1. These two appeals by the Department relating to the assessment years 1979-80 and 1981-82, arise out of proceedings for imposition of penalty under Section 271(1)(a) of the Income-tax Act, 1961.
2. The return of income was due on July 31, 1979, for the assessment year 1979-80 and was filed on October 23, 1983, and the delay was of 52 months. The return for the assessment year 1981-82 was due on July 31, 1981, and was filed on December 23, 1983, and the delay was of 27 months. It was submitted that there were disputes amongst partners and two of the partners had gone abroad and that the firm had to be dissolved and reconstituted and for all those reasons the return could not be filed within time. It was further submitted that 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. The Income-tax Officer did not accept this submission and imposed penalises. 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 appeals before the Commissioner of Income-tax (Appeals).
The Commissioner of Income-tax (Appeals) held that there Were disputes amongst the partners and that two of the partners had gone abroad and that there was sufficient cause for delay in filing the returns. The Commissioner of Income-tax (Appeals) 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 Commissioner of Income-tax (Appeals), the 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 appeal before us and the common ground raised is that the Commissioner of Income-tax (Appeals) erred in cancelling the penalties levied by the Income-tax Officer 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 Commissioner of Income-tax (Appeals) erred in holding that quarrels amongst partners constituted reasonable cause for delay in filing the returns.
3. We have heard the parties. As regards the question of disputes amongst partners, we find that the Commissioner of Income-tax (Appeals) has not recorded proper reasons in support of the said finding. He has merely stated that the assessee had given a reason to the effect that there were quarrels amongst partners. He has not examined the materials to indicate whether really there were such quarrels and those quarrels were sufficient for the delay in filing the returns. We find from the order of the Income-tax Officer for the assessment year 1979-80 that there was only a vague allegation about disputes amongst the partners in letter dated June 8, 1984. The facts were that there were seven partners at the initial stage and two of them retired on May 9, 1978, because of their non-participation in the business. Thereafter, the firm of five partners carried on the business and derived income from contract business and it was this firm of five partners which was required to furnish the return in time. No material has been placed on behalf of the assessee to indicate that these facts were not at all true. Consequently, we hold that there was no such dispute amongst partners as to constitute a reasonable cause for delay in filing the returns. The main reason which was agitated before the Income-tax Officer was that since the tax deducted at source was far in excess of the assessed tax, no penalty was leviable.
4. As regards the second question whether penalty could be levied for delay in filing the return in view of the fact that the tax deducted at source was far in excess of the tax payable by the assessee-firm in the status of a registered firm, we find that the registration has been duly granted to the assessee-firm. For the assessment year 1979-80, the tax deducted at source was Rs. 36,794 while, the tax payable by the assessee as a registered firm was only Rs. 14,581. Similarly, for the assessment year 1981-82, the tax deducted at source was Rs. 33,194 while the tax payable by the assesses as a registered firm was only Rs. 16,785. The initial order of the Income-tax Officer refusing to grant registration was set aside by the Commissioner of Income-tax (Appeals) and subsequently a fresh order has been passed by the Income-tax Officer granting registration to the assessee-firm. Since the tax deducted at source exceeded the tax payable by the assessee in the status of a registered firm, and since the excess tax has been allowed as refund, delay in filing the return would not attract penalty under Section 271(1)(a) of the Act. The provisions of Section 271(2) would not be applicable.
5. There is a 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 the 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 the 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 the return within time allowed by Sub-section (1) of Section 139, two consequences follow. One consequence is that the 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 and penalty spring from same fact, viz., delay in filing the return within time allowed under Section 139 of the Act. The provisions for calculation of interest under Section 139 of the Act are similar to the provisions for calculation of penalty under Section 271(1)(a) of the Act. According to Section 139 when there is delay in filing the return, the assessee is liable to pay interest at the prescribed rate for the specified period on the amount of tax payable on the total income as determined on regular assessment and as reduced by the advance tax, if any, paid and by any tax deducted at source. There is a further provision in the Explanation to Section 139(8) to the effect that where the assessee was a registered firm, the tax payable on the total income would be the amount of tax which would have been payable if the firm had been assessed as an unregistered firm. The question that arose before the Supreme Court was whether interest was payable under Section 139(8) by a registered firm for delay in filing the return when the tax payable by the assessee as a registered firm was nil in view of the fact that advance tax paid by the firm and tax deducted at source exceeded the tax payable on assessment by the firm. The Supreme Court answered the question in the negative and observed as follows (at page 230) : "Before we part with these appeals, we think we should clarify one situation, viz., where the advance tax duly paid covers the entire amount of tax assessed, there is no question of charging the registered firm with interest even though the return is filed by it beyond the time allowed, regard being had to the fact that payment of interest is only compensatory in nature. As the entire amount of tax is paid by way of advance tax, the question of payment of any compensation does not arise." 7. There could be no valid reason why the same principle should not be applied to the question of imposition of penalty when the facts on the basis of which penalty is to be levied are the same as the facts on the basis of which interest is to be charged under Section 139(8) and when the definition of "assessed tax" in the two provisions is identical and when the provisions regarding treatment of a registered firm as unregistered firm for the purpose of levy are also identical. The Supreme Court has pointed out that since the entire amount of tax had already been paid, the question of recovering any interest 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. The 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 the 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 the Rajas-than 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 is to be imposed on a registered firm under Section 271(1)(a) of the Act when tax payable by the registered firm on assessment as reduced by the advance tax and the tax deducted at source was nil. According to the Rajasthan High Court, those decisions in which the point was decided against the assessee. should be regarded as not to have been correctly decided in view of the Supreme Court decision referred to above in the case of Ganesh Dass Sreeram [1988] 169 ITR 221. The Rajasthan High Court referred to two decisions in which a view in favour of the Department had been taken, viz. : Jamunadas Mannlal v. CIT [1985] 152 ITR 261 (Patna) [FB] ; Jamunadas Mannalal v. CIT [1987] 164 ITR 66 (Patna). and pointed out that the reasons given in those decisions for coming to a conclusion in favour of the Department were contrary to the reasons given by the Supreme Court and as such those decisions could not be regarded as laying down the correct legal position.
10. After the decision of the Supreme Court in the case of Ganesh Dass Sreeram [1988] 169 ITR 221, we have two decisions of the Punjab and Haryana High Court in : 11. In the former decision, it was observed that all the decisions in which a view in favour of the Department had been taken on this point were all decided prior to the decision of the Supreme Court referred to above. It has been observed that the reasons given by the Supreme Court for deciding the question of liability for payment of interest under Section 139(8) of the Act would be fully applicable to the question of liability for penalty under Section 271(1)(a) read with Section 271(2) of the Act and that no penalty would be payable where the tax deducted at source and/or paid in advance was equal to or exceeded the assessed tax payable by a registered firm. Thus, the view of the Punjab and Haryana High Court is that after the decision of the Supreme Court the point in controversy is bound to be decided in favour of the assessee.
There is no decision of any High Court which has been rendered after the decision of the Supreme Court in which it has been held that even after the decision of the Supreme Court a view in favour of the Department could be taken. Consequently, we are bound to follow those decisions in which the abovementioned Supreme Court decision has been interpreted and hold that in view of the Supreme Court decision, the point in controversy was liable to be decided in favour of the assessee.
12. There are three decisions of the Bombay High Court which have all been rendered prior to the decision of the Supreme Court. They are : 13. As far as the decision in Janata Trading Co.'s case [1984] 150 ITR 676 (Bom) 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, the 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 the decision of the Supreme Court referred to above. This difference arises because of the fact that "assessed tax" has been defined in Section 271(1) as tax reduced by the sum deducted at source and paid in advance. The said definition does not refer to self-assessment tax. Consequently, the decision of the Bombay High Court in the case of Janata Trading Co.
