1. In this revenue appeal, the solitary ground is against the cancellation of penalty of Rs. 2,550 levied by the ITO under Section 271(1)(a) of the Income-tax Act, 1961 ('the Act') in respect of the assessment year 1977-78.
2. The respondent filed its return of income on 7-10-1977, though in normal course, it should have been filed on or before 30-6-1977. In the penalty proceeding initiated for late riling, it was explained that the asses-see was a registered firm and that its finally assessed income amounted to Rs. 1,63,840, on which in the status of registered firm, the tax worked out to Rs. 27,583, against which tax deducted at source under Section 194C of the Act was to the tune of Rs. 54,598 and, therefore, there could be no question of levying any penalty which could be in relation to tax levied on assessment. The assessee further pleaded that no extension application was filed, being under the bonafide belief that the tax deducted at source was much more than the tax due. The ITO, however, brushed aside the assessee's pleadings and objections and levied a penalty of Rs. 2,550 by treating the firm as unregistered and after adjusting the entire tax deducted at source by referring to the provision of Section 271(2).
3. The first appellate authority cancelled the penalty by accepting the plea that the tax required to be paid by the assessee in the ordinary course being tax paid on the registered firm and actually refund having been given after adjusting the tax levied from the tax deducted at source, there could be no question of even computing any penalty.
4. Before us for the revenue, Shri P.K. Sridharan very strongly contended that the AAC wrongly cancelled the penalty. He argued that for the purpose of computing penalty for late filing, the firm had to be treated as unregistered and since on that basis tax worked out was admittedly more than the tax deducted at source, there was a positive liability to which the penalty could be related and worked out. Shri Sridharan next argued that the concept of a registered firm must necessarily be ignored for the purpose of levying penalty under Section 271(1)(a) in view of the provision of Section 271(2). For his case, Shri Sridharan referred us to the following mentioned judgments : CIT v. R. Ochhavlal & Co. [1976] 105 ITR 518 (Guj.), Nepoli Restaurant v. CIT [1979] 117 ITR 828 (Kar.), CIT v. Kandaswami Wvg.
Factory & Co. [1977] 110 ITR 84 (Mad.), K.R. Velayudha Mudaliar & Sons v. Addl. CIT [1977] 110 ITR 381 (Mad.), Seetharama Lakshmi Rice & Groundnut Oil Mill Contractors Co. v. ITO [1978] 111 ITR 212 (AP) and CIT v. Rowther Bros. [1979] 119 ITR 353 (Ker.).
5. For the respondent, Shri G.R. Agnihotri relied on three judgments two of the Hon'ble Gauhati High Court and the third of the Hon'ble Andhra Pradesh High Court-- CIT v. Maskara Tea Estate [1981] 130 ITR 955 (Gauhati), CIT v. Ganesh Das Sreeram (Firm) [1983] 141 ITR 946 (Gauhati) and P. Venkata Krishnayya Naidu & Sons v. CIT [1984] 19 Taxman 369 (AP).
Shri Agnihotri very strongly pleaded that though different High Courts have taken different approaches but in a situation like the one before us, the AAC's decision must be upheld, because it is the taxpayer which must be given the benefits of judgments of the Hon'ble Gauhati High Court and the Andhra Pradesh High Court in preference to the view taken by the other High Courts, there being no judicial pronouncements of the Hon'ble Supreme Court.
6. We have perused the judgments cited on behalf of the parties. There are clearly two lines of thinking. One, that once a default is said to have been committed of late filing, the first step would be to treat the firm as an unregistered entity, compute the tax on the same then look at the aspect of there being any tax having already been paid. The other thinking is that if no tax is said to be payable on completion of assessment, the question of levying any penalty does not arise and, therefore, the revenue should not involve itself with the process of computation of penalty at all. Though Shri Sridharan is correct that majority of judgments are in favour of the view taken by the revenue, but it must be borne in mind and kept in close focus that tax litigation is not between two subjects of the State, but between the State and a subject. Therefore, though the very foundation of a taxing statute is to require a subject to pay his taxes and in this regard frivolous technicalities should not be allowed to take advantage but when question of levy of penalty can be said to be fairly debatable, advantage of a favourable view, even taken by a minority of the High Courts, must be given to the subject. On such view of the matter, we are inclined to follow the view taken by the Hon'ble Gauhati High Court, as also the Hon'ble Andhra Pradesh High Court. Since tax deducted at source in the present case far exceeded the tax worked out on the assessed income, there was no question of computing any penalty, which could be in relation to tax levied. Therefore, we see no merit in this revenue appeal. It is dismissed.
