JUDGMENT - Kania J.-This is a reference under section 256 (1) of the Income Tax Act, 1961 (referred to hereinafter as “the said Act”). 2. The question referred to us for (our determination in this reference is as follows: “Whether on the facts and in the circumstances of the case, for computing the penalty imposable on the assessee (registered firm) under section 271 (1)(a) read with section 271(2) of the Income Tax Act, 1961 for the assessment year 1966–67, the Tribunal was justified in so construing section 271(8) as to allow deduction under section 280-O of the amount of annuity deposit which the assessee might have paid if it were an unregistered firm when, in fact, no annuity deposit had been paid by it ?” 3. The assessee is a firm registered under the Income Tax Act and carries on business at Kolhapur. The assessee was required to file its return of income for the assessment year 1966–67 by 30–9-1966 under section 139(1) of the said Act. However, the said return was filed on 17–2-1969 i.e. after the delay of 28 months. The Income-tax Officer condoned the delay in filing the return of income upto 31–3-1967 and proceeded to levy penalty of Rs. 29,196 taking the default as from 1–4-1967. An appeal preferred by the assessee against the order of the Income-tax Officer was rejected by the Appellate Assistant Commissioner. On a further appeal to the Income-tax Appellate Tribunal, the said Tribunal condoned the delay for a further period of 9 months, upto 31–12–1967. The Tribunal confirmed the levy of penalty in principle. However, before the Tribunal, a contention was raised by the assessee with regard to the quantification of amount of the penalty leviable on the assessee. It was contended by the assessee that in calculating the amount of penalty, the tax payable should be determined after giving a. deduction in respect of the Annuity Deposit under the provi-sions of section 280-O of the said Act. It was contended that since the Firm was treated as unregistered for the purpose of levy of penalty in accordance with the provisions of section 271(2) of the said Act, on fictional basis, the fiction should be carried to its logical conclusion and the benefit of Annuity Deposit should be given to the assessee. It was contended that since the Firm was treated as unregistered for the purpose of levy of penalty in accordance with the provisions of section 271(2) of the said Act, on fictional basis, the fiction should be carried to its logical conclusion and the benefit of Annuity Deposit should be given to the assessee. The Tribunal accepted this contention and held that the tax should be computed on the balance of the amount called “Adjusted total income” under section 280-B of the said Act. The aforesaid question arises from this decision of the,Tribunal. 4. Section 271 of the said Act deals with the failure to furnish returns, comply with notices, concealment of income and so on etc. There is no dis-pute that under the provisions of sub-section (1) of section 271, the assessee became liable to the payment of penalty for the late submission of its returns. Sub-section (2) of Section 271 reads thus : “When the person liable to penalty is a registered firm or an un-registered firm which has been assessed under clause (b) of section 183, then notwithstanding anything contained in the other provisions of this Act, ”the penalty imposable under sub-section (1) shall be the same amount as would be imposable on that firm if that firm were an unregistered firm.” A perusal of section 280-A of the said Act shows that an unregistered firm is liable to make payment of annuity deposits, but not a registered firm. Sub-section (1) of section 280-O reads thus : “Notwithstanding anything to the contrary contained in the provi-sions of this Act relating to the computation of income chargeable under any head of income, the annuity deposit required to be made under this Chapter shall, subject to the provisions of sub-section (2), be a!lovved as a deduction in computing the total income assessable for the assessment year in respect of which the annuity deposit is required to be made.” There is a proviso to this section, which has been introduced by way of the substitution of the entire section by the Finance Act, 1966 with effect from 1st April 1966. It is unnecessary to set out the said proviso herein, because it is clear that, by reason of the said proviso, the deduction to be granted in respect of Annuity Deposits is restricted to the Annuity Deposit actually made, in cases where it is required to be made. 5. It is unnecessary to set out the said proviso herein, because it is clear that, by reason of the said proviso, the deduction to be granted in respect of Annuity Deposits is restricted to the Annuity Deposit actually made, in cases where it is required to be made. 5. Now, on a perusal of sub-section 2 of section 271, it appears to us that where a registered firm becomes liable to penalty, for the purpose of determining the penalty imposable, a fiction is introduced by the said sub- section that the said registered firm is to be treated as an unregistered firm. If such a fiction is to be introduced, there is no reason why it should not be carried to its logical conclusion, which would be that, in the computation of its total income, the assesses firm would be entitled to a deduction of an amount equivalent to the annuity deposit which it would have had to pay had it been an unregistered firm. Once the firm is treated, for the purposes of penalty, as an unregistered firm, there is no reason why it should be denied such benefits by way of deduction as are available to an unregistered firm. It is true that, being a registered firm, it was really not required to pay any annuity deposit at all, but that to our mind, would make no difference and it would be entitled to a deduction in the computation of its total income for the purposes of determination of the tax payable, on which penalty is based, of the amount of the annuity deposit which it would have been required to pay, had it, in fact, been an unregistered firm. 6. We find that the view which we are taking is supported by a deci- sion of the Madras High Court in (Commissioner of Income-tax, Central v. Palanippa Transports)1, where it has been held that the language of sec- tion 280-O of the Income-tax Act, 1961, namely 'required to be made under this Chapter' envisages deduction being given of the amount envisaged as payable by statute even if the amount had not been actually paid by the assessee as the actual payment is not the statutory criterion. In other words if an individual was liable to pay annuity deposit and also penalty urftier section 271(1), the computation of tax would have to be on the basis of the annuity deposit statutorily due from him, and the annuity deposit so due, irrespective of payment would have to be deducted out of the total income. The fact that the amount was not actually paid is not relevant on the language of the provision as it initially stood. The amendment to sec tion 280-O does not really affect a registered firm which is treated as an unregistered firm for the purpose of levy of penalty under section 271(2). Under the amended law, provision was made for deduction of only the amount actually paid. A registered firm treated as an unregistered firm is under no obligation to pay annuity deposit. The registered firm would be eligible for the deduction of the amount required to be made under Chapter XXII-A but as the registered firm cannot pay any such deposit under the law, the proviso to section 280-O would not strictly apply to such a case. It was held there that the assessee, a registered firm was entitled to deduct the annuity deposit which would have been payable by it had it been an unregistered firm, for the purpose of determining the quantum of penalty leviable on it under section 271(2). We are in respectful agreement with the aforesaid decision. 7. The view which we have taken is further supported by the decision of the Karnataka High Court in (Addl. Commissioner of Income-tax, Mysore v. Khanchand Thakurdas)2 and the decision of the Gujarat High Court in (Commissioner of Income-tax, Gujarat v. Gujarat Automobiles)3. No contrary decision has been shown to us. 8. In view of the aforesaid, the question referred to us is answered in the affirmative and in favour of the assessee. No order as to costs, as the assessee is not appearing. Reference answered in the affirmative. -----