Penalty under Section 271(1)(c) of the Income-tax Act, 1961 can be levied only in the case of an assessee having positive income and not loss.

K.S.Bhalla, J.

1. At the instance of the Revenue, the Income-tax Appellate Tribunal, Amritsar, has referred the following two questions for the opinion of this court with regard to the assessment year 1970-71 concerning Prithipal Singh and Co., Ludhiana :

"(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in holding : (a) that the provisions of the Explanation to Section 271(1)(c) will not be attracted to the present case ?

(b) that the word income occurring in Clauses (c) and (iii) of Section 271(1) refers to a positive income only and not to a loss ?

(2) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in cancelling the penalty order passed by the Inspecting Assistant Commissioner by holding that no penalty could be levied against the assessee ?"

2. The assessee, which was a firm existing in the assessment year 1970-71, filed its return for the said assessment year on September 30, 1970, declaring loss of Rs. 3,35,830, The Income-tax Officer, vide his order, annexure "A", found that it was a case of concealment and suppression of income as the assessee had furnished inaccurate particulars of its income. He computed the assessees income at Rs. 1,47,978 and, in the course of the assessment proceedings, started penalty proceedings under Section 271(1)(c) of the Income-tax Act, 1961 (hereinafter called "the Act"), for the reason that the assessee had grossly understated its income. The assessee went in appeal to the Appellate Assistant Commissioner against the order of the Income-tax Officer and the Appellate Assistant Commissioner determined the loss at Rs. 34,164 against the returned loss of Rs. 3,35,830, vide his order dated November 30, 1973, annexure "B". The penalty proceedings initiated by the Income-tax Officer were referred to the Inspecting Assistant Commissioner (Central), Ludhiana, under Section 274(2) of the Act and, vide his order, annexure "C", he imposed a penalty of Rs. 3,50,000 for concealment under Section 271(1)(c) of the Act for that assessment year. The assessee went in appeal to the Income-tax Appellate Tribunal against the imposition of penalty by the Inspecting Assistant Commissioner which was allowed, vide its order dated August 22, 1978, annexure "D", holding that no penalty could be imposed upon the assessee when it had returned a loss and it had also been assessed finally on a loss figure. Thereafter, the Commissioner of Income-tax (Central), Ludhiana, moved an application before the Income-tax Appellate Tribunal, Amritsar, which resulted in the present reference.

3. Penalty imposed is paid in addition to the tax payable. When there is no tax payable, the question of any penalty does not arise. In fact, evasion of tax is the sine qua non for imposition of penalty. Clause (iii) deals with cases referred to in Clause (c) under Sub-section (1) of Section 271 of the Act and it clearly provides therein that the penalty or further sum payable by a person would be in addition to any tax payable by him. Explanations 3 and 4 annexed to the said provision of law also presuppose taxable income with regard to the assessment year in question. If there is no taxable income or tax assessed for payment during a particular year, the question of evasion and consequently penalty do not arise. As is obvious from annexure "B", the assessee was assessed finally at a loss figure amounting to Rs. 34,164 as pointed out at page 33 of the record. Thus, there was no income and so the motive to avoid tax during the year in question is completely missing. May be, it may give a benefit to the assessee in the coming year as the loss could be carried forward but, by no stretch of imagination, can it be said that, during the assessment year in question, the assessee had concealed its income.

4. "Income" has been defined in Section 2(24) of the Act which clearly includes profits, gains, dividends or other benefits derived onl