PAUL ABRAO AND SONS Vs. INCOME TAX OFFICER

JUDGEMENT

(1.) THREE different firms have filed the above three Original Petition. They seek a declaration to the effect that Explanation 2 to s. 139(8)(a) of the IT Act, 1961, insofar as it provides that in the case of a registered firm for delayed filing of the return for levying interest, the tax payable on the total income shall be the amount of tax which would have been payable if the firm had been assessed as an unregistered firm, is violative of the Art. 14 of the Constitution of India and is unconstitutional and void. The consequential assessment order imposing interest on such basis are also attacked. Under s. 139 of the IT Act every person whose total income during the previous year exceeded the maximum about which is not chargeable to income-tax shall furnish a return of this income in the prescribed form and verified in the prescribed manner within the time stipulated therein. A firm is also bound to comply with such requirements. One of the consequences for not filing the return within the specified date is the liability to pay interest specified under s. 139(8)(a) of the Act. Sec. 139(8)(a) of the Act and the Explanation provide as follows :

(2.) COUNSEL for the petitioners contend that for the failure to file the return within the specified time and in levying the interest under s. 139(8)(a) read with Expln. 2, the ITO estimated the tax payable by the petitioner, as if the petitioner were assessed as an unregistered firm and levied interest on such notional basis. This has been so done, though the petitioner is a registered firm, and is entitled to the benefits of the Act as a registered firm. Expln. 2 to s. 139(8)(a) of the Act is attached as arbitrary unjust and discriminatory and as violative of Article of 14 of the constitution of India.

(3.) IT is common knowledge that a firm can carry on business even without registration under the IT Act. The benefit of registration is given by the Act to firms which will benefit them by levy of lower rates of tax. In the absence of registration, the whole income of the firm will be charged as a unit of assessment. In affording the benefit of registration and the consequential lower rates of tax the Legislature thought it fit to impose a condition to the effect that if the firm delays the filing of the return, the basis of or levying the interest under s. 139(8) of the Act should be on the basis of the tax payable on the total income as if the firm has been assessed as an unregistered firm. It does not appear, that the legislature was incompetent or acted arbitrarily in enacting such a provision. xx xx xx xx xx The benefit of registration was afforded to firms with certain condition or only in case they fulfil certain requirements enjoined by the statute. This, the Legislature was competent to enact seems to be obvious. It is settled law, that in matters of taxation, the Court permits a greater latitude to the discretion of the Legislature. In tax matters, the State is allowed to pick and choose, districts, objects, person, methods and even rates for taxation, if it does so reasonably. (Vide Khandige Sham Bhat vs. Agricultural ITO AIR 1963 SC 591, Khyerbari Tea Co. Ltd. vs. State of Assam AIR 1964 SC 925 at p. 941 and Ganga Sugar Corporation Ltd. vs. State of Uttar Pradesh AIR 1980 SC 286)