Lahiri, J.
1. The assessee had applied for registration. At long last the matter came up before the Income-tax Appellate Tribunal which by its order dated July 1, 1972, allowed registration to the assessee-firm for the assessment years 1961-62, 1962-63 and 1963-64. Of course, it held, as it was bound to hold, that the assessee was a genuine firm and was entitled to registration. However, the relevant previous year of the assessee, for the assessment year 1963-64, ended on March 31, 1963. Accordingly, the return under Section 139(1) of the I.T. Act, 1961, was due on September 30, 1963. A notice under Section 139(2) was served on the assessee which made an application for extension of time up to December 31, 1963. No application was made for further extension of time. A belated return was filed by the assessee on May 28, 1966, declaring an income of Rs. 47,455. The Income-tax Officer, for short, 'the ITO', completed the assessment at Rs. 53,096 which was reduced to Rs. 50,697 by the appellate authority. The ITO set afoot penal action against the assessee under Section 271(1)(a). The ITO was not satisfied with the explanations offered by the assessee and levied penalty at 2% of the tax which came to Rs. 10,951 but he restricted the penalty to Rs. 9,777 being 50% of the tax of Rs. 19,555. The assessee appealed and contended that its status had been wrongly determined as an unregistered firm for the assessment year (1963-64) and the tax payable by it was wrongly computed at Rs. 19,555 treating it to be so (an unregistered firm). The assessee relied on the order of the Tribunal dated July 1, 1972, allowing registration for the three assessment years including the assessment year in question. The assessee contended that the tax payable by it for the assessment year in the status of a registered firm was actually Rs. 1,670 only, and it had paid an advance tax of Rs. 1,855 on December 3, 1962, that is, long before it was to submit the return. As such, no tax was ever in arrears for the year in question; it was entitled to a refund of Rs. 183 as a result of over-payment of advance tax The Appellate Assistant Commissioner, for short 'the AAC', held that no tax was payable by the assessee-firm for the assessment year at the relevant time. So the provisions of Section 271(1)(a) were not attracted and cancelled the penalty order. The revenue appealed to the Tribunal which upheld the order of the AAC and held that, (i) it was a case of failure to furnish a return ; (ii) at all relevant times the taxpayer was not in arrears; (iii) the taxpayer had paid more than the tax payable by it by way of payment of advance tax under Chap. XVII-C, and (iv) the assessee was not liable to penalty. It turned down the contention of the revenue as to the applicability of the provisions under Section 271(2) of the Act on the facts and circumstances of the case. It held that the legal fiction in Section 271(2) was limited for quantification of penalty of a registered firm, if any penalty was leviable on it under Section 271(1)(a) read with Section 271(1)(a)(i). The revenue prayed for a reference and the Income-tax Appellate Tribunal, Gauhati Bench, Gauhati, in exercise of its power under Section 256(1) of the Act, has referred the following question for our determination :
'Whether, on the facts and in the circumstances of the case, and on a proper construction of Section 271(1)(i)read with Section 271(2) of the Income-tax Act, 1961, the Tribunal was justified in upholding the cancellation of the penalty by the Appellate Assistant Commissioner in the case of the assessee (registered firm), M/s. Maskara Tea Estate ; whether the tax payable as a registered firm was nil for the assessment year 1963-64 '
2. Mr. Talukdar, the learned standing counsel for the revenue, submits that Clauses (a), (b) and (c) of Section 271(1) contemplate three different types of defaults. Once a person commits any of these defaults he is 'liable to penalty' as Clauses (i), (ii) and (iii) of Section 271(1) prescribe the amounts of penalty imposable for the defaults prescribed under Clauses (a), (b) and (c), respectively. The learned counsel contends that the provisions of Sections 271(1)(a) and 271(2) prescribe the method of computation of penalty and none of them is a 'charging provision '. Accordingly, they should receive a construction which makes the machinery for the computation of penalty workable and they should not be interpreted strictly like a charging provision. The learned counsel points to the expression 'liable to penalty' in Section 271(2) and submits that a registered firm is liable to penalty if it commits a default prescribed in Section 271(1)(a) and one is not to look at the provisions of Section 271(1)(i) but should consider its penal liability u/s. 271(2). The expression 'notwithstanding anything contained in the other provisions of this Act, the penalty imposable under Sub-section (1)...' overrides the provisions of the Act including those contained in Section 271(1)(i). In short, the learned counsel submits that even if a registered firm pays up its entire amount of tax including the assessed tax by way of advance tax under Chap. XVII-C, it is liable under Section 271(2), once it fails to furnish a return without reasonable cause as contemplated under Section 271(1)(a). Accordingly, the counsel submits that the Tribunal has gone wrong in assuming that Section 271(2) did not attract in the instant case as the registered firm had cleared up all its tax arrears by way of advance payment of tax.
