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TMI Blog1983 (10) TMI 115X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,185 -------------- Refundable 1,421 -------------- 3. The revenue wants to charge interest on the tax calculated on the basis of an unregistered firm by applying Explanation 2 even though refund is due to the assessee. At this juncture it would be necessary to reproduce the relevant statutory provisions : " 139(8)(a) : Where the return under sub-section (1) or sub-section (2) or sub-section (4) for an assessment year is furnished after the specified date, or is not furnished, then (whether or not the Income-tax Officer has extended the date for furnishing the return under sub-section (1) or sub-section (2), the assessee shall be liable to pay simple interest at twelve per cent per annum, reckoned from the day immediately following the specified date to the date of the furnishing of the return or, where no return has been furnished, the date of completion of the assessment under section 144, on the amount of the tax payable on the total income as determined on regular assessment, as reduced by the advance tax, if any, paid, and any tax deducted at source : Provided that the Income-tax Officer may, in such cases and under such circumstances as may be prescribed, reduce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovisions are different. 4. In the alternative, even if the principles governing the levy of penalties on a registered firm under section 271(1)(a) are taken into account, the majority of the decisions are in favour of the revenue and they should be followed in construing the provisions of section 139(8)(a) read with Explanation 2 thereof. 5. A subsidiary contention has also been raised that if the provisions of section 139(8)(a) are construed in the manner in which the assessee wants, the whole provision would become nugatory as a registered firm pays very less tax and it is only the partners who pay the tax substantially. If there is delay in filing the return by the partnership firm, the partners would also take the advantage of the delay in filing the returns on the plea that they are not able to file the return until the firm files the return in which case the partners also will try to avoid the levy of interest because of the proviso to section 139(8)(a). 6. Mr. Chaudhary, the learned counsel for the assessee, while repudiating most of the contentions raised by the learned departmental representative tried to impress upon us that the scope and ambit of the two provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India [1970] 77 ITR 107 has held that there is no discrimination in levying penalty so far as registered firms are concerned. The Karnataka High Court distinguished this decision on the ground that the provisions of section 271(1)(a) are different from the provisions of section 139(8)(a). However, the other High Courts have adopted the same logic as has been applied by the Supreme Court in relation to penalty proceedings under section 271(1)(a) in upholding the validity of section 139(8)(a) of the Act. Be that as it may, one thing is very clear that the purpose of section 139(8)(a) which is brought into the statute book is quite different from the purpose and intent behind enacting section 271(1)(a). In this connection we would like to refer to two decisions, one is that of the Gujarat High Court in the case of Addl. CIT v. Santosh Industries [1974] 93 ITR 563. The relevant observations are : " ...In the first place, it is not correct to say that interest chargeable to a person who files his return of income under section 139, sub-section (4), is 'penal interest', though that is an expression which is commonly in use in income-tax parlance. It is not by way of penalty that intere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ily recognised. Payment of interest also arises as a contractual liability and also under various enactments. Such a liability is always taken as liability in the shape of compensation to one for the use of money by another. Interest under the Interest Tax Act has also the same concept. So far as penalties are concerned, they are punitive in character and stand on a different footing. They fall in the realm of criminal law. At any rate penal provisions under the taxation laws have been considered to be quasi-criminal in nature and as such the penal provisions like the one under section 271(1) (a) also come under that category. Such provisions are also considered to be punitive and deterrent. The purpose is altogether different from collecting interest for the money withheld. We are, therefore, clearly of the opinion that one need not compare the provisions of section 271(1)(a) or the decisions rendered thereunder to construe the provisions of section 139(8)(a) read with Explanation 2. We, accordingly, start on the basis that we have to decide the matter looking to the provisions of section 139(8)(a) read with Explanation 2 thereof independent of the conflicting views of the differe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng into account the advance tax and tax deducted at source, will a registered firm be liable for payment of interest ? To our mind it looks that it cannot be made liable to pay interest once it is found on determination of the whole matter as envisaged under section 139(8)(a) that there is nothing payable by an assessee including a registered firm. It makes no difference whether it is a registered firm or any other assessee in so far as the application of section 139(8)(a) is concerned once it is found that there is no tax payable because of the payment of the pre-paid taxes in the shape of advance tax or tax deducted at source. The reason is obvious especially when we bear in mind the whole purpose behind this provision. This provision has been made for the purpose of compensating the Government for withholding of tax by an assessee, which is due at a particular point of time. If nothing is payable by an assessee, because payment has already been made, where is the question of charging any compensation ? In such a situation, there is no question of money being withheld by the assessee at all. Section 139(8) achieves the purpose of enforcing the filing of the return in time as asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... permit such a construction. Secondly, when we come to the words 'tax payable' we cannot ignore the rest of the words falling in section 139(8)(a), namely, 'advance tax and tax deducted at source'. 'Tax payable' should mean the amount outstanding after deduction of advance tax and tax deducted at source. It is only at that stage we should look to Explanation 2. 10. The argument of the learned departmental representative based on proviso to section 139(8)(a) that even the partners would avoid the liability of payment of interest when the firm itself will delay the filing of the return on the plea that the partners have reasonable cause is an argument which is based on various assumptions. First of all there cannot be an assumption that the partners file returns late. Secondly, there cannot be an assumption that the partners' liability to pay interest will be reduced or waived by the ITO. The ITO has to exercise his discretion for reduction or waiver of interest on an application by an assessee. This is again governed by rule 117 of the Income-tax Rules, 1962 framed under the Act. Thirdly, what the learned departmental representative is pointing out may be a consequence but a conseq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urd results. We do not want to go so far in extending the principle on an application of legal fiction to such a situation arising under section 139(1)(a), in the manner suggested. 13. There was also another argument which was raised during the course of hearing. That related to borderline cases where suppose tax payable is hardly Rs. 10, then the firm will have to pay interest on the basis of tax payable as an unregistered firm. In all borderline cases the position would be the same. Cases falling on one side of border will have to be treated differently from the cases failing on the other side of the border. This situation is not uncommon. This happens in cases regarding penalty under section 271(1)(a). We, therefore, do not see any logic in the objection that by our construction there would be any hardship or that the borderline cases would be hit. 14. Lastly, we would like to agree with the learned counsel for the assessee that even if there is some doubt as to the way in which we have construed and some possibility is there to have another view of the matter, the view in favour of the assessee should be taken. This is again based on the well known dictum recognised by the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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