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PETITIONER:
THE COMMISSIONER OF INCOME-TAX, WEST BENGAL I,CALCUTTA

Vs.

RESPONDENT:
M/S. VEGETABLES PRODUCTS LTD.

DATE OF JUDGMENT29/01/1973

BENCH:
HEGDE, K.S.
BENCH:
HEGDE, K.S.
REDDY, P. JAGANMOHAN
KHANNA, HANS RAJ

CITATION:
1973 AIR 927 1973 SCR (3) 448
1973 SCC (1) 442
CITATOR INFO :
R 1976 SC 313 (27)
D 1989 SC 501 (16)

ACT:
Income Tax Act (43 of 1961), ss. 143, 156 and 271(1)(a)(i)-
Penalty-Whether related to tax assessed or tax payable.

HEADNOTE:
The assessee failed to furnish the return of its income
within the time allowed but submitted the return after a
notice under s. 28(3) of: the Income-tax Act, 1922, was
served on him. A provisional assessment was made by the
Income-tax Officer under s. 23B of the 1922-Act and the
assessee deposited the amount. The Income-tax Act, 1961,
having come into force thereafter, the Income-tax Officer
the assessment under the provisions of that Act, determined
the tax due and the penalty payable by the assessee. In
doing so, he did not take, into consideration the amount
deposited by the assessee, that is, he took into
consideration not the amount demanded under s. 156 of the
1961-Act but the amount assessed under s. 143. The
Appellate Assistant Commissioner confirmed the order; but
the Tribunal held that the penalty under s. 271 (1) (a) (1)
is to be levied on the tax assessed minus the amount paid
under the provisional assessment order, and the High Court,
on reference, agreed with the Tribunal.
Dismissing the- appeal by the Revenue to this Court,
HELD : (1) The acceptance of one or the other interpretation
sought to be placed on s. 271(1) (a) (1) by the parties
would lead to some inconvenient result; but the duty of. the
Court is to read the section, understand its language and
give effect to it. If the language is plain, the fact that
the consequence of giving effect to it may lead to some
absurd result is not a factor to be taken into account in
interpreting a provision. It is for the Legislature to step
in and remove the absurdity. On the other hand, if two
reasonable constructions of a taxing provision are possible
that construction which favours the assessee must be
adopted. [451D-F]
(2)Section 271(1) (a) (i) stipulates that the Income-tax
Officer may direct that the assessee shall pay by way of
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penalty, "in addition to the amount of tax, if any, payable
by him a sum equal to two per cent of the tax for every
month.............. Quantification of the tax payable is
always referred to in the Act as a tax "assessed". A tax
payable is not the same thing as tax assessed. The tax
payable is that amount for which a demand notice is issued
under s. 156. Hence, there can be no doubt that the
expression ’the amount of tax, if any, payable by him’
referred to in the first part of the section refers to the
tax payable under a demand notice. The definite article
’the’ in the words "the tax" in the latter part of the
provision, shows that it refers to the tax, if any, payable
by the assessee, mentioned in the first part of the section.
[452D-G; 453A-B]
(3)At any rate, the provision is capable of more than one
reasonable interpretation, and since the provision, is not
merely a tax provision but a penalty provision as well the
interpretation in favour of the assessee must be accepted.
[453B-D]
449
M. M. Annaiah v. Commissioner of Income-tax, Mysore, 76,
I.T.R. 582, approved.
Vir Bhan Bansi Lai v. Commissioner of Income-tax, Punjab, 6
I.T.R 616 and Commissioner of Income-tax, Delhi v. Hindustan
Industrial Corporation, 86 I.T.R. 657, disapproved.