3. To answer the question posed by the Tribunal and to appreciate the contentions of the learned standing counsel, it is necessary to extract the provisions of Sections 271(1)(a), 271(1)(i) and 271(2). We extract the relevant provisions of Sections 271(1)(a) and 271(1)(i) of the Act, as they stood prior to the amendment in 1974 :
'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 without 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 case may be, or....
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 'assessed tax' for every month during which the default continued, but not exceeding in the aggregate fifty per cent. of the 'assessed tax'.
Explanation.--In this clause ' assessed tax ' means tax as reduced by the sum, if any, deducted at source under Chapter XVII-B or paid in advance under Chapter XVII-C.'
4. We extract the provisions of Section 271(2):
'(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 other provisions of this Ad, 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.' (Underscored* by us).
5. It has been urged on behalf of the assessee that the provisions of Sections 271(1)(a) and271(1)(I) are penal as it falls under Chap. XXI of the Act
styled as 'penalty imposable'. Dr. Saraf for the assessee has adopted the line of reasoning of the learned Tribunal.
6. It is true that the provisions fall in Chap. XXI; however, in fiscal statutes there must be provisions to charge, assess and collect tax as well as penalty. A section may contain charging as, well as assessing provisions. The true colour of the provision can be extracted upon a due construction thereof. It has been seriously urged by Dr. Saraf that the penal provisions of taxing statutes should be construed strictly in view of their harsh consequences.
7. We have given our serious attention and consideration to the argument of Dr. Saraf about construction of fiscal statutes. The implication of the principle that a taxing statute must be construed strictly is often misunderstood and unjustifiably extended beyond the legitimate field of its operation. We are of the firm opinion that 'in a taxing statute one has to look merely at what has been clearly stated. There is no presumption as to a tax/penalty. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used'. We have proceeded in step with the familiar principles laid down by Rowlatt J. in Cape Brandy Syndicate v. IRC [1921] 1 KB 64. We have merely added the word 'penalty'. A penalty is levy of additional tax, as held by the Supreme Court in CIT v. Bikaji Dadabhai & Co. : [1961]42ITR123(SC) . It is true that the scheme of the I.T. Act, 1961, has been changed and Chap. XXI provides for penalty proceedings separately but notwithstanding such changes the Supreme Court in Jain Brothers v. Union of India : [1970]77ITR107(SC) reiterated that penalty is an additional tax. It is true that penalty proceedings are penal in nature and character, in the sense that it follows harsh consequences. In our opinion, the true construction of a charging provision including a provision for charging penalty must receive the construction ruled by Rowlatt J. If a statute intends to impose a penalty or a charge it must be expressed in clear and unambiguous language. If the provision is reasonably clear the courts have no jurisdiction to mitigate the harshness. However, if the provision is capable of alternative meanings, the courts will lean in favour of the subject. If the provision is so wanting in clarity, that no meaning is reasonably clear, the courts will be unable to regard it as of any effect. The sound general rule is that a penalty shall not be considered to be imposed without a plain declaration of the Legislature. One is simply to go on the Act itself, to see that the penalty claimed is that which the Legislature has enacted. No penalty can be levied on any doctrine of 'the substance of the matter' as distinguished from its legal signification, as a subject is not liable to penalty on ' supposed spirit of law or by inference or by analogy'. Lord Sumner observed in Ormond Investment Co. Ltd. v. Betts [1928] AC 143:
' ...the Crown does not tax by analogy but by statute...'
