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TMI Blog1971 (7) TMI 48X X X X Extracts X X X X X X X X Extracts X X X X ..... el appearing in this batch of writ petitions is that section 139(1), proviso (iii)(a) and (b), of the Income-tax Act, 1961, is ultra vires because the same is discriminatory in character and, therefore, violative of article 14 of the Constitution of India. It is not in dispute that in these writ petitions the petitioners as assessees under the Act in the status of registered firms filed returns beyond time and made necessary applications to the Income-tax Officer to excuse the delay in the non-submission of the return within time. Having obtained such an order by invoking the statutory discretion of the income-tax authorities it is said that the provision as above which provides for the payment of interest, for non-submission of the returns within the time allowed, on the amount of tax which would have been payable if the firm had been assessed as an unregistered firm, while in the case of any other assessee the amount of interest payable is to be calculated on the amount of tax payable on the total income reduced by the advance tax, if any, paid, is challenged on the ground that such a provision is illegal, savours of discrimination and ultra vires. The further contention is that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... definite amount lawfully payable by the debtor to the creditor, but would not include a sum notionally or fictionally adjudged as the amount due, though under statutory power. It is said that as interest is calculated as if the petitioners are unregistered firms and not registered firms it is against all accepted canons of payment of interest. It is also contended that in any event advance tax has to be given credit to while working out the ultimate liability and this relief being available to other assessees, ought not to be denied to the petitioners, registered firms. Lastly, it is urged that the text, punctuation and the set up of the proviso supports the contention that interest on advance tax has to be necessarily given to the petitioners and all other assessees making a default in the submission of return. The revenue, on the other hand, would say that the proviso in question was introduced in the new Act on the basis of the report of the Direct Taxes Administration Enquiry Committee, whilst the old Act did not make any such provision at all. Strong reliance is placed upon the advantages gained by a registered firm in the matter of payment of tax and advance tax and the impu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax Manual and the Gazette in which the provision has been reproduced, wherein the intention of the legislature is made obvious, to give relief to persons other than those similarly placed as the petitioners, in case such assessees have paid advance tax for the assessment year in question. It is contended that punctuation cannot be a guide to interpret statutes and reliance is placed upon a passage in Odgers on the Construction of Deeds and Statutes and R. M. D. Chamarbaugwalla v. Union of India. I shall now refer to the scheme of the Act. An "assessee" is defined in the Act under section 2(7). It means and includes a person by whom any tax or any other sum of money is payable under the Act, and every person who is deemed to be an assessee under any of the provisions of the Act and also an assessee in default. Section 143 deals with returns to be made by an assessee. Sections 182 and 183 in Chapter XVI of the Act deal with assessment of firms, both registered and unregistered. In the case of a registered firm, the main limbs of the section postulate the determination of the income-tax payable by the firm itself and for such determination of the share of each partner in the income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ishing of such returns springs from a deliberate motive to evade tax, it is punishable under section 271 of the Act. If, however, the circumstances do not disclose any contumacious conduct on the part of the assessee which is a registered firm, it may apply in the prescribed manner to the concerned Income-tax Officer for extending the date for furnishing such returns. The proviso to section 139(1) read as follows : " Provided that, on an application made in the prescribed manner, the Income-tax Officer may, in his discretion, extend the date for furnishing the return- (i) in the case of any person whose total income includes any income from business or profession the previous year in respect of which expired on or before the 31st day of December of the year immediately preceding the assessment year, and in the case of any person referred to in clause (b), up to a period not extending beyond the 30th day of September of the assessment year without charging any interest ; (ii) in the case of any person whose total income includes any income from business or profession the previous year in respect of which expired after the 31st day of December of the year immediately preceding the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation Enquiry Committee. While dealing with the power of the assessing authority to grant extension of time to file a return of income beyond the prescribed date, the Committee suggested that one of the conditions which may be imposed might include the furnishing of adequate security for the tax due. They further observed : " Assessees should be required to apply for extension of time in a prescribed form, undertaking to pay, for the period of extension, interest at six per cent. per annum of the tax, that may become due on assessment. The levy of such an interest in all cases of extension should be compulsory and should be statutorily laid down." It, therefore, follows that when the proviso to section 139(1), which is a departure from the earlier Act, was inserted, the legislature applied its mind and in its wisdom thought of a special classification treating defaulting registered firms as a class by itself. When it imposed such stringent conditions for the exercise of the discretion to extend the time for filing of returns, the legislature bore in mind the privileges enjoyed by the registered firm in the matter of exemption, rates of tax, etc., and this was possebly the basis f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee ceases to be contumacious, which, if found, is liable to attract section 271 of the Income-tax Act. Hence, the assessee who sets the proviso to section 139(1) into motion cannot ignore all these implications including the effect of the proviso thereto and in such a situation he has to be dealt with under section 139 and not under any other provision of the Income-tax Act. Now, the further question is whether in the application and adoption of the proviso to section 139(1) and its various limbs, article 14 of the Constitution is violated. The argument is that while in all