JUDGMENT:
CIVIL APPELLATE JURISDICTION : CIVIL APPEAL N0. 497 of 1970.
Appeal by Certificate from the Judgment and order date June
26, 1969 of the Calcutta High Court in Income-tax Reference
No. 145 of 1966.
S. C. Manchanda, T. A. Ramachandran, S. P. Nayar and R. N.
Sachthey, for the appellant.
B. Sen, S. Sadhu Singh, J. M. Khanna and S.
Ramachandran, the respondent.
S. V. Gupte, T. S. Viswanatha Rao and A. T. M. Sampat, for
the intervener.
The Judgment of the Court was delivered by
HEGDE, J.-This appeal by certificate arises from the
decision of the Calcutta High Court in a case stated by the
Income-tax Appellate Tribunal, ’B’ Bench, Calcutta. After
setting out the relevant facts, the Tribunal solicited the
opinion of the High Court on the following question of law :
’Whether on the facts and in the circumstances
of the case, the Tribunal was right in holding
that in calculating the penalty leviable under
section 271 (1) (a) of the Income-tax Act,
1961 the amount paid by the assessee under the
provisional assessment under section 23B of
the Indian Income-tax Act, 1922, was to be
deducted from the amount of tax determined
under section 23(2) of that Act in order to
determine the amount of tax on which the
computation of the penalty was to be based and
in reducing the amount of the penalty imposed
on the assessee to Rs. 2,737/-."
The High Court answered that question in the affirmative and
in favour of the assessee. Aggrieved by that decisions the
Commissioner has brought this appeal.
Let us now proceed to state the facts relevant for deciding
the point in issue, as could be gathered from ’the statement
of the case.
In this case we are concerned with the assess’s assessment
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for the assessment year 1960-61, the relevant account year
ending on December 31, 1959. In that regard the Income-tax
Officer issued a notice under s. 22(2) of the Indian Income-
tax Act, 1922 (to be hereinafter referred to as the "1922
Act") on June 1, 1960. The same was served on the assessee
on June 13, 1960. That notice required the assessee to
submit its return on or before July
450
18, 1960. On July 18, 1960, the assessee moved for
extension of time for submitting its return. The Income-
tax Officer extended the time by two months and at the same
time the informed the assessee that no further time would be
allowed. The assessee failed to furnish its return within
the extended time. Thereafter a notice under s.28(3) of the
1922 Act was served on’ the assessee on January 16, 1961.
On the very next day viz. January 17, 1961, the assessee
filed its return for the assessment year in question. The
assessment was completed by the Income-tax Officer only on
October 31, 1962. Meanwhile on April 1, 1961 the Income-tax
Act, 1961 to be hereinafter referred to as the "Act") came
into force. As under the provisions of s.297(2) (g) of the
Act the proceedings for the imposition of the penalty had to
be initiated and completed under the Act, a fresh notice
under s. 274(1) of the Act was served on the assessee. The
assessee objected to the validity of the notice but that
objection was overruled. At present we are not concerned
with that objection. We are also not concerned with the
other objections taken by the assessee which were negatived
by the Tribunal. The Income-tax Officer determined the tax
due from the assessee for the assessment year at Rs.
1,25,512/10 P. and on that basis, the penalty payable by the
assessee was fixed at Rs. 12,7 3 4 / IO P. At this stage it
may be mentioned that on February 2,1961, a provisional
assessment was made by the Income-tax Officer under s. 23B
of the 1922 Act. Immediately thereafter the, assessee
deposited Rs. 92,294/55 P. In determining the penalty due
from the assessee, the Income-tax Officer took into
consideration not the amount demanded under s. 156 of the
Act but the amount assessed under s. 143 of the Act. In
appeal, the Appellate Assistant Commissioner confirmed the
order of the Income-tax Officer. On a further appeal, the
Tribunal came to the conclusion that the penalty under s.271
(1) (a) (i) is to, be levied on the tax assessed minus the
amount paid under the provisional assessment order namely
Rs. 92,294/55 P. On the basis of that finding, it determined
the penalty payable by the assessee at Rs. 2,737/44 P. The
conclusion of the Tribunal was accepted as correct by the
High Court.
Learned Counsel for the Revenue, Mr. Manchanda contended
that on a proper construction of s. 27 1 (1) (a) (i) it
would be seen that the penalty had to be determined on the
basis of the tax assessed under s. 143 of the Act. Counsel
urged that if that is not the true construction then ’the
effectiveness of the section may be taken away by the
assessee paying the tax due by him a day before the demand
notice is served on him. In support of the interpretation
placed by him, Mr. Manchanda relided on the decisions of the
Lahore High Court in Vir Bhan Bansi Lal v. Commissioner of
Income-tax, Punjab(1) and the decision of the Delhi
6 I.T.R. 616.
451
High-Court in Commissioner of Income-tax, Delhi v. Hindustan
Industrial Corporation(1). The Delhi High Court followed
the decision of the Lahore High Court. On the other hand,
it was urged by Mr. B. Sen, learned Counsel for the assessee
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and Mr. S. V. Gupta, learned Counsel for the interveners
that. on a proper interpretation of the provision mentioned
earlier, it would be, clear that the penalty can be only
imposed on the amount payable under s. 156.In support of
