TMI Blog1970 (10) TMI 7X X X X Extracts X X X X X X X X Extracts X X X X ..... x payable by such firm should be determined after deducting the-advance tax paid by the partners under section 18A of the Indian Income-tax Act, 1922, in respect of their shares of profits from the firm from the gross tax payable by the firm on the basis that it was an unregistered firm ?" The assessee-respondent is a firm having four partners. The relevant year is 1958-59, the return for which was filed by the firm on 8th July, 1959, i.e., it was filed 11months after the due date. In the assessment year the firm was registered and had made a deposit of Rs. 2,500 by way of advance tax. The assessment of the firm was finally made on 25th May, 1965, on a total income of Rs. 85,797. In the meanwhile penalty proceedings were started under sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 271, which 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." This sub-section creates a fiction in law. Although the firm against which a penalty is to be. imposed is a registered firm and therefore not liable to pay tax, yet that firm has to be assumed to be unregistered for the purpose of calculating tax liability and on that basis penalty has to be imposed. The next step, therefore, is to find out the tax pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r personal liability on their personal income which included the share received by the partners from the profits of the firm. Thus, as a registered firm, there was a very small advance deposit, which in this case was Rs. 2,500 as mentioned earlier. However, when penalty has to be calculated in the case of a registered firm, as observed earlier, the tax liability of the firm has to be determined as if the firm were not registered. Therefore, the whole income of the firm which was assessed as its income (Rs. 85,797) is to be taken into consideration for calculating the tax liability. Now the question is as to what amount of advance tax is to be deducted from this tax liability in order to find out the exact amount of tax which the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the partners were based on their personal income in the financial year 195657 and no portion of such deposits con be said to be referable to the share of profit received from this firm in the financial year 1957-58. The argument of learned counsel for the assessee that a part of the advance deposit made by the partners was referable as payment in respect of the share of income received from the firm in the financial year 1957-58 is riot supportable. Whatever advance deposit is made by each partner, it is made for his own benefit and can only be utilised to reduce his own tax liability, ultimately determined in the assessment year 1958-59, and if the deposit is in excess he would be entitled to a refund. But there is no warrant for allowing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rm is to be determined treating it to be unregistered. There being no difference in the computation of total income of a registered firm and an unregistered firm, the total income already determined for assessing the firm as a registered firm would also form the basis for assessing it on the footing that it is unregistered. There will also be no difficulty in computing the tax chargeable on the total income. The difficulty starts in determining the tax patyable. The amount of tax payable is to be calculated by adjusting or giving credit for the amount of tax paid, if any, is advance tax. The source of this adjustment for the relevant assessment year is section 18A(11 of the Income-tax Act, 1922, which reads : " Any sum other than a penalt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annot 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 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 its nature would amount to creating a fiction upon fiction which is not permissible. It is true that sometimes the minimum penalty, which is now fixed by section 271(1), may, when ..... X X X X Extracts X X X X X X X X Extracts X X X X
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