A.P. Sen, C.J.
1. This is a reference under Section 256(1) of the I.T. Act, 1961, at the instance of the assessee by the Tribunal, Nagpur Bench, Nagpur, referring certain questions of law said to arise from its order in Income-tax Appeal No. 12152 of 1965-66, dated July 8, 1970, pertaining to the assessment year 1959-60, to the High Court for its opinion, namely:
'(1) Whether, on the facts and in the circumstances of the case,penalty under Section 271(1)(a) is imposable on the assessee who was a partner ofa registered firm on which also a separate penalty under Section 271(1)(a) wasimposed
(2) Whether, on the facts and in the circumstances of the case, a penalty less than 2% of the tax for each month of default is imposable in law when the return of income was filed in response to a notice issued under Section 22(2) of the Indian I.T. Act, 1922 ?'
2. The assessee is a partner in a registered firm styled 'M/s. Chhotalal Keshavram, Rajnandgaon'. In the assessment year 1959-60, the relevant accounting year being October 24, 1957, to November 12, 1958, the assessee was served with a notice by the ITO, Rajnandgaon, under Section 22(2) of the Indian I.T. Act, 1922, to file a return of his income on July 6, 1959. Despite the notice, the assessee did not file the return till March 28, 1961, when the return should actually have been filed on August 11, 1959, i.e., after a delay of nearly 19 months. The assessee filed his return on March 28, 1961, while the firm filed its return on March 29, 1961, On March 5, 1964, the ITO, Rajnandgaon, made assessment under Section 23(3) of the 1922 Act, computing the assessee's share income to be Rs. 52,494. Thereafter, on March 10, 1964, the assessee was served with a notice by the ITO, under Section 274, read with Section 271(1)(a) of the Act to show cause why penalty should not be imposed. In response to the notice, the assessee neither appeared nor filed any explanation for the late filing of the return. The ITO, accordingly, by his order dated December 19, 1964, imposed a penalty of Rs. 6,610 under Section 271(1)(a) of the Act. On appeal, the AAC of Income-tax, Raipur Range, Raipur, by his order dated November 1, 1965, upheld the order of the ITO. On further appeal, the Tribunal, Nagpur Bench, Nagpur, by its order dated July 8, 1970, declined to interfere with the levy of penalty under Section 271(1)(a) of the Act.
3. The contention of the assessee before the Tribunal was two-fold, viz., (1) no penalty under Section 271(1)(a) of the I.T. Act, 1961, could be levied in respect of a default committed under Section 28(1)(a) of the Indian I.T. Act, 1922, and (2) the assessee's only income was his share of profits from the registered firm. Until such time as the firm was not granted renewal of its registration, the assessability to tax of the assessee remained dormant. The ITO, therefore, could not have treated the assessee to be in default, as the assessment of the firm was completed only on March 5, 1964, and it was only on that date that the assessee's liability to tax was ascertained with reference to Section 23(5)(a) of the 1922 Act.
4. The Tribunal referred to the decision of the Privy Council in Arunachalam Chettiar v. CIT  4 ITR 173 and observed that both the firm and the individual partners have to make return under the I.T. Act. It also held that after applying the provisions of Sections 23(3), 23(5)(a) and 23(6) of the 1922 Act, the ITO only determined the share income of the partner and at that stage no liability attaches to the partner himself. For this purpose, the return of the income, either under Section 22(1) or Section 22(2) was necessary, more so, when the partner may have some other source of income, in addition to his share income from the firm. The Tribunal also rejected the assessee's contention that there was a reasonable cause for the delay in filing the return, saying that merely because there was a defaultcommitted by the firm, that furnished no justification for the assessee not to have filed his return and commit similar default. In fact, the assessee filed his return of income on March 28, 1961, i.e., one day before the firm's return was filed.
5. In view of their Lordships' decision in Jain Brothers v. Union of India : 77ITR107(SC) , the point that no penalty could be levied under Section 271(1)(a) of the I.T. Act, 1961, for a default committed under Section 28(l)(a) of the Indian I.T. Act, 1922, was not pressed before the Tribunal.