[1984] 150 ITR 676 is distinguishable. It may be mentioned here that the Rajasthan High Court in Builders Engineers Co.'s case [1959] 175 ITR 317 has discussed the decision of the Bombay High Court and has distinguished it on the above basis. Consequently, the decision of the Bombay High Court in Janata Trading Co.'s case [1984] 150 ITR 676 is not relevant as far as the facts in the present case are concerned. As the other two decisions of the Bombay High Court are concerned, it is not clear whether the advance tax paid and tax deducted at source together exceeded the tax payable on assessment and for that reason the tax payable came to nil or whether the tax payable came to nil because of the self-assessment tax. As already stated, if the tax is reduced to nil because of self-assessment tax, the case would stand on different footing and the same would be liable to be decided against the assessee. Consequently, the Bombay High Court decisions would be distinguishable on the facts. In any case we would be bound by the subsequent decision of the Supreme Court referred to above as interpreted by the Rajasthan and Punjab and Haryana High Courts as discussed above. Both the High Courts have interpreted the decision of the Supreme Court in such a way that its ratio is made applicable to penalty under Section 271(1)(a) of the Act. If the ratio of the Supreme Court decision applies to penalty proceedings under Section 271(1)(a) of the Act as held by those High Courts, we are bound to follow the said decision of the Supreme Court in preference to the decision of any other High Court. No High Court has decided this point against the assessee after the decision of the Supreme Court referred to above and no High Court has held that the ratio of the Supreme Court decision does not apply to penalty under Section 271(1)(a) of the Act. All the decisions in which the view taken is that the point should be decided in favour of the Department are decisions which have been rendered prior to the decision of the Supreme Court referred to above.
14. One of the arguments, on behalf of the Department, was that the Supreme Court has observed in the said decision that interest was compensatory and because of this nature of interest the point 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 [1988] 169 ITR 221 should be applied in penalty proceeding 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, penalty would not be leviable. Consequently, the order of the Commissioner of Income-tax (Appeals) cancelling the penalty is confirmed and the Departmental appeals are dismissed.
15. I have gone through the order passed by my learned brother, but I am unable to agree with the reasons given and the conclusion arrived at, except to the limited extent that there is no reasonable cause for the delay in filing the return of income. The views canvassed, namely, since there is excess tax deducted at source and consequently no tax is payable as a registered firm, the delay in filing the return could not attract penalty and the provisions of Section 271(2) could not apply, are not, in my humble opinion, correct. These views are relevant only for the purpose of computation of penalty.
16. In the case of CIT v. Govindram and Co. [1987] 168 ITR 613, the Bombay High Court held that Sub-section (2) of Section 271 is applicable to a firm found to be liable to penalty under Sub-section (1) when it satisfies the requirements of one or the other of Clauses (a) to (c) of Subsection (1). In other words, the firm becomes liable to penalty only on the commission of any of the defaults mentioned in Sub-section (1). This position is also clear from the judgment of the Supreme Court in the case of CIT v. S.V. Angidi Chettiar [1962] 44 ITR 739. The Bombay High Court also held in the aforesaid case that penalty, if imposed on that firm, must then be calculated on the basis 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. Thus, the ratio of the Bombay High Court in the case of Govindram and Co. [1987] 168 ITR 613 is squarely applicable to the present case and is contrary to the views expressed by my learned brother.
17. The Bombay High Court has relied on the judgment of the Calcutta High Court in the case of CIT v. Priya Gopal Bislioyee [1981] 127 ITR 778. The Calcutta High Court, inter alia, held that payment of the assessed tax on the basis of a registered firm would not exonerate the assessee from the imposition of penalty on the basis that it was an unregistered firm calculating the default for every month during which the default had continued. The question referred to the Bombay High Court was as under (at page 613 of 168 ITR) : " Whether, on the facts and in the circumstances of the 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 ?" 18. 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 case of CIT v. Janata Trading Co. [1984] 150 ITR 676 (Bom) and CIT v. N.G.K. Electrical Industries [1987] 163 ITR 513 (Bom).
19. In the case of CIT v. Janata Trading Co. [1984] 150 ITR 676 (Bom), the Income-tax Officer 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 a registered firm was nil, no penalty was imposable on the assessee. At the instance of the Commissioner of Income-tax, the following two questions were referred to the High Court, viz., (at page 676) : "(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 Act, 1961, to be based was not the amount of tax assessed on it as on an unregistered firm, but the net amount of tax, if any, payable by it as a registered firm (2) Whether, on the facts and circumstances of the case, the Tribunal was justified in holding that since the tax payable by the assessee-firm as a registered firm was 'nil' no penalty was at all imposable on the said defaulter assessee-firm under Section 271(1)(a)(i) and that the question of invoking Section 271(2) for that purpose did not arise and in cancelling the penalty of Rs. 12,935 imposed on the assessee-firm as per the Appellate Assistant Commissioner's order ?" 20. Briefly question No. 1 was concerned with the basis of computation of tax whether as an unregistered firm or as a registered firm.
