1974 (1) TMI 5 - HC - Income Tax

Constitutional validity of section 217 of the Income-tax Act, 1961 - In these writ petitions, the petitioners have not questioned the correctness of the order passed by the Commissioner. But they have challenged the levy of interest on the ground that section 217 of the Act is unconstitutional as, according to them, it is violative of article 14 of the Constitution - writ petitions fail and they are dismissed

Summary

Issues:
Challenge to constitutional validity of section 217 of the Income-tax Act, 1961 based on discrimination and violation of article 14 of the Constitution. Interpretation of rule 40 of the Income-tax Rules regarding waiver of interest under sections 215 and 217.

Analysis:

The case involved a challenge to the constitutional validity of section 217 of the Income-tax Act, 1961, by a firm and its partners who had not been assessed to income tax before the years 1965-66 to 1968-69. The petitioners contested the levy of interest under section 217(1) and sought exemption, which was denied by the Commissioner of Income-tax, leading to the filing of writ petitions.

The primary contention raised was the alleged discrimination under section 217(1) between different categories of taxpayers, specifically focusing on category No. 5 to which the petitioners belonged. The argument was that there was no valid reason for treating persons in category No. 5 differently from those falling under category No. 1 concerning the levy of interest for delayed payment of advance tax. The petitioners claimed that this differentiation violated article 14 of the Constitution.

The court analyzed the distinction between category No. 1 and category No. 5 taxpayers, emphasizing that the purpose of levying interest under section 217(1) was to ensure that individuals who withheld money payable to the government compensated appropriately. It noted the procedural differences in recovering advance tax from these categories, justifying the classification and correlating it with the objective of the interest levy. Consequently, the court held that the challenge based on article 14 was untenable.

The second contention revolved around the interpretation of sub-rule (5) of rule 40 of the Income-tax Rules, which allowed for the reduction or waiver of interest payable under sections 215 or 217. The argument posited that the discretionary power granted to the Inspecting Assistant Commissioner made section 217(1) unconstitutional. However, the court rejected this argument, highlighting that the rule provided necessary flexibility to address unforeseen circumstances and that the discretion was not unguided, requiring the officer to justify and record reasons for the decision.

Drawing on precedent, the court emphasized the necessity of conferring such discretionary powers on executive authorities to ensure effective administration of tax laws. It cited a relevant case to support the constitutionality of delegating such powers to administrative bodies. Ultimately, the court dismissed the writ petitions, finding no merit in the contentions raised by the petitioners and declined to award costs in the case.