8. Dealing with the application of 'the spirit of the law', in interpreting fiscal statutes, Lord Reid observed in IRC v. Saunders [1958] AC 285 ; 34 ITR 827:
'It is sometimes said that we should apply the spirit and not the letter of the law so as to bring in cases which, though not within the letter of the law, are within the mischief at which the law is aimed. But it has long been recognised that our courts cannot so apply taxing Acts......'
9. All the principles of construction of taxing statutes were considered by the Supreme Court in Murarilal Mahabir Prasad v. B. R. Vad [1976] 37 STC 77 and the rule of construction has been laid down succinctly by Chandrachud J. (as his Lordship then was). The rule stated by Rowlatt J. in Cape Brandy Syndicate [1921] 1 KB 64 which had been approved and adopted by the Supreme Court in a number of cases has been accepted as the correct principle which is applicable in interpreting our taxing statutes. The relevant observations are extracted (p. 111 of 37 STC):
'In that famous passage marked by a happy turn of phrase, Rowlatt J., said, 'there is no equity about a tax. There is no presumption as to a tax'. There is no equity about a tax in the sense that a provision by which a tax is imposed has to be construed strictly, regardless of the hardship that such a construction may cause either to the treasury or to the taxpayer. If the subject falls squarely within the letter of law he must be taxed, howsoever inequitable the consequences may appear to the judicial mind. If the revenue seeking to tax cannot bring the subject within the letter of the law, the subject is free no matter that such a construction may cause serious prejudice to the revenue. In other words, though what is called equitable construction may be admissible in relation to other statutes or other provisions of a taxing statute, such a construction is not admissible in the interpretation of a charging or taxing provision of a taxing statute.'--(Underscored* by us).
10. In view of the nature and character of a penal provision it must be construed strictly regardless of the hardship that such a construction may cause either to the treasury or to the taxpayer. If a subject falls squarely within the letter of the law he must be penalised, however inequitable the consequences may appear. If, however, the revenue, seeking to penalise a subject, cannot bring him within the letter of the law, a subject will not be liable, no matter that such a construction may cause grave prejudice to the revenue. Equitable construction is out of place in respect of penal provision and such a construction is not permissible in interpreting a
charging provision of a taxing statute. The golden rule is that if the provision is capable of two alternative meanings the court should lean in favour of the subject; if the provision lacks in clarity that no meaning is reasonably clear the courts will be unable to regard it as of any effect and naturally the subject cannot be penalised. This is precisely what has been ruled in a number of decisions of the Supreme Court including CIT v. Vegetable Products Ltd. : [1973]88ITR192(SC) . Bearing in mind the above principles let us proceed to answer the question.