Question No. 2 was, whether penalty was imposable if the tax payable as registered firm was nil and the fiction would be attracted or not. Both the questions were answered by the Bombay High Court in the negative and in favour of the Revenue. Therefore, the judgment of the Bombay High Court in the case of Janata Trading Co. [1984] 150 ITR 676 is squarely applicable in the present case.
21. In the latter case of CIT v. N.G.K. Electrical Industries [1987] 163 ITR 513 (Bom), the second question referred in the case of Janata Trading Co. [1984] 150 ITR 676 (Bom) was referred and it was answered in the negative and in favour of the Revenue. The Bombay High Court held as under (headnote) : "The earlier part of Sub-section (1) of Section 271 of the Income-tax Act, 1961, provides as to when a penalty may be levied ; the latter part, as to how it must be calculated. Sub-section (2) of Section 271 makes a special provision regarding registered firms.
Sub-section (2) is applicable to a firm found to be liable to penalty under Sub-section (1), because it satisfies the requirements of one or the other of Clauses (a) to (c) of Sub-section (1).
Penalty, if imposed on that firm, must then be calculated on the basis that it is an unregistered firm. It is not correct to say 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." 22. Thus, the aforesaid judgments of the Bombay High Court apply in all force to the case of the assessee and, therefore, penalty is warranted and justified.
23. The Supreme Court in the case of CIT v. S.V. Angidi Chettiar [1962] 44 ITR 739 while considering the imposition of penalty on a registered firm after dissolution, inter alia, held that if a registered firm committed any of the defaults contemplated by Clauses (a), (b) or (c) of Section 28 of the Indian 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.
24. The Supreme Court in the case of Jain Brothers 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 the 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." 25. From the aforesaid observation of the Supreme Court, it is clear that when once the registered firm committed a default attracting penalty, it should be treated as an unregistered firm for the purpose of penalty. In other words, the legal fiction contained in Section 271(2) would be applicable, a principle which has been approved by the Supreme Court itself. In fact, the fiction under Section 271(2) was indirectly under challenge before the Supreme Court as a discriminatory provision in terms of article 14 of the Constitution. The penalty for delay in filing the return of income was not to exceed 50 per cent, of the tax payable by the defaulters whereas in the case of the registered firm which is treated as unregistered firm by invoking the fiction under Section 271(2), penalty would exceed the maximum limit of 50 per cent, prescribed and, therefore, constituted discrimination under article 14 of the Constitution. After 1956, the registered firm has to pay tax at a special reduced rate. The partners of the registered firm were entitled to certain benefits and advantages. It is only in this context the Supreme Court ruled that there was no discrimination under Article 14 when a registered firm was treated as an unregistered firm in the event of committing default under Section 28.
26. My learned brother has also relied on the ratio of the Supreme Court in the case of Ganesh Dass Sreeram v. ITO [1988] 169 ITR 221 and also of the order of the Tribunal, Delhi Bench, in the case of Luxmi Cutpiece Bhandar v. ITO [1989] 31 ITD 421. The Supreme Court in the case of Ganesh Dass Sreeram [1988] 169 ITR 221 held that interest under Section 139(1), proviso (iii), is levied by way of compensation for the late filing of return and not by way of penalty. It also held that where the advance tax paid covers the entire amount of tax assessed, there was no question of charging the registered firm with interest even though the return is filed beyond the time-limit allowed. There is no dispute about the applicability of the ratio of interest so far as a registered firm is concerned in the context of the assessed tax being covered by advance tax paid. This judgment could not be applied, ipso facto, for levy of penalty under Section 271(1)(a) only on the ground that the provisions of Section 271(1)(a) are in pari materia with the provisions of Section 139(8) of the Income-tax Act, 1961. Firstly, there are material differences between these sections which are not necessary to be elaborated. While levy of interest is automatic subject to waiver or reduction by the Income-tax Officer in special circumstances, levy of penalty is discretionary depending upon the reasonable cause adduced. Secondly, the Supreme Court in the case of Jain Brothers [1970] 77 ITR 107 held as under (at page 108) : "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." 27. Therefore, the conclusion arising from the judgment of the Supreme Court in the case of Ganesh Dass Sreeram [1988] 169 ITR 221 and the order of the Delhi Bench of the Tribunal in Luxmi Cutpiece Bhandar v.ITO [1989] 31 ITD 421, 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 CIT v. Builders Engineers Co. [1989] 175 ITR 317 has interpreted the judgment of the Supreme Court as applicable to penalty in the case of a registered firm is 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, CIT v. Janata Trading Co. [1984] 150 ITR 676 ; CIT v. N.G.K. Electrical Industries [1987] 163 ITR 513 and CIT v. Govindram and Co. [1987] 168 ITR 613 are directly on the issue and are binding on the judicial authorities functioning under the territorial jurisdiction of the Bombay High Court. Those judgments do not turn on the trifle facts of claim of deduction of self-assessment tax or provisional assessment tax, but rest on direct answers given on specific questions referred to it for decision.
