Verma, C.J. - (1.)THIS is a reference under Section 256(1) of the Income-tax Act, 1961 ("the Act"), at the instance of the Revenue to decide the following question of law, namely :
"Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that no penalty under Section 271(1)(a) of the Income-tax Act, 1961, is leviable in this case on the assessee, a registered firm, because it has no tax liability within the meaning of Sub-clause (b) read with the Explanation to Clause (i) of Section 271(1)(a) of the Income-tax Act, 1961 ?"

(2.)THE relevant assessment year is 1978 79. THE assessee was a registered firm which was required to file the return on or before June 30, 1978. However, the assessee filed the return late on November 28, 1978. THE Income-tax Officer on completing the assessment determined the tax payable by the assessee at Rs. 25,000. However, the tax deducted at source amounted to Rs. 40,000 approximately with the result that the assessee became entitled to refund of a considerable amount which he had deposited in excess of the tax found payable by him. In spite of this situation, the Income-tax Officer initiated penalty proceedings against the assessee on the ground of late filing of the return under Section 271(1)(a)(i)(b) read with Section 139(1) of the Act. THE Income-tax Officer rejected the assessee's contention that since there was no "assessed tax" according to its meaning given in the Explanation to Sub-clause (i)(b) of Clause (a) of Sub-section (1) of Section 271, because the tax deducted at source was in excess of the amount of tax found payable by the assessee, there was no question of levying any penalty. This contention of the assessee was, however, accepted by the Commissioner (Appeals) in appeal and thereafter by the Tribunal in further appeal. Hence, this reference at the instance of the Revenue.
The real question for decision is, whether any penalty can be levied under Section 271(1)(a)(i)(b) in the case of failure to file return within the time allowed by Sub-section (1) of Section 139 even when it is found on completing the assessment that the tax deducted at source under Chapter XVII-B of the Act or paid in advance under Chapter XVII-C of the Act is equal to or in excess of the amount of tax found payable by the assessee. The relevant part of Section 271(1)(a)(i)(b) is as under :

"271. Failure to furnish returns, comply with notices, concealment of income, etc.--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 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 cases referred in Clause (a),--

(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 reduced by the sum, if any, deducted at source under Chapter XVII-B or paid in advance under Chapter XVII-C ;".

Assuming that the above penalty provision is attracted even when the tax deducted at source or paid in advance is equal to or in excess of the amount of tax found payable on assessment in the event of failure to furnish the return of total income within the time allowed by Sub-section (1) of Section 139, the point is, whether, any penalty, in fact, can be levied according to this provision. The penalty which can be imposed according to this provision in addition to the amount of the tax, if any, payable is "a sum equal to two per cent. of the assessed tax for every month during which the default continued". The expression "assessed tax", according to the Explanation, means "tax as reduced by the sum, if any, deducted at source under Chapter XVII-B or paid in advance under Chapter XVII-C". The result of applying this formula to calculate the penalty in a case like the present one, where no amount of tax remained to be paid on completion of the assessment may now be seen to find out the tenability of the argument advanced on behalf of the Revenue. In such a situation, there is no amount of tax remaining due and, therefore, nothing is required to be paid as tax due. The penalty has to be calculated at a sum equal to two per cent, of the assessed tax for every month during which the default continued. The "assessed tax" in a case like this would be zero since the tax deducted at source or paid in advance was equal to or in excess of the total tax assessed. Since the tax due is nil and so also the "assessed tax" within the meaning of that expression, any figure multiplied by zero will also be zero. The result is that even if this provision is held to be attracted to a case like the present one, the amount of penalty would be zero according to the mode of calculating the penalty prescribed in it, and, therefore, in effect, no penalty can be levied. In our opinion, this logical consequence flowing from the provision itself is sufficient to indicate that no penalty can be levied under Section 271(1)(a)(i)(b) in a case like the present one where the tax deducted at source or paid in advance is equal to or in excess of the amount of tax found to be payable on completion of the assessment.

We may now refer to another consequence of failure to file the return within the time allowed under Sub-section (1) of Section 139 which is provided in Sub-section (8) of Section 139. According to Sub-section (8) of Section 139, in such a situation, the assessee is liable to pay simple interest at the prescribed rate for the specified period on the amount of tax payable on the total income as determined on regular assessment, as reduced by the advance tax, if any, paid and any tax deducted at source. A similar question arose about the liability of the assessee, a registered firm, to pay interest in accordance with Sub-section (8) of Section 139 on its failure to file the return within the time allowed under Sub-section (1) of Section 139. The Supreme Court in Ganesh Dass Sreeram v. ITO [1988] 169 ITR 221, held as follows (p. 230) :

"Before we part with these appeals, we think we should clarify one situation, namely, where the advance tax duly paid covers the entire amount of tax assessed, there is no question of charging the registered firm with interest even though the return is filed by it beyond the time allowed, regard being had to the fact that payment of interest is only compensatory in nature. As the entire amount of tax is paid by way of advance tax, the question of payment of any compensation does not arise."

We find no reason why the same principle should not be applied also to the question of imposition of penalty when the facts on which the penalty is to be levied are the same which give rise to the liability for payment of interest and the expression used in Sub-section (8) of Section 139 for specifying the amount on which the interest is to be calculated is substantially the same as in Sub-clause (i)(b) of Clause (a) of Sub-section (1) of Section 271. The Supreme Court has pointed out that since the entire amount of tax had already been paid, the question of recovering any interest does not arise. In our opinion, for the same reason where the entire amount of tax had already been paid, being deducted at source or paid in advance, the question of imposing any penalty on the "assessed tax" does not arise, because no tax is actually due.

(3.)LEARNED counsel for the Revenue placed reliance on Sub-section (2) of Section 271 to contend that a registered firm is to be treated as an unregistered firm when penalty is imposable on it under Sub-section (1) and, therefore, the tax liability of an unregistered firm being greater, there would be some tax due as a result of the registered firm being treated as an unregistered firm. It was urged that on this basis, it would be possible to hold that there is some tax due on which penalty can be calculated according to the above provision. We find it difficult to accept this contention and to use it for construing Section 271(1)(a)(i)(b) in the manner suggested by the Revenue. In the first place, Sub-section (2) of Section 271 is attracted for quantification of the penalty only when it is imposable under Sub-section (1). In that event the registered firm loses the benefit of registration and the penalty for which it has become liable has to be calculated depriving it of the benefit of registration and treating it as an unregistered firm. This does not mean that for the purpose of deciding the liability for penalty under Sub-section (1), effect has to be first given to Sub-section (2) of Section 271 in order to make the formula for calculating the penalty under Sub-section (1) workable. That apart, this argument based on Sub-section (2) of Section 271 can obviously be relied upon for construing Sub-section (1) thereof only when the assessee is a firm and not when the assessee belongs to any other category of "person" defined in Section 2(31) of the Act. It is obvious that the benefit of Sub-section (2) of Section 271 not being available in the case of an assessee other than a registered firm, the impracticability of imposing any penalty under Section 271(1)(a)(i)(b) in a case where the tax due is nil is not met by this argument. This is another reason to support the view that Sub-section (2) of Section 271 cannot be used in the manner suggested on behalf of the Revenue.
We shall now refer to the conflicting decisions, on the point, of several High Courts which have been cited at the bar. We may, however, mention at the outset that all these decisions were rendered prior to the aforesaid decision of the Supreme Court in Ganesh Dass Sreeram's case [ 1988] 169 ITR 221 by which it has been settled that in such a situation, no interest can be imposed under Sub-section (8) of Section 139, the liability for such interest and penalty both arising on the same facts.

We shall first refer to the decisions which favour the Revenue. The decisions of the Patna High Court are : Jamunadas Mannalal v. CIT [1985] 152 ITR 261 [FB] and Jamunadas Mannalal v. CIT [1987] 164 ITR 66. It has been held therein that penalty under Section 271(1)(a) can be levied for delay in filing the return even after charging interest under Section 139(8). Obviously, these decisions proceed on the basis that in such a situation, where no tax is found due after adjusting the tax deducted at source or deposited as advance tax, interest also is chargeable under Section 139(8) in addition to the penalty under Section 271(1)(a). In view of the above Supreme Court decision in Ganesh Dass Sreeram's case [1988] 169 ITR 221, it cannot be doubted that no interest can be recovered under Section 139(8) in such a situation. Accordingly, the assumption on which these decisions proceed is no longer available. It has also been held that Sub-section (2) of Section 271 enables the registered firm to be treated as an unregistered firm and, therefore, penalty can be calculated on the basis of tax liability on an unregistered firm. We have already indicated our reasons for taking the view that Sub-section (2) of Section 271 is not available for this purpose. With respect, we are unable to concur with the view taken in these decisions of the Patna High Court for the reasons already given. The Bombay High Court in CIT v. Janata Trading Co. [1984] 150 ITR 676, appears to have taken the same view that where tax found payable by the registered firm is nil, penalty can be imposed under Section 271(1)(a) for delay in filing the return because the amount of tax assessed on it as an unregistered firm by virtue of Section 271(2) is to be taken into account for computing the penalty. In our opinion, the facts of the Bombay High Court decision indicate that the tax payable by the registered firm was not nil so that there was some tax due on which penalty could be calculated under Section 271(1)(a)(i)(b), but by virtue of Section 271(2), it was the larger amount of tax due on the assessee treating it as an unregistered firm which formed the basis of calculation of penalty. That was a case in which the amount of tax paid earlier by the assessee was the self-assessment tax under Section 140A in Chapter XIV and not tax deducted at source under Chapter XVII-B or paid in advance under Chapter XVII-C which alone can be adjusted according to the meaning of "assessed tax" in the Explanation to Sub-clause (i)(b) of Clause (a) of Sub-section (1) of Section 271. This being so, the "assessed tax" was not nil and, therefore, imposition of penalty could not be assailed on this ground. The Bombay High Court decision is clearly distinguishable on facts.