11. The entire line of reasoning of Mr. Talukdar is grounded on an obiter dictum of the Gujarat High Court in CIT v. R. Ochhavlal & Co. : [1976]105ITR518(Guj) . Therein, Section 271(1) was divided into two distinct parts--Clauses (a), (b) and (c) forming one division and Clauses (i), (ii) and (iii) forming the other compartment--the former division classified as 'creating penal liabilities' and the latter for 'quantifying the liability in terms of money'. In other words, Clauses (a), (b) and (c) were treated as provisions for creating charges or penalties whereas Clauses (i), (ii) and (iii) were held to be the machinery for a computation of the penalty. In fact, the moot question that came up before the Gujarat High Court was the interpretation of the provisions of Sections 271(1)(c), 271(2) and 274(2) of the Act. The observations of the High Court touching Sections 271(1)(a) and 271(1)(i) are obiter. But the 'dictum' is a view-point. It is our obligation to scrutinize the view of the High Court. We should not sidetrack it by a casual observation that it is obiter. It is true that the High Court was never invited to consider seriously the provisions of Section 271(1)(a) and Section 271(1)(i). We feel it unnecessary to deal with the provisions of Section 271(1)(b) and (c) as well as Section 271(1)(ii) and (iii) and, accordingly, we leave them aside. Let us fathom whether the provisions of Clause (a) by itself creates a penal liability. A person is liable to penalty when he is subject to penalty, in other words, he is bound or obliged in law or responsible or chargeable to penalty. Therefore, the crucial question is whether a person committing a 'default' contemplated in Clause (a) is bound or obliged in law or chargeable or responsible or becomes liable to penalty. Clause (a) undoubtely defines the nature and character of the defaults but the crux of the matter is whether a person committing such default is automatically liable to penalty Is there any class of taxpayers exempted or excepted Whether the defaults defined makes all such defaulters 'liable to penalty' Failure to furnish returns contemplated under Clause (a), in our opinion, defines or enumerates the nature or character of the wrongs or offences, but all such wrongdoers are not liable to penalty if we carefully scrutinise Clause (i). The clause clearly states who shall be chargeable to penalty as well as classifies persons who are not so chargeable or obliged in law to pay penalties. In the event of defaults enumerated in Clause (a) a taxpayer can be penalised if he is also in arrears to pay the amount of tax
payable by him and has not paid up his 'assessed tax' in the two specified methods of payments, namely, by way of, (i) deduction at source under Chap. XVII-B, or (ii) payment in advance under Chap. XVII-C at all relevant times. If a taxpayer commits default under Clause (a) but pays up his arrears, by way of payment of advance tax or deduction at the source, he is not liable to penalty. It follows that a class of persons who commits default under Clause (a) cannot be 'subject to penalty' if he has paid up the entire amount of tax and has paid up his 'assessed tax' by one of the two methods recognised in the Explanation to Section 271(1)(i). They are not bound or obliged in law or chargeable or responsible to pay penalty. In our opinion, the provisions of Clauses (a) and (i) must be read in unison to find out the persons bound or obliged in law to pay penalty. Penalty liability must be created by law. We are of opinion that the liability to pay penalty can be ascertained only on a proper scrutiny of the provisions of Clause (a) read with Clause (i) and not in a disjunctive manner. We hold that the provisions of Clause (a) and Clause (i) are provisions imposing penalty, but hasten to add that Clause (i) incorporates the computation of penalty as well. We are unable to agree that Clause (i) is a provision which merely quantifies ' penal liability '. In the result, we hold that to determine whether a taxpayer is liable to penalty it is necessary to read Clauses (a) and (i), and, if all the conditions precedent for making a taxpayer liable can be worked out, the person can be said to be obliged in law to penalty or liable to penalty. A person is liable to penalty if he commits double defaults--(i) fails to submit return without reasonable cause, etc., and (ii) does not pay up his tax in the manner provided in Section 271(1)(i). A person who has had no arrear of taxes and has duly paid up his assessed tax in advance under Chap. XVII-C is exempted by law from paying any penalty, he is not 'liable to penalty'. In the instant case, the taxpayer is 'a person' who is not liable to penalty in terms of Clauses (a) and (i) as he had complied with the provisions of Clause (i), and, as such, cannot be termed as a person liable to penalty. In our view, the very structure of Section 271(1) does not admit that Clause (a) by itself creates 'penalty liability' and Clause (i) is merely a provision for quantifying the penal liability. We entirely agree with the view expressed in Addl. CIT v. Murugan Timber Depot : [1978]113ITR99(Mad) , in so far as the interpretation of Clauses (a) and (i) of s, 271(1) is concerned. We refrain from expressing any opinion about the interpretation of the High Court in respect of the other Clauses of Section 271(1), as they are not the subject-matter for our determination in the instant case.