Further the contention of the assessee that the fiction under Section 271(2) containing the non obstante clause would override all the provisions of the Act and not the provisions of Section 271(1) has no merit and has to be simply stated to be rejected as untenable, because the legal fiction would become redundant or otiose if it is not linked with Section 271(1), but with other provisions which are not relevant.
The legal fiction has to be taken to its logical conclusion, vide decision of the Gujarat High Court in the case of CIT v. Danji Bhai and Brothers.
28. The conclusion drawn by my learned brother is not acceptable for it would lead to unintended classification of individual cases of registered firms from the generality of the registered firms. While the classification of registered firms as a separate category vis-a-vis unregistered firms is held to be non-discriminatory in terms of article 14 of the Constitution, I am afraid, the conclusion drawn by my learned Brother would lead to Sub-classification among the registered firms as a category and offend article 14 of the Constitution. The instance of a particular or individual registered firm which happens to pay just the amount of tax payable by it or one rupee more either by way of advance tax or by way of tax deducted at source would stand in an advantageous position compared to a registered firm which has paid a rupee less by way of advance tax or tax deducted at source against the tax payable by it as a registered firm. This is by way of illustration of the idea behind it. The decision would also lead to avoidance of penalty by deliberately paying greater amount of advance tax or tax deducted at source with reference to income admitted and thus open the flood-gate of the Revenue. Thus, it would also lead to a Sub-classification of individual registered firms, vis-a-vis, the general category of registered firms and would be liable to be struck down as discriminatory under article 14 of the Constitution.
29. 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 Commissioner of Income-tax (Appeals) is set aside and reversed and that of the Income-tax Officer is restored.
31. 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 the Income-tax Officer under Section 271(1)(a) of the Income-tax Act, 1961, is liable to be cancelled or liable to be confirmed ?" 32. Therefore, the case is referred to the President, Income-tax Appellate Tribunal, for being assigned to a Third Member in terms of Section 255(4) of the Income-tax Act, 1961.
33. 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.
34. For the assessment years 1979-80 and 1981-82, the penalty under Section 271(1)(a) of the Act for the failure to file the returns of income in time was imposed respectively at Rs. 14,957 and Rs. 13,168.
For the assessment year 1979-80, the return of income was due on July 31, 1979, which was, however, filed by the assessee on December 23, 1983, which resulted in the delay of 52 months. Similarly, the return for the assessment year 1981-82 was due on July 31, 1981, and was filed on December 23, 1983, causing the delay of 27 months. The Assessing Officer was of the view that there was no reasonable cause for the failure to furnish the returns of income in time. He, accordingly, levied the penalty as stated above. The penalties were, however, cancelled by the Commissioner of Income-tax (Appeals).
35. On further appeal to the Tribunal, it was submitted that there were disputes amongst the partners and two of the partners had gone abroad and that the firm had to be dissolved and reconstituted and for all those reasons the returns could not be filed within the time, It was further submitted 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. It was also pointed out that for the assessment year 1979-80, the tax deducted at source was Rs. 36,794 while the tax payable by the assessee as a registered firm was only Rs. 14,581.
Similarly, for the assessment year 1981-82, the tax deducted at source was Rs. 33,194 while the tax payable by the assessee as a registered firm was only Rs. 16,785. The assessee thus pleaded before the Tribunal that on both the counts, the penalty under Section 271(1)(a) was not leviable.
