Separate assessee liability and fixed monthly penalty rate upheld for delayed return filing under income-tax law.

A partner and a registered firm are separate assessable units for return-filing purposes, so a penalty for the partner's default was sustainable despite a separate penalty on the firm. The fiction in section 271(2) was held to operate only for quantification of penalty on the firm and not to erase the partner's independent obligation or create immunity from double punishment. Where a return was filed late in response to notice, the penalty under section 271(1)(a) had to be computed at the prescribed rate of 2 per cent per month of default, subject to the statutory maximum; the discretion under the provision did not extend to reducing that monthly rate.

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Issues: (i) Whether penalty under section 271(1)(a) of the Income-tax Act, 1961 was leviable on a partner notwithstanding a separate penalty imposed on the registered firm; (ii) Whether, when a return was filed late in response to notice under section 22(2) of the Income-tax Act, 1922, the penalty under section 271(1)(a) of the Income-tax Act, 1961 could be imposed at a rate lower than 2 per cent per month of default.

Issue (i): Whether penalty under section 271(1)(a) of the Income-tax Act, 1961 was leviable on a partner notwithstanding a separate penalty imposed on the registered firm.

Analysis: A partner and the firm are distinct assessable units and each is required to file its own return. The pendency of the firm's registration matter did not suspend the partner's obligation to file a return when notice had been issued to him. The fiction in section 271(2) was confined to treating a registered firm as an unregistered firm only for quantification of penalty and could not be expanded to eliminate the partner's independent default or to create immunity from penalty on the theory of double punishment.

Conclusion: Penalty was rightly leviable on the partner, and the objection based on the separate penalty on the firm failed.

Issue (ii): Whether, when a return was filed late in response to notice under section 22(2) of the Income-tax Act, 1922, the penalty under section 271(1)(a) of the Income-tax Act, 1961 could be imposed at a rate lower than 2 per cent per month of default.

Analysis: Once default in filing the return was found, the statutory rate under section 271(1)(a) operated as a fixed rate for each month of default. The discretion preserved by the provision related to whether penalty should be imposed, not to reducing the prescribed monthly rate. Accordingly, the penalty could not be scaled below the statutory rate, subject to the overall ceiling prescribed by law.

Conclusion: The penalty had to be computed at 2 per cent for each month of default, subject to the statutory maximum.

Final Conclusion: The reference was answered against the assessee and the statutory penalty on the partner for delayed filing, at the prescribed monthly rate, was upheld.

Ratio Decidendi: A registered firm and its partner are separate taxable entities for return-filing purposes, and the fiction in section 271(2) of the Income-tax Act, 1961 is confined to computation of penalty on the firm, not to extinguishing the partner's independent liability; once penalty is warranted under section 271(1)(a), the prescribed monthly rate is fixed and cannot be reduced below the statutory percentage.

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