1. In this reference made under Section 256(1) of the Income-tax Act, 1961, the following question of law has been referred for the opinion of this court:
' Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that a penalty is imposable under Section 271(1)(a) on the assessee in whose case the assessment has been made as an unregistered firm making the provisions of Section 183(b) applicable '
2. The facts are in a narrow compass. The assessee is a firm constituted under a deed of partnership executed on May 10, 1960. It closed its accounts for the first time on June 30, 1961. For the assessment year 1962-63, the return of income was due by June 30, 1962. It was, however, filed only on February 28, 1964. The firm applied for registration for the purposes of assessment to income-tax for 1962-63. However, the firm was not registered. In making the assessment on the firm on February 19, 1966, the Income-tax Officer determined the total income of the firm at Rs. 38,475. He stated in the assessment order that the firm was treated as registered firm under the provisions of Section 183(b) of the Income-tax Act. Subsequently, penalty proceedings were taken for the failure of the assessee to submit the return of income within the time allowed under the law. The Income-tax Officer, after considering the assessee's explanation, which is not material for our present purpose, held that the assessee was liable for penalty, and he, therefore, levied a sum of Rs. 3,324 as penalty by his order dated February 15, 1968. The Appellate Assistant Commissioner, on appeal by the assessee, found that on account of disputes among the partners, the return of income was not filed in time, and having regard to the circumstances noticed by him, he directed that the penalty leviable should be reduced to 10 per cent. of the tax payable. The department filed an appeal to the Tribunal against the order of the Appellate Assistant Commissioner reducing the penalty in the manner done above. The assessee preferred certain cross-objections. However, at the time of the hearing, the assessee took up certain legal submissions in the form of additional grounds. Those submissions were that the assessee having been treated as a registered firm under Section 183(b) of the Income-tax Act, no penalty was leviable under Section 271(1)(a) of the Act, and that no tax having been found to be payable by the assessee which was assessed under Section 183(b) of the Act, the penalty imposable as proportion of the tax would be nil. The Tribunal rejected these contentions and held that the assessee was an unregistered firm treated as a registered firm only forthe purpose of Section 183(b) of the Act and that for the purpose of liability to penalty, the assessee should be treated as an unregistered firm. It, therefore, allowed the appeal of the department and confirmed the levy of penalty as made by the Income-tax Officer. It is this order of the Tribunal that is challenged by the assessee in the form of the question set out already.
3. In order to appreciate the question raised, it is necessary to refer to the relevant provisions. Section 183(b) of the Income-tax Act, runs as follows :
' In the case of an unregistered firm, the Income-tax Officer--...
(b) if, in his opinion, the aggregate amount of the tax payable by the partners if the firm were treated as a registered firm would be greater than the aggregate amount of the tax which would be payable by the firm under Clause (a) and the tax which would be payable by the partners individually, may proceed to make the assessment under Clause (ii) of Sub-section (1) of Section 182 as if the firm were a registered firm ; and where the procedure specified in this clause is applied to any unregistered firm, the provisions of Sub-sections (2), (3) and (4) of Section 182 shall apply thereto as they apply in the case of a registered firm. '
4. This provision is an enabling provision for the purpose of making an assessment on an unregistered firm as if it were a registered firm if the Income-tax Officer was of the opinion that the tax effect would be greater if it were so assessed as a registered firm. The object of the provision is to see that there is no avoidance of or reduction in the tax liability by a firm not claiming registration.
5. Section 271(1)(a) of the Income-tax Act provides that if the Income-tax Officer is satisfied that any person has without reasonable cause failed to furnish the return of total income which he was required to furnish under Sub-section (1) of Section 139 or by notice given under Sub-section (2) of Section 139 or Section 148 or has without reasonable cause failed to furnish it within the time allowed and in the manner required by Sub-section (1) of Section 139 or by such notice, as the case may be, he may direct that such person shall pay by way of penalty in addition, to the amount of the tax, if any, payable by him, a sum equal to two per cent of the tax for every month during which the default continued, but not exceeding in the aggregate fifty per cent. of the tax. Section 271(2) of the Act runs as follows :
'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.'
6. Thus, Section 271(2) contemplates the firm being treated as an unregistered firm for purposes of levy of penalty even though it may have been granted registration on its own application or it was treated as a registered firm under Section 183(b) of the Act. If these provisions alone were considered, then it would be clear that the assessee was properly considered liable to the levy of penalty because the assessee-firm was treated as registered and could be subjected to the levy of penalty as if it were an unregistered firm for purposes of the levy of penalty. However, in the course of the arguments before the Tribunal and again before us, reference was made to Section 271(3)(a), which runs as follows :
' Notwithstanding anything contained in this section,--
(a) no penalty for failure to furnish the return of his total income under Sub-section (1) of Section 139 shall be imposed under Sub-section (1) on an assessee whose total income does not exceed the maximum amount not chargeable to tax in his case by one thousand five hundred rupees.'
7. This provision has application only to a case where there has been a failure to submit a return in accordance with the provisions of Section 139(1) of the Act and has no application to the case of a delayed return. Therefore, Section 271(3)(a) of the Act was rightly treated as not standing in the way of the penalty being levied in the case. In view of the above, the question referred to us is answered in the affirmative and against the assessee. There will be no order as to costs.