36. The Tribunal's order was proposed by the learned Judicial Member.
After examining the facts of the case, he was of the view that there was no evidence of any dispute amongst the partners so as to constitute a reasonable cause for the delay in filing the returns. The first contention of the assessee was thus rejected by the learned Judicial Member. He, however, further examined the issue with reference to the tax deducted at source. He found that on completion of assessment, there was no tax payable by the registered firm. As a matter of fact, the assessments had resulted in refunds. In the opinion of the learned Judicial Member, the assessee was not liable to penalty under Section 271(1)(a) of the Act. In this regard, he placed reliance on the decision of the Supreme Court in the case of Ganesh Dass Sreeram v. ITO [1988] 169 ITR 221. 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 the 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 [1988] 169 ITR 221, 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 of 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 Commissioner of Income-tax (Appeals).
37. The learned Accountant Member, however, did not wholly agree with the proposed order of the learned Judicial Member. He, however, concurred with the learned Judicial Member that there was no dispute amongst the partners and, therefore, it could not be taken as a reasonable ground for the delay in furnishing the returns of income.
However, on the other aspect, he dissented from the order of the learned Judicial Member. He was of the view that for the purpose of penalty under Section 271(1)(a) of the Act, Sub-section (2) of Section 271 has to be taken into account. For Sub-section (2) of Section 271 for the purpose of penalty, a registered firm or an unregistered firm which has been assessed under Clause (b) of Section 183 has to be treated as an unregistered firm. He was also of the view that the Supreme Court decision in the case of Ganesh Dass Sreeram [1988] 169 ITR 221 was not applicable as the said decision was only with reference to interest under Section 139 and not the penalty under Section 271(1)(a) of the Act. The learned Accountant Member also drew strength from the decision of the Bombay High Court in the case of CIT v.Govindram and Co. [1987] 168 ITR 613. In his view, the fiction created by Sub-section (2) of Section 271 has to be applied and a registered firm or an unregistered firm assessed under Section 183(b) has to be treated as an unregistered firm for the purpose of penalty under Section 271 of the Act. He, therefore, for the reasons recorded by him in his dissenting order set aside and reversed the order of the Commissioner of Income-tax (Appeals).
38. On these facts and discussions, the following reference under Section 255(4) of the Act has been made to me, viz. : "Whether, on the facts and in the circumstances of the case and in law, the penalty imposed by the Income-tax Officer under Section 271(1)(a) of the Income-tax Act, 1961, is liable to be cancelled or liable to be confirmed ?" 39. The learned Senior Departmental Representative, Dr. Sunil Pathak, who opened the arguments on behalf of the Revenue took me through the provisions of Section 271 of the Act. He pointed out that the earlier part of Sub-section (1) of Section 271 of the Income-tax Act, 1961, lays down when penalty may be levied and the latter part,, as to how it must be calculated. Sub-section.(2) of Section 271 makes a special provision regarding registered firms. Sub-section (2) is applicable to a firm found to be liable to penalty under Sub-section (1) when it satisfies the requirements of one or the other of the Clauses (a) to (c) of Sub-section (1). Penalty, if imposed on that firm, must then be calculated on the basis 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 : 40. The learned Departmental Representative also discussed at length the decision of the Supreme Court in the case of Ganesh Dass Sreeram [1988] 169 ITR 221. 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 learned Departmental Representative also drew our attention to the decision of the Bombay Bench of the Tribunal in the case of Charbhuja Metal Corpn. v. Thirteenth ITO [1991] 39 ITD 102 and pointed out that the Tribunal had also taken into account the decision of the Supreme Court in the case of Ganesh Dass Sreeram [1988] 169 ITR 221 and yet came to the conclusion that even if the assessed tax is nil in the case of the registered firm, the penalty under Section 271(1)(a) would be imposed by quantifying the penalty with reference to Sub-section (2) of Section 271 of the Act. He also pointed out that the Pune Bench of the Tribunal in the case of C.M. Sonwane v. ITO, "B" Ward, Nanded, in Income-tax Applications Nos. 2326 to 2328/(PN) of 1987 dated March 15, 1995, had also examined the issue with reference to the Supreme Court decision in the case of Ganesh Dass Sreeram [1988] 169 ITR 221. The learned Departmental Representative, thus, supported the decision of the learned Accountant Member.
