MAHENDRAKUMAR ISHWARLAL AND CO Vs. UNION OF INDIA

JUDGEMENT

(1.) IN this batch of writ petitions common questions are involved. It is, therefore, sufficient to refer to the material facts in one of the writ petitions. I am narrating the facts in W.P. No. 1722 of 1967, for purposes of convenience. At the outset I may mention that the only point urged before me by the counsel appearing in this batch of writ petitions is that Section 139(1), proviso (iii)(a) and (b), of the INcome-tax Act, 1961, is ultra vires because the same is discriminatory in character and, therefore, violative of article 14 of the Constitution of INdia. It is not in dispute that in these writ petitions the petitioners as assessees under the Act in the status of registered firms filed returns beyond time and made necessary applications to the INcome-tax Officer to excuse the delay in the non-submission of the return within time. Having obtained such an order by invoking the statutory discretion of the income-tax authorities it is said that the provision as above which provides for the payment of interest, for non-submission of the returns within the time allowed, on the amount of tax which would have been payable if the firm had been assessed as an unregistered firm, while in the case of any other assessee the amount of interest payable is to be calculated on the amount of tax payable on the total income reduced by the advance tax, if any, paid, is challenged on the ground that such a provision is illegal, savours of discrimination and ultra vires. The further contention is that the denial of counter interest towards advance tax paid by the firm is an open negation of a just right. It is stated that the modus operandi envisaged in the above section for the calculation of interest on the hypothetical tax or notional income-tax payble by the defaulting registered firm is an abuse of legislative power and hence unconstitutional. The mere fact that the return was not submitted in time would not authorise the creation of such a discrimination as between a registered firm and any other assessee. Mainly for this reason the petitioners have come up to this court for the issue of a writ of certiorari to quash the impugned orders which are admittedly based and worked out on the formula provided in the above section. Even though each petitioner has set out in detail various other factual details in the affidavit they were not even referred to before me. The argument of the learned counsel for he petitioner centres round the language of Section 139(1), proviso (iii)(a) and (b), of the Act. The contention is that even on a lair reading of the section a discrimination is writ large in the textual content of the above clause and it offends article 14 of the Constitution. IN any event it is stated that a registered firm defaulting in the submission of returns in time is entitled to the credit for the advance tax, if any, paid by it for the assessment year in question and this benefit cannot be tagged on only to assessees other than a registered firm who did not file their returns in time. Though it was hesitantly contended that by implementing the content and text of the proviso as above, it would virtually be imposing a penaltv on the petitioners, this argument was not pressed fully in view of the decision of the Supreme Court in Jain Brothers v. Union of INdia, .. Reliance was, however, placed on Twyford Tea Company v. Kerala State, A.I.R. 1970 S.C. 1198.. On the strength of the observations made therein and in particular to the question that the differences in treatment must be capable of being reasonably explained in the light of the object for which the particular legislation is undertaken, it was said that the differential treatment in the instant case is not reason ably explained and justified and, therefore, the treatment is discriminatory. On the other question as to how the interest should be arrived at, it is stated that the ordinary concept of interest envisages a definite amount lawfully payable by the debtor to the creditor, but would not include a sum notionally or fictionally adjudged as the amount due, though under statutory power. It is said that as interest is calculated as if the peti tioners are unregistered firms and not registered firms it is against all accepted canons of payment of interest. It is also contended that in any event advance tax has to be given credit to while working out the ultimate liability and this relief being available to other assessees, ought not to be denied to the petitioners, registered firms. Lastly, it is urged that the text, punctuation and the set up of the proviso supports the contention that interest on advance tax has to be necessarily given to the petitioners and all other assessees making a default in the submission of return. The revenue, on the other hand, would say that the proviso in question was introduced in the new Act on the basis of the report of the Direct Taxes Administration Enquiry Committee, whilst the old Act did not make any such provision at all. Strong reliance is placed upon the advantages gained by a registered firm in the matter of payment of tax and advance tax and the impugned provision is intended to induce such firms to file the returns in time and primarily to act as a deterrent against submission of delayed returns. If it is discovered that the conduct of a particular assessee, who is a registered firm, in filing delayed returns was contumacious, then penalty was leviable under Section 271. If, however, sufficient cause is shown for the delay in the submission of returns, the INcome-tax Officer is vested with a discretion to excuse such delay but condition it in accordance with the proviso as above and compel the assessee to pay such interest as indicated by the statute, as a solatium for the exercise of the statutory discretion by the officer. What is sought to be achieved is to fix a scale for working out the interest payable for obtaining a relief in the matter of the delay. The purpose is achieved by the proviso by increasing notionally the quantum of tax payable by the defaulting assessee. A registered firm is treated as an unregistered firm not for any other purpose but for the purpose of arriving at the deemed quantum of tax payable by it and finally to arrive at the interest payable by such an assessee in such circumstances. As that does not ex facie show any discrimination as such, but only reflects the intention of the legislature to make a defaulting registered firm suffer a quasi-penalty in case the delay in the submission of returns is excused so that the registered firm may sustain its privileges under the Act, it is contended that no question of discrimination arises. The process of calculation is prescribed by statute and the differentia has a purpose to serve and an object to achieve and, therefore, article 14 is not violated. V. Venugopala Ravi Varma Raja v. Union of INdia, . was relied on. As in tax laws a wider discretion is vested in the legislature to single out persons and classify them for various purposes so that the avowed objects of the particular Act may be achieved, it is not open to the petitioners to say that in the peculiar circumstances in which they are placed, if they are called upon to pay an interest on an amount statutorily quantified as per the proviso, it amounts to discrimination in the eye of law. On the question of interpretation of the language of the proviso and on the claim as to interest on advance tax paid it is said that the text is clear and reliance is placed upon the INcome-tax Manual and the Gazette in which the provision has been reproduced, wherein the intention of the legislature is made obvious, to give relief to persons other than those similarly placed as the petitioners, in case such assessees have paid advance tax for the assessment year in question. It is contended that punctuation cannot be a guide to interpret statutes and reliance is placed upon a passage in Odgers on the Construction of Deeds and Statutes and R.M.D. Chamarbaugwalla v. Union of INdia, .

