KANIA, J. - (1.) THIS is a reference on a case stated under s. 256(1) of the I.T. Act, 1961 (hereinafter referred to as 'the said Act'), at the instance of the Commissioner. The question referred to us for our determination in this reference is as follows : 'Whether, on the facts and in the circumstances of the case, the penalty leviable under section 271(1)(a)(i) of the Income -tax Act, 1961, against the assessee was to be quantified with reference to the gross tax as also reduced by self -assessment tax, if any, under section 140A of the Act, it being conceded by the Revenue at the time of the hearing of the appeals that the gross tax was to be reduced by the advance tax and the tax deducted at source ?'
(2.) IN view of the very limited controversy before us, we propose to summarise the relevant facts in so far as they pertained to that controversy. The assessment years are 1962 -63 and 1963 -64. The assessee failed to furnish returns of her income in accordance with the provisions of s. 139(1) of the said Act for the said two years. Notices under s. 139(2) of the said Act were served by the ITO on the assessee to file her returns. Some extension of time was applied for and granted. It is common ground, however, that in respect of the assessment year 1962 -63, there was a delay of 11 months. The assessments were finalised by the ITO on October 31, 1966, and on that very day, the penalty notices were issued to the assessee under s. 271(1)(a) read with s. 274 of the said Act. The assessee gave certain explanations for the delay in the filing of the returns, which were rejected by the ITO and the higher authorities. We do not propose to deal with those explanations, because there is no question in that connections before us. After rejecting the explanations, the ITO levied a penalty of Rs. 20,605 in respect of the assessment year 1962 -63 and Rs. 15,480 in respect of the assessment year 1963 -61 against the assess. An appeal preferred by the assessee to the AAC was dismissed. The assessee then came by way of an appeal before the Tribunal. The Tribunal rejected the contentions of the assessee with regard to the explanations given by the assessee for the delay. However, by way of an additional ground, which the assessee was permitted to raise, it was contended by the assessee that the penalty levied exceeded what was the maximum permissible penalty leviable under s. 271(1)(a) of the said Act. The brief controversy was that, according to the assessee, the maximum penalty leviable was to be calculated at 2 per cent. of the net tax payable by the assessee in respect of the assessment year concerned, after taking into account or giving credit for the tax deducted at source, the advance tax paid as well as tax paid at self -assessment under s. 140A of the said Act. Whereas, according to the Revenue, although the tax deducted at source and advanced tax had to be given credit for in computing the net tax payable, the assessee was not entitled to any credit in respect of the tax paid on self -assessment under s. 140A. The Tribunal accepted the contention of the assessee and reduced the amount of penalty and directed the ITO to determine the amount of penalty after calculating the amount and net tax payable by the assessee as per the contentions of the assessee set out above. It is from this decision of the Tribunal that the aforesaid question has been referred to us. Section 271 of the said Act deals with the penalty for failure to furnish the returns, comply with notices, concealment of income and so on. The relevant portion of the said section reads thus : '271. (1) If the Income -tax Office or the Appellate Assistant Commissioner, in the course of any proceedings under this Act, is satisfied that any person - (a) has without reasonable cause 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 without reasonable cause 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, - (i) 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, a sum not exceeding one per cent. of the total income computed under this Act without giving effect to the provisions of sections 11 and 12, for each year or part thereof during which the default continued; (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 reduce by the sum, if any, deducted at source under Chapter XVII -B or paid in advance under Chapter XVII -C......'
(3.) IT may be mentioned that the aforesaid Explanation has been inserted by the D. T. (Amendment) Act, 1974, with retrospective effect in the said section.;