N.D. Ojha, C.J.
1. In this case, the Income-tax Appellate Tribunal has referred the following question to this court for its opinion :
'Whether, on the facts and in the circumstances of the case and on a proper construction of Section 271(2) of the Income-tax Act, 1961, the Tribunal was correct in law in upholding the cancellation of penalty by the Appellate Assistant Commissioner under Section 271(1)(a) of the Act ?'
2. Shri Lahoti appeared for the Commissioner of Income-tax, while Shri J.P. Gupta appeared for the assessee. During the course of arguments in this case, learned counsel for the parties made a statement today that another Miscellaneous Civil Case No. 97 of 1983 in which a similar question was involved and in which also the assessee was represented by Shri J.P. Gupta and Shri Lahoti appeared for the Commissioner of Income-tax, be also taken up and decided along with the Miscellaneous Civil Case No. 43 of 1983. In view of the joint request made by learned counsel for both parties, we sent for the record of Miscellaneous Civil Case No. 97 of 1983 and are deciding the same along with this Miscellaneous Civil Case No. 43 of 1983.
3. The question of law which has been referred by the Tribunal in Miscellaneous Civil Case No. 97 of 1983 is as follows :
'Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was correct in law in cancelling the penaltylevied under Section 271(1)(a) of the Income-tax Act, 1961 ?'
4. The judgment in the present Miscellaneous Civil Case No. 43 of 1983 shall govern the disposal of Miscellaneous Civil Case No. 97 of 1983 also.
5. The questions of law referred in these two cases are apparently identical. Before answering these questions, it would be necessary to give in a nutshell the relevant facts in each of these two cases.
6. The facts of Miscellaneous Civil Case No. 43 of 1983 are that the assessee is a registered firm executing contract work. It was required to file itsreturn for the year 1973-74 which was delayed. Consequently, penalty proceedings were initiated by the Income-tax Officer for late filing of the return and ultimately, a penalty of Rs. 5,210 was imposed on the assessee. On appeal, the Appellate Assistant Commissioner cancelled the penalty on the ground that penal action was not appropriate inasmuch as there was no default in paying the tax. This view was upheld by the Tribunal in its appellate order. On an application being made by the Commissioner of Income-tax, the question of law referred to above was referred to this court by the Tribunal for its opinion.
7. The facts of Miscellaneous Civil Case No. 97 of 1983, on the other hand, are that the assessee too is a registered firm. It was required to file its return in regard to the assessment year 1975-76. However, the return was not filed within time and there was a default of 10 months in doing so. The Income-tax Officer in this case also initiated proceedings of penalty under Section 271(1)(a) of the Act and a penalty of Rs. 7,886 was imposed. In appeal, the Appellate Assistant Commissioner reversed the order of the Income-tax Officer. It took the view that since the assessee had not only paid the entire amount of the tax, but he had also paid more tax and indeed a sum of Rs. 2,340 was liable to be refunded to him, no case for imposition of penalty was made out. This view was affirmed by the Tribunal and the second appeal preferred by the Commissioner of Income-tax was dismissed. In this case also, the Tribunal, on an application being made in this behalf by the Commissioner of Income-tax, referred the above question of law to this court for its opinion. It is in this manner that these two Miscellaneous Civil Cases have come up before us.
8. The answer to the questions referred in these two cases (in short, the questions referred) depends on an interpretation of the provisions of Sub-sections (1) and (2) of Section 271 of the Income-tax Act, 1961 (hereinafter referred to as 'the Act'). Since the entire provisions of Sub-section (1) of Section 271 of the Act are not for consideration before us, we refer only to that portion of Section 271 of the Act on which reliance has been placed by learned counsel for the parties. Clause (i) including its Explanation was substituted by the Direct Taxes (Amendment) Act, 1974, with retrospective effect from April 1, 1962. Some amendment therein has been made by the Taxation Laws (Amendment) Act, 1975.
