Mehta, J. - The relevant assessment year is 1964-65. The assessee is a firm which carried on business as Civil Engineering Contractors since many years prior to the relevant assessment year. For the assessment year 1964-65, it did not file return of income under Section 139(1) of the Income-tax Act. A notice under Section 139(2) was served on the assessee on September 16, 1964. In response to this notice, the assessee filed its return of income on January 22, 1965 showing a total income of Rs. 81,896/-. A revised return was also filed by the assessee-company on June 30, 1966 showing a reduced income of Rs. 33,392/- but the same was not entertained by the Income-tax Officer. We are not concerned with the question of the revised return in this reference. A show cause notice was issued upon the assessee to explain why penalty should not be levied. The assessee did file its written explanation to the show cause notice on December 15, 1969. The Income-tax Officer considered the various contentions raised by the assessee. He did not find any merit in the contention of the assessee that the return could not be filed for the reason that there was difficulty in settlement of accounts since the assessee maintained accounts on mercantile basis. He, therefore, imposed a penalty of Rs. 8,080/- by his order of September, 28, 1970 purported to have been made under Section 271(1) (i) as it stood then. The assessee carried the matter in appeal before the Appellate Assistant Commissioner who was of the opinion that after giving appeal effect the tax payable by the assessee-firm which was registered was only Rs. 1,270/- since the assessee had already paid Rs. 4,862/- by way of provisional tax under Section 140-A, and no demand could have been raised as there was no tax payable by the assessee as a result of regular assessment. The Appellate Assistant Commissioner, therefore, following the decision of the Calcutta High Court in Commissioner of Income-tax, West Bengal v. Vegetable Products Ltd. and also of Mysore High Court in N. M. Annaian v. C.I.T. Mysore held that the imposition of penalty was not justified. The Income-tax Officer, being aggrieved with the order of the Appellate Assistant Commissioner went in appeal before the Tribunal. In the opinion of the Tribunal, the question was concluded by the decision of the Supreme Court in Commissioner of Income-tax v. Vegetable Products Limited (1973) 83 ITR 192 where the Supreme Court held that the meaning of the term 'net tax payable' under the provisions of Sec. 271(1) (i) is the tax that is actually payable by the assessee on making of the final assessment and that in computing the net tax payable, deduction has to be given for tax paid under sec. 140A or under Section 147(1). In the case before the Tribunal since the net tax payable by the assessee firm was Rs. nil, there was no basis of leavy of penalty under Sec 271(1) (i). The Commissioner of Income-tax, therefore, sought this reference on the following three questions which have been referred to us for our opinion :
'(1) Whether on the facts and in the circumstances of the cases, the Tribunal was right in coming to the conclusion that a registered firm has to be treated as an unregistered firm only for purposes of computation of the tax on the basis of which the penalty has to be calculated under Section 271(1) (a)
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in coming to the conclusion that the stage of computation of tax would raise only if there is any tax payable by the registered firm at the time of assessment
(3) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee firm was not liable to any penalty ?
2. At the time of hearing of this reference, it was pointed out to us on behalf of the Revenue that Section 271(1)(i) has been amended retrospectively with effect from 1-4-1962 by the Direct Taxes (Amendment) Act, 1974 and Sec. 271(1) (i) is amended by the said Act and now reads as under :
'(1) In the cases referred to in clause (a), 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, but not exceeding in the aggregate fifty per cent of the assessed tax.'
Expression 'assessed tax' in this clause means tax as reduced by the sum, if any, deducted at source under Chapter XXII B as paid in advance under Chapter XVII-C. According to the learned advocate for the Revenue the question referred to us shall be required to be reframed or questions Nos. 1 and 2 be deleted since the assessee is entitled to deduction of the tax only to the extent of the amount of tax deducted at source under Chapter XVII-B or paid in advance under chapter XVII-C. In his submission if the assessee was not entitled to get credit for the tax paid alongwith his return, there would be a clear liability under Sec. 271 (1)(i) and the liability is to be computed as provided in sub-section (2) of sec. 271. In other words, the tax assessed in case of the assessee-firm was Rs. 1,270/- and the assessee would not be entitled to get it reduced by the payment of Rs. 4,862/- which he made by way or self-assessed tax under Section 140-A and a demand would, therefore, clearly be issued against the assessee. In that state of affairs which has resulted on account of the amendment made in Section 271 (1)(i) by the Direct Taxes (Amendment) Act, 1974, the liability is required to be computed as provided in sub-section (2) of Section 271. If that is so, it has to be found out what tax would have been payable by the assessee, if the firm had been treated as an unregistered firm and on the basis of that tax the penalty at the rate of 2% is to be computed.
