COMMISSIONER OF INCOME TAX VS LOHIYA TRADING CO.
2002 P T D 1702
[242 I T R 434]
[Andhra Pradesh High Court (India)]
Before P. Venkatarama Reddi and V. Eswaraiah, JJ
COMMISSIONER OF INCOME‑TAX
versus
LOHIYA TRADING CO.
Case Referred Nos.4 of 1991 and 110 of 199'7, decided on 03/11/1999.
Income‑tax‑‑‑
‑‑‑‑Penalty‑‑‑Firm‑‑‑Registered firm‑‑‑Failure to file returns in time‑‑ Quantum of penalty‑‑‑Computation of "Assessed Tax" under S.271(l)(b)‑‑‑Advance tax actually paid by firm is deductible and not advance tax payable treating firm as if it were unregistered‑‑‑Indian Income Tax Act, 1961, S.271.
Where a registered firm fails to furnish its returns in time, the quantum of penalty, according to subsection (2) of section 271 of the Income Tax Act, 1961, would be the same as would be imposable if the defaulting registered firm was treated as an unregistered firm. Thus, a fiction is introduced by subsection (2) for the purpose of the levy of penalty under subsection (1). The next question is what is the amount of penalty that would be payable by an unregistered firm if the registered firm is treated as an unregistered firm. Subsection (1)(i)(b) of section 271 quantifies the penalty at two per cent. of "Assessed tax" for every month of default. What then is the "assessed tax"? "Assessed tax" is defined by the Explanation itself. As per the Explanation, in arriving at the assessed tax, advance tax if any paid under Chapter XVII‑C should be deducted. It is on the remaining tax, that a sum equivalent to 2 per cent. per month should be calculated at the rate applicable to an unregistered firm. In the face of the express language, the Tribunal was not right in holding that the advance tax which was not actually paid, but which was require paid registered firm should be deducted.
CIT v. Palaniappa Transports (1980) 124 ITR 634 (Mad.) ref.
J.V. Prasad for the Commissioner
Nemo for the Assessee.
JUDGMENT
P. VENKATARAMA REDDI, J.‑‑‑In these reference cases arising under the Income Tax Act, 1961, the Tribunal referred the following questions of law for the opinion of this Court:
"(1) Whether the Income‑ tax Appellate Tribunal was correct in law in holding that. in view of the non‑obstante clause found in section 271(2) of the Income Tax Act, 1961, the term `assessed tax' occurring in section 271(1)(i)(b) has to be construed de hors the Explanation thereto?
(2) Whether the Tribunal was correct in law in holding that reading together the provisions of subsections (1)(i) and (2) of section 271, it is not the amount of advance tax which was actually paid by the registered firm that is material for deduction from the amount of the tax payable on the income of a registered firm treated as an unregistered firm under section 271(2) but it is the amount of advance tax payable by such an unregistered firm which is relevant for the purpose of quantifying the amount of penalty leviable under section 271(1)(a) in the manner provided under section 271(1)(i)(b) of the Income Tax Act, 1961?
In R.C. No.4 of 1991, the question is couched in a different language, but, in substance, it is the same. The question is as follows:
"Whether the Tribunal was correct in law in holding that reading together the provisions of subsections (1)(i) and (2) of section 271, it is not the amount of advance tax which was actually paid by the registered firm that is material for deduction from the amount of the tax payable on the income of a registered firm treated as an unregistered firm under section 271(2) but it is the amount of advance tax payable by such an unregistered firm which is relevant for the purpose of quantifying the amount of penalty leviable under section 271(1)(a) in the manner provided under section 271(1)(i)(b) of the Income Tax Act, 1961?"
The assessee which is a registered firm filed returns of income with a delay of abut ten months for the years 1982‑83 and 1983‑84. The assessee did not respond to the penalty notice. Hence, penalty of Rs.6,420 in one case and Rs.6,920 in another case was levied under section 271(1) of the Income‑tax Act. On appeal, the Assistant Commissioner confirmed the penalty. On further appeal, the Appellate Tribunal allowed the appeal partly while accepting the additional ground raised by the appellant. The contention was that penalty under section 271(1)(a) ought to be calculated by deducting the quantum of the advance tax payable by the unregistered firm inasmuch as for the purpose of levy of penalty under the said provision, a registered firm is treated as an unregistered firm. It is this view of the Tribunal 'that is assailed by the Revenue in this reference case. The answer to the question turns on the interpretation of section 271(2) read with section 271(1) of the Income‑tax Act. The mode of computation of penalty by the assessing authority was by way of calculating the tax notionally treating the registered firm as unregistered firm. However, in so calculating the tax for the purpose of levy of penalty under section 271(i) of the Act, the advance tax paid by the registered firm (respondent‑assessee) was given credit to. The Tribunal has taken the view that not only the advance tax actually paid by the assessee‑firm, but also the advance tax payable in respect of notional tax liability of the unregistered firm should be deducted while calculating the tax. In other words, it is the view of the Tribunal that in view of the non‑obstante provision contained in subsection (1) .of section 271, the income shall be notionally treated as the income of the unregistered firm and the advance tax attributable to such notional income of the unregistered firm should be deducted irrespective of the fact whether such advance tax was paid or not. The Tribunal having referred to section 271(2), observed as follows:
"In other words; the Explanation of `assessed tax' is excluded by this non‑obstante clause. What is left is the main provision relating to the levy of penalty which is a sum equal to 2 per cent. of the assessed tax for every month during which the default continued. The term `assessed tax' occurring in section 271(1)(i)(b) has to be construed de hors the Explanation thereto in view of the non‑obstante clause found in section 271(2). Therefore, once we assume that the registered firm is an unregistered firm for purposes of levy of penalty, all consequences should follow, viz., rate of tax applicable to unregistered firm and also the amount of advance tax referable to an unregistered firm whether paid or not."
