The provision can be read two ways. Which reading wins?
Yours. Where two reasonable constructions of a taxing provision are possible, the one favourable to the assessee must be adopted. Applied here to hold that penalty is computed on tax payable after credit for amounts already paid.
Decided by the Supreme Court (Supreme Court of India — K.S. Hegde, P. Jaganmohan Reddy and H.R. Khanna JJ (judgment by Hegde J)) on 1973-01-29, reported as (1973) 88 ITR 192 (SC); AIR 1973 SC 927; (1973) 3 SCR 448; (1973) 1 SCC 442; Civil Appeal No. 497 of 1970. It bears on section 271(1)(a)(i), section 156, section 143 of the Income Tax Act 1961, in How Tax Law Is Read matters.
One sentence that fits almost any interpretation dispute, which is why it is among the most cited authorities in Indian tax practice. Its limit matters as much as its rule — see Dilip Kumar for exemptions.
Binding on every court and authority in India.
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For assessment year 1960-61 the Income-tax Officer issued a notice under s.22(2) of the 1922 Act on 1 June 1960, served on 13 June 1960, requiring a return by 18 July 1960. The assessee sought more time; two months were granted with notice that no further extension would follow, and the return was still not filed. A notice under s.28(3) of the 1922 Act was served on 16 January 1961 and the assessee filed its return the next day. The assessment was completed only on 31 October 1962, by which time the 1961 Act had come into force, so under s.297(2)(g) the penalty proceedings were taken under the new Act and a fresh notice under s.274(1) was served. The Officer determined tax of Rs 1,25,512.10 and fixed penalty at Rs 12,734.10, computing it on the tax assessed under s.143 rather than the amount demanded under s.156. A provisional assessment had been made under s.23B of the 1922 Act on 2 February 1961, immediately after which the assessee had deposited Rs 92,294.55. The Appellate Assistant Commissioner upheld the Officer; the Tribunal held the penalty must be levied on the tax assessed less the amount paid provisionally and reduced it to Rs 2,737.44; and the Calcutta High Court agreed.
The Revenue's appeal was dismissed and the Calcutta High Court affirmed. In s.271(1)(a)(i) the expression 'the amount of the tax, if any, payable by him' means the tax payable under a demand notice under s.156, not the tax assessed under s.143, because in determining tax payable the tax already paid must be deducted. The words 'the tax' later in the same provision, with the definite article, refer back to that same figure. So in computing the penalty, the amount the assessee had paid on the provisional assessment fell to be deducted. In reaching that result the Court stated the rule that where two reasonable constructions of a taxing provision are possible, the one favouring the assessee must be adopted.
The Court began the other way round from how the case is usually cited. Its first proposition is that the duty of the court is to read the section, understand its language and give effect to it; if the language is plain, the fact that giving effect to it produces an absurd result is not a factor in interpretation, and it is for the legislature to remove the absurdity. Only then does the second proposition follow: if two reasonable constructions of a taxing provision are possible, the one favouring the assessee must be adopted. Applying that, the Court reasoned textually. 'Assessed' is the term the Act uses for quantification; tax payable is a different thing, being the amount for which a demand notice issues under s.156, and in arriving at it the tax already paid is deducted. The later words 'the tax', with the definite article, must refer to something said earlier, and can only refer to the tax payable mentioned in the first part of the provision - notwithstanding the general definition of 'tax' in s.2(43), which uses the word without the article. At the least the provision was capable of more than one reasonable interpretation: Calcutta and Mysore had read it one way, Lahore and Delhi the other, and the Calcutta and Mysore view could not be called untenable. That being so, and the provision being a penalty provision as well as a taxing one, their interpretation was accepted, the Court adding that the Revenue's reading could produce harsh results.
On the other hand, if two reasonable constructions of a taxing provision are possible that construction which favours the assessee must be adopted.
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Handle my notice → Ask a CA on WhatsAppYours. Where two reasonable constructions of a taxing provision are possible, the one favourable to the assessee must be adopted. Applied here to hold that penalty is computed on tax payable after credit for amounts already paid. This was decided by the Supreme Court (Supreme Court of India — K.S. Hegde, P. Jaganmohan Reddy and H.R. Khanna JJ (judgment by Hegde J)) and bears on section 271(1)(a)(i), section 156, section 143 of the Income Tax Act 1961. It is reported as (1973) 88 ITR 192 (SC); AIR 1973 SC 927; (1973) 3 SCR 448; (1973) 1 SCC 442; Civil Appeal No. 497 of 1970. One sentence that fits almost any interpretation dispute, which is why it is among the most cited authorities in Indian tax practice. Its limit matters as much as its rule — see Dilip Kumar for exemptions. If it applies to you, the first step is this: Establish first that the provision genuinely admits two reasonable readings; the rule applies only then.
