S. Ranganathan, J. (Oral):— It is not necessary to State the facts at great length because the question referred to us raises a very narrow issue. The respondent assessee company, which was engaged in the business of financing, filed an estimate of advance tax, according to which the tax payable in advance was nil. Though the assessee had income of Rs. 11,50,000, it claimed that it had incurred loss in business amounting to Rs. 1,60,000 and that since all the income was the income on which tax had been deducted at source, the advance tax payable was nil. The estimate had been filed during the calendar year 1966 in respect of the assessment year 1967-78. The Income Tax Officer, however, completed the assessment on a total income of Rs. 16,97,370 (which was reduced by the Appellate Assistant Commissioner to Rs. 13,95,256) and eventually the tax payable by the assessee, after deducting the tax payments at source, came to Rs. 1,34,068. The Income-tax Officer initiated proceedings under Section 273(a) of the Income-tax Act, 1961 and imposed a penalty of Rs. 22,500. The Appellate Assistant Commissioner gave some reduction in the quantum of penalty in view of the relief obtained by the assessee in the appeal against the assessment. Not satisfied that this, the assessee appealed further to the Tribunal and raised two contentions. The first contention was that there was no justification for levying any penalty. This contention was rejected by the Appellate Tribunal and is no longer in issue. The second contention, which found favour with the Tribunal, was “that is any case the calculations made by the Income-tax Authorities were wrong and that, for determining the short-fall in estimate of the tax, the Income tax Authorities should have first taken the gross tax, given a reduction of 25 per cent and out of the balance reduced the tax deducted at source”. This contention of the assessee turned on the language of Section 273(a) read with Section 215(1) as they stood at the relevant time.

2. The Commissioner of Income-tax is aggrieved by the decision of the Appellate Tribunal giving relief to the assessee on the above ground, and has obtained a reference to this Court on the following question of law :—

“Whether on the facts and in the circumstances of the case the Tribunal was justified in directing that the penalty under Section 273(a) of Income-tax Act, 1961 at 10 per cent be calculated on the footing that shortfall be determined by first reducing the gross tax by 25 per cent and then deducting therefrom the tax paid at source ?”

3. The question referred to us has to be decided on the language of the two provisions earlier referred to. But, before setting out these sections, a brief background of the statute in this regard may be helpful. The Income-tax Act, 1961 contemplates the payment of tax even during the previous year in the case of all income except income chargeable under head ‘capital gains’ and casual income in the nature of lottery winnings etc. This tax payment during the previous year itself is regulated by two sets of provisions—one relating to the deduction of tax at source which is covered by Chapter XVII-B (Section 199 to 206 A) and the other relating to advance payment of tax dealt with by Chapter XVII-C (covered by Section 207 to 219). So far as tax deduction at source is concerned the proper tax is deducted when the amounts in question are paid by the responsible person in that regard to the assessee. But so far as advance tax is concerned it is the duty of the assessee to make an estimate of the tax that will be due from it or him during the previous year and pay the tax in instalments as contemplated in the chapter. The statute requires the assessee to estimate the tax that would be payable by him on the current year's income on the basis of the rates prescribed by the Finance Act of the earlier year, send estimates thereof and after deducting the tax in respect of which tax would be deductible at source pay up the balance in specified instalments. In order to ensure that the assessee does this correctly and in time there are provisions for charging interest as well as penalty when there is under-payment of tax. Broadly speaking, what section contemplates is that if the advance tax paid by the assessee on the basis of his own estimate falls short of the tax determined to be payable by him when the regular subject to certain adjustments. One of the allowances made is for a bona fide error in making the estimate. A margin of 25 per cent is allowed and it is only if the advance tax payments fall short of 75 per cent of the tax which would be payable by the assessee that the penalty and interest provisions are attracted broad background, we may now refer to the material portions of the relevant sections as they stood at the relevant time :

“Section 215(1) : Where in any financial year an assessee has paid advance tax under section 212 on the basis of his own estimate, and the advance tax so paid is less than seventy-five per cent. Of the tax determined on the basis of the regular assessment (reduced by the amount of tax deductible in accordance with the provisions of sections 192 to 194, section 194A and section 195) so far as such tax relates to income subject to advance tax and so far as it is not due to variations in the rates of tax made by the Finance Act enacted for the year for which the regular assessment is made, simple interest at the rate of nine per cent per annum from the 1st day of April next following the said financial year up to the date of the said regular assessment shall be payable by the assessee upon the amount by which the advance tax so paid falls short of the said sventy-five per cent.”