12. If we analyse the question from another angle, we arrive at the same conclusion. Wrongs or offences may be defined in one provision and penal liabilities pinpointed in the same or other provisions of laws creating liabilities. Even after defining a wrong or offence, some persons are exempted
from penal liabilities. It is to be found in the Indian Penal Code and other laws imposing penalties or creating liabilities. What impelled the lawmaker to grant the immunity is not for our consideration. If the subject does not fall squarely within the letter of the law he cannot be penalised, howsoever inequitable the consequences may appear to the judicial mind. However, there is strong force in the submission of Dr. B.P. Saraf that a class of diligent taxpayer, who has duly paid up all his taxes, including the assessed tax, in the manner and method provided in Clause (i) has been exempted. The contention has a strong force but equitable construction has no place in interpreting a charging provision.
13. The view that we have expressed finds ample support from the observations of their Lordships in CIT v. Vegetable Products Ltd. : [1973]88ITR192(SC) . While interpreting the provisions contained in Section 271(1)(a)(i) their Lordships, inter alia, observed (p. 196):
'...we are interpreting not merely a taxing provision but a penalty provision as well...'
14. We are bound by the observation and hold that Clauses (a) and (i) of Section 271(1) are penal provisions in so far as they make a person liable to penalty. Accordingly, we are reluctantly impelled to state that we find it difficult to accept the view of the Gujarat High Court in Ochhavlal & Co. : [1976]105ITR518(Guj) , that the provisions of Section 271(1)(a)(i) are merely provisions for quantifying the penal liability and they do not create penal liability. In Vegetable Products : [1973]88ITR192(SC) , it has been held that a person who has duly paid up his tax in the manner provided under Section 271(1)(a) is not liable to penalty. On behalf of the revenue, it has been submitted that Clause (i) is exclusively applicable to persons other than a registered firm. We find no force in the contention. Clauses (a) and (i) take within their folds all taxpayers including registered firms.
15. The next contention of the learned counsel as to the interpretation of the provisions of Section 271(2) is not tenable in view of the interpretation that we have given in respect of the provisions of Section 271(1)(a) and Section 271(1)(i) . In our opinion, the expression 'the person liable to penalty' in Section 271(2) refers to persons who are liable to penalty under Section 271(1)(a) read with Section 271(1)(i) . As alluded, person is subject to penalty when an obligation is created by law or when a person is bound or obliged in law to pay penalty. The expression refers to the persons who are liable to penalty under Section 271(1)(a) /271(1)(i) and no other person. Those exempted from liability to penalty cannot be described as 'the person liable to penalty' under Section 271(2) of the Act. In the result, we hold that the expression 'persons liable to penalty' means only those persons who are liable to penalty under Section 271(1)(a) and (i). We are not concerned with the persons governed by Clauses (b), and (c) and/or (ii) and (iii). In our opinion, if a person liable
to penalty under Section 271(1)(a)(i) happens to be a registered firm, his case squarely falls under Section 271(1) of ' the Act'. A registered firm is denuded of the advantages of registration when it is liable to penalty under Section 271(1) . It takes the colour of an unregistered firm and the penalty imposable shall be the same as would be imposable on that firm if that firm were an unregistered firm. The penalty imposable shall be in the manner and method provided in Section 271(1)(i) . However, the quantum of penalty shall be computed in the manner laid down under Clause (i), but the firm shall be assessed and the penalty imposed as if it were an unregistered firm.