their contention, they relied on the decision of the Mysore,
High Court in M. M. Annaiah v. Commissioner of Income-:tax,
Mysore(2). They further urged that if ,interpretation
placed by the Revenue on s. 271 (1) (a) (i) is accepted as
correct, the result would be that the advance tax paid or
taxes deducted at the source cannot be taken into
consideration in determining the penalty payable. If that
be true, the Counsel urged that even if the assessee had
paid more tax than he need have paid, but had not submitted
his return within the time fixed, he would be liable to pay
penalty on the entire amount assessed. According to them
the law cannot be presumed to be so harsh at that.
There is no doubt that the acceptance of one or the other
interpretation sought to be placed on S. 271 (1) (a) (i) by
the parties would lead to some inconvenient result, but the
duty of the court is to read the section, understand its
language and give effect to the same. If the language is
plain, the fact that the consequence of giving effect to it.
may lead to some absurd result is not a factor to be taken
into account in interpreting a provision. It is for the
legislature to step in and remove the absurdity. On the
other hand, if two reasonable constructions of a taxing
provision are possible that construction which favours the
assessee must be adopted. This is a well ’accepted rule of
construction recognised by this Court in several of its
decisions. Hence all that we have to see is, what is the
true effect of the language employed in s. 271 ( 1 ) (a)
(i). If we find that language to be ambiguous or capable of
more meanings than one, then we have to adopt that
interpretation which favours the assessee, more particularly
so because the provision relates to imposition of penalty.
Let us now read section 271 (1 )(a) (i). The section to the
extent material for our present purpose reads :
"It 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...... by notice given
under sub-
(1) 86. I.T.R. 657. (2) 74 I.T.R. 582
452
section(2) of section 139. . .. . ., Dr has
without reasonable cause failed to furnish it
within the time allowed and in the manner
required... by such notice he may direct that
such person shall pay by way of penalty-
(i) in the casts referred to in clause (a),
in addition to the amount of the tax, it 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."
(emphasis supplied)
Section 271(1)(a)(i) stipulates that the Income-tax Officer
may direct that the assessee shall pay by way of penalty, in
cases similar to the one that we are considering "in
addition to the amount of the tax, if any, payable by him a
sum equal to 2 per cent of the tax for every month during
which the) default continued but not exceeding in the
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aggregate 50 per cent of the tax".
We must first determine what is the meaning of the
expression "the amount of the tax, if any, payable by him"
in 271 (1) (a) (i), Does it mean the amount of tax assessed
under s. 143 or the amount of tax payable under s. 156. The
word "assessed" is a term often used in taxation laws. It
is used in several provisions in the Act. Quantification of
the tax payable is always referred to in the Act as a tax
"assessed". A tax payable is, not the same thing as tax
assessed. The tax payable is that amount for which a demand
notice is issued under s. 156. In determining the tax
payable, the tax already paid has to be deducted. Hence
there can be no doubt that the expression "the amount of the
tax, if any, payable by him" referred to in the first part
of s. 271 (1) (a) (i) refers to the tax payable under a
demand notice. We next come to the question what is the
meaning to tic attached to the words "the tax" found in the
latter part of that provision. It may be noted that the ex-
pression used is not "tax" but "the tax". The definite
article "the" must have reference to something said earlier.
It can only refer to the tax, if any, payable by the
assessee mentioned in the first part of s. 271 (1) (a) (i).
It is true the expression "tax" is defined in s. 2(43) thus
:
" "tax" in relation to the assessment year
commencing on the 1st day of April, 1965 and
any subsequent assessment year means income-
tax chargeable under the provisions of this
Act. and in relation to any other assessment
year income-tax and super-tax chargeable under
the provisions of this Act prior to the
aforesaid date."
453
But the difficulty in this case is, as mentioned Carrier the
expression used is not "tax" but "the tax". That expression
can be reasonably understood as referring to the expression
earlier used in the provision namely "the amount of the tax,
if any payable’ by the assessee. At any rate, the provision
in question is capable of more than one reasonable
interpretation. Two high courts namely Calcutta and Mysore
have taken the view ’that the expression tithe tax" in s.
271(1) (a) (i) refers to "the tax, if any, payable" (by the
assessee) mentioned in the earlier part-of the section. It
is true that Lahore and Delhi High Courts have taken a
different view. But the view taken by the Calcutta and
Mysore Hi,-,It Courts cannot be said to be untenable view.
Hence, particularly in view of the fact that we are
interpreting, not merely a taxing provision but a penalty
provision as well, the interpretation placed by the Calcutta
and Mysore High Courts cannot be rejected.. Further as seen
earlier, the consequences of accepting the interpretation
placed by the Revenue may lead to harsh results.
For the reasons mentioned above, this appeal is dismissed
with, costs.
V.P.S. Appeal dismissed.
454