 271(1)(iii). Thus, in my opinion, the fiction created in section 271(2) has to be taken into account while calculating the penalty under section 271 of the Act. Here I may also mention that section 271(2) contains a non obstante clause, which in my view, overrides the provisions of section 271(1) of the Act. In other words, section 271(1) cannot be considered in isolation and has to be read with section 271(2) of the Act. 15. The decisions of the Supreme Court and jurisdictional High Court are binding. The decisions of the High Courts other than the jurisdictional High Court have only persuasive value. I am aware that several High Courts other than the Bombay High Court have rendered the decisions in favour of the assessee on the issue before me. However, there are three decisions of the Bombay High Court which support the contention of the revenue that for the purpose of penalty under section 271(1)(a) of the Act the registered firm has to be treated as unregistered firm and the penalty has to be quantified as per the fiction laid down under sub-section (2) of section ..... X X X X Extracts X X X X X X X X Extracts X X X X
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