(2.) I shall now refer to the scheme of the Act. An " assessee " is defined in the Act under Section 2(7). It means and includes a person by whom any tax or any other sum of money is payable under the Act, and every person who is deemed to be an assessee under any of the provisions of the Act and also an assessee in default. Section 143 deals with returns to be made by an assessee. Sections 182 and 183 in Chapter XVI of the Act deal with assessment of firms, both registered and unregistered. In the case of a registered firm, the main limbs of the section postulate the determination of the income-tax payable by the firm itself and for such determination of the share of each partner in the income of the firm which shall be included in his total income and assessed to tax accordingly. A partner in a registered firm has the privilege of setting of? the loss, if any, sustained by him in the registered partnership business against his other income or carrying forward and setting off in accordance with the provisions of Sections 70 to 75 of the Act. Besides, a registered firm has certain benefits in the matter of the rate of taxation and limit of exemption from tax. Under Section 183, an unregistered firm is assessed on the basis of the total income, of the firm and tax is determined accordingly. Under Section 183(b) the Income-tax Officer has an option ; if, in his opinion, the aggregate amount of the tax payable by the partners if the firm were treated as a registered firm would be greater than the aggregate amount of the tax which would be payable by the unregistered firm on the basis of its total income and the tax which would be payable by the partners individually, he may proceed to make the assessment under Clause (ii) of Sub-section (1) of Section 182 as if the firm were a registered firm. Section 184 provides for registration of firms. It is, therefore, seen that these special provisions applicable to firms, appearing in Chapter XVI, are inducted into the statute so as to confer a privilege or a benefit according to prescribed circumstances on registered firms. A registered firm as an assessee is also bound to pay advance tax. Such advance tax paid by an assessee shall be treated, under Section 219 of the Act, as payment of tax in respect of the income of the period which would be the previous year for an assessment for the assessment year next following the financial year in which it was payable, and credit therefor shall be given to the assessee in the regular assessment. Such credit, under certain circumstances, shall be given in a provisional assessment as well if one is made before the regular assessment is completed. If an assessee fails to furnish the returns as prescribed, then he is liable to pay penalty under Section 271 of the Act. In the above context Section 139, which appears in the chapter " Procedure for assessment " should be analysed for purposes of the instant case. A registered firm, if an assessee within the meaning of the Act, is bound to submit the returns within the time prescribed and in the prescribed form. If the non-furnishing of such returns springs from a deliberate motive to evade tax, it is punishable under Section 271 of the Act. If, however, the circumstances do not disclose any contumacious conduct on the part of the assessee which is a registered firm, it may apply in the prescribed manner to the concerned Income-tax Officer for extending the date for furnishing such returns. The proviso to Section 139(1) read as follows :

(3.) MR, Srinivasan suggests that the proviso to Section 139(1) is not necessarily attracted in the case of a delayed return. There is a fallacy in the argument. So long as the firm does not admit that there was wilful abstention from the submission of returns, the firm is conscious of its laches in having delayed such returns and therefore it invokes the discretion of the Income-tax Officer to excuse such delay after showing sufficient cause. If the delay is excused, then the conduct of the assessee ceases to be contumacious, which, if found, is liable to attract Section 271 of the Income-tax Act. Hence, the assessee who sets the proviso to Section 139(1) into motion cannot ignore all these implications including the effect of the proviso thereto and in such a situation he has to be dealt with under Section 139 and not under any other provision of the Income-tax Act.