“Section 273 : If the Income-tax Officer ………… is satisfied that any assessee—(a) has furnished under section 212 an estimate of the advance tax payable by him which he knew or had reason to believe to be untrue …………… he may direct that such person shall ……… pay by way of penalty a sum (i) which ……… shall not be less than ten per cent ……… the amount by which the tax actually paid during the financial year ……… falls short of seventy-five per cent of the tax determined on regular assessment, as modified under the provisions of section 215 ……”

4. The question for our consideration is a very narrow one. The assessee's contention is that, on the language of Section 273(a), the penalty in the present case should be 10 per cent (as determined by the Tribunal) of the amount by which the tax paid by him during the financial year in question falls short of “75 per cent of the tax determined on regular assessment” minus the taxes deductible at source in accordance with the provisions of Section 192 to 194, 194A and 195, (We are leaving out of account the other adjustment referred to in Section 215 which is referable to variations in rates of tax between the financial year and the assessment year). On the other hand according to the Department the penalty should be 10 per cent of the amount by which the tax paid by the assessee during the financial year fell short of 75 per cent of the “tax determined on regular assessment minus the tax deductible under Sections 192 to 195.”

5. The Tribunal has preferred the view put forward by the assessee and after careful consideration it appears to us that this is really the preferable view. For one thing, the presence of a comma towards the end of the relevant portion of Section 273(a) lends support to the contention put forward by the assessee. The presence of this punctuation mark favours the interpretation that the tax deductible at source has to be reduced or subtracted—this being the modification provided for in Section 215—from 75 per cent of the tax determined on regular assessment. But even assuming, as Mr. Wadhera contends, that too much significance should not be attached to this punctuation mark, we are of opinion that, logically also, there is no reason to prefer the view point of the Department. As we have already explained, the broad purpose of Section is that the assessee should pay tax during the previous year itself subject to a marginal error of 25 per cent. The legislature could have provided for this margin in two ways. It could have said : Take the tax determined on the regular assessment; eliminate therefrom the tax attributable to items covered by tax deduction at source and items on which no advance tax is payable; modify with reference to the difference in rates between the financial year and assessment year; and then take 75 per cent of the net amount determined above as the amount which the assessee should have paid by way of advance tax eliminating the irrelevant and the unforeseable elements and levy interest and penalty on the shortfall. Or it could have said : First the tax determined on the regular assessment in so far as it is referable to income subject to advance tax—this includes also salaries, interest and dividend from which tax is deductible at source—at the rates prevalent in the financial year preceding the assessment year. Then allow the assessee a margin of 25 per cent. This is the tax which the assessee should have paid for the year in question during the financial year. However exclude from this the tax deductible at source which should have already reached the treasury from the person responsible for paying those items of income to the assessee. The balance is the amount which, reasonably speaking, he should have deposited as advance tax. So he should be asked to pay interest or penalty in respect of the shortfall. It seems us that the legislature intended to make and has made, the latter the standard on the basis of which the shortfall is to be determined. There is no reason why the assessee should be given the benefit of only 75 per cent the tax already deducted or deductible at source. In our opinion, therefore, the Tribunal came to the correct conclusion in thinking that the assessee should be asked to pay a penalty of 10 per cent of the amount by which there was a shortfall of the tax paid by it in relation to the amount as explained above, namely the amount arrived at by deducting the tax deductible at source from 75 per cent of the tax determined on the basis of the regular assessment.

6. We would only like to add that, even assuming that there is a possibility of some doubt in regard to the above construction and even if it is taken to be a case of legislative ambiguity, the assessee should be entitled to the benefit of doubt particularly in a provision which attempts to panalise the assessee. This is a well-settled principle of construction of taxing statutes : Vide, the decision of the Supreme Court in the case of Commissioner of Income-tax, West Bengal-I v. Vegetable Products Ltd. (1973—88 ITR 192) and other cases cited in foot note (7) at page 2 of Kanga & Palkivala (Volume I, 7th Edition). However we should like to make it clear that these observations of ours should not be understood to reflect any misgiving or doubt on our part as to the construction of the provisions outlined earlier in our judgment.

7. We, therefore, answer the question referred to us in the affirmative and in favour of the assessee. But in the circumstances we make no order as to costs.

S.V Reference answered in the affirmative.