Penal tax computation must reflect tax actually payable after crediting amounts already paid, with ambiguity read in favour of the assessee.

For computing penalty under section 271(1)(i) of the Income-tax Act, the expression "the tax" was read, in context, as the tax actually payable after credit for amounts already paid, including tax paid under provisional assessment. The Court rejected the Revenue's contention that penalty had to be calculated on the assessed tax without such deductions. It further held that the definition of "tax" in section 2(43) did not displace the contextual reading, and applied the settled rule that a penal provision reasonably admitting of two constructions must be construed in favour of the assessee. The Tribunal's reduced penalty was therefore upheld.

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Issues: Whether, for calculating penalty under section 271(1)(i) of the Income-tax Act, 1961, the expression "the tax" means the tax ultimately payable after giving credit for amounts already paid, including tax paid under provisional assessment under the Indian Income-tax Act, 1922.

Analysis: The relevant clause used both the expression "tax payable" in its opening part and the expression "the tax" in the provision prescribing the rate of penalty. The Court held that, in the context of the clause, the two expressions were capable of bearing the same meaning, namely the tax actually payable on the date of imposition of penalty. The Court rejected the revenue's contention that penalty had to be computed on the tax assessed irrespective of amounts already paid. It also held that the definition of "tax" in section 2(43) did not compel a different result, because the statutory context could justify reading the term as tax payable. Relying on the settled rule that penal provisions admitting of two reasonable constructions must be interpreted in favour of the subject, the Court preferred the construction beneficial to the assessee.

Conclusion: The amount paid under provisional assessment had to be deducted in computing the tax base for penalty, and the reduced penalty sustained by the Tribunal was correct.

Ratio Decidendi: Where a penal tax provision is reasonably capable of two constructions, the Court must adopt the interpretation favourable to the assessee, and the expression "tax" may be read as "tax payable" when the statutory context so requires.

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