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K.R. Velayudha Mudaliar and Sons Vs. Additional Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberTax Case No. 239 of 1972 (Reference No. 52 of 1972)
Judge
Reported in[1977]110ITR381(Mad)
ActsIncome Tax Act, 1961 - Sections 271(1) and 271(2)
AppellantK.R. Velayudha Mudaliar and Sons
RespondentAdditional Commissioner of Income-tax
Appellant AdvocateN.C. Ananthachari, Adv.
Respondent AdvocateJ. Jayaraman, Adv.
Cases ReferredEssorde Industrial v. Commissioner of Income
Excerpt:
.....is the relevant section and the same is as follows :(1) if the income-tax officer or the appellate assistant commissioner in the course of any, proceedings under this act, is satisfied that any person--(a) has without reasonable cause failed to furnish the return of his 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. the appellate assistant commissioner's further finding that the fiction created under section 271(2) will apply only to the computation of penalty leviable under section 271(1)(i) and..........the tax payable by the assessee as a registered firm. on this basis, the penalty leviable on the assessee-firm was worked out to rs. 2,449 for the assessment year 1964-65, rs. 2,473 for the assessment year 1965-66 and rs. 2,727 for the assessment year 1966-67. aggrieved against the order of the appellate assistant commissioner, the department took up the matter in appeal to the tribunal. 4. before the tribunal, the contention of the department was that in view of the fiction created under section 271(2) that a registered firm has to be treated as an unregistered firm for the purpose of levying penalty under section 271(1)(a) the appellate assistant commissioner was not justified in holding that the penalty leviable under section 271(1)(a) should be restricted to 50 per cent. of the tax.....
Judgment:

Ismail, J.

1. The Income-tax Appellate Tribunal, Madras Bench, under Section 256(1) of the Income-tax Act, 1964, has referred the following questions of law for the opinion of this court:

' 1. Whether the Income-tax Officer was justified in levying a penalty of Rs. 4,890 under Section 271(1)(a) for the assessment year 1964-65

2. Whether the Income-tax Officer was justified in levying a penalty of Rs. 3,440 under Section 271(1)(a) for the assessment year 1965-66

3. Whether the Income-tax Officer was justified in levying a penalty of Rs. 6,050 under Section 271(1)(a) for the assessment year 1966-67 ?'

2. Admittedly, in this case, the assessee did not file the returns for the three years in question in time. The actual dates on which the returns were due and the dates on which the returns were filed and the penalty levied by the Income-tax Officer under Section 271(1)(a) are shown here-under :

Assessment yearDue date for filing the returnDate of actual filing of the returnsPenalty levied by the Income-tax Officer

1964-6530-6-196428-2-654,8901965-6630-6-196515-4-663,4401966-6730-6-196623-2-676,050

3. Against the imposition of those penalties, the assessee preferred an appeal to the Appellate Assistant Commissioner. The Appellate Assistant Commissioner held that the penalty leviable under Section 271(1)(a) should be restricted to 50 per cent. of the tax payable by the assessee as a registered firm. On this basis, the penalty leviable on the assessee-firm was worked out to Rs. 2,449 for the assessment year 1964-65, Rs. 2,473 for the assessment year 1965-66 and Rs. 2,727 for the assessment year 1966-67. Aggrieved against the order of the Appellate Assistant Commissioner, the department took up the matter in appeal to the Tribunal.

4. Before the Tribunal, the contention of the department was that in view of the fiction created under Section 271(2) that a registered firm has to be treated as an unregistered firm for the purpose of levying penalty under Section 271(1)(a) the Appellate Assistant Commissioner was not justified in holding that the penalty leviable under Section 271(1)(a) should be restricted to 50 per cent. of the tax payable by the assessee as a registered firm. The Tribunal, by its order dated September 13, 1971, accepted this contention of the department, allowed the appeals preferred by the department, set aside the order of the Appellate Assistant Commissioner andrestored the orders of the Income-tax Officer. It is the correctness of this order of the Tribunal that is challenged in the form of the three questions extracted already, relevant for the three assessment years.

5.Section 271(1)(a)(i) is the relevant section and the same is as follows :

'(1) If the Income-tax Officer or the Appellate Assistant Commissioner in the course of any, proceedings under this Act, is satisfied that any person--

(a) has without reasonable cause failed to furnish the return of his 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,--

(i) 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 tax for every month during which the default continued, but not exceeding in the aggregate fifty per cent. of the tax.' Section 271(2), which is also relevant, is 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. In this case, from the facts stated above, it is clear that the assessee-firm which was a registered one did not file the returns within the time for all the three assessment years. Equally, it is now established that the assessee had no reasonable cause for not filing the returns in time because the assessee did not take any steps against the order of the Appellate Assistant Commissioner holding that the assessee had incurred the liability to penalty but reducing the quantum of the penalty imposed by the Income-tax Officer. Consequently, the only question that arises for consideration is as to whether the Tribunal was right in holding that Section 271(2) is applicable to the case and the Appellate Assistant Commissioner was wrong in bifurcating the section by imposing the penalty as if the assessee was an unregistered firm but restricting the maximum amount to 50 per cent. of the tax payable by the assessee as a registered firm. As a matter of fact, the Tribunal has stated in its order thus:

'Under Section 271(1)(i), the amount of penalty has to be calculated on the basis of the tax payable by the assessee. When penalty has to be calculated in the case of the registered firm, the tax liability of the firm has to be determined as if the firm was not registered on account of thefiction created in Section 271(2). The Appellate Assistant Commissioner's finding that the penalty leviable under Section 271(1)(a) should be restricted to 50 per cent. of the tax payable by the assessee as a registered firm, fails to give effect to Section 271(2) and ignores the fiction created under it. The Appellate Assistant Commissioner's further finding that the fiction created under Section 271(2) will apply only to the computation of penalty leviable under Section 271(1)(i) and not to the maximum penalty leviable is totally unwarranted in view of the clear and unambiguous language of Section 271(2). The fiction created under Section 271(2) will apply for the computation of penalty as well as the ceiling fixed for the levy of penalty. The Appellate Assistant Commissioner's finding leads to the anomalous conclusion that the fiction created under Section 271(2) should be limited only to the computation of penalty and should not be extended to the ceiling fixed for the levy of penalty. Such bifurcation of the fiction created under Section 271(2) is totally unwarranted and not supported by either Section 271(1)(i) or Section 271(2)......'

7. The learned counsel for the assessee submits that he never supported the theory of bifurcation adopted by the Appellate Assistant Commissioner and all along the case of the assessee was that Section 271(2) was not at all attracted to the present case because the fiction to apply should have been created by Section 271(1) itself and the fiction not having been created by Section 271(1) itself, the fiction created under Section 271(2) did not apply, We are unable to appreciate this argument. The language of Sub-section (2) of Section 271 is couched in the widest possible language and it has got the overriding effect in view of the express provisions contained therein, namely, ' notwithstanding anything contained in the other provisions of this Act'. Consequently, whether this sub-section finds a place as a separate sub-section or finds a place as a part of Section 271(1), the language is clear and categorical and applies to the present case. That is the view which we have taken in our judgment dated April 1, 1976, in Subramaniam and Brothers v. Commissoner of Income-tax : [1977]106ITR508(Mad) and in our judgment dated September 13, 1976, in Essorde Industrial v. Commissioner of Income-tax : [1977]110ITR298(Mad) . Under these circumstances the conclusion of the Tribunal is absolutely unexceptionable and, therefore, we answer the question referred to this court in the affirmative and against the assessee. There will be no order as to costs.


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