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TMI Blog1980 (6) TMI 9X X X X Extracts X X X X X X X X Extracts X X X X ..... W.As. Nos. 427 to 429 of 1974, are 1965-66, 1966-67 and 1967-68, in the case of respondent in W.A. No. 426 of 1974 the assessment year is 1969-70, and in the case of the respondent in W.As. Nos. 424 and 425 of 1974 the assessment years are 1969-70 and 1970-71. There was some delay on their part to file the income-tax returns. On account of the delay in filing the returns, though the assessees were registered firms and they were liable to pay tax payable as registered firms, the interest was calculated on the basis of the tax which would have been payable had the assessee-firms been unregistered firms, in view of cl. (iii)(a) of the proviso to sub-s. (1) of s. 139 of the Act (hereinafter referred to as the " