Rajasthan H.C : No penalty under s. 271(1)(a) of the IT Act, 1961, is leviable in this case on the assessee, a registered firm, because it has no tax liability within the meaning of sub-cl. (b) r/w the Explanation to cl. (i) of s. 271(1)(a)

Counsel Appeared

B.R. Arora, for the Revenue : D.S. Shishodia, for the Assessee

VERMA, C. J. :

This is a reference under s. 256(1) of the IT Act, 1961 (“the Act”), at the instance of the Revenue to decide the following question of law, namely :

“Whether, on the facts and in the circumstances of the case, the Tribunal was tight in law in holding that no penalty under s. 271(1)(a) of the IT Act, 1961, is leviable in this case on the assessee, a registered firm, because it has no tax liability within the meaning of sub-cl. (b) r/w the Explanation to cl. (i) of s. 271(1)(a) of the IT Act, 1961 ?”

The relevant assessment year is 1978-79. The assessee was a registered firm which was required to file the return on or before June 30, 1978. However, the assessee filed the return late on November 28, 1978. The ITO on completing the assessment determined the tax payable by the assessee at Rs. 25,000. However, the tax deducted at source amounted to Rs. 40,000 approximately with the result that the assessee became entitled to refund of a considerable amount which he had deposited in excess of the tax found payable by him. In spite of this situation, the ITO initiated penalty proceedings against the assessee on the ground of late filing of the return under s. 271(1)(a)(i)(b) r/w s. 139(1) of the Act. The ITO rejected the assessee’s contention that since there was no “assessed tax” according to its meaning given in the Explanation to sub-cl. (i)(b) of cl. (a) of sub-s. (1) of s. 271, because the tax deducted at source was in excess of the amount of tax found payable by the assessee, there was no question of levying any penalty. This contention of the assessee was, however, accepted by the CIT (A) in appeal and thereafter by the Tribunal in further appeal. Hence, this reference at the instance of the Revenue.

The real question for decision is, whether any penalty can be levied under s. 271(1)(a)(i)(b) in the case of failure to file return within the time allowed by sub-s. (1) of s. 139 even when it is found on completing the assessment that the tax deducted at source under Chapter XVII-B of the Act or paid in advance under Chapter XVII-C of the Act is equal to or in excess of the amount of tax found payable by the assessee. The relevant part of s. 271(1)(a)(i)(b) is a under : “271. Failure to furnish returns, comply with notices, concealment of income, etc.—If the ITO or the AAC, in the course of any proceedings under this Act, is satisfied that any person— (a) has without reasonable cause failed to furnish the return of total income which he was required to furnish under sub-s. (1) of s. 139 or by notice given under sub-s. (2) of s. 139 or s. 148 or has without reasonable cause failed to furnish it within the time allowed and in the manner required by sub-s. (1) of s. 139 or by such notice, as the case may be, or… he may direct that such person shall pay by way of penalty,— (i) in the cases referred in cl. (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 of paid in advance under Chapter XVII-C;”. Assuming that the above penalty provision is attracted even when the tax deducted at source or paid in advance is equal to or in excess of the amount of tax found payable on assessment in the event of failure to furnish the return of total income within the time allowed by sub-s. (1) of s. 139, the point is, whether, any penalty, in fact, can be levied according to this provision. The penalty which can be imposed according to this provision in addition to the amount of the tax, if any, payable is “a sum equal to two per cent of the assessed tax for every month during which the default continued”. The expression “assessed tax”, according to the Explanation, means “tax as reduced by the sum, if any, deducted at source under Chapter XVII-B or paid in advance under Chapter XVII-C”. The result of applying this formula to calculate the penalty in a case like the present one, where no amount of tax remained to be paid on completion of the assessment may now be seen to find out the tenability of the argument advanced on behalf of the Revenue. In such a situation, there is no amount of tax remaining due and, therefore, nothing is required to be paid as tax due. The penalty has to be calculated at a sum equal to two per cent. of the assessed tax for every month during which the default continued. The “assessed tax” in a case like this would be zero since the tax deducted at source or paid in advance was equal to or in excess of the total tax assessed. Since the tax due is nil and so also the “assessed tax” within the meaning of that expression, any figure multiplied by zero will also be zero. The result is that even if this provision is held to be attracted to a case like the present one, the amount of penalty would be zero according to the mode of calculating the penalty prescribed in it, and, therefore, in effect, no penalty can be levied. In our opinion, this logical consequence flowing from the provision itself is sufficient to indicate that no penalty can be levied under s. 271(1)(a)(i)(b) in a case like the present one where the tax deducted at source or paid in advance is equal to or in excess of the amount of tax found to be payable on completion of the assessment.

