CHEMMEENS Vs. INCOME TAX OFFICER

JUDGEMENT

(1.) A common question arises in these cases. The assessees are registered firms. They challenge the levy of interest under S.139(8)(a) of the Income Tax Act, 1961 (the "Act"). They contend that Explanation (2) to S.139(8)(a) is ultra vires and void, and pray for a declaration to that effect. In O. P. No. 6499 of 1981 interest has been charged by Ext. P2 for the assessment year 1976-77. In O. P. No. 3783 of 1982 interest has been charged for the assessment years 1976-77 and 1978-79 by Exts. P1 and P2 respectively. In O.P. No. 3805 of 1982 interest has been charged by Exts. P1, P2 and P3 for the assessment years 1976-77, 1977-78 and 1979-80 respectively. These orders are impugned by the petitioners.

(2.) The petitioners contend that the interest charged under sub-s.(8) of S.139 amounts to a penalty for the reason that a registered firm is treated, by virtue of Explanation (2) to that sub-section, as if it was an unregistered firm for the purpose of computing the interest. The registered firm is thus singled out for discriminatory treatment among the various categories of tax payers and is required to pay interest on amounts to which it is not liable to be assessed. The interest levied on the registered firm with reference to the tax payable by an unregistered firm, the petitioners contend, has resulted in an unreasonable classification having no rational nexus with the object sought to be achieved, and is arbitrary, unfair and violative of Art.14 of the Constitution.

(3.) S.139 casts an obligation on every person liable to be assessed under the Act to furnish the return of his income on or before the specified date mentioned under sub-s.(1). In the case of a person who, in the opinion of the Income Tax Officer, is assessable under the Act, notice may be served on him under sub-s.(2) requiring him to furnish within 30 days the return of his income. It is open to the officer, under sub-s.(1) or 2, to extend the date for furnishing the return. Notwithstanding such extension, interest is chargeable in accordance with the provisions of sub-s.(8). However, as stated in the proviso to sub-s.(8)(a), the Income Tax Officer may, in those cases and circumstances which may be prescribed by rules, reduce or waive the interest. R.117A of the Income Tax Rules, 1962 (the "Rules") has prescribed those cases and circumstances. Sub-s.(4) provides that a person who has not furnished the return within the time allowed under sub-s.(1) or (2) may, before the assessment is made, furnish the returns at any time before the end of the period specified under clause (b) thereof, and subject to the provisions of sub-s.(8). If the return under sub-s.(1) or (2) or (4) has been furnished after the specified date, or it is not furnished at all, the assessee is, subject to the power of the Income Tax Officer under the proviso to sub-s.(8)(a) to reduce or waive the interest, liable to pay simple interest at 12 percent per annum, whether or not extension of time for furnishing the return has been granted. The interest has to be reckoned from the day immediately following the specified date to the date on which the return has been furnished, or, where no return has been furnished, to the date of completion of the best judgment assessment under S.144. Interest is payable on the amount of the tax payable on the total income as determined on regular assessment, but reduced by the advance tax paid and any tax deducted at source. The impugned Explanation (2) to sub-s.(8)(a), which is applicable only to a registered firm, or an unregistered firm which has been assessed under clause (b) of S.183, provides that, for the purpose of computing interest under sub-s.(8) of S.139, the tax payable on the total income shall be the amount of tax which would have been payable had the firm been assessed as an unregistered firm. In other words, the interest payable by the registered firm has to be calculated with reference to the tax payable by an unregistered firm as if the assessee was an unregistered firm. This shows that the privilege which has been extended to a registered firm in the matter of assessment has been, in respect of interest payable by such firm under S.139(8), withheld or modified so as to compel it to pay interest with reference to the higher rate of tax applicable to an unregistered firm.