9. Sub-section (1) of Section 271, in so far as it is relevant for the purposes of the present case and on which reliance was placed by learned counsel for the parties, reads as under :
'271. (1) If the Income-tax Officer or the Appellate Assistant Commissioner or the Commissioner (Appeals) in the course of any proceedings under this Act, is satisfied that any person-
(a) has without reasonable cause failed to furnish the return oftotal 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 thetime allowed and in the manner required by Sub-section (1) of Section 139or by such notice, as the case may be, or
(b) has without reasonable cause failed to comply with a notice under Sub-section (1) of Section 142 or Sub-section (2) of Section 143 (or fails to comply with a direction issued under Sub-section (2A) of Section 142), or
(c) has concealed the particulars of his income or furnished inaccurate particulars of such income,
he may direct that such person shall pay by way of penalty-
(i) in the cases referred to in Clause (a)--...
(b) in any other case, 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.
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.'
10. Sub-section (2) of Section 271, on the other hand, reads as under :
'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.'
11. It has been urged by Shri Lahoti, appearing for the Department, that Clauses (a), (b) and (c) of Sub-section (1) of Section 271 which constitute the first part are the charging provisions, whereas Clause (i) occurring after the words 'he may direct that such person shall pay by way of penalty' contains the provision only in regard to the quantification of penalty and has no bearing in determining the question as to whether an assessee is liable to penalty or not. According to him, if any of the defaults contemplated by Clauses (a), (b) or (c) has been committed by an assessee, he becomes liable to penalty and the question as to what amount of penalty, if any, should be imposed on him, is to be decided in the manner provided for in Clause (i) referred to above. It has further been urged by Shri Lahoti that once the assessee is found to be liable topenalty, having committed any of the defaults contemplated by Clauses(a), (b) and (c) of Sub-section (1) of Section 271 of the Act and the saidassessee happens to be a registered firm, Sub-section (2) of Section 271 ofthe Act is immediately attracted and for the purpose of determining thequantum of penalty to be determined under Clause (i), the registered firmhas to be treated as an unregistered firm.
12. For the assessees in these two cases, on the other hand, it has been urged by their learned counsel that Section 271(1)(a) which alone is relevant for the purpose of the present two cases inasmuch as it is that sub-section which has been taken recourse to in the instant cases on the ground that the assessees had, without reasonable cause, failed to furnish the return of total income, has to be read with Clause (i) together with its Explanation even for deciding the question as to whether the assessee is liable to penalty or not. According to him, the mere fact that Clause (i) has been placed separately from Clauses (a), (b) and (c) and at a place relevant for determination of the amount of penalty, it cannot be said that the said Sub-clause (i) and the Explanation attached thereto had to be ignored for determining the question as to whether the assessee is liable to penalty or not. It was urged that the very purpose of inserting the Explanation in Clause (i) was to find out as to whether there was any assessed tax or not payable by the assessee. According to him, in those cases where, on account of the tax being deducted at source under Chapter XVII-B or being paid in advance under Chapter XVII-C, there is no tax liability, the assessee will not be liable to penalty notwithstanding the fact that he may have failed to furnish the return of total income without reasonable cause. The view propounded by learned counsel for the assessee, as seen above, has found favour with the Tribunal.
13. In order to find out the true import of Sub-section (1)(a) and Sub-section (2) of Section 271 of the Act, it is necessary to refer to certain decided cases: We shall first refer to those cases on which reliance has been placed by learned counsel for the Department. In CIT v. S.K Angidi Chettiar : [1962]44ITR739(SC) Section 28 of the Indian Income-tax Act, 1922, came up for consideration. While dealing with the provisions of Section 28 of that Act with reference to a registered firm, it was held (atpage 743) :
'The assumption that the expression 'any tax' used in Section 28(1) is intended to indicate that there must be some tax payable by the assessee before penalty could be imposed is wholly unwarranted. The futility of the assumption is exhibited by the terms of Clause (b). Penalty may be imposed for failure to comply with the notice under Sub-section (4) of Section 22 or Sub-section (2) of Section 23 even if the assessee has no assessable income. To the imposition of a penalty, liability to pay tax by theperson against whom the penalty is sought to be imposed is, therefore, not a condition precedent.'