41. Dr. R.L. Butani, learned counsel for the assessee, on the other hand, assailed the finding of the learned Accountant Member. He pointed out that the learned Judicial Member had properly appreciated the facts of the case and law and had rightly come to the conclusion that in a case where the tax paid in advance or tax deducted at source far exceeded the tax assessed in the case of a registered firm, no penalty under Section 271(1)(a) was imposable. Learned counsel extensively quoted from the decision of the Supreme Court in the case of Ganesh Dass Sreeram [1988] 169 ITR 221 and pointed out that the provisions of Section 139 for levy of interest and Section 271 for levy of penalty were in pari materia. It is evident that there is no material difference between Section 139(8) and Section 271(1)(a) of the Act except that the interest under Section 139(8) is chargeable where there is a default whereas under Section 271(1)(a) of the Act, it is open to the assessee to show reasonable cause for the delay and if the authorities are satisfied about the reasonable cause penalty would not be attracted. He further pointed out that Section 271(2) does not override the provisions of Section 271(1)(a)(i). A person committing default under Clause (a) of Section 271(1) being a registered firm does not fall automatically under Sub-section (2) of Section 271. Section 271(1) does not exclude registered firms, but incorporates all persons.
One cannot over step the relevant Sub-section (1) and 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 [1988] 169 ITR 221 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 not be treated as an unregistered firm in that case even under Section 271(1)(a). Learned counsel also drew our attention to the decision of the Andhra Pradesh High Court in the case of P. Venkata Krishnayya Naidu and Sons 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 special leave petition in this case as reported in [1991] 189 ITR (St.) 117. To buttress his arguments that no penalty under Section 271(1)(a) is leviable on the registered firm, where the assessed tax is nil, learned counsel has placed reliance on the following judgments : 42. Learned counsel continued and pointed out that there was a reasonable cause for the delay in furnishing the returns of income. The issue by the Tribunal should have been decided on that basis alone. He further pointed out that the legal issue under Section 271(2) was not dealt with by the learned Judicial Member. The learned Accountant Member, therefore, had no warrant to deal with Sub-section (2) of Section 271. Since both the Members have not dealt with Section 271(2), the matter may be restored back to the Tribunal. In this regard, he has drawn our attention to the decision of the Punjab and Haryana High Court in the case of CIT v. Bhai Shamsher Singh and Sons [1989] 179 ITR 43. Learned counsel has also dealt at length with the decisions of the Bombay High Court in the cases of N. G. K. Electrical Industries [1987] 163 ITR 513 and Janata Trading Co. [1984] 150 ITR 676. He pointed out that these decisions were rendered by the High Court following the decision of the Calcutta High Court in the case of CIT v. Priya Gopal Bishoyee [ 1981] 12 7 ITR 778. The said decision of the Calcutta High Court was again considered by the Calcutta High Court itself in the case of CIT v. Deepak Trading Co. [1994] 208 ITR 304. The Calcutta High Court itself distinguished its own decision in the case of Priya Gopal Bishoyee [1981] 127 ITR 778. Moreover, the Bombay High Court decisions relied on by the learned Departmental Representative are distinguishable on facts. In those decisions of the Bombay High Court, there was some tax due, 'but in the case of the assessee, there was no tax due and, therefore, the ratio of these decisions cannot be applied to the facts of the assessee's case. The learned Accountant Member, therefore, was in error in placing reliance on the aforesaid decisions.
44. Finally, learned counsel pleaded that there is some ambiguity in the language of Section 271(1) read with Section 271(2). In case of ambiguity, the view favourable to the assessee 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. Learned counsel thus concluded his arguments strongly supporting the reasonings of the learned Judicial Member.
45. In reply, the learned Senior Departmental Representative contended that the powers of the Third Member are limited to the dispute as per the reference under Section 255(4) of the Act. The judicial decisions now relied on by 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.
46. I have heard the parties to the dispute in the light of the 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 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." 47. As it is apparent from the provisions of Sub-section (2) of Section 271 a fiction has been created to treat the registered firm as an unregistered firm for the purpose of penalty under Section 271(1)(a), (b) and (c). This fiction is not new to the Income-tax Act, 1961, only.