Ultimately, the Tribunal held that it is not the amount of advance tax which was actually paid by the registered firm as a registered firm that is material for deduction from the amount of tax payable on the income of a registered firm treated as an unregistered firm. Rather, it is the amount of advance tax payable by the unregistered firm which is relevant for the purpose of quantifying the amount of penalty in the manner provided under section 271(1)(i)(b) of the Income-tax Act"..
The Tribunal drew its support heavily from the Madras High Court in CIT v. which interpreted section 280‑O of the Income‑tax Act.
We are unable to endorse the view taken by the Tribunal. The Tribunal in our view read something into the crucial provisions which is not there by importing the notions underlying section 280‑O relating to annuity deposit. In fact, if we accept the contention of the Tribunal that the terms "assessed tax" occurring in section 271(1)(i)(b) has to be construed without reference to the Explanation thereto, perhaps the assessee will be exposed to higher penalty because there will be no provision for deducting the tax at all in terms of the Explanation. We are unable to understand as to how the Tribunal enunciated the proposition that the advance tax which was not paid at all could also be deducted notionally from the tax attributable to an unregistered firm. If the Explanation is eschewed from consideration, there is no other provision under which deduction of unpaid advance tax could at all be given effect to. There is no warrant for the view that the non‑obstante provision in subsection (2) excludes the Explanation defining the "assessed tax". There is no incompatibility between the two and both must be read harmoniously.
The view taken by the Tribunal, in our considered view, is contrary, to the plain language and intendment of section 271(2) read with section 271(1). If the view of the Tribunal is to be accepted, section 271(2) which is intended to visit registered firms, committing various types of default with heavier penalty, will be denuded of its efficacy and intended effect. Neither the language nor the purpose underlying the said provision countenances such interpretation. The process of reasoning adopted by the Tribunal was greatly influenced by the decision of the Madras High Court in CIT v. Palaniappa Transports (1980) 124 ITR 634 interpreting section 280‑0. The ratio decidendi of that decision which turns on a provision couched in a different language is quite different and the same is inapplicable to the present case.
Let us now notice the relevant provisions which we have to interpret. The relevant part of section 271 (1)‑and the Explanation thereto reads as follows:
"271. (1) If the Assessing Officer in the course of any proceedings under this Act, is satisfied that any person‑‑‑
(a) has failed to furnish the return of total income which he was required to furnish under subsection (1) of section 139 or by notice given under subsection (2) of section 139 or section 148 or has failed to furnish it within the time allowed and in the manner required by subsection (1) of section 139 or by such notice, as the case may be, or...
(i) in the cases referred to in clause (a),‑‑
(b) in any other case, 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.
Explanation.‑‑‑In this clause `assessed tax' means tax as reduced by the sum, if any, deducted at source under Chapter XVII‑B or paid in advance under Chapter XVII‑C.
(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 subsection (1) shall be the same amount as would be imposable on that firm if that firm were an unregistered firm."
According to subsection (2) of section 271, the quantum of penalty would be the same as would be imposable if the defaulting registered firm is treated as an unregistered firm. Thus, a fiction is introduced by subsection (2) for the purpose of levy of penalty under subsection (1). The next question is what is the amount of penalty that would be payable by an unregistered firm if the registered firm is treated as apt unregistered firm. Subsection (1)(i)(b) of section 271 quantifies the penalty at two per cent. of the assessed tax for every month of default. What then is the "assessed tax"? "Assessed tax" is defined by the Explanation itself. As per the Explanation, in arriving at the assessed tax, advance tax if any paid under Chapter XVII‑C should be deducted. It is on the remaining tax, that a sum equivalent to two per cent. per month should be calculated at the rate applicable to an unregistered firm. In the face of the express language, there is no scope for argument that the advance tax which was not actually paid, but which is required to be paid by an unregistered firm should be deducted. While we agree with the Tribunal that for all practical purposes, the registered firm shall be treated as an unregistered firm for the purpose of levying the penalty, we cannot endorse the view that the advance tax liability of the unregistered firm shall be notionally calculated and given set off while arriving at the assessed tax. Apart from the fact that such interpretation flies in the face of the language used in the Explanation, there is no provision, de hors the Explanation, which enables the unregistered firm to deduct the advance tax payable though not paid.
The decision of the Madras High Court in CIT v. Palaniappa Transports (1980) 124 ITR 634 referred to above turned on the interpretation of section 280‑O in which the crucial words used are: `required to be made under this Chapter'. The ratio decidendi of the judgment is to be found in the following passage.(page 638): .
"The question for our consideration is, whether in the present case, where no annuity deposit was actually made by the assessee, the assessee would be eligible for the deduction of the said amount for the purpose of computation of penalty treating the firm as an unregistered firm. The language of the provision, viz., `required to be made under this Chapter' envisages deduction being given of the amount envisaged as payable by the statute even if the amount had not been actually paid by the assessee. The actual payment is not the statutory criterion. In other words, supposing an individual was liable to pay annuity deposit and he was also liable to pay penalty under section 271(1), the computation of tax would have to be on the basis of the annuity deposit statutorily due from him and the annuity deposit to due, irrespective of payment, would, therefore, have to be deducted out of the total income. The fact that the amount was not actually paid is not relevant on the language of the provision as it then stood."
The language in the Explanation to section 271(1) is materially it. The Tribunal was not right in deriving support for its view tat judgment.
In the result, the questions are answered in the negative and in favour of the Revenue. Reference cases are disposed of accordingly.
M.B.A./706/FCOrder accordingly