14. In CIT v. R. Ochhavlal and Co. : [1976]105ITR518(Guj) where Section 271 itself of the Act came up for consideration, it was held that the penal liability contemplated by Sub-section (2) of Section 271 falls within any of the Clauses (a), (b) or (c) of Section 271 of the Act which contemplated three distinct types of defaults. The moment it is found that any one of these three defaults is committed by an assessee which is a registered firm, the said assessee becomes 'liable to penalty' within the meaning of Sub-section (2). It was pointed out that Clauses (a), (b) and (c) constitute the first part of Sub-section (1) of Section 271 of the Act. This part indicated when and under what circumstances a penal liability came into existence. The second part of Sub-section (1) of Section 271 was constituted by Clauses (i), (ii) and (iii). The function of Clauses (a), (b) and (c) was to create a penal liability, whereas the function of Clauses (i), (ii) and (iii) was to quantify the said liability. With reference to Sub-section (2) of Section 271 of the Act, it was held that if a registered firm had committed any of the defaults contemplated by Clauses (a), (b) and (c) of Section 271(1), it follows that the registered firm in question was a person 'liable to penalty 'within the meaning of Section 271(2). When it was found that such a registered firm had rendered itself liable to penalty, then, under the deeming fiction which was contemplated by the latter part of Sub-section (2), such a firm should be treated as an unregistered firm and the quantification of penalty should be worked out on the amount which would be imposable on the firm as if it were an unregistered firm. After computation as contemplated by Section 271(2), if it could not be said that it was not liable to any tax, then it would not be impossible to work out the penalty contemplated by the relevant clause.
15. The same principle was reiterated by the Madras High Court in CIT v. Kandaswami Weaving Factory and Co. : [1977]110ITR84(Mad) . It was held that Section 271(2) of the Income-tax Act, 1961, dealt with the quantum of penalty imposable in the case of a registered firm and for that purpose, created a fiction. The effect of Section 271(2) was to treat a registered firm as an unregistered firm, compute the income of the unregistered firm and assess the tax payable by the said unregistered firm on the income so computed and calculate penalty on that basis. The contention that in view of the amendment to Section 271(1) of the Act by the Direct Taxes (Amendment) Act, 1974, no penalty could be imposed on a registered firm which had paid the entire tax before the imposition of penalty, was found to be without substance.
16. In Todarmal Safarishmal Lashkar v. CIT : [1979]118ITR759(MP) after referring to the relevant provisions of Section 271 of the Act, it was heldthat the language of the section was abundantly clear and certain. Penalty could be imposed only under one or more of the circumstances mentioned in Clauses (a), (b) and (c) of Sub-section (1) of Section 271 of the Act and the quantum of penalty was prescribed in Clauses (i), (ii) and (iii) of the same sub-section. It was further emphasised that the income-tax authorities were empowered to impose penalty only if there existed one or more circumstances enumerated in Clauses (a), (b) and (c), but not otherwise. But where any of these circumstances existed, the authority had power to impose penalty.
17. In CIT v. Priya Gopal Bishoyee : [1981]127ITR778(Cal) it was held by the Calcutta High Court that Sub-section (2) of Section 271 of the Act provides that when a person liable to penalty is a registered firm or an unregistered firm which had 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 as if that firm were an unregistered firm. Therefore, for the purpose of imposition of penalty, the firm, even if it is registered, and, if it has committed a default as contemplated under Section 271, it would be treated on the same basis as if it was an unregistered firm. It was pointed out that as an unregistered firm, the tax in the circumstances would have been, as would be borne out from the facts on record, Rs. 15,805 but if it was a registered firm; then the tax payable would have been Rs. 5,657.44. This sum of Rs. 5,657.44 had been paid on September 20, 1967, while the order for the imposition of penalty was passed subsequent thereto on June 26, 1969. On these facts, it was held that at the date when the imposition of penalty was made there would have been no assessed tax if it was a registered firm, but if it was an unregistered firm and for the purpose of determination of imposition of penalty, it would be treated as an unregistered firm and if it is so treated, then the assessed tax must be treated for calculating it (the penalty) on the basis as if it was an unregistered firm and if that is so, then for every month during which the default had continued, the assessee would be liable to penalty.
