1971 (7) TMI 48 - HC - Income Tax

Petitioners cannot succeed on the ground that the provisions of section 139(1) proviso (iii) (a) and (b) of the Income-tax Act 1961 are ultra vires ; but they would be entitled on a reasonable interpretation of the text of the clause to the credit for advance tax which is available to other assessees and in this view the petitioners are entitled partially to a relief. These writ petitions are therefore allowed in part. The assessments if any made have to be revised in the light of the observations contained in this judgment and no further direction is necessary

Issues Involved:
1. Constitutionality of Section 139(1), proviso (iii)(a) and (b), of the Income-tax Act, 1961.
2. Discrimination under Article 14 of the Constitution of India.
3. Entitlement to credit for advance tax paid by defaulting registered firms.

Detailed Analysis:

1. Constitutionality of Section 139(1), proviso (iii)(a) and (b), of the Income-tax Act, 1961:
The petitioners challenged the constitutionality of Section 139(1), proviso (iii)(a) and (b), of the Income-tax Act, 1961, arguing that it is discriminatory and violates Article 14 of the Constitution of India. The provision mandates that if a registered firm files its tax returns late, it must pay interest on the amount of tax as if it were an unregistered firm, which is higher than the interest calculated for other assessees who file late returns.

The court analyzed the legislative intent behind this provision, noting that it was introduced based on the recommendations of the Direct Taxes Administration Enquiry Committee. The committee suggested that interest should be levied on late returns to act as a deterrent and ensure timely submission of tax returns. The court found that this classification was reasonable and aimed at sustaining the privileges enjoyed by registered firms and deterring delayed submissions.

2. Discrimination under Article 14 of the Constitution of India:
The petitioners argued that treating defaulting registered firms differently from other assessees who file late returns constitutes discrimination under Article 14. The court examined the privileges and benefits that registered firms enjoy under the Income-tax Act, such as lower tax rates and exemptions. The court held that the classification of defaulting registered firms for the purpose of calculating interest on late returns was rational and had a clear nexus with the legislative objective of ensuring timely tax submissions.

The court cited various precedents, including Jain Brothers v. Union of India and V. Venugopala Ravi Varma Raja v. Union of India, to support its view that the legislature has wide discretion in creating classifications in tax laws. The court concluded that the differential treatment of defaulting registered firms did not violate Article 14, as it was based on a reasonable classification aimed at achieving a legitimate legislative objective.

3. Entitlement to credit for advance tax paid by defaulting registered firms:
The petitioners contended that they should be entitled to credit for advance tax paid, similar to other assessees, even if they filed their returns late. The court examined the text and punctuation of Section 139(1), proviso (iii)(a) and (b), and found that the provision was ambiguous regarding whether defaulting registered firms were entitled to credit for advance tax paid.

The court noted that advance tax is paid by all assessees, including registered firms, and that denying credit for advance tax to defaulting registered firms would create an unequal situation among equals. The court held that the benefit of credit for advance tax should be available to all assessees, including defaulting registered firms, as there was no clear legislative intent to treat them differently in this regard.

The court also considered the punctuation of the provision and concluded that the parenthesis "reduced by the advance tax, if any, paid or by any tax deducted at source, as the case may be" should apply to both sub-clauses (a) and (b) of clause (iii). This interpretation ensures that defaulting registered firms are entitled to credit for advance tax paid, similar to other assessees.

Conclusion:
The court held that Section 139(1), proviso (iii)(a) and (b), of the Income-tax Act, 1961, is not ultra vires and does not violate Article 14 of the Constitution. However, the court concluded that defaulting registered firms are entitled to credit for advance tax paid, similar to other assessees. The writ petitions were allowed in part, and the assessments were directed to be revised accordingly. No order as to costs was made.

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