1987 (10) TMI 1 - SC - Income Tax

Registered firms within the meaning of section 2(39) - challenge of the appellants as to the legality of the interest charged by the Income-tax Officer for the delayed filing of returns and also as to the constitutional validity of sub-section (4) of section 139 of the Act, as it stood before April l, 1971

Issues Involved:
1. Legality of the interest charged by the Income-tax Officer for the delayed filing of returns.
2. Constitutional validity of sub-section (4) of section 139 of the Income-tax Act, 1961, as it stood before April 1, 1971.
3. Classification of registered firms for the purpose of interest calculation under section 139.

Issue-wise Detailed Analysis:

1. Legality of the Interest Charged for Delayed Filing of Returns:
The appellants contended that unless an application for extension of the date for furnishing the return is made, the question of charging any interest on the amount of tax does not arise. The court, however, clarified that sub-section (4) of section 139 is a substantive provision and does not require an application for extension. The court stated, "What is provided in sub-section (4) is that even though a person does not furnish the return within the time allowed to him under sub-section (1) or sub-section (2), yet he may furnish the same before the end of the four assessment years concerned." The court concluded that the Income-tax Officer is entitled to charge interest in accordance with clause (iii) of the proviso to sub-section (1) of section 139, regardless of whether an application for extension was made.

2. Constitutional Validity of Sub-section (4) of Section 139:
The appellants argued that the interest levied for late filing of returns takes the character of a penalty and is thus unconstitutional. The court referred to previous judgments, including Central Provinces Manganese Ore Co. Ltd. v. CIT, stating, "interest is levied by way of compensation and not by way of penalty." The court held that the charging of interest did not transform into a penalty and affirmed that the provision is not violative of Article 14 of the Constitution.

3. Classification of Registered Firms for Interest Calculation:
The appellants argued that sub-section (4) read with clause (iii)(a) of the proviso to sub-section (1) of section 139 discriminates against registered firms by calculating interest on the tax payable as if they were unregistered firms. The court noted, "It is because of certain privileges which have been conferred on a registered firm." The court explained that the provision effectively withdraws the privilege of a registered firm to be assessed at a reduced rate due to non-compliance with filing deadlines. By treating registered firms as unregistered firms for interest calculation, the legislation avoids discrimination and places both on the same footing. The court disagreed with the Karnataka High Court's decision in M. Nagappa v. ITO, which had struck down the provision as unconstitutional. The court concluded, "the provision of sub-section (4) of section 139 read with clause (iii)(a) of the proviso to sub-section (1) of section 139 of the Act is not violative of article 14 of the Constitution and is quite legal and valid."

Separate Judgment on Refund of Interest:
In C. A. No. 1035 of 1973, the court found that the assessee had paid advance tax covering the entire amount of tax payable. The court stated, "when the amount of tax due had already been paid in the shape of advance tax, the question of payment of compensation by way of interest does not arise." Consequently, the court directed the Income-tax Officer to refund the amount of interest charged.

Conclusion:
The appeals challenging the legality of interest charged and the constitutional validity of sub-section (4) of section 139 were dismissed, except for C. A. No. 1035 of 1973, where the court ordered a refund of the interest paid. The court upheld the provisions of the Income-tax Act, 1961, as constitutional and valid.

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