6. Shri Thakar, learned counsel for the assessee, contends that the registered firm, of which the assessee is a partner, has already been levied a penalty for its default in late filing of its return under Section 271(1)(a) by treating the firm as unregistered by virtue of Section 271(2). It is, therefore, urged that there is no liability of the assessee to tax till registration to the firm is granted, and since there is no liability to tax, there is no liability to file the return. He further contends that levy of a penalty on the assessee under Section 271(1)(a) would virtually amount to a double punishment for the same offence. In support of his contention, he places reliance on Addl. CIT v. Smt. Triveni Devi : 97ITR390(All) . We are afraid, these contentions cannot prevail.
7. The firm and the individual partner are each required to render a return of total income and each may be required to produce accounts or documents : Arunachalam Chettiar v. CIT  4 ITR 173 . It is not disputed that the firm is treated as an entity distinct from the persons who constitute the firm. Under section 4(1) read with Section 2(23) (of 1961 Act), a firm is a unit of assessment. Merely because the application of the partners for renewal of the registration of the firm under Section 26A of the 1922 Act was pending before the ITO, that hardly furnished a ground for the assessee not to have filed the return of his income, i.e., share of profits as partner, more particularly when he was issued a notice under Section 22(2) of the 1922 Act. Simply because Section 14(2)(a) of that Act grants exemption from income-tax to a partner of an unregistered firm in respect of his share from the profits, it does not imply that the partner need not file his return under Section 22(1) or Section 22(2), i.e., till the renewal of the registration of the firm was granted. In this particular case, the assessment order passed by the ITO shows the assessee's share of profits to be Rs. 52,494. Admittedly, the firm maintains regular books of accounts according to the mercantile system. The accounting year closed on Divali 1958 and, on that date, the assessee could have ascertained his share of profits. Thus, there was a liability to file a return under Section 22(1) irrespective of his liability to tax. If the renewal of registration was not granted, the assessee's share of profits would be exempt under Section 14(2)(a). All the same, a return had to be filed. That is because though the partner's share of profits is exempt from tax, in theevent of non-registration of the firm, it is to be included in his total income, by reference to which the rate of tax applicable to his taxable income is determined. The ITO was, therefore, right in holding the assessee to be in default, particularly when he failed to file the return in response to the notice issued to him under Section 22(2) of the Act.
8. The whole controversy turns on the construction of Section 271(2) of the I.T. Act, 1961, which reads :
'(2) 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 fim.' In our view, the legal fiction contained in Section 271(2) is for a limited purpose, i.e., for computation of the amount of penalty on the registered firm, treating it to be an unregistered firm. The key to the construction of the section is the word 'amount'. It provides that notwithstanding anything contained in the other provisions of the Act, the penalty imposable under Sub-section (1) shall be the same amount as would be imposable on that firm, if that firm was an unregistered firm. It would, therefore, appear that the only purpose of the legal fiction is the quantification of the amount of penalty in cases of registered firms. Although full effect must be given to the legal fiction, it should not be extended beyond the purpose for which it is created. In State of Travancore-Cochin v. Shanmugha Vilas Cashewnut Factory : 1SCR53 and in Bengal Immunity Co. Ltd. v. State of Bihar : 2SCR603 , S. R. Das C.J. reaffirmed the principle stating that 'legal fictions are created only for some definite purposes' and that a legal fiction is to be limited to the purpose for which it was created and it should not be extended beyond that legitimate field.
In CIT v. Chhotelal Kanhaiyalal : 80ITR656(MP) , the question before the court was whether the advance tax paid by the partners of a registered firm should be treated as advance tax paid by the firm. The Division Bench constituting of both Bishambhar Dayal C.J. and Singh J. answered the question in the negative. Singh J., while concurring with Bishambar Dayal C.J;, adverted to Section 271(2) of the I.T. Act, 1961, and stated (p. 661): 'Section 271(2) of the Income-tax Act, 1961, creates a statutory fiction by directing a registered firm to be treated as an unregistered firm for the computation of penalty... The logical conclusion of the fiction created by Section 271(2) is to treat a registered firm as an unregistered firm and to assess the tax on the total income of the firm for the purpose of imposing penalty. But the language used in the section does not permit the extension of this fiction by treating advance tax paid by the partners of such a firm as advance tax paid by the firm. Extension of this nature would amount to creating a fiction upon fiction which is not permissible.'
