ORDER
M.A. Bakshi, Judicial Member
1. These two appeals filed by the revenue are directed against the consolidated order of AAC, Range-I, New Delhi for asst. years 1983-84 and 1984-85. Assessee is a charitable trust. Under Section 139(1) it was required to file the return of income for asst. year 1983-84 by 30th June, 1983 and for asst. year 1984-85 by 30th June, 1984. The return for asst. year 1983-84 was, however, filed on 22nd February,1985 and forasst. year 1984-85 it was filed on 30th September, 1985. In view of provisions of Sections 11 and 12 of the Income-tax Act, 1961, the income of the assessee was assessed at nil for both the asst. years. There being a default in not filing the return of income in time, assessing officer initiated penalty proceedings Under Section 271(1)(a) and imposed a penalty of Rs. 1,080 for asst. year 1983-84 and Rs. 2,036 for asst. year 1984-85. The penalty has been calculated @ 1% of total receipts for each year of default for both the asst. years.
2. In appeal, the default of late filing of the return was admitted. However, it was claimed that by virtue of Section 271 (3)(d) of the Income-tax Act, 1961, no penalty Under Section 271(1)(a) is imposable in this case. The AAC cancelled the penalty in view of the decision of the ITAT in the case of Trade Development Authority in IT Appeal No. 1234 (Delhi) of 1986 for asst. years 1976-77 to 1980-81.
3. Revenue is aggrieved and thus in appeal. The learned D.R. Shri Subash Kumar contended that Section 271(3)(d) is not applicable in this case as no penalty under Clause (iii) of Section 271(1) read with Explanation 3 thereto has been imposed in this case. The decision of the ITAT in the case of Aggarwal Dharmarth Hospital Society (Regd.) v. ITO [1990] 33 ITD 465 (Delhi) was cited in support of the contention, that Section 271(3)(d) is not applicable in this case.
4. We have given our careful consideration to the rival contentions. Under Section 139(1) every person, whose total income exceeds the maximum amount which is not chargeable to income-tax, is under an obligation to file the return of income by specified dates. Since in the case of trusts, the total assessable income may not exceed maximum amount which is not chargeable to income-tax by giving effect to Sections 11 and 12 of the Income-tax Act, 1961, there would be no obligation for filing the return of income Under Section 139(1). However, Section 139(4A) has been incorporated to make it obligatory for such trusts to file the returns of income if the total income computed under the Income-tax Act without giving effect to the provisions of Sections 11 and 12, exceeds the maximum amount which is not chargeable to income-tax. So in the case of trusts even if the assessed income is nil, the obligation to file the return of income is to be determined with reference to Section 139(4A) of the Income-tax Act, 1961. In this case, it has never been the contention of the assessee that if effect to Sections 11 and 12 is not given, the income of the trust would not exceed the maximum amount which is not chargeable to income-tax. Moreover, AAC in his decision has observed that the default has been admitted for both the asst. years. We accordingly proceed on the basis that the income of the trust without giving effect to Sections 11 and 12 of the Income-tax Act, 1961 exceeds the maximum amount which is not chargeable to income-tax for both the assessment years i.e., 1983-84 and 1984-85.
5. In the event of default for late filing of the return or failure to file the return of income, Section 271 provides for levy of penalty. Section 271(1)(a) provides for levy of penalty @ 2% of the assessed tax for every month of default. In the case of the trust after giving effect to Sections 11 and 12, if the income assessed would be less than the maximum amount which is not chargeable to tax, Section 271(1)(a) would not be attracted. However, in order to provide for such eventuality, the Legislature, in its wisdom has incorporated sub-section (ia) in Section 271(1 )(a) which is reproduced hereunder:
271(1) If the assessing officer or the Deputy Commissioner (Appeals) or the Commissioner (Appeals) 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 sub-section (1) of Section 139 or by notice given under sub-section (2) of Section 139 or Section 148 or has 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, or he may direct that such person shall pay by way of penalty,-
(ia) in the case of a person referred to in sub-section (4A) of Section 139 where the total income in respect of which he is assessable as a representative assessee does not exceed the maximum amount which is not chargeable to income-tax, as sum not exceeding 1% of the total income computed under this Act without giving effect to the provisions of Sections 11 and 12, for each year or part there of during which the default commuted.
Thus it is evident that even where in the case of a trust income assessed is nil, penalty Under Section 271(1)(a) can still be imposed as the quantification is with reference to the income without giving effect to provisions of Sections 11 and 12 of the Act. The appeal of the assessee has been allowed on the ground that by virtue of Section 271(3)(d) of the Income-tax Act, 1961, no penalty is imposable in this case. In our view, it will be useful to quote Section 271(3) for ready reference:
271(3) 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 ;
(b) where a person has failed to comply with a notice under sub-section (2) of Section 139 or Section 148 and proves that he has no income liable to tax, the penalty imposable under sub-section (1) shall not exceed twenty-five rupees;
(c) no penalty shall be imposed under sub-section (1) upon any person assessable under Clause (i) of Section 160, read with Section 161, as the agent of a non-resident for failure to furnish the return under sub-section (1) of Section 139 ;
(d) the penalty imposed under Clause (i) of sub-section (1) and the penalty imposed under Clause (iii) of that sub-section, read with Explanation 3 thereto, shall not exceed in the aggregate twice the amount of the tax sought to be evaded.