We may now refer to another consequence of failure to file the return within the time allowed under sub-s. (1) of s. 139 which is provided in sub-s. (8) of s. 139. According to sub-s. (8) of s. 139, in such a situation, the assessee is liable to pay simple interest at the prescribed rate for the specified period on the amount of tax payable on the total income as determined on regular assessment, as reduced by the advance tax, if any, paid and any tax deducted at source. a similar question arose about the liability of the assessee, a registered firm, to pay interest in accordance with sub-s. (8) of s. 139 on its failure to file the return within the time allowed under sub-s. (1) of s. 139. The Supreme Court in Ganesh Dass Sreeram vs. ITO (1987) 66 CTR (SC) 135:(1988) 169 ITR 221 (SC), held as follows : “Before we part with these appeals, we think we should clarify one situation, namely, 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. At the entire amount of tax is paid by way of advance tax, the question of payment of any compensation does not arise.”

6. We find no reason why the same principle should not be applied also to the question of imposition of penalty when the fact on which the penalty is to be levied are same which give rise to the liability for payment of interest and the expression used in sub-s. (8) of s. 139 for specifying the amount on which the interest is to be calculated is substantially the same as in sub-cl. (i)(b) of cl. (a) of sub-s. (1) of s. 271. 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. In our opinion, 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 on the “assessed tax” does not arise, because no tax is actually due.

7. Learned counsel for the Revenue placed reliance on sub-s. (2) of s. 271 to contend that a registered firm is to be treated as an unregistered firm when penalty is imposable on it under subs. (1) and, therefore, the tax liability of an unregistered firm being greater, there would be some tax due as a result of the registered firm being treated as an unregistered firm. It was urged that on this basis, it would be possible to hold that there is some tax due on which penalty can be calculated according to the above provision. We find it difficult to accept this contention and to use it for construing s. 271(1)(a)(i)(b) in the manner suggested by the Revenue. In the first place, sub- s. (2) of s. 271 is attracted for quantification of the penalty only when it is imposable under sub-s. (1). In that event the registered firm loses the benefit of registration and the penalty for which it has become liable has to be calculated depriving it of the benefit of registration and treating it as an unregistered firm. This does not mean that for the purpose of deciding the liability for penalty under sub-s. (1), effect has to be first given to sub-s. (2) of s. 271 in order to make the formula for calculating the penalty under sub-s. (1) workable. That apart, this argument based on sub-s. (2) of s. 271 can obviously be relied upon for construing sub-s. (1) thereof only when the assessee is a firm and not when the assessee belongs to any other category of “person” defined in s. 2(31) of the Act. It is obvious that the benefit of sub-s. (2) of s. 271 not being available in the case of an assessee other than a registered firm, the impracticability of imposing any penalty under s. 271(1)(a)(i)(b) in a case where the tax due is nil is not met by this argument. This is another reason to support the view that sub-s. (2) of s. 271 cannot be used in the manner suggested on behalf of the Revenue.

8. We shall now refer to the conflicting decisions, on the point, of several High Courts which have been cited at the bar. We may, however, mention at the outset that all these decisions were rendered prior to the aforesaid decision of the Supreme Court in Ganesh Dass Sreeram’s case (supra) by which it has been settled that in such a situation, no interest can be imposed under subs. (8) of s. 139, the liability for such interest and penalty both arising on the same facts.

9. We shall first refer to the decisions which favour the Revenue. The decisions of the Patna High Court are : Jamunadas Mannalal vs. CIT (1985) 152 ITR 261 (Pat)(FB) and Jamunadas Mannalal vs. CIT (1986) 54 CTR (Pat) 417:(1987) 164 ITR 66 (Pat). It has been held there in that penalty under s. 271 (1)(a) can be levied for delay in filing the return even after charging interest under s. 139(8). Obviously, these decisions proceed on the basis that in such a situation, where no tax is found due after adjusting the tax deducted at source or deposited as advance tax, interest also is chargeable under s. 139(8) in addition to the penalty under s. 271(1)(a). In view of the above Supreme Court decision in Ganesh Dass Sreeram’s case (supra), it cannot be doubted that no interest can be recovered under s. 139(8) in such a situation. Accordingly, the assumption on which these decisions proceed is no longer available. It has also been held that sub-s. (2) of s. 271 enables the registered firm to be treated as an unregistered firm and, therefore, penalty can be calculated on the basis of tax liability on an unregistered firm. We have already indicated our reasons for taking the view that sub-s. (2) of s. 271 is not available for this purpose. With respect, we are unable to concur with the view taken in these decisions of the Patna High Court for the reasons already given. The Bombay High Court in CIT vs. Janata Trading Co. (1983) 37 CTR (Bom) 203:(1984)

