The penalty leviable under Section 271(1)(a) of the Income-tax Act, 1961, for failure to file the return of income within the time without reasonable cause, is to be calculated on the basis of the tax due from an unregistered firm, even if the actual tax payable by the registered firm is lower.

SABYASACHI MUKHARJI, J.

( 1 ) THIS reference arises out of the proceedings for the levy of penalty under Section 271 (1) (a) of the I. T. Act, 1961. The ITO issued a notice under Section 159 (2) of the Act on 28th August, 1963, for the assessment year 1963-64. The return was due on 1st October, 1963. The previous year was 1369 B. S. ending on 14th April, 1963. The assessee filed a return on 4th January, 1965, after a delay of a little over 15 months. It was a firm of three partners and was duly assessed as a registered firm. The ITO initiated penalty proceedings under Section 271 (1) (a) read with Section 274 of the Act and issued a show-cause notice. The assessee filed a reply raising various objections. It is unnecessary for our present purpose to go into those objections as there are no materials on the point on which the reference has been made.

( 2 ) THE ITO held that the assessee was liable to penalty, under Section 271 (1) (a) of the Act, of Rs. 15,335, being 2% of the tax for every month during which the default had continued. He calculated this penalty on the basis of the tax due from an unregistered firm, as envisaged by Section 271 (2) of the Act.

( 3 ) THE assessee being aggrieved by the said order preferred an appeal before the AAC. The AAC dismissed the appeal.

( 4 ) THE assessee thereupon preferred a further appeal before the Tribunal and contended that the actual demand for tax was Rs. 5,657. 44 and this had been paid long before the penalty came to be levied. In the premises, relying on the decision of this court in the case of CIT v. Vegetable Products Ltd, [1971] 80 ITR 14, it was urged on behalf of the assessee that the penalty leviable would be "nil". On the other hand, the contention of the revenue was that the penalty had been properly imposed by the ITO. The Tribunal referred to the decision of the Calcutta High Court and was of the opinion that the penalty leviable would be "nil".

( 5 ) ON the aforesaid facts, the following questions have been referred to this court :" (1) Whether in the case of a registered firm which was liable to penalty under Section 271 (1) (a) read with Section 271 (2) of the Income-tax Act, 1961, the principle of the decision in Vegetable Products Ltd. [1971] 80 ITR 14, is applicable for computing the penalty ? (2) If the answer to question No. 1 is in the affirmative whether the direction of the Tribunal in para. 2 of annexure ' E ' is proper and legal ? "

( 6 ) THE Supreme Court in the case of CIT v. Vegetable Products Ltd. [1973] 88 ITR 192, which affirmed the decision of this court reported in [1971] 80 ITR 14, held that the tax payable was not the same thing as tax assessed. The tax payable was the amount for which a demand notice had been issued under Section 156 of the I. T. Act, 1961. In determining the tax payable, the tax already paid had to be deducted. The Supreme Court was of the view that the expression " the amount of tax, if any, payable by him " in the earlier part of Section 271 (1) (a) (i) referred to the tax payable under a notice of demand. The words "the tax" in the latter part of the provision would only refer to " the tax ", if any, " payable " by the assessee mentioned in the earlier part of Section 271 (1) (a) (i) of the Act. It was held, accordingly, that in calculating the penalty leviable under Section 271 (1) (a) (i) of the I. T. Act, 1961, for failure to file the return of income for the assessment year 1960-61, within the time without reasonable cause, the amount paid by the assessee under provisional assessment under Section 23b of the Indian I. T. Act, 1922, had to be deducted from the amount of tax determined under Section 23 (2) of that Act, in order to determine the amount of tax on which the computation of the penalty had to be based. If the court found that the language of a taxing provision was ambiguous or capable of more than one meaning, then, the court had to adopt that interpretation which favoured the assessee, more particularly

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