6. It is noteworthy that in Clause (a) of sub-section (3) the words “No penalty … shall be imposed under sub-section (1)” have been used. In Clause (c) also the words “no penalty shall be imposed” have been used. In Clause (d) the words used are “the penalty imposed under Clause (i) of sub-section (1) and the penalty imposed in Clause (iii) of that sub-section read with Explanation….” whereas in clauses (a) and(c) the words ‘no penalty shall be imposed have been used the Legislature in its wisdom has deliberately used the words ‘penalty imposed’ in Clause (d) of Section 271(3). In our view, under Clause (a) of Section 271(3) there is a bar on imposition of penalty, in such cases where total income does not exceed the maximum amount not chargeable to tax by a sum of Rs. 1,500. However proviso to sub- section (3) makes it abundantly clear that this bar does not apply in cases where the obligation to file the return is Under Section 139(4A). Thus Clause (a) of Section 271(3) does not apply to Trusts. Under Clause (d) of sub-section (3) the bar is not for imposition of penalty but for the maximum amount of penalty imposed. Where the penalty has been imposed under Clause (0 of sub-section (1) and no penalty has been imposed under Clause (iii) of that section read with Explanation 3, Clause (d) of sub-section (3) has no application. Section 271(3)(d) was incorporated with a view to mitigate to some extent the rigour of Explanation 3 to sub-section (iii) of Section 271 and not to defeat other provisions of the Act. If the contention of the assessee were to be accepted then in the case of trust where the income does not exceed the amount which is not chargeable to tax, no penalty would be imposable at all. This would defeat the provisions of Section 271(1)(a) of the Income-tax Act, 1961 as well as the provisions of Section 139(4A). Explanation 3 to Section 271 was inserted under the Taxation Laws (Amendment) Act, 1975 w.e.f. 1-4-1976. This Explanation provides that if a person who has not hitherto been assessed to tax, does not file a return of income for asst. year voluntarily within the normal period of limitation and no notice Under Section 139(2) or 148 is issued to him till the expiry of the said period he is treated to have concealed his income and penalty could be leviable on him accordingly if he is later found to have had taxable income in that year. Clause (d) of sub-section (3) of Section 271 was also enacted by the Taxation Laws (Amendment) Act of 1975 w.e.f. 1-4-1976. In the explanatory notes to the Taxation Laws (Amendment) Act, it has been clarified that the ceiling prescribed under Clause (d) of Section 271(3) was meant to mitigate to some extent the rigour of Explanation 3 in respect of those assessees who were not hitherto assessed and who are covered by Explanation 3 to Section 271. Considering the facts and circumstances of the case, we are of the firm view that Section 271(3)(d) of the Income-tax Act, 1961 is not applicable to the facts of this case.
7. The AAC has relied upon the decision of the IT AT in Trade Development Authority’s case (supra) for cancellation of penalty. We find that the penalty in that case has been deleted on two counts, viz., that penalty imposable Under Section 271(3)(d) works out to nil as no tax was found payable by the authorities. Secondly, the Tribunal found that there was a reasonable cause for the delay in the filing of the return. The relevant portion of this decision relating to applicability of Section 271(3)(d) is quoted hereunder for ready reference:
The learned counsel also referred to the provision of law under which no penalty was leviable on the assessee. He pointed out that sub-section (3)(a) of Section 271 provides that no penalty for failure to furnish the return of income Under Section 139(1) could exceed in the aggregate twice the amount of the tax sought to be evaded. He submitted that no tax was found payable, there was no question of any tax sought to be evaded. He, therefore, submitted that no penalty as such was leviable in this case.
Having heard the learned counsel for the assessee, we agree with him that in this case no penalty should have been imposed. Firstly under the law as it stands, penalty imposed would work out to be nil no tax found payable by the authorities. Secondly a bonafide belief of the authority that its income was exempted and it has no income chargeable to tax was a reasonable cause and should have been accepted for extending the delay in filing of the return.
It is evident from the relevant portion of the order quoted above that the finding recorded by the Tribunal is on the basis that penalty imposable in that case worked out to be nil. The provisions of law have not been examined in detail as penalty in any case was found not imposable there being a reasonable cause for the delay.
8. Considering the facts and circumstances of the case for the aforementioned reasons, we are satisfied that the AAC was wrong in holding that in view of provision of Section 271(3)(d) no penalty under Section 271(1)(a) was imposable in this case. The decision of the first appellate authority is accordingly set aside.
9. However, it is observed from the penalty orders for the respective years that penalty has been imposed@ l% p.a. of the gross receipts. Under Section 27 l(1)(a) penalty imposable is @ 1% of the total income computed under the provision of Income-tax Act without giving effect to the provisions of Sections 11 and 12 for each year. The assessing officer shall re-calculate the penalty after calculating the income of the trust without giving effect to provisions of Sections 11 and 12 of the Act.
10. In the result, appeals of the revenue are partly allowed.