For assessment year 1960-61 the Income-tax Officer issued a notice under s.22(2) of the 1922 Act on 1 June 1960, served on 13 June 1960, requiring a return by 18 July 1960. The assessee sought more time; two months were granted with notice that no further extension would follow, and the return was still not filed. A notice under s.28(3) of the 1922 Act was served on 16 January 1961 and the assessee filed its return the next day. The assessment was completed only on 31 October 1962, by which time the 1961 Act had come into force, so under s.297(2)(g) the penalty proceedings were taken under the new Act and a fresh notice under s.274(1) was served. The Officer determined tax of Rs 1,25,512.10 and fixed penalty at Rs 12,734.10, computing it on the tax assessed under s.143 rather than the amount demanded under s.156. A provisional assessment had been made under s.23B of the 1922 Act on 2 February 1961, immediately after which the assessee had deposited Rs 92,294.55. The Appellate Assistant Commissioner upheld the Officer; the Tribunal held the penalty must be levied on the tax assessed less the amount paid provisionally and reduced it to Rs 2,737.44; and the Calcutta High Court agreed. The matter was decided on 1973-01-29 by the Supreme Court (Supreme Court of India — K.S. Hegde, P. Jaganmohan Reddy and H.R. Khanna JJ (judgment by Hegde J)). On those facts the Supreme Court held as follows. The Revenue's appeal was dismissed and the Calcutta High Court affirmed. In s.271(1)(a)(i) the expression 'the amount of the tax, if any, payable by him' means the tax payable under a demand notice under s.156, not the tax assessed under s.143, because in determining tax payable the tax already paid must be deducted. The words 'the tax' later in the same provision, with the definite article, refer back to that same figure. So in computing the penalty, the amount the assessee had paid on the provisional assessment fell to be deducted. In reaching that result the Court stated the rule that where two reasonable constructions of a taxing provision are possible, the one favouring the assessee must be adopted.
The Court began the other way round from how the case is usually cited. Its first proposition is that the duty of the court is to read the section, understand its language and give effect to it; if the language is plain, the fact that giving effect to it produces an absurd result is not a factor in interpretation, and it is for the legislature to remove the absurdity. Only then does the second proposition follow: if two reasonable constructions of a taxing provision are possible, the one favouring the assessee must be adopted. Applying that, the Court reasoned textually. 'Assessed' is the term the Act uses for quantification; tax payable is a different thing, being the amount for which a demand notice issues under s.156, and in arriving at it the tax already paid is deducted. The later words 'the tax', with the definite article, must refer to something said earlier, and can only refer to the tax payable mentioned in the first part of the provision - notwithstanding the general definition of 'tax' in s.2(43), which uses the word without the article. At the least the provision was capable of more than one reasonable interpretation: Calcutta and Mysore had read it one way, Lahore and Delhi the other, and the Calcutta and Mysore view could not be called untenable. That being so, and the provision being a penalty provision as well as a taxing one, their interpretation was accepted, the Court adding that the Revenue's reading could produce harsh results. In the words reproduced by the source cited on this page: "On the other hand, if two reasonable constructions of a taxing provision are possible that construction which favours the assessee must be adopted."
It was decided by the Supreme Court on 1973-01-29 and is reported as (1973) 88 ITR 192 (SC); AIR 1973 SC 927; (1973) 3 SCR 448; (1973) 1 SCC 442; Civil Appeal No. 497 of 1970. Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section 271(1)(a)(i), section 156, section 143, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The Revenue's appeal was dismissed and the Calcutta High Court affirmed. In s.271(1)(a)(i) the expression 'the amount of the tax, if any, payable by him' means the tax payable under a demand notice under s.156, not the tax assessed under s.143, because in determining tax payable the tax already paid must be deducted. The words 'the tax' later in the same provision, with the definite article, refer back to that same figure. So in computing the penalty, the amount the assessee had paid on the provisional assessment fell to be deducted. In reaching that result the Court stated the rule that where two reasonable constructions of a taxing provision are possible, the one favouring the assessee must be adopted. It arises in How Tax Law Is Read matters, on section 271(1)(a)(i), section 156, section 143 of the Income Tax Act 1961, and was decided by Supreme Court of India — K.S. Hegde, P. Jaganmohan Reddy and H.R. Khanna JJ (judgment by Hegde J). Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Do not use it for an exemption notification — there the ambiguity goes the other way. State both constructions expressly in your submission rather than asserting ambiguity in the abstract.
Still good law. Commentary analysing the Constitution Bench decision in Dilip Kumar & Co concludes that Vegetable Products remains valid for charging and taxing provisions, Dilip Kumar having laid down the opposite rule only for exemption notifications. The Constitution Bench itself recorded a consistent view since 1955 that ambiguity in a taxing statute, as distinct from an exemption clause, benefits the subject. That finding was checked against a published source, which is linked on this page, on 2026-08-25. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
Decided on s.271(1)(a)(i) as it then stood, in Civil Appeal No. 497 of 1970, by Hegde, Jaganmohan Reddy and H.R. Khanna JJ on 29 January 1973. Two cautions for anyone citing it as the general rule of construction. The judgment puts plain language first and reaches the favour-the-assessee rule only after finding the provision capable of more than one reasonable meaning. And the Court expressly leaned on the fact that it was construing a penalty provision, not only a taxing one. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The Revenue's appeal was dismissed and the Calcutta High Court affirmed. In s.271(1)(a)(i) the expression 'the amount of the tax, if any, payable by him' means the tax payable under a demand notice under s.156, not the tax assessed under s.143, because in determining tax payable the tax already paid must be deducted. The words 'the tax' later in the same provision, with the definite article, refer back to that same figure. So in computing the penalty, the amount the assessee had paid on the provisional assessment fell to be deducted. In reaching that result the Court stated the rule that where two reasonable constructions of a taxing provision are possible, the one favouring the assessee must be adopted.
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