other cases where there is delay in the filing of returns the amount of tax payable on the total income is not varied, in the case of registered firms committing a similar default in filing its returns, which delay is laterly excused by the statutory authority, the amount of tax is varied, as the tax is reckoned as if the registered firm is an unregistered one, though only for the purpose of reckoning the interest payable. Invariably the tax liability, in one sense, is increased by such a deemed quantification of income. The argument, however, proceeds that the classification introduced by the provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ween the object sought to be achieved and that of the legislation in question, then such a law would lead to invidious discrimination. But, if the basis of the classification is made for any reason, may be historical or otherwise, or difference in the nature, trade, calling or occupation of a person sought to be affected by the legislation, or even the difference in the position or nature of different business concerns, then such a classification which is referable to occupation, point of time, locality, etc., may be sustained as an intelligible classification. It is indeed very difficult to exhaust the circumstances under which a classification could be thought of or made. It is by now well-settled that article 14 does not envisage a fanatical approach to the problem of equality before law. Unless a well instructed person on a study of the law impugned comes to a reasonable conclusion that there is total lack of rational classification, then the methodology adopted is open to challenge. If the classification is intended to lay down a policy and incidentally exercise effective control over persons for whom certain privileges and exemptions are granted under the taxing law and in ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adopt the observations of the Supreme Court as above, I would add that it is open to the legislature to say that once a registered firm fails to submit its returns within the prescribed time and it applies for extension of time before the Income-tax Officer, then it can prescribe certain conditions for the exercise of such a discretion in favour of the defaulting assessee and, consequentially, impose an additional burden of paying interest at the prescribed rate for the period of extension. No question of discrimination under article 14 can arise in such a situation. There is nothing to interdict the legislature from conferring certain privileges and benefits on a registered firm under certain situations and impose additional burdens in the nature of payment of interest over a deemed income fixed by the legislature, when it is not disputed that the registered firm committed a default in the matter of submission of the returns in time and became liable to be dealt with as such. A classification has been made in the Act with the avowed object of preventing such delayed returns and, consequentially, further delay in the payment of lawful dues to the State. The position is made more c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Kerala State : " There is a wide range of selection and freedom in appraisal not only in the objects of taxation and the manner of taxation but also in the determination of the rate or rates applicable. The burden of proving discrimination is always heavy and heavier still when a taxing statute is under attack, and it is on a person complaining of discrimination. The burden is proving not possible 'inequality' but hostile 'unequal' treatment. This is more so when uniform taxes are levied. When the legislature reasonably applies an uniform rate after equalising matters between diversely situated persons differences in treatment must be capable of being reasonably explained in the light of the object for which the particular legislation is undertaken. This must be based on some reasonable distinction between the cases differentially treated. To be able to succeed in the charge of discrimination, a person must establish conclusively that persons equally circumstanced have been treated unequally and vice versa." Bearing in mind the above principles and my own view of the matter already explained, I am unable to agree with the learned counsel for the petitioner that by the differen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d firm which has committed a default in the submission of returns as well as any other assessee are on the same level and are to be treated equally when the question arises as to what are the benefits they would be entitled to in law when they pay advance tax. It is not in dispute that the Government is obliged to give credit for advance tax under section 219 of the Act and pay such interest as is prescribed under section 214 in the circumstances stated therein. These benefits apply uniformly to all assessees. If, therefore, the registered firm who made a mistake in filing delayed returns is to be discriminated against and its right to obtain a deduction of the amount of advance tax is negatived, then the legislature must expressly say so or such a situation should appear by necessary intendment. Even if it does, as it creates an unequal situation amongst equals, it should stand the test of reasonableness and the differential treatment should have a relation to the object sought to be achieved. I am unable to find any reasonable ground for such a differentia. Advance tax is paid by an assessee at a time when it cannot be comprehended that it is going to make a delayed submission or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... avourable to the assessee has to be rendered. What is sought to be made out is that all assessees other than persons in the position of the petitioner are entitled to a reduction by the advance tax, if any, paid or by any tax deducted at source, as the case may be. The parenthesis "reduced by the advance tax, if any, paid or by any tax deducted at source, as the case may be" is tagged on to sub-clause (b) of clause (iii) to the proviso in the official publication. On the basis of this it is contended that reduction could be claimed by assessees other than the petitioner or persons similarly placed. In clause (a) after the words "assessed as an unregistered firm" the punctuation mark is a semi-colon. It is followed up immediately by the conjunction "and". Normally, interpreting such a punctuation and a conjunction the continuity of sub-clause (a) is maintained and there is no snapping as between sub-clauses (a) and (b) in so far as the main aspect posed therein is concerned. The main aspect is as to what is the amount of tax payable by each of the assessees referred to in sub-clauses (a) and (b). The earlier portion of sub-clause (b), which deals with this aspect, is to be normally ..... X X X X Extracts X X X X X X X X Extracts X X X X
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