18. In Delux Publishing Co. v. Addl. CIT : [1981]127ITR782(MP) , a Division Bench of this court, while interpreting Sub-section (2) of Section 271 of the Act, held that, by the said sub-section, a fiction had been created and even if the person liable to pay penalty was a registered firm, the penalty imposable shall be the same amount as would be imposable on that firm if that firm were an unregistered firm. It was further pointed out that in the case of a registered firm, the tax assessable had to be worked out as if it was an unregistered firm and on that basis the penalty had to be calculated because the fiction created had to be carried to its logical end
19. In Maya Rani Punj v. CIT : [1986]157ITR330(SC) it was held that in view of the language used in Section 271(1)(a) of the Act, the position is beyond dispute that the Legislature intended to deem the non-filing of the return to be a continuing default--the wrong for which penalty is to be visited commences from the date of default and continues month after month until compliance is made and the default comes to an end. It was further held that the imposition of penalty not confined to the first default but with reference to the continued default was obviously on the footing that non-compliance with the obligation of making a return was an infraction as long as the default continued. Without sanction of law, no penalty is imposable with reference to the defaulting conduct. The position that penalty is imposable not only for the first default but as long as the default continues and such penalty is to be calculated at a prescribed rate on monthly basis is indicative of the legislative intention in unmistakable terms that, as long as the assessee does not comply with the requirements of law, he continues to be guilty of the infraction and exposes himself to the penalty provided by law.
20. Learned counsel for the Department has also placed reliance on two decisions which lay down the reason of a different rule being incorporated in Sub-section (2) of Section 271 of the Act in regard to a registered firm liable to penalty. One such case is a Division Bench decision of this court in CIT v. Chotelal Kanhaiylal : [1971]80ITR656(MP) . It was held as under (at page 658) :
'In the case of registered firms no tax was payable before 1956. Since 1956 some nominal amount of tax has been made payable by registered firms also, but they remain free from payment of the bulk of the tax. In such a case, therefore, if a registered firm makes default in furnishing the return within time, it was not possible to calculate the penally as there was practically no tax payable. In order to obviate this difficulty, the Legislature has enacted Sub-section (2) of Section 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.'
21. In Jain Brothers v. Union of India : [1970]77ITR107(SC) the constitutional validity of Sub-section (2) of Section 271 of the Act was challenged on the ground that it was discriminatory. Repelling the challenge, it was held as under (at page 118) :
'Lastly, the challenge to Section 271(2) of the Act of 1961 on the ground of contravention of Article 14 may be considered. According to that provision, when the person liable to penalty is a registered firm, then notwithstanding anything contained in the other provisions of the Act of 1961, 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. It is pointed out that in the case of assessees other than registered firms; the maximum penalty imposable under Section 271(1)(i) cannot exceed in the aggregate 5056 of the tax payable by the assessee ; whereas in the case of a registered firm, the maximum penalty is not made to depend upon the tax assessed on or payable by such firm. On the contrary, the registered firm will have to pay the same penalty as an unregistered firm which may far exceed the maximum limit of 50% prescribed by the above provision. This according to the appellants, constitutes discrimination under Article 14 of the Constitution. Now, a firm when registered is treated as a separate entity liable to tax. After 1956, it has to pay tax at a special reduced rate. If a firm got itself registered, the partners were entitled to certain benefits and advantages. It was, however, 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 its imposition. No question of discrimination under Article 14 can arise in such a situation. We fully share the view of the High Court that there was nothing to prevent the Legislature from giving the benefit of a reduced rate to a registered firm for the purpose of tax, but withhold the same when it committed a default and became liable to imposition of penalty'.'