16. The learned counsel for the revenue submits that the non obstante clause in Section 271(2) overrides the provisions of Section 271(1)(i) and if a person committing a default under Clause (a) is a registered firm, its case falls automatically under Sub-section (2); in such an event, it is not required to process the case via Section 271(1)(o) . The contention is not tenable for the following reasons : First, to attract the non obstante clause, the main sub-section must be applicable. The liability of the person must be determined and in doing so, one is to look at the preceding Sub-section (1). On due scrutiny of Section 271(1)(a) as well as Clause (i), if a person is liable and if it happens to be a registered firm, Sub-section (2) is attracted. The conditions precedent for the applicability of Sub-section (2) are the two clauses of defaults referred to in Section 271(1)(a) and (i) as Sub-section (2) is applicable only to 'person liable to penalty'. Secondly, Section 271(1)(i) does not exclude registered firms but incorporates 'all persons'. One cannot skip over the relevant Clause (i) and jump to Section 271(2) to stamp the registered firm with liability in the absence of any clear intendment expressed in the section. Thirdly, we note that the provisions of Sub-section (2) does not commence with the non obstante clause. If the sub-section were structured 'Notwithstanding anything contained in Clause (i) or in any other provision of the Act, a registered firm shall be liable to penalty if it commits any default contemplated under Section 271(1)(a) ......' or words to that effect, we could have given serious thought to the
contention. However, that is not the structure of Sub-section (2). Fourthly, the position of the non obstante clause in the middle of the section is significant. The purpose of the non obstante clause is limited. It is a sub-clause expressly empowering the authority to treat a registered firm as if it were an unregistered firm, and, accordingly, assess and impose penalty notwithstanding any other provisions, like Sections 182 and 183. It is an express authorisation empowering the authorities to assess a firm in a different status which is essentially necessary to assess a taxpayer in a different status and at a higher rate. It is an express empowerment imposing harsh treatment and, unless expressly provided, the penalty could not be imposed in such manner. It has been held in Laxmipat Singhania v. CIT : [1969]72ITR291(SC) that unless otherwise expressly provided an income cannot
be taxed twice. The non obstante clause is an empowering provision expressly providing imposition of penalty in a harsher manner. In the absence of the non obstante clause, the taxing machinery could not have treated a registered firm as if it were an unregistered one and assessed the firm in the status of an unregistered firm. Fifthly, the legal fiction created cannot be extended beyond the purpose for which it is created or beyond the language of the sub-section. After ascertaining the purpose of the non obstante clause, it should be carried to its logical conclusion to find the field of operation of the non obstante clause. We conclude that the non obstante clause-cum-legal fiction created in Sub-section (2) is to make the machinery for the computation of tax workable without any hindrance.
17. On behalf of the revenue, reliance was placed on Nepoli Restaurant v. CIT : [1979]117ITR828(KAR) . The registered firm was found liable to penalty under Section271(1) and it was contended on behalf of the assessee that Sub-section (2) was applicable only when a registered firm was not liable to pay tax. In other words, the contention was that Section 271(1)(i) applied only in the case of a registered firm 'liable to pay tax'. The contention was rejected by Venkataramiah J. It was held that Sub-section (2) was applicable to all registered firms including those not liable to pay tax. It was a case in which Clause (i) was never the subject-matter of determination of the High Court. We respectfully agree with the view expressed in Nepoli Restaurant v. CIT : [1979]117ITR828(KAR) .
18. As such, we hold that Sub-section (2) is not attracted in the instant case. The assessee does not fall squarely within Sub-section (2). Even if we consider the view expressed by the revenue as 'a reasonable view', it must be concluded that the penal provisions are capable of alternative meanings and we are bound to lean in favour of the subject. If the contention of the revenue is also a reasonable view we are constrained to hold that the penal provisions lack in clarity and on that ground alone the subject is entitled to benefit and cannot be penalised. However, we are firm that the view expressed by us is the only reasonable view. Upon the whole we answer the questions in the affirmative and against the revenue. We hold that Section 271(2) is not applicable in the instant case and the taxpayer had no tax liability at all relevant times for the assessment year 1963-64. We make no order as to costs.
19. Let a copy of the judgment be sent under the seal of the court and the signature of the Registrar to the learned Tribunal which shall pass such orders as are necessary to dispose of the case conformably to the judgment.
Pathak, Actg. C.J.
20. I agree.