9. We are in respectful agreement with the construction placed by Singh J. on the ambit of Section 271(2) of the Act.
10. This aspect has been dealt with in Kanga and Palkhivala's Income-tax Act, 7th Edn., Vol. 1, p. 1207. The learned authors observe:
'The Supreme Court's observations to the contrary in Abraham v. Income-tax Officer : 41ITR425(SC) and Commissioner of Income-tax v. Bhikaji Dadabhai : 42ITR123(SC) are, it is submitted, incorrect. Tax and penalty, like tax and interest, are distinct and different concepts under this Act.'
11. We, however, refrain from expressing any opinion on this aspect. Suffice it to say that the firm and its partners are two distinct entities for the purpose of income-tax and both are required to file returns separately. That being so, the theory of double punishment to the same person enunciated by the Allahabad High Court in Addl. CIT v. Smt. Triveni Devi : 97ITR390(All) appears to us to be inapplicable.
12. Shri Thakar, learned counsel for the assessee, then contends that the rate of two per cent. mentioned in Section 271(1)(a) is the maximum for one month's default and not the minimum and, therefore, the ITO still had the discretion in the matter of quantum of penalty. That contention of his cannot also prevail. In CIT v. Khubchand Meghraj : 91ITR498(MP) , Bishambhar Dayal C.J. observed (p. 501):
'In view of the above authorities, there is no doubt that the imposition of penalty in this case had to be according to the provisions of Section 271(1)(a) which provides a minimum of 2% in the case of delayed filing of return.'
13. Similarly, in CIT v. Chhotelal Kanhaiyalal : 80ITR656(MP) , Singh J. observed (p. 661) :
'It is true that sometimes the minimum penalty, which is now fixed by Section 271(1), may, when so computed, look disproportionate to the lapse which is sought to be penalised in cases where the partners may have paid substantial advance tax on the income of the firm. But considerations of equity have seldom, if ever, any application in construing an Act like the Income-tax Act. Hardship of any individual case can, however, be avoided by the Income-tax Officer or the Appellate Assistant Commissioner deciding in his discretion not to impose any penalty or the Commissioner reducing or waiving the amount of minimum penalty by exercising his power under Sub-section (4A).'
14. May be, learned counsel for the assessee is perhaps right in contending that Section 271(1)(a)(i) of the Act does not prescribe the minimum. But, in our view, he is not right in contending that the rate of 2 per cent. is the maximum. In fact, it is the fixed rate. No doubt, the discretion of the ITO or the AAC to levy or not to levy penalty is preserved by Section 271(1) by the use of the word 'may' ; but, if the decision is right to levy a penalty, it cannot be less than the prescribed rate, whosoever be the authority imposing or confirming imposition of penalty : Kanga and Palkhivala's Income-tax Act, 7th Edn., Vol. I, p. 1208. The learned authors rightly observed at page 1210 :
'In Sub-section (1)(i)(b), the provision for penalty 'equal to two per cent, of the assessed tax for every month' is a provision for a fixed rate of penalty which cannot be increased or reduced, apart from the Commissioner's discretion to reduce or waive penalty under Section 273A.'
15. We must accordingly hold that penalty under Section 271(1)(a)(i) of the Act had to be levied at two per cent, once the ITO held that the assessee was in default.
16. For the reasons aforesaid, the reference is answered in favour of the CIT and against the assessee. It must accordingly be held that, on the facts and in the circumstances of the case, the Tribunal was justified in holding that:
'(1) penalty under Section 271(1)(a) of the I.T. Act, 1961, was imposable on the assessee who was a partner of a registered firm, on which also a separate penalty under Section 271(1)(a) had been imposed, due to his default is not complying with the requirements of Section 22(2) of the Indian I. T. Act, 1922 ; and
(2) penalty under Section 271(1)(a) of the I.T. Act, 1961, has to be imposed at the fixed rate of 2 per cent. of the tax for each month of default, when the return was filed late, in response to the notice issued under Section 22(2) of the Indian I.T. Act, 1922, subject only to the maximum amount not exceeding 50 per cent. of the assessed tax.'
17. The Commissioner shall have his costs of the reference. Hearing fee Rs. 150.