JUDGMENT
Mrs. Leila Seth, J.
1. This is a reference at the instance of the assessed and pertains to the assessment year 1961-62. The question of law referred for our opinion is as follows :
“Whether, on the facts and in the circumstances of the case, the penalty levied under section 271(1)(a) was liable to be cancelled on the ground that on the date of the imposition of penalty there was not tax liability outstanding against the assessed ?”
2. The assessed is a registered firm which runs the Volga Restaurant. In the relevant year it was also running the Janpath Hotel on behalf of the Government. On June 13, 1961, the assessed was served with a notice under s. 22(2) of the Indian I.T. Act, 1922 (to be referred to as “the 1922 Act”) to furnish a return. In accordance with the notice, the return was due on July 18, 1961. However, the assessed filed a return only on November 5, 1965. Thereafter, the assessment was completed on March21, 1966, under s. 143(3) of the I.T. Act, 1961 (to be referred to as “the 1961 Act”). The total income assessed was Rs. 1,47,013. The ITO thereupon initiated proceedings for the levy of penalty under s. 271(1)(a) of the 1961 Act, for the default in late filling of the return. He levied a penalty of Rs. 44,272 as there was delay of fifty months.
3. On appeal by the assessed, the AAC confirmed the penalty. On further appeal, the Income-tax Appellate Tribunal declined to interfere and dismissed the appeal.
Before the Tribunal, the assessed’s argument was three-fold. The contentions of the assessed and the decision of the Tribunal on each of the three points are as follows :
First, in the circumstances of the case, no penalty should have been levied as it was prevented from submitting the return in time due to the fact that the accounts were voluminous and were audited only on September 24, 1965. The Tribunal negatived this submission holding that there was no manner of doubt that a default had been committed by the assessed and that the complication or complexity of the operations conducted by the assessed did not justify the delay of fifty months in submitting the return. Further, the assessed had not brought anything on the record to indicate as to when the account books had been given to the auditors, what were the difficulties experienced by them and what were the special circumstances resulting in the late filing of the return. The reasons given were extremely vague and the assessed had not even sought for an extension of time at any stage. It, therefore, held that the conclusion of the I.T. authorities that the assessed was not prevented by reasonable cause from submitting the return in time was correct.
Secondly, it was urged that the penalty, if at all leviable, should have been imposed in accordance with the provisions of the 1922 Act and not the 1961 Act. The Tribunal relying on the decision of the Supreme Court in Jain Brothers v. Union of India [1970] 77 ITR 107, repelled this contention.
Thirdly, it was contended that on penalty was imposable, as, on the date of levy of penalty, no tax was payable by the assessed, the tax demanded having been already paid. The Tribunal negatived this argument holding that the interpretation canvassed by the assessed would lead to ridiculous results; for, as soon as a penalty notice was issued, the assessed would immediately pay all the tax due and then claim that no penalty could be levied or imposed. It, therefore, came to the conclusion that the liability to pay penalty arose during the period of default and it was determined on the date on which the default came to an end. The fact that the assessed had paid the taxes before the actual levy of the penalty was of no consequence whatsoever.
Thereafter, the assessed moved an application under s. 256(1) of the 1961 Act and prayed that the following three questions be referred :
“(1) Whether, on the facts and in the circumstances, the levy of penalty according to the 1961 Act for a default under the 1922 Act was justified ?
(2) Whether, on the facts and the in the circumstances, the levy of penalty, though no tax liability was outstanding at the date of imposition therefore, was justified ?
(3) Whether, on the facts and in the circumstances, the levy of penalty calculated for the whole period of default was justified ?”
In a subsequent application, the assessed proposed a further question, namely :
“Whether, in the circumstances of the case, no penalty should have been levied ?”
4. The Tribunal while disposing of the reference application held that question No. (1) and the additional question proposed were concluded by the decision of the Supreme Court in Jain Brothers’ case [1970] 77 ITR 107 especially in view of its observations at pp. 117 and 118. As such, no reference was made on these questions as the answers would be self-evident.
With regard to question No. (3), the Tribunal held that it was neither specific nor clear and did not refer to any matter in controversy before it. As a result the only question that was referred to this court for its opinion was question No. (2) after it has been reformulated. This reframed question has already been set out above, at the beginning.
5. In this court, Mr. G. C. Sharma, learned counsel for the assessed, urged that penalty cannot be imposed at a time when no tax is payable by the assessed, the assessed tax having been already paid before the date of imposition of penalty.
6. He further contended that since s. 271(1)(a) of the 1961 Act had been amended retrospectively, it would not apply to the present case and the provisions of s. 28 of the 1922 Act would apply, as, according to him, the offence was committed on July 18, 1961, the date on which the return was due.