150 ITR 676 (Bom), appears to have taken the same view that where tax found payable by the registered firm is nil, penalty can be imposed under s. 271 (1)(a) for delay in filing the return because the amount of tax assessed on it as an unregistered firm by virtue of s. 271(2) is to be taken into account for computing the penalty. In our opinion, the facts of the Bombay High Court decision indicate that the tax payable by the registered firm was not nil so that there was some tax due on which penalty could be calculated under s. 271(1)(a)(i)(b), but by virtue of s. 271 (2), it was the larger amount of tax due on the assessee treating it as an unregistered firm which formed the basis of calculation of penalty. That was a case in which the amount of tax paid earlier by the assessee was the self- assessment tax under s. 140A in Chapter XIV and not tax deducted at source under Chapter XVII-B or paid in advance under Chapter XVII-C which alone can be adjusted according to the meaning of “assessed tax” in the Explanation to sub-cl. (i)(b) of cl. (a) of sub-s. (1) of s. 271. This being so, the “assessed tax” was not nil and, therefore, imposition of penalty could not be assailed on this ground. The Bombay High Court decision is clearly distinguishable on facts.

There are three decisions of the Madras High Court in CIT vs. Kandaswami Wvg. Factory & Co. (1977) CTR (Mad) 366:(1977) 110 ITR 84 (Mad), CIT vs. Fomra Bros. (1980) 122 ITR 312 (Mad) and Addl. CIT vs. Murugan Timber Depot (1978) CTR (Mad) 58:(1978) 113 ITR 99 (Mad). The earlier decision in Kandaswami Wvg. Factory & Co.’s case (supra) has been distinguished in the last decision and it was held that where the assessee had paid advance tax under Chapter XVII-C in excess of the tax assessed, there was no amount on which two per cent of the tax can be calculated for the purpose of s. 271(1)(a)(i)(b). This is the view taken in Murugan Tember Depot’s case (supra). The view of the Madras High Court, therefore, is against the Revenue. A decision of the Calcutta High Court in CIT vs. Priya Gopal Bishoyee (1981) 127 ITR 778 (Cal), is also distinguishable on facts. In that case, the tax payable by the assessee even as a registered firm was paid more than 2-1/2 years after filing the return which itself was delayed by over 15 months. Obviously, for this reason, the “assessed tax” was not nil and it was feasible to calculate the penalty under s. 271(1)(a)(i)(b) taking into account the tax payable by the assessee as a registered firm; and then by virtue of s. 271(2), quantification of penalty was made on the larger amount of tax payable by the assessee treating is an unregistered firm. The Calcutta High Court decision also does not, therefore, support the Revenue’s contention that even where the “assessed tax” is nil, penalty can be imposed on the assessee under s. 271(1)(a)(i)(b).

In addition to the view of the Madras High Court against the Revenue which has already been mentioned, the view taken by the Gauhati High Court and the Andhra Pradesh High Court is also against the Revenue. These decisions are CIT vs. Maskara Tea Estate (1981) 21 CTR (Gau) 47: (1981) 130 ITR 955 (Gau), CIT vs. Ganesh Das Sreeram (Firm) (1982) 30 CTR (Gau) 302:(1983) 141 ITR 946 (Gau) and P. Venkata Krishnayya Naidu & Son vs. CIT (1985) 49 CTR (AP) 218: (1984) 150 ITR 545 (AP). The view taken in these decisions was that the legal fiction in s. 271(2) was limited to the quantification of penalty on a registered firm, if any penalty was leviable on it under s. 271(1)(a); and that where the “assessed tax” on a registered firm was nil, no penalty could be levied under s. 271(1)(a) for failure to furnish the return in time. With respect, we concur with this view as already indicated by us.

After the Supreme Court’s decision in Ganesh Dass Sreeram’s case (supra), which has clearly held that no interest can be recovered under s. 139(8) where the tax liability is nil for failure to file the return within the time allowed, it must be held that on the same reasoning that no penalty also can be imposed under s. 271(1)(a)(i) (b) since the liability for payment of interest and penalty both arise on the same facts and is to be computed similarly. The Tribunal has taken the same view and, therefore, it must be upheld.

13. Consequently, the reference is answered against the Revenue and in favour of the assessee by holding that the Tribunal was justified in taking the view that no penalty under s. 271(1)(a)(i)(b) is leviable against the assessee, a registered firm, because it had no tax liability within the meaning of the expression “assessed tax” given in the Explanation to sub-cl. (i)(b) of cl. (a) of sub-s. (1) of s. 271. No costs.

[Citation : 175 ITR 317]