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Section 271(2) of the income-tax act, 1961-Penalty-Quantum of penalty-Whether annuity deposit payable by unregistered firm under section 280c deductible from total income for computing tax due for calculating quantum of penalty-Held, yes Facts The assessee-firm returned loss of Rs. 47,279 and income of Rs. 76,946 for the assessment years 1965-66 and 1966-67 against which the ITO assessed it on incomes of Rs. 1,97,000 and Rs. 5,41,087, respectively. Penalty proceedings were also initiated for concealment under section 271(1)(c) and referred to the IAC under section 274(2). As part of a settlement, the assessee agreed to be assessed on incomes of Rs. 2,50,463 and Rs. 5,41,087, respectively, and pleaded for levy of minimum penalty. While calculating the penalty, the IAC rejected the assessee's contention that the annuity deposits payable by an unregistered firm should be deducted from the total income and minimum penalty calculated on the tax on the balance income. In appeal, the Tribunal allowed the assessee's contention and reduced the penalty. On reference: Held 1. Section 280-O, prior to its amendment with effect from the assessment year 1967-68, pro vided that the annuity deposit "required to be made" would have to be allowed as deduction from total income. The language of the provision envisages deduction being given of the amount as payable by the statute even if actual payment had not been made. The word "amount" in section 271( 2) can be given the meaning contemplated by that section only when tax is assessed in the hands of the registered firm as if it were unregistered and on that penalty is calculated as provided in section 271(1). The registered firm would have, there fore, to be treated as unregistered to the extent necessary in regard to the calculation of tax. 2. Section 271( 2) clearly provides for computation of tax treating the registered firm as an unregistered firm. The provisions applicable to an unregistered firm include sections 280A, 280C and 280-O. Full effect has to be given to these provisions also in computing the tax due from the unregistered firm for computing the penalty leviable on it. There cannot be stopping half-way imagining…

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