22. Shri J.P. Gupta, appearing for the assessee, has, apart from distinguishing the cases relied on by learned counsel for the Department, placed reliance on some decisions where a view similar to that taken by the Tribunal has been taken. Before adverting to the distinguishing features pointed out by Shri Gupta, with reference to the cases relied on by learned counsel for the Department, we shall first refer to those cases on which reliance by Shri Gupta has been placed in support of his contentions.
23. The first of such cases is CIT v. Maskara Tea Estate . In that case, it has been held that Clause (i), particularly the Explanation to that clause, as inserted by the 1974 amendment, has to be read along with Clause (a) of Sub-section (1) of Section 271 of the Act in order to find out as to whether a registered firm was liable to penalty or not. The ratio decidendi of that case is that the connotation of the term'liable to penalty' was that it is only in those cases where there was some outstanding assessed tax which had not been paid by the assessee and the assessee had also committed a default in filing the return as contemplated by Clause (a) of Sub-section (1) of Section 271 of the Act that the said assessee could be liable to penalty. The submission made by learned counsel for the Department in that case that the provisions of Section 271(1)(i) and 271(1)(ii) only prescribe the method of computation of penalty and none of them was a charging provision and consequently they could not be relied on while determining the question as to whether the unregistered firm was liable to penalty or not, was held to be without any substance. According to that decision, once it was found that there was no assessed tax payable by the registered firm, there would be no liability of penalty notwithstanding the fact that the said firm had made a default in submitting its return.
24. The next case on which reliance was placed by learned counsel for the assessee was CIT v. Ganesh Das Sreeram (Firm) This decision is also of the Gauhati High Court as was the decision in case of Maskara Tea Estate . The principle laid down in the said case of Maskara Tea Estate was reiterated in this case also.
25. Reliance was then placed by Shri Gupta on the decision of the Andhra Pradesh High Court in P. Venkata Krishnayya Naidu and Son v. CIT : [1984]150ITR545(AP) . The decision of the Gauhati High Court in the case of Maskara Tea Estate has been followed by the Andhra Pradesh High Court also. Further, dealing with the respective submissions made by learned counsel for the parties, it was held in this case that the scheme to impose penalty in respect of acts of omission and commission falling separately in terms of Clauses (a), (b) and (c) of Sub-section (1) of Section 271 of the Act was, entirely distinguishable. The concept of 'assessed tax' applicable to the levy of penalty under Section 271(1)(a) was not applicable to the penalties imposable under Clauses (ii) and (iii) of Section 271(1). This aspect must be clearly borne in mind. It was pointed out that there could be little doubt that an assessee was bound to file his return of income even though he had paid more tax than was required with reference to his income. If he failed to file the return, he will suffer the consequences elsewhere provided in the Act. However, having regard to the scheme of the Act and the distinct provisions governing the levy of penalty for the acts of, omission and commission on the part of the assessee falling under Clauses (a), (b) and (c), a person was not liable to penalty automatically on the Income-tax Officer's deriving satisfaction as per Clauses (a), (b) and (c).
26. Reliance was then placed by Shri Gupta on a decision of the Rajasthan High Court in Addl. CIT v. Surana and Co. Afterreferring to the provisions of Section 271(1) of the Act, it was held as under (at pages 780, 781) :
'Adverting to the facts of the present case, if the amount paid by the assessee by way of tax as a result of the provisional assessment proceedings was not taken into consideration while determining the amount of 'assessed tax', then it is not disputable that some amount was payable by the assessee by way of tax at the time when the demand notice was issued and as such penalty was leviable upon the assessee. In that event, applying the provisions of Sub-section (2) of Section 271, the quantum of penalty imposable upon the assessee has to be calculated on the basis of tax payable by the assessee as if it were an unregistered firm. As the amended provisions of Section 271(1)(a)(i) have been brought into force with retrospective effect from April 1, 1962, the cancellation of the penalty by the Tribunal cannot be upheld. In view of the amended provisions of the Act, the amount of penalty which was determined by the Income-tax Officer, on the basis that the assessee had failed to file the return of its total income within the time specified in Section 139(1) without reasonable cause, appears to be justified. As penalty was imposable upon the assessee, the provisions of Section 271(1)(a)(i) shall have to be read along with the provisions of Section 271(2) and the quantum of penalty has to be worked out on the assessed income after treating the assessee-firm as an unregistered firm for the purpose of quantification of the amount of penalty imposable upon it.'
