1. The assessee was a registered firm at the relevant time. It, however, defaulted in submitting its returns for the assessment, years 1966-67 and 1969-70. The delay was not considered to be due to any reasonable cause. The ITO, therefore, imposed a penalty of Rs. 64,730 for the year 1966-67 in pursuance of the provision in Section 271(1)(a) read with Section 271(2) of the I.T. Act, 1961, hereinafter 'the Act'. As for the other assessment year the penalty of Rs. 27,360 was imposed. Calculation in both the cases was at the rate of 2% per month for the period of default. On appeal being preferred before the AAC, the penalty orders were set aside. On further appeal by the Department, the Tribunal up
held the order of the AAC. On a prayer for reference to this court the following question has been referred :
'Whether, on the facts and in the circumstances of the case, the assessee being a registered firm was liable to pay penalty under Section 271(1)(a) read with Section 271(2) even though the assessed tax within the meaning of Explanation to Section 271 was a negative figure ?'
2. It may be stated that the assessed tax on the firm, treating it as a registered firm, came to Rs. 23,680 for the assessment year 1966-67, whereas it had paid the sum of Rs. 27,616 as advance tax. In so far as the assessment year 1969-70 is concerned, the assessed tax, as a registered firm, came to Rs. 36,846 against the advance deposit of Rs. 43,020. It was because of this that the AAC and the Tribunal held that, in view of the provision in Section 271(1)(i)(b) read with the Explanation, there was nothing to act upon in so far as the penalty was concerned because the 'assessed tax' came to a negative figure for both the years. The contention of the Revenue before the learned Tribunal was that once a default is committed by a registered firm in furnishing returns in time without reasonable cause, it has to undergo penalty as provided in Sub-section (2) of Section 271. This contention has been rejected.
3. A similar question had come up for examination before this court in CIT v. Maskam Tea Estate . In that case, a contention was advanced on behalf of the Revenue as herein, that Section 271(2) would override other provisions in case the person liable to pay penalty is a registered firm, in which case the liability to pay penalty will be determined only by what has been laid down in Sub-section (2). To put it differently, the contention of the Department is that the 'assessed tax', in so far as the registered firm is concerned, has to be taken to be that amount to which the firm would have been assessed if it were to be treated as an unregistered firm as mentioned in Section 271(2). In such an eventuality it is apparent that the ' notional assessed tax ' would be more, may be, much more and even if reduction is made for the advance tax paid under Chap. XVII-C, the firm would become liable to penalty. This contention was, however, not accepted in the aforesaid case because Sub-section (2) operates only when a person is ' liable to penalty '. It was held in Maskara Tea Estate by this court that the liability to penalty has to be determined with reference to what has been stated in Sub-section (1), and that too not by confining one's attention to Clause (a) but also by adverting to Clause (i)(b) read with its Explanation. If it is so done, and if the advance tax is more than the tax determined as payable, the resultant figure of ' assessed tax' has to be negative and there would be nothing to calculate the penalty upon. To arrive at the figure of 'assessed tax' the assessment
to be taken note of must be that of the firm as registered firm if the firm had in fact been assessed in that capacity.
4. We may point out that before the amendment of Section 271 in 1974, Clause (i) was differently worded as it had stated that in the cases referred to in Clause (a), in addition to the amount of the tax, if any, payable, the penalty would be equal to 2% of the tax for every month of default. As against this the amendment of 1974 which was given retrospective effect from the date of the commencement of the Act stated that the amount of penalty shall be 'a sum equal to two per cent. of the assessed tax ' for every month of default. An Explanation was also inserted which stated that the expression 'assessed tax' in the clause means ' tax as reduced by the sum if any......paid in advance under Chapter XVII-C '. The expression
'assessed tax', as it found place in the section by virtue of the 1974 amendment, has to be understood as the amount to which a person was actually taxed (minus advance payment, etc.), and not the notional tax to which the person, if it be a registered firm, were to be assessed by treating it as unregistered firm.
5. We are thus in respectful agreement with what has been stated by this court in Maskara Tea Estate and we do not propose to burden this opinion with all that has been noted in that decision. Learned standing counsel could not bring anything to our notice to take a different view in the matter. Another reasoning would also lead to the same conclusion. The idea behind the imposition of penalty is also to take care of the Revenue, apart from penalising the wrongdoer. Now, if a person had paid in advance the full amount of the tax payable, there would be no logic in penalising him in so far as the interest of the Revenue in the collection of tax is concerned.
6. Because of all the above, we are of the opinion, that the present was not a case on its facts which attracted the mischief of Section 271(2) of the Act. Being of this view, we answer the question referred to us in the negative, i.e., in favour of the assessee.