It would appears to us that it is not open to learned counsel to make this further contention in view of the fact that question No. (1), as above noticed, was not referred to this court as being directly covered by the decision in Jain Brother’s case . It is also not possible, as requested by learned counsel, to reformulated the question referred, to include this aspect, in view of the specific rejection of question No. (1) by the Tribunal.
It is, therefore, clear that in order to answer the question referred for our opinion, it is necessary only to examine the provisions of the 1961 Act.
Section 271(1)(a) deals with delay or failure to furnish a return. Section 271(1)(i), as it originally stood at the relevant time, was as follows :
“(i) in the case 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.”
For the above clause, the following was substituted by the Direct Taxes (Amendment) Act, 1974, with retrospective effect from the commencement of the 1961 Act, the effect of the amendment being to substitute “assessed tax” for “tax” and to insert an Explanation :
“(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 assessed tad for every month during which the default continued, but not exceeding in the aggregate fifty per cent. of the assessed tax.
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.”
7. Elaborating his argument, Mr. Sharma relying on the Supreme Court’s decision in CIT v. Vegetable Products Ltd. [1973] 88 ITR 192, urged that as “the tax payable” is the amount for which a demand notice is issued under s. 156 of the 1961 Act, this demand having been satisfied there was no tad payable on the relevant date. In determining the tax payable, the tax already paid had to be deducted. He, therefore, contended that the expression “the amount of tax, if any, payable by him” referred to in s. 271(1)(a)(i) meant the tax payable under a notice of demand; and the use of the words “the tax” in the latter half of the provision could refer only to “the tax, if any, payable by him”. Since to tax was payable on the date of the imposition of penalty (the tad due having already been paid), no penalty was leviable. He also submitted that if the language of the taxing provision was ambiguous then an interpretation favorable to the assessed should be adopted, more particularly so, as the provisions related to an imposition of penalty.
8. The decision of the Supreme Court in Vegetable Products Ltd. does not really assist the argument of the assessed. It is no doubt true that is decides that the tax payable is the amount for which a demand notice is issued under s. 156 of the 1961 Act. But it does not hold that the amount of tax outstanding on the date of levy of the penalty is to be the basis for the imposition of the penalty.
9. The court was dealing with a case whether a provisional assessment had been made under s. 23B of the 1922 Act and was drawing a distinction between the tax assessed and the tax payable. There, in determining the penalty due from the assessed, the ITO had taken into consideration not the amount demanded under s. 156 but the amount assessed under s. 143 of the 1961 Act. The Supreme Court held that the penalty was leviable on the tax assessed under s. 143 minus the amount paid under the provisional assessment order, i.e., the amount demanded as tax payable under s. 156 of the 1961 Act.
10. The Madras High Court dealt with a similar contention as raised before us in CIT v. Kandaswami Weaving Factory & Co. [1977] 110 ITR 84. That court while dealing with the amended s. 271(1)(a)(i), as set out above, repelled the argument that no penalty could be imposed unless the tax was due and outstanding on the date of the imposition of the penalty. Though that case was specifically decided on the language of the amended section, it would appear to us not to make any real difference on this aspect.
11. In the present case, it is not in dispute that a notice of demand under s. 156 of the 1961 Act was issued to the assessed and “the tax payable” was the amount to be paid as per the notice of demand. it is not a case where the assessed had paid his tax liability in advance and only failed to file a return in time. In such a case, there would have been no tax payable or demanded under s. 156 of the 1961 Act. The Explanation to the amended provision of s. 271(1)(a)(i) of the 1961 Act, which refers to “assessed tax”, makes it clear that advance tax and/or tax deducted at source is to be deducted, before calculation the penalty.
12. In our opinion, the mere fact that subsequent to the assessment and the notice of demand, the assessed has paid the amount before the date of imposition of penalty cannot debar the ITO from imposing a penalty for failure to furnish a return within time. There is no logical reason why a penalty cannot be imposed for a default which was committed prior to the assessment and the notice of demand. It is not is dispute that the assessed has been guilty of the specific default. The failure to file a return in time was the “offence” for which the assessed is being penalised that it is difficult to see what connection the subsequent payment of tax has to do with it. The default, which had already occurred, cannot be condoned by the mere payment of the tax payable or the tax assessed before the penalty order is passed. There does not appear to be any ambiguity in the language of the provision.
For the reasons outlined above, we are of the opinion that the Tribunal was justified in holding that the penalty levied on the assessed was strictly in accordance with the provisions of s. 271(1) of the 1961 Act and no interference was called for.
13. The question is, therefore, answered in the negative and in favor of the revenue. The revenue will be entitled to its costs. Counsel’s fee Rs. 300.
14. Question answered in the negative.