R. N. MISRA J. - These are three references made under section 256(1) of the Income-tax Act, 1961, by the Appellate Tribunal at the assessees instance. The following question has been referred for opinion of the court :
'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in upholding penalty levied on the assessee in the status of association of persons after such status was changed to registered firm in appeal as a result of grant of registration to the assessee, there being no dispute regarding identity of the person on whom the penalty was levied, namely, group of persons claiming partnership carrying on business in the name of Messrs. Capital Talkies ?'
The years of assessment relevant to the references are 1965-66 and 1966-67. Admittedly, returns for both these two years were very much belated. The Income-tax Officer, therefore, initiated proceedings for penalty under section 271(1)(a) of the income-tax Act and raised penalties of Rs. 23,194 and Rs. 15,611 for the respective years. The Income-tax Officer also levied penalty of Rs. 2,350 under section 273(b) of the Act for the assessment year 1966-67 as the assessee had failed to pay any advance tax and had omitted to show cause when notice was issued. Imposition of penalty on both counts has been confirmed in first appeal as also by the Appellate Tribunal.
Against imposition of penalty under section 271(1)(a) of the Act, three contentions were advanced before the Appellate Tribunal :
(i) Assessments were completed by treating the assessee as an 'association of persons' while assessee claimed the status of a 'registered firm'. Penalties had been levied on November 20, 1970, treating the assessee as 'association of persons'. The Appellate Assistant Commissioner on 20th of June, 1971, accepted the status of the assessee to be 'registered firm'. Therefore, penalty against association of persons is not sustainable when the assessees true status is that of a registered firm.
(ii) Under section 271(1)(a), penalty levied for default in not filing the return within time is restricted to the maximum limit of 50 per cent. of tax due from the assessee. The assessee in the instant case is a registered firm and the fiction contemplated under sub-section (2) will not operate and the maximum limit must be with reference to the basic provision in section 271(1).
(iii) The return having been filed under section 139(4) of the Act, the same must be deemed to have been within the time allowed under the law and no penalty is, therefore, imposable.
The Tribunal came to hold that there was no dispute regarding identity of persons on whom penalty was imposed. A firm is also an association of persons. Once the genuineness of the firm is accepted and registration is allowed, the status becomes registered firm. Merely because the status of the association of persons is accepted as registered firm, there is no alteration brought about in regard to the assessee. It relied upon the provisions of sub-section (2) and negatived the second contention.
In regard to the third one, the Tribunal held that the legal position since the decision of the Supreme Court in the case of Commissioner of Income-tax v. Kulu Valley Transport Co. (P.) Ltd. : 77ITR518(SC) , had changed and the assessee had a liability to make a return within the time allowed by law. Default in the making of a return on that footing is subject to penalty.
Before us, Mr. Ray, for the assessee, relies upon the definition of 'person' given in section 2(31). 'Person' includes :
'(i) an individual,
(ii) a Hindu undivided family,
(iii) a company,
(iv) a firm,
(v) an association of persons or a body of individuals, whether incorporated or not,
(vi) a local authority, and
(vii) every artificial juridical person, not falling within any of the preceding sub-clauses;'
According to learned counsel, when the Income-tax Officer assessed the members of the firm as an association of persons, it was of the fifth category in the definition. When the Appellate Assistant Commissioner accepted registration, the assessee came under the fourth category. Accordingly, association of persons on whom penalty was imposed ceased to exist. Therefore, the order of penalty is automatically vacated. We called upon counsel to support his argument by decisions and he candidly confessed that there was none that he could come across supporting his view. On commonsense analysis of the matter, we do not agree with the contention. The matter is not to be looked at from the point of view of the definition of 'person'. The Tribunal, in our view, took the right approach when it considered that there is no change in the identity of the person to be penalised and mere conferment of a status of firm did not bring into existence a new and different assessee. The assessee had claimed from the very beginning that it was a firm. The Income-tax Officer on examination was not satisfied that there was a genuine firm. The claim of the assessee was accepted in first appeal. In the circumstances of the case, the first contention does not at all impress us.
Section 271(2) of the Act provides :
'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.'
The Tribunal, while repelling the contention of the assessee, observed :
'... We agree with the departments contention that the fiction introduced must be carried to its logical limit and when so done it is clear that the amount of penalty leviable in the assessees case before us would be penalty that would be payable by the assessee as an unregistered firm...'
In the case of State of Bombay v. Pandurang : 1953CriLJ1049 Mahajan J. (as the learned judge then was), spoke for the court thus :
'When a statute enacts that something shall be deemed to have been done, which in fact and truth was not done, the court is entitled and bound to ascertain for what purposes and between what persons the statutory fiction is to be resorted to and full effect must be given to the statutory fiction and it should be carried to its logical conclusion.'
The Tribunal, in our view, rightly applied the provisions of sub-section (2) of section 271 to the facts of the case in negativing the assessees contention. Counsel reiterated the third contention before us. Law has now been settled that the ration in Kulu Valley Transport Co.s case : 77ITR518(SC) would not apply to interpret section 139 of the Income-tax Act, 1961.
All the contentions raised on behalf of the assessee to support its stand that penalty under section 271(1)(a) was not exigible must be negatived. The other dispute regarding imposition of penalty for non-payment of advance tax was not pressed before us with any seriousness.
Our answer to the question referred, therefore, is :
On the facts and in the circumstances of the case, the Tribunal was justified in upholding the levy of penalty on the assessee in the status of 'association of persons' after such status was changed to 'registered firm' in appeal as a result of grant of registration to the firm; there being no dispute regarding identity of the persons on whom the penalty is levied, namely, group of persons claiming partnership carrying on business in the name of Messrs. Capital Talkies.
We make no order as to costs.
DAS J. - I agree.