1972 (12) TMI 25 - HC - Income Tax

Levy of interest under section 139(8) treating registered firm as an unregistered one - whether advance tax paid by the registered firm is deductible - The result is that the writ petitions are allowed in part and the petitioners will be entitled to have the advance tax paid by them deducted from the total tax as determined by the respondent for purpose of calculation of interest under section 139(1), proviso. The respondent in each of these cases is directed to modify the assessment accordingly.

Issues Involved:
1. Validity of treating a registered firm as an unregistered firm for the purpose of levying interest under Section 139(1) of the Income-tax Act, 1961.
2. Discrimination against registered firms by not allowing the deduction of advance tax paid in the computation of interest under Section 139(1) of the Income-tax Act, 1961.

Detailed Analysis:

Issue 1: Validity of Treating a Registered Firm as an Unregistered Firm for Levying Interest

The petitioner, a partnership firm, challenged the levy of interest calculated under Section 139(1) of the Income-tax Act, 1961, on the grounds that treating a registered firm as an unregistered firm for this purpose is arbitrary and ultra vires. The petitioner argued that such treatment amounts to a penalty and is violative of Articles 19(1)(g) and 31 of the Constitution.

The revenue contended that the provision aims to prevent delayed submission of returns and is a reasonable measure to ensure compliance. It was further argued that the legislature has the right to create such a fiction for the purpose of levying interest and that the provision does not violate constitutional rights.

The court held that it is within the legislature's power to treat a registered firm as an unregistered firm for the purpose of levying interest. The court referred to the Supreme Court's decision in Jain Brothers v. Union of India, which upheld a similar provision under Section 271(2) of the Income-tax Act, 1961. The court concluded that the proviso (iii)(a) to Section 139(1) is neither arbitrary nor a colourable exercise of legislative power. It was also noted that Section 139(8) and Rule 117A provide discretion to the Income-tax Officer to waive or reduce interest in suitable cases, ensuring that the provision is not unreasonable or discriminatory.

Issue 2: Discrimination Against Registered Firms in Deduction of Advance Tax

The petitioner argued that the proviso (iii)(b) to Section 139(1), which allows the deduction of advance tax paid for other assessees, should also apply to registered firms. The petitioner claimed that the exclusion of registered firms from this benefit is discriminatory and violates Article 14 of the Constitution.

The revenue contended that the advance tax paid by the firm is only in its capacity as a registered firm and not as an unregistered firm, and thus, it has been rightly excluded from deduction for the computation of interest.

The court agreed with the petitioner, stating that there is no reasonable basis for making a distinction between registered firms and other assessees in the matter of deduction of advance tax paid. The court emphasized that the benefits of deduction should apply to all assessees, including registered firms. The court referred to the decision in Mahendrakumar Ishwarlal & Co. v. Union of India, where it was held that the interpretation suggested by the revenue would lead to discrimination and violate established principles of statutory interpretation.

The court concluded that the proviso (iii)(a) should be construed to include the benefit of deduction of advance tax paid for registered firms as well. Therefore, the petitioner's contention was upheld in this regard.

Conclusion:

The writ petitions were allowed in part. The court directed the respondent to modify the assessment to allow the deduction of advance tax paid by the petitioners from the total tax determined for the purpose of calculating interest under Section 139(1), proviso. There was no order as to costs in any of the petitions.

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