3. We are of the opinion that the contentions of the Revenue should clearly prevail, in view of the amendment made by the Direct Taxes (Amendment) Act, 1974. Section 271(1)(a) read with Section 271(1)(i) prescribes the liability and the rate of penalty. Sub-section (2) of section 271 prescribes the method of computation of penalty where the person liable to penalty is a registered firm or unregistered firm which has been assessed under sub-clause (b) of Section 183. In cases of such firms notwithstanding anything contained in any other provision of the Act, the penalty imposable under sub-section (1) is the same amount as would be imposable on the firm if that firm was an unregistered firm. It is on the basis of this fiction that the penalty is to be computed when a person liable to penalty is a registered firm or an unregistered firm which is assessed under clause (b) of section 183. The view of the Tribunal that since the net tax payable by the assessee would be nil, as it would be entitled to reduce the tax assessed by the amount of tax paid by it under Section 140A, there would be nil demand and if there is a nil demand, there is no question of levying any penalty, would not now be correct in view of amendment made in section 271(1)(c) by Section 13 of the Direct Taxes (Amendments) Act, 1974, which has been brought into force retrospectively with effect from 1-4-1962, as it was on the statute book all along from the said date. The result of the amendment would be, as rightly contended by the learned advocate for the Revenue, that the assessee would not entitled to get reduction in the amount of the tax assessed by the amount of the tax provisionally paid under Section 140A in view of the Explanation to the amending section which now defines the terms 'assessed tax' as the tax reduced by the sum deducted at source under Chapter XVII-B or paid in advance under chapter XVII-C. According to amended clause (i) of sub-sec. (1) of sec. 271, penalty is now linked up with the assessed tax and not with the net tax payable as was the position before the amendment in question as interpreted finally by the Supreme Court in C.I.T. v. Vegetable Products Ltd (1973) 83 ITR 192. If the assessee is entitled to reduction only to the extent of the tax deducted at source and the tax paid in advance, a demand would be clearly issued, in the present case since the tax assessed on the assessee-firm was Rs. 1270/- because the assessee-firm would not get this amount reduced by the amount of tax paid by it under section 140A. If that liability is incurred, and there is no doubt that the assessee has incurred it in the facts of the case, the penalty is to be computed as if it is an unregistered firm, The fiction can be taken to its logical conclusion only if, for purposes of computing the penalty, the amount of tax which such a firm would be liable to pay is computed as if it was unregistered. It is only on that basis that the penalty could be computed. The Appellate Assistant Commissioner as well as the Tribunal proceeded on the footing that no liability was incurred since no demand could have been issued by the Department because the assessee had paid the amount of tax under section 140-A and which amount should be considered to find out whether the tax assessed (Rs. 1270/-) was outstanding or not. But in the view of the manedment made in Section 271(1)(i) by the Direct Taxes (Amendment) Act, 1974, the position would be, as stated above viz., that the liability is incurred by the assessee to pay the penalty provided there is no reasonable cause for not filing the return in time. The Income-tax Officer did consider this aspect of the question and held against the assessee but so far as the Appellate Assistant Commissioner and the Tribunal were concerned, they proceeded on the footing that no liability was incurred since no demand could have been issued in view of the fact that there was no tax outstanding against the assessee in view of the provisional payment of tax as compared with the tax assessed. In that view of the matter, therefore, it would be necessary for the Tribunal to consider whether there was any reasonable cause which prevented the assessee from filing the return in time. Question Nos. 1 and 2 which have been raised in view of the provision of law as it stood before the amendment made in Section 271 (1)(i) by the Direct Taxes (Amendment) Act, 1974 need not be answered. We, therefore, answer question No. 3 as under :
'The assessee-firm would incur a liability provided there is no reasonable cause which prevented it from filing the return in time.'
The Tribunal shall have to examine this aspect of the question by itself or by remanding it to the Appellate Assistant Commissioner, if so advised, and then decided the question of liability in view of what we have stated in this judgment. Having regard to the fact that position of law has been altered by the amendment retrospectively with effect from 1-4-1962 in the matter of penalty under Section 271(1)(a) read with Section 271(1)(i), there should be no order as to costs.