TaxTMI 
TaxTMI 
1972 (12) TMI 25
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....sment the respondent determined the interest payable by the firm under section 139 at Rs. 3,868. The said interest has been calculated at 6 per cent. on the total income of Rs. 1,03,021 treating the firm as an unregistered firm as per proviso (iii)(a) of that section. The petitioner has challenged the said assessment so far as it relates to the levy of interest. The challenge has been made on two grounds, (1) the proviso (iii)(a) to section 139(1) enabling the Income-tax Officer to treat the registered firm as an unregistered firm while calculating the interest payable by the firm is arbitrary and ultra vires being a colourable exercise of the legislative power; (2) the proviso (iii)(b) to section 139(1) which allows deduction of the advance tax paid for purposes of the levy of interest in respect of other assessees, has not been extended to registered firms and this clearly amounted to discrimination violative of article 14 of the Constitution. According to the petitioner, the levy of interest treating a registered firm as an unregistered firm without reference to its actual tax liability practically amounts to a penalty and ceases to be compensatory and that though the object of ....
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....re, a registered firm could validly be treated as an unregistered firm for the purpose of the levy of interest. As regards the petitioner's allegation that the denial of benefit of the deduction of advance tax in the computation of interest as per the proviso (iii)(b) to the registered firms alone is discriminatory, the revenue contends that the advance tax paid by the firm is only in its capacity as a registered firm, and not as an unregistered firm, that it has been rightly excladed from deduction for the computation of interest, that this result follows from the legal fiction created under proviso (iii)(a) and that in the matter of calculation of interest a registered firm will have to be treated as an unregistered firm. Before considering the tenability of these rival contentions it is necessary to set out the relative statutory provisions. Section 139(1) directs that every person, if his total income during the previous year exceeded the maximum amount which is not chargeable, to income-tax, shall furnish a return of his income in the prescribed form and in the prescribed manner setting forth the prescribed particulars on or be ore a particular date, and the proviso to that....
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.... said second contention of the petitioner first. The petitioner's contention is that, if the construction of clauses (iii)(a), and (b) of the proviso to section 139(1) as suggested by the revenue is accepted, the same will infringe article 14 in that it would make an invidious distinction between registered firms on the one hand and all other a on the other in the matter of levy of interest and that there is no reasonable basis for making that classification for denying the benefit of deduction of advance tax paid and the tax deducted at source from the amount of tax on which the interest is to be levied, and that it is the duty of the court to construe a statutory provision in such a way as to give it validity. We are inclined to agree with this contention. Proviso to section 199(1) at the stage of the Bill was to the effect that the interest at 6 per cent. per annum shall be payable on the amount of tax that may be found due on completion of the regular assessment from the first day of October of the assessment year to the date of furnishing the return and that it is, only at the stage of the Select Committee the provisoin the present form came to be introduced. The proviso as....
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....at the benefit of deduction should go to both the categories referred to in sub-clause (a) and sub-clause (b) of clause (iii) of the proviso ; (2) if the parenthesis " reduced by the advance tax if any, paid or by any tax deducted at source, as the case may be" is taken to govern only clause (b) as urged by the revenue it would not only lead to discrimination between similar assessees liable to pay advance tax but would also violate the well-established principles of contemporaneo expositio. We respectfully agree with the said reasoning. As pointed out by the learned judge, as iu every other case a registered firm also is bound to pay advance tax, and, therefore, it is entitled to secure all the benefits consequential upon such advance payment. All such persons, who pay advance tax and as a result thereof secure certain privileges in the matter of counter-interest thereon, belong to a class by themselves and the registered firms who have committed default in the submission of returns cannot be treated differently from the assessees who have committed similar defaults and deprive them of the benefit which they would be entitled in law arising out of the payment of advance tax unless....
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....to sub-section (1) of section 139 is nothing but simple interest or compensation that could accrue or would have accrued to the State, if the assessee had filed his return as required by section 139 and paid the tax as per the provisions of section 140A. It is not, therefore, correct to state that the interest so payable is penal in character nor does it amount to penalty of any kind levied under the Act. The very intendment and purpose of this provision to levy interest on the amount of tax payable by the assessee is to make the assessees feel their responsibility and statutory obligation to furnish the returns of their incomes within the time provided under section 139 of the Act." These general observations dealing with the scope of section 139 do not throw any light oil the question posed here as to whether the registered firms could be treated as unregistered firms for the collection of interest. The above decision cannot also be treated as an authority for the proposition that the interest collected should always be compensatory. As a matter of fact in Jain Brothers v. Union of India it was urged before the Supreme Court that section 271(2) of the Income-tax Act, 1961, con....
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....e of imposition of interest. We are not impressed with this argument. The question does not depend upon the existence or otherwise of the non obstate clause in section 139(1). The question is whether it is open to the legislature to treat a registered firm as an unregistered firm when it has committed a default in submission of the return. It cannot be disputed that, but for the privileges given by the statute to a registered firm, it would be in the same position as an unregistered firm. Therefore, it is open to the legislature to say that one or other of the privileges granted to a registered firm will not be available to such firms who have defaulted to submit the return in time. It is untenable to say that the legislature which granted the privileges cannot take away any of the privileges given to registered firms at all events. If the legislature chooses to withdraw the privileges given to a registered firm, that cannot be attacked as being discriminatory between registered firms and unregistered firms. Therefore, submit the registered firms to the same treatment as unregistered firms in the matter of levy of interest cannot be said to be in any way arbitrary or colourable exe....