1. I have perused the order of the learned Judicial Member, but I regret that I cannot concur with his views expressed.
2. Penalty under Section 271(1)(a) has to be imposed if there is no reasonable cause for the delay in the filing of the return by the assessee. In the present case, the AAC has not held that there was a reasonable cause and the penalty has been cancelled only on the ground that the advance tax by the registered firm was more than the tax found payable on the completion of the assessment.
3. As noted in the order of the Judicial Member, there is definitely a difference of judicial opinion on the issue whether in such a case, where there is no reasonable cause for not filing the return, penalty can be imposed on a registered firm even if the tax paid in the case of a registered firm is more than the tax found payable. The decisions are also indicated in the order of the learned Judicial Member. I am of the view that the language of law is clear and it is clearly laid down that where a penalty is imposable on a registered firm, the calculation of penalty has to be on the basis of that it is an unregistered firm. This provision of law is not held to be bad in law and, therefore, once it is found that there is no reasonable cause for the filing of the return, one has to proceed to calculate the penalty imposable on the basis that the assessee was an unregistered firm. Taking any other view would be ignoring a particular provision of law.
4. While there are contrary decisions of the High Courts, I would refer to the decision of the Supreme Court in the case of CIT v. S.V. Angidi Chettiar [1962] 44 ITR 739, where similar question was considered with reference to the provision under the Indian Income-tax Act, 1922 ('the 1922 Act'). The Supreme Court observed as under : ...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 the person against whom the penalty is sought to be imposed is therefore not a condition precedent.
This observation of the Supreme Court has been strongly relied upon by the Gujarat High Court in the case of R. Ochhavlal & Co. (supra).
5. It may be mentioned that the other view is that where the tax paid in advance is more than the tax payable, no penalty under Section 271(1)(a) can be imposed may lead to various anomalies. To take an example, where an assessee pays tax of Rs. 5,000 and the tax payable is found to be less by one rupee, no penalty can be imposed in spite of the fact that there was no reasonable cause for the delay in the filing of the return. On the other hand, where the tax payable is found to be more than the tax paid in advance, the penalty under Section 271(1)(a) would become leviable on the 0basis of that the firm was an unregistered firm. There does not appear to be any warrant for this type of anomaly under the law and the language of the law is clear. I would, therefore, hold that the view expressed by the various High Courts as enumerated in paragraph No. 4 of the order of the learned Judicial Member is more reasonable and it should be followed. In view of this, I set aside the order of the AAC and hold that penalty under Section 271(1)(a) should be imposed but the penalty on the basis of its being unregistered firm (sic).
REFERENCE TO A THIRD MEMBER UNDER SECTION 255(4) OF THE Income-tax ACT, 1961 1. We have differed in the above case. We proceed to state the point on which we have differed and refer the matter to the President, the Tribunal for getting the matter heard by one or more of the other members of the Tribunal. The point of difference is as follows : Whether on the facts of the case and having regard to the provisions of Section 271(2), penalty under Section 271(1)(a) could be imposed on the assessee-firm when the tax paid as a registered firm was more than the tax payable by the firm 1. The point of difference between the learned members, who heard this appeal originally, has been stated as under : Whether on the facts of the case and having regard to the provisions of Section 271 (2), penalty under Section 271(1)(a) could be imposed on the assessee-firm when the tax paid as a registered firm was more than the tax payable by the firm Both the learned Members agree that the assessee has failed to file its return of income for the assessment year 1977-78 in time and has, thus, committed a default in terms of Section 271(1)(a) without reasonable cause. They also agree that independent of Sub-section (2) of Section 271, no penalty is leviable on the assessee under Section 271(1)(a)(i) as 'assessed tax on the basis of which penalty is to be imposed is a minus figures.' The question that has arisen for consideration is about the impact of the provisions of Sub-section (2) of Section 271, which lays down that when the person liable to penalty is a registered firm, then notwithstanding anything contained in Sub-section (1), the penalty imposable under Sub-section (1) shall be the same amount as would be imposable on the firm as if it is an unregistered firm. In other words, the difference between the learned Members is as to the purport and scope of Sub-section (2) of Section 271.
