Penalty base under income-tax law must mean tax payable after prior payments, with ambiguity resolved for the assessee.

For computing penalty under section 271(1)(a)(i) of the Income-tax Act, the expression "the amount of tax, if any, payable by him" was construed to mean the tax payable after deducting amounts already paid, including payment made under a provisional assessment, rather than the gross tax assessed. The Court distinguished "tax payable" from "tax assessed" and held that, because the penalty provision admitted two reasonable meanings, the interpretation favourable to the assessee had to be adopted. The assessee therefore succeeded on the penalty base, and the penalty could not be computed on the full assessed tax.

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Issues: Whether, for computing penalty under section 271(1)(a)(i) of the Income-tax Act, 1961, the expression "the amount of the tax, if any, payable by him" refers to the tax assessed or the tax payable after deduction of amounts already paid, including payment under a provisional assessment under the 1922 Act.

Analysis: The provision was held to be capable of more than one reasonable construction. The expression "tax payable" was distinguished from "tax assessed", and the latter part of the section, using the words "the tax", was treated as referring back to the tax, if any, payable by the assessee earlier in the clause. Since the provision imposed a penalty, the ambiguity had to be resolved by adopting the construction favourable to the assessee. The Court also noted that the contrary interpretation would produce harsh results and that such consequences could not override the statutory language.

Conclusion: The penalty was to be computed on the tax payable after deducting the amount already paid, and not on the gross tax assessed. The question was answered in favour of the assessee.

Final Conclusion: The appeal failed because the statutory base for penalty under section 271(1)(a)(i) was held to be the tax payable, not the mere tax assessed, and the earlier payment had to be taken into account.

Ratio Decidendi: Where a penalty provision in a taxing statute is reasonably capable of two constructions, the interpretation favourable to the assessee must be adopted, and "tax payable" must be distinguished from "tax assessed" for computing the penalty base.

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