Dwarka Prasad, J. - (1.)THE Income-tax Appellate Tribunal, Jaipur Bench, Jaipur (hereinafter-called "the Tribunal"), has by its order dated August 8, 1974, referred the following question of law to this court for its opinion, as arising out of the order of the Income-tax Appellate Tribunal dated July 24, 1973.
"Whether, on the facts and in the circumstances of the case, the Tribunal was right in cancelling the penalty levied under Section 271(1)(a) of the Income-tax Act, 1961 ?"

(2.)THE assessee, M/s. Surana & Co., Bhilwara, is a registered partnership firm. In respect of the assessment year 1968-69, the assessee was required to file a return of its total income by June 30, 1968. THE return was actually filed by the assessee on March 13, 1969, after a delay of over eight months. THE assessee had paid a sum of Rs. 4,475 as advance tax under Section 210 of the I.T. Act, 1961 (hereinafter referred to as "the Act"). After the provisional assessment was completed on the basis of the return filed, the assessee further paid a sum of Rs. 1,306 under Section 141 of the Act and, thus, a total sum of Rs. 5,781 was paid by the assessee towards the tax payable by him for the aforesaid assessment year. After regular assessment proceedings, the ITO determined the gross tax payable by the assessee as Rs. 5,221. As more than the" aforesaid amount had already been paid by the assessee, no amount was payable by the assessee by way of tax at the time when the regular assessment took place and the stage of issuing a demand notice was reached.
As the return of its total income was filed by the assessee after a delay of more than eight months, a notice to show cause as to why penalty should not be imposed upon it under Section 271(1)(a) of the Act was issued. The only explanation furnished by the assessee was that the entire amount due on account of tax had already been paid by the assessee before the assessment proceedings were completed and as such no penalty could be imposed under Section 271(1)(a)(i)(b) of the Act. The ITO did not accept this contention and held that as the return was not filed within the time allowed under Section 139(1) of the Act, penalty under Section 271(1)(a) was attracted. The ITO treated the assessee, for purposes of imposition of penalty, as an unregistered firm on account of the provisions of Sub-section (2) of Section 271 and determined a sum of Rs. 5,434 as the amount of penalty payable by the assessee in the status of an unregistered firm.

The assessee filed an appeal before the AAC, Bhilwara. The AAC, by his order dated October 12, 1971, held that the penalty provisions contained in Section 271(1)(a) were attracted to the case, as no explanation was filed by the assessee for late filing of the return and as no reasonable cause preventing it from filing the return within the specified time was' disclosed. It was held that the ITO had correctly worked out the penalty amount after allowing the deduction of tax deposited by way of advance tax under Section 210 and that the amount of tax paid under Section 141 after the provisional assessment, could not be taken into consideration for purposes of determining the liability of the assessee for imposition of penalty.

However, on further appeal, the Income-tax Appellate Tribunal, Poona Bench, Camp Jaipur, by its order dated July 24, 1973, did notagree with the view taken by the AAC. Following the decision of their Lordships of the Supreme Court in CIT v. Vegetable Products Ltd. [1973] 88 ITR 192, the Appellate Tribunal held that the "tax payable" for purposes of determination of the liability of the assessee for imposition of penalty is the amount of tax for which demand notice is issued under Section 156 and that in determining the "tax payable" for the purpose of Section 271(1)(a)(i)(b) of the Act, the amount of tax paid not only by way of advance tax but also the amount of tax paid as a result of provisional assessment has to be deducted. Thus, the Appellate Tribunal held that as no amount of tax was payable by the assessee at the time when the demand notice was issued by the ITO and so the assessee did not become liable for imposition of penalty. The Tribunal also held that Sub-section (2) of Section 271, providing that for purposes of determining the quantum of penalty under Sub-section (1) of Section 271, a registered firm shall be treated as if it was an unregistered firm, though created a legal fiction, yet the said provision cannot be read in isolation and had to be read along with the provisions contained in Section 271(1)(a)(i)(b) and the provisions of Sub-section (2) of Section 271 would only be attracted if any amount of tax was payable by the assessee at the time the demand notice was issued. The Appellate Tribunal consequently cancelled the order of penalty passed by the ITO and directed that the amount of penalty, if collected from the assessee, be refunded to him.

Thereupon the Addl. CIT, Rajasthan, Jaipur, filed an application under Section 256(1) for making a reference to this court and the Tribunal has, referred the question reproduced above to this court, by its order dated August 8, 1974.

(3.)IT was argued before us on behalf of the Revenue that the assessee incurred the liability for imposition of penalty as soon as he failed, without reasonable cause, to furnish the return of his total income on the due date under Section 139(1) of the Act and as such Sub-section (2) of Section 271 would be attracted and the penalty was rightly determined by the ITO as if the assessee-firm was an unregistered firm. IT is urged that the Tribunal was not justified in cancelling the penalty imposed upon the assessee by the ITO and the decision of their Lordships of the Supreme Court in Vegetable Products' case [1973] 88 ITR 192, could not be applied to the case of the assessee because distinct provisions have been made in Sub-section (2) of Section 271 which became applicable when a registered firm became liable for imposition of penalty.
Section 271(1)(a), as it stood at the relevant time, was as under:

"271. (1) If the Income-tax Officer 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 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 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 tax for every month during which the default continued, but not exceeding in the aggregate fifty per cent. of the tax."

Their Lordships of the Supreme Court in Vegetable Products' case [1973] 88 ITR 192, while interpreting the provisions of Section 271(1)(a)(i), held that "the tax payable" is not the same thing as the tax assessed and the tax payable is the amount for which the demand notice is issued under Section 156 of the Act. Their Lordships held that in determining "the tax payable", for purposes of imposition of penalty, the tax already paid has to be deducted and, hence, the expression "the amount of the tax, if any, payable by him", referred to in the first part of Section 271(1)(a)(i) refers to the tax payable under a demand notice. It was also held that the expression "two per cent. of the tax" occurring in the aforesaid provision also referred to the tax, if any, payable by the assessee as mentioned in the first part. Thus, it was held by their Lordships in the aforesaid case that for calculating penalty leviable under Section 271(1)(a)(i), for failure to file the return of income within the specified time without reasonable cause, the amount of tax already paid by the assessee, not only by way of advance tax but also under the provisional assessment, has to be deducted from the amount of gross tax assessed, in order to determine the amount on which the computation of penalty was to be based. The question of application of Sub-section (2) of Section 271 did not arise before their Lordships of the Supreme Court in Vegetable Products' case [1973] 88 ITR 192 because in that case the assessee was a limited company. Sub-section (2) of Section 271 reads as under :

"(2). When the person liable to penalty is a registered firm or an unregistered firm which has been assessed under Clause (b) of Section 183, then, notwithstanding anything contained in the other provisions of this Act, the penalty imposable under Sub-section (1) shall be the same amount as would be imposable on that firm if that firm were an unregistered firm."