2. I have heard the parties at langth. They have mainly relied on the orders of the learned Accountant Member and the Judicial Member, respectively. In particular, the departmental representative invited my attention to the observations of the Supreme Court at page 299 of its decision in the case of CIT v. B.C. Srinivasa Setty [1981] 128 ITR 294 to the effect that the charging section and the computation provisions together constitute an integral part. He urged that Section 271(1)(a)(i) has to be read along with Sub-section (2) of Section 271 for the purpose of deciding whether the assessee-firm is liable to penalty or not. The counsel for the assessee on the other hand, stated that the conditions precedent for the application of Section 271(2) is that the person liable to penalty is a registered firm. For the purpose of deciding whether that condition is satisfied or not, recourse cannot be taken to the provisions of Sub-section (2).
3. In order to appreciate the rival contentions, it is desirable to refer to the provisions of Section 271(2), which read 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.
It is evident that Section 271(2) is not applicable to all the assessees. It is applicable to only those assessees who are liable to penalty and are assessed as registered firm. The first question that requires consideration, therefore, is whether the assessee, who has admittedly been assessed as a registered firm is liable to penalty. On the face of it, I am in agreement with the counsel for the assessee that for the purpose of deciding whether this condition is satisfied or not, it may not be proper to apply the provisions of Sub-section (2) itself. To my mind, the proper course would be to ascertain independent of Sub-section (2) whether the assessee-firm is liable to penalty. For this purpose, we have to consider the provisions of Section 271(1)(a) and 271(1)(a)(i) along with the Explanation thereto. Clause (a) provides for the default. Sub-clause (i) provides the consequences of the default. While so providing, it contemplates imposition of penalty equal to 2 per cent of the 'assessed tax for every month during which the default continued'. The expression 'assessed tax' has been defined in the Explanation to mean the tax as reduced by the sum, if any, deducted at source or paid in advance. There is no dispute that in the case before me, the assessed tax as defined in the Explanation is a minus figure and 2 per cent of minus figure for every month during which the default continued will also be a minus figure. Thus, the assessee though is in default in terms of Section 271(1)(a) without reasonable cause, is not liable to penalty under Section 271(1)(a)(i).
In this view of the matter, I am inclined to hold that the condition for application of Section 271(2) is not satisfied and, therefore, Section 271(2) cannot be switched into service.
4. No doubt, there are decisions which on the face of it give the impression that Section 271(2) can be relied upon even for the purpose of deciding whether the assessee-firm is liable to penalty. However, there are also decisions where contrary view has been taken. The Supreme Court decision relied upon by the learned Accountant Member in the case of S.V. Angidi Chettiar (supra), according to me, is not applicable inasmuch as, after the said decision the relevant provisions have undergone material change. In contradistinction with the expression 'any tax' used under the 1922 Act, the expression 'assessed tax' has been used in Section 271(1)(a)(i) of the 1961 Act and this expression has been defined in the Explanation. Having regard to the fact that the High Courts have taken conflicting views on the issue, it will only be proper for me to say that both views are reasonably possible. If that be so, I think 1 am bound by the Supreme Court decision in the case of CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 wherein it has been held0 that in a case where two views are reasonably possible, the Court should take the view in favour of the assessee. In this view of the matter, I am inclined to agree with the learned Judicial Member and hold that the penalty under Section 271(1)(a)(i) cannot be imposed on the assessee-firm. The case will now go back to the Bench for deciding the appeal according to the majority view.