1988 (12) TMI 113 - HC - Income Tax

Summary

Issues Involved:
1. Liability of the Central Government to pay interest on excess tax deducted at source (TDS).
2. Constitutional validity of Sections 214, 215, and 217 of the Income-tax Act, 1961.
3. Classification and discrimination under Article 14 of the Constitution of India.

Detailed Analysis:

1. Liability of the Central Government to Pay Interest on Excess TDS:
The petitioner, an income-tax assessee, argued that the income-tax paid in advance and the tax deducted at source should be treated as advance tax for the purpose of payment of interest under Section 214 of the Income-tax Act, 1961. The court examined the language of Sections 193, 207 to 213, and 214, concluding that these provisions do not support this construction. Section 214 specifically provides for payment of interest on excess amounts from instalments of advance tax paid under Sections 203 to 214. The court highlighted that the tax deducted at source is on income already earned, whereas advance tax is on estimated income yet to be earned. Therefore, the two cannot be treated on the same footing for purposes of payment of interest on refunds. The court found no enabling provision in the Act to direct payment of interest on tax deducted at source, as the specified rate of tax is applied to income already earned. Consequently, the petitioner's claim for interest on excess TDS was rejected.

2. Constitutional Validity of Sections 214, 215, and 217:
The petitioner challenged the constitutional validity of Section 214, contending it is discriminatory and violative of Article 14 of the Constitution of India. The court examined the statutory framework and found that Section 214 has sufficient justification for providing interest on excess advance tax paid, as such payments are made on income yet to arise. In contrast, refusal to pay interest on excess TDS, which is on income already earned, is neither discriminatory nor arbitrary. The court cited precedents such as Addl. CIT v. Bareilly Corporation Bank Ltd. and CIT v. Clittres, which support the view that no interest is payable on excess TDS due to the absence of statutory provisions. The court concluded that the distinction between advance tax and TDS is justified and does not violate Article 14.

3. Classification and Discrimination under Article 14:
The court addressed the petitioner's argument regarding discrimination under Article 14. It reiterated that taxation laws must pass the test of Article 14, but the State has wide discretion in selecting the objects and persons it will tax. The court emphasized that legislation is only unconstitutional if it operates unequally within its range of selection without valid classification. The court referred to principles from cases such as Murthy Match Works v. Assistant Collector of Central Excise and East India Tobacco Co. v. State of Andhra Pradesh, which establish that mere inequality of treatment does not constitute discrimination unless it is arbitrary and irrational. The court found that the classification between advance tax and TDS is based on a rational distinction, as advance tax is on anticipated income, and TDS is on income already earned. Therefore, the challenge against the validity of Section 214 on grounds of discrimination and arbitrariness fails.

Conclusion:
The court dismissed the petition, holding that the petitioner is not entitled to interest on excess TDS due to the absence of statutory provisions. The distinction between advance tax and TDS is justified and does not violate Article 14 of the Constitution. The petition challenging the constitutional validity of Sections 214, 215, and 217 of the Income-tax Act, 1961, was found to be without merit.