This fiction was in existence under proviso (d) to Section 28(1) of the 1922 Act where the person liable to penalty was a registered firm or an unregistered firm treated under Section 23(5)(b) as a registered firm, then, for the purpose of supplying the base for the determination of the quantum of penalty the amount of income-tax and super tax as payable by an unregistered firm on an income equal to the registered firm's total income was adopted. The corresponding Section 271(2) of the 1961 Act provides that in such cases, the penalty imposable shall be the same amount as would be imposable on that firm if the firm were an unregistered firm. The fiction under Section 271(2) is thus different from the fiction of the 1922 Act. The legal fiction created by the 1961 Act has gone one step further. Here, the firm, for ascertainment of the total income and not only for the purpose of calculation of tax, is to be deemed as an unregistered firm. Thus, the total income assessed on the registered firm has, if necessary, to be reprocessed with the assumption that the registered firm was an unregistered firm. Tax is then to be calculated on such reprocessed total income and the quantum of penalty is to be based on that amount.
Thus, penal liability contemplated by Section 271(2) falls within any of the Clauses (a), (b) or (c) of Section 271(1). The moment it is found that any one of these three defaults are committed by a registered firm, it becomes liable to penalty. The main object of Section 271(1) is to see that correct returns are filed within the stipulated time and that necessary particulars are revealed. Once it is found that a registered firm has rendered itself liable to penalty, then under the deeming fiction of Section 271(2), the firm is to be treated as an unregistered firm for all matters relating to penalty.
Even if the firm as a registered firm might not have been liable to pay tax due to the high ceiling fixed 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.
48. The decisions of the Supreme Court and the jurisdictional High Court are binding. Decisions of 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 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 an unregistered firm and the penalty has to be quantified as per the fiction laid down under Sub-section (2) of Section 271 of the Act. I am, therefore, of the considered view that the learned Accountant Member was very much within his legal rights to follow the decisions of the Bombay High Court. I have given anxious thought to the decision of the Supreme Court in the case of Ganesh Dass Sreeram [1988] 169 ITR 221. In my considered view, the said decision is inapplicable to the penalty matters under Section 271 of the Act. The interest on the delayed return is compensatory in nature while the penalty proceedings are penal and have been enacted to punish the assessee for the failure to file the return in time. In my view, therefore, the provisions of Sections 139 and 271 are not pari materia and, hence the decision of the Supreme Court does not support the case of the assessee. It may also be mentioned that the decision of the Supreme Court in Ganesh Dass Sreeram's case [1988] 169 ITR 221 was considered by the Madhya Pradesh High Court in the case of Kaluram Ladharam v. CIT [1990] 184 ITR 294.
Even after considering the said decision, the High Court has held that in order to calculate the penalty the tax payable by a registered firm has to be determined on the basis that the assessee is an unregistered firm and the penalty has to be calculated on the tax so determined. The Supreme Court decision has also been taken into account by the Tribunal in the case of Charbhnja Metal Corporation [1991] 39 ITD 102 (Bom).
After considering the Supreme Court decision, the Tribunal has followed the decision of the Bombay High Court in the case of Govindram and Co.
[1987] 168 ITR 613. The Pune Bench of the Tribunal in the case of C. M.Sonwane (supra), has also considered the decision of the Supreme Court and had come to the conclusion that the said decision was inapplicable to the penalty provisions under Section 271 of the Act. I am, therefore, of the considered view that the view taken by the learned Accountant Member is correct on facts and in law. I, therefore, agree with the order of the learned Accountant Member.
49. In my view, the issue need not be referred to the Tribunal again.
Both the learned Judicial Member and the learned Accountant Member have considered Sub-section (2) of Section 271 of the Act. The learned Judicial Member was of the view that the tax paid or deducted at source was far in excess than the assessed tax. For coming to this conclusion, the learned Judicial Member had the provisions of Section 271(2) in mind. It, therefore, cannot be said that the said provisions were not considered by him. I, therefore, find no merit in the contention of learned counsel.
50. In these circumstances, the matter may now be placed before the Bench for appropriate action. I order accordingly.