27. Now, we shall refer to that part of the submission made by Shri Gupta whereby he has made an attempt to distinguish the cases relied on by learned counsel for the Department. In regard to the decision of the Madras High Court in Kandaswami Weaving Factory and Co.'s case : [1977]110ITR84(Mad) it was urged by Shri Gupta that the said decision has to be read in the light of the distinction brought out by the same High Court in CIT v. Fomra Brothers : [1980]122ITR312(Mad) where it was held that the case reported in Kandaswami Weaving Factory and Co.'s case : [1977]110ITR84(Mad) was one where payment was made not as advance tax under Chapter XVII-C but before the penalty order and consequently, the Explanation appended to Clause (i) was not attracted to the facts of that case. According to Shri Gupta, it is this distinguishing feature on account of which the decision of the Madras High Court in Kandaswami Weaving Factory and Co.'s case : [1977]110ITR84(Mad) was of no assistance to the Department.
28. As regards the decisions of the Division Bench of this court in Todarmal Safarishmal Lashkar's case : [1979]118ITR759(MP) and Chotelal Kanhaiylal's case : [1971]80ITR656(MP) it was urged by Shri Gupta that these were cases where the relevant assessment year was 1958-59. According to him, at that time, Section 271(1) of the Act, as amended by the 1974amending Act, was not in existence and, consequently, the provisions of Clause (i), including its Explanation, never came up for consideration in those cases and, as such, those cases cannot be treated as authority for the interpretation of Section 271(1) of the Act after its amendment by the1974 amending Act.
29. With regard to CIT v. R. Ochhavlal and Co. : [1976]105ITR518(Guj) it was pointed out by Shri Gupta that it was a case under Clause (c) of Sub-section (1) of Section 271 and not under Clause (a) thereof. The further distinguishing feature which was highlighted by Shri Gupta was that it was Clause (iii) and not Clause (i) which came up or consideration in that case. According to him, in this view of the matter, any observation that may have been made in that case with regard to the interpretation of Clause (a) or (i) of Sub-section (1) of Section 271 of the Act was merely obiter and could not be treated as an authority for interpreting these two clauses.
30. With regard to Priya Gopal Bishoyee's case : [1981]127ITR778(Cal) it was pointed out by Shri Gupta that in that case, the return was due on October 1, 1963, with the result that the tax should have been paid prior to that date. However, as was apparent from the decision, the tax was paid on September 20, 1967, i.e., about four years later. The said tax obviously could not be treated as payment of advance tax. Consequently, the Explanation to Clause (i) of Sub-section (1) of Section 271 was not attracted and in this view of the matter, that authority cannot be treated as one laying down the law in regard to the interpretation of the Explanation appended to Clause (i) of Sub-section (1) of Section 271 of the Act.
31. The decision of the Supreme Court in S.V. Angidi Chettiar's case : [1962]44ITR739(SC) was distinguished by Shri Gupta on the ground that it was a case dealing with Section 28 of the Act of 1922 and neither Clause (i) of Sub-section (1) of Section 271 nor its Explanation came up for consideration before the Supreme Court in that case.
32. The decision of the Supreme Court in Maya Rani Punj's case : [1986]157ITR330(SC) was distinguished by Shri Gupta on the ground that, in that case, the year of assessment was 1961-62. According to him, even on the merits, the only thing which was held in that case was that the default of non-filing of return would be a continuing default. It was further pointed out by Shri Gupta that it was not a case of a registered firm. Shri Gupta also placed reliance on the observations made in para 19 of the report in that case that if there was default, penalty could be imposed only if there was sanction of law.
33. On a conspectus of the various decisions referred to above, what emerges is that there are apparently two views which have found favour with regardto the interpretation of Section 271(1)(a) and Sub-section (2) of that Section in the matter of imposition of penalty vis-a-vis a registered firm. One view is that for determining the question whether a registered firm was liable to penalty, only Clauses (a), (b) and (c) of Sub-section (1) of Section 271 had to be looked into inasmuch as they constitute that part of Section 271 which, so to speak, could be referred to as the charging provision and that Clause (i) was only a provision in regard to quantification of the amount of penalty. The decisions taking this view go on to hold that the effect of Sub-section (2) of Section 271 was that if the assessee who had made a default in filing the return was a registered firm, then, for purposes of determining the liability to penalty and its amount, it had to he treated that the firm was an unregistered firm. In other words, in order to find out, for the purposes of penalty, as to what would be the amount of assessed tax of the said registered firm, it is not the assesseed tax on the basis that it was a registered firm which would be relevant, but it is the tax which would have been assessed treating it to be an unregistered firm which would be relevant. Consequently, according to these decisions, notwithstanding the provisions contained in the Explanation appended to Clause (i) of Sub-section (1) of Section 271, the moment there was a default in filing the return without any sufficient cause, a liability to penalty immediately accrued and reference to Clause (i) of Sub-section (1) of Section 271 of the Act together with its Explanation could be made only for purposes of quantifying the amount of penalty.
34. The other view is that even for purposes of finding out as to whether a registered firm was liable to penalty, there were two conditions precedent. Firstly, that the registered firm had, without sufficient cause, failed to file the return as contemplated by Clause (a) of Sub-section (1) of Section 271 of the Act. Secondly, there was some outstanding 'assessed tax' calculated in accordance with the Explanation to Clause (i) of the said sub-section which had not been paid by the registered firm. According to this view, if the second condition aforesaid was lacking, mere non-filing of the return would not attract any liability to penalty.
35. Having given our anxious consideration, we are of the opinion that even though it is true that the decisions which are rendered in reference made under the taxing statutes whereunder the court exercises advisory jurisdiction have to be read in the circumstances and on the facts of that particular case, but, on that ground alone, the enunciation of law in regard to the provisions considered in those cases cannot just be ignored. In the background referred to above, the question which falls for consideration is as to whether there is any good ground on the basis of which decisions of this court of three Division Benches which find support from the observations of the Supreme Court in the cases already referred to above, arecapable of being ignored by us on the ground that there are some distinguishing features therein as urged by learned counsel for the assessee. In our opinion, there is no good ground for doing so.
36. While interpreting a provision which deals with penalty, it cannot be lost sight of that the main purpose of such a provision is to ensure compliance with the provisions of the Act. Filing of a return within the relevant time, as contemplated by the Act, is one of the requirements of the Act. Clause (a) of Sub-section (1) of Section 271 of the Act was apparently enacted to ensure compliance with the requirement of the return being filed within the prescribed period.
37. From a perusal of the decisions in Chotelal Kanhaiylal's case [1971] 80 ITR 656 (MP) and in Jain Bros., case : [1970]77ITR107(SC) it is apparent that registered firms were sought to be placed on a footing different from other assessees for a valid reason which has already been indicated above. It seems that, on account of the benefits available to a registered firm, Parliament intended to take a more stringent view in the matter of imposition of penalty if it was a case of a registered firm. Imposing of penalty cannot be made to depend on the payability of the tax. There may be cases where even though liability to penalty may have accrued, but on account of certain circumstances in the ultimate analysis, no penalty or a nominal penalty may be levied. Simply because, ultimately, at the stage of quantification of the amount of penalty, no penalty may be payable, it cannot be said that the provision making a person liable to penalty on the ground of default committed by him, is to be treated as otiose on that ground. If such a view is taken, it would encourage violation of the provisions of Clause (a) of Sub-section (1) of Section 271 by a registered firm on the pretext that the advance tax which, according to it, was payable had been paid and, consequently, it was not at all necessary for it to file any return. This obviously would militate against the very purpose for which Clause (a) of Sub-section (1) of Section 271 of the Act had been enacted.
38. In the normal course, in a statute dealing with imposition of penalty on the ground of default in compliance with the provisions of that Act, each default is to be visited with penalty. If the intention of Parliament in substituting Clause (i) in Sub-section (1) of Section 271 of the Act by the 1974 Amending Act was that the provisions contained therein together with the Explanation appended thereto were to be treated as provisions enabling a registered firm not to file a return notwithstanding the specific provision contained in this behalf in Clause (a) of Sub-section (1) of Section 271 of the Act, there was nothing to inhibit Parliament from specifically making a provision in this behalf either by adding a proviso orExplanation to Clause (a) of Sub-section (1) of Section 271 itself. This was, however, not done.
39. It has not been seriously disputed by learned counsel for the assessee that, prior to the amendment of Section 271 by the 1974 amending Act, the mere default in compliance with any of the provisions contained in Clauses (a), (b) or (c) of Sub-section (1) of Section 271 of the Act was sufficient to visit the assessee with penal consequences. If any change in this established rule of interpretation was contemplated to be made by Parliament while enacting the Amending Act of 1974, which would have had the effect of making a departure from the established interpretation in regard to penalty provisions contained in Section 271 and even in regard to the corresponding penalty provision in the 1922 Act, it was expected that a specific provision should have been made making the intention of Parliament clear and not to leave the matter to varying interpretations. In this background, in our opinion, it is apparent that it was never intended while enacting the Amending Act that Clause (i), together with its Explanation, was to be read as an exception to Clause (a) of Sub-section (1) of Section 271 of the Act.
40. As is apparent from the decision of the Supreme Court in CIT v. Vegetable Products Ltd. : [1973]88ITR192(SC) there was a divergence, of opinion among various High Courts on the question as to whether, while computing the assessed tax, any amount which had been paid as advance tax at the stage of provisional assessment, could be adjusted or not. To us, it appears that, while incorporating the Explanation to Clause (i), Parliament intended to make it clear that, at the stage of quantification of penalty with reference to the amount of assessed tax, payments contemplated by the Explanation had to be adjusted. The object of inserting the Explanation in Clause (i) cannot obviously be treated to be one to assist and entitle a registered firm to ignore with impunity the provisions of Clause (a) of Sub-section (1) of Section 271 of the Act in the matter of filing a return which was one of the purposes of the Act.
41. In this view of the matter, our answer to the question referred to us in M.C.C. No. 43 of 1983 is that, on the facts and in the circumstances of the case and on a proper construction of Section 271(2) of the Act, the Tribunal was not correct in law in upholding the cancellation of penalty by the Appellate Assistant Commissioner under Section 271(1)(a) of the Act. Likewise, our answer to the question referred to us in M.C.C. No. 97 of 1983 is that, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was not correct in law in cancelling the penalty levied under Section 271(1)(a) of the Income-tax Act, 1961. In other words, the question referred to us in each of these two cases is answered in the negative, i.e., in favour of the Department and against the assessee.
42. Before parting with the case, we may point out that the Tribunal, in its order in making the reference in M.C.C. No. 97 of 1983, has pointed out asunder :
'However, the case has not been decided by the Appellate Assistant Commissioner on merits and if the reference application is decided against the assessee, an opportunity will have to be given to the assessee to argue on merits the issues raised before the Appellate Assistant Commissioner.'
43. The merits of the case shall, therefore, be decided in the instant case in the light of the observations already made by the Tribunal referred to above. In the circumstances of the case, there shall be no order as to costs.