K.C. Agarwal, J. - (1.) THE assessee was a registered partnership firm of three partners. THE assessment year under reference is 1967-68, the previous year for which was the Diwali year which ended on the 12th November, 1966. Under the provisions of the Indian I.T. Act, 1961 (hereinafter referred to as "the Act"), and the Rules framed thereunder an assessee of the class of the petitioner was required to file the return for the assessment year 1967-68 by 30th June, 1967. However, by a Government notification time for filing the return was extended till 15th August, 1967. THE assessee did not file any return. THEreafter, a notice was sent under Sub-section (2) of Section 139 of the Act. THE assessee did not pay any heed even to the said notice and filed the return much after the expiry of the period of 30 days mentioned in the same. THE ITO thereafter started proceedings for the levy of penalty. In response to a notice served under Section 274 of the Act, the assessee submitted an explanation. THE explanation was not accepted by the ITO. He imposed a penalty of Rs. 54,490 under Section 271(1)(a) of the Act. THE appeal filed by him to the AAC was also dismissed. THEreafter, he preferred a second appeal before the Tribunal. THE Tribunal agreed with the findings of the AAC and dismissed the same. At the instance of the assessee, the Tribunal referred the following three questions for the opinion of this court: "1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that notice under Section 139(2) does not terminate the default committed by the assessee under Section 139(1) of the Income-tax Act and, as such, penalty could not (sic) be imposed for default under Section 139(1) ?
(2.) WHETHER the Appellate Tribunal was right in holding that charging of penal interest for not filing the return does not have the effect of automatically extending the time for filing of the return especially when the application for extension of time was rejected "by the Income-tax Officer ? Whether the Tribunal was right in its view that the advance tax paid only by the unregistered firm is deductible and the advance tax paid by the partners of such a firm is not liable to be deducted while computing the tax payable by the firm for the purposes of penalty on the registered firm treating it as unregistered firm ?" 2. These questions are the subject-matter of decision in Income-tax Ref-rence No. 493 of 1972. 3. This court also allowed an application filed under Section 256(2) of the Act filed by the assessee and directed the Tribunal to refer the following question : "Whether the annuity deposit payable on the income of the firm while treating it as unregistered firm for the purposes of penalty was not liable to be taken into consideration in order to calculate the tax payable for the purposes of the penalty under Section 271(1)(a) read with Sub-section (2) of Section 271 ?" The said question is the subject-matter of decision in Income-tax Reference No. 1 of 1975.
(3.) WE will first take up Reference No. 493 of 1972. In support of the case of the assessee on the first question the learned counsel for the assessee contended that the penalty imposed for the default committed under Sub-section (1) of Section 139 would be deemed to have become ineffective with the issue of notice under Sub-section (2) of Section 139 and, as such, the I.T. authorities had no jurisdiction to impose any penalty for not having filed the return under Section 139(1) of the Act. In the alternative, the learned counsel for the assessee also contended that as by the notice issued under Section 139(2) the assessee had been granted one month's time to file the return, the assessee would not be deemed to be in default during the period of one month, and, as such, no penalty was imposable on the assessee in respect of that period. Both the submissions made by the learned counsel are devoid of substance. A reading of Section 139 of the Act shows that a return can be filed in three circumstances, viz., (i) provided for in Sub-section (1); (ii) provided for in Sub-section (2) and (iii) provided for in Sub-section (4). Under Sub-section (1) of Section 139 of the Act every person is bound to furnish voluntary return of his total income, if such income during the previous year calculated by him exceeded the maximum amount which is not chargeable to income-tax. Under Sub-section (2) of Section 139, an ITO has been given the power to serve a notice on a person, who, in his opinion, was assessable under the Act requiring him to furnish within 30 days from the date of the service of the notice a return of his income or the income of such other person during the previous year in the form prescribed and verified in the prescribed manner and setting forth such other particulars as may be prescribed. There is nothing in Section 139 to indicate that by the act of service of a notice under Sub-section (2) of Section 139 a person liable to furnish a return under Sub-section (1) is absolved of his duty and the default of having not filed a return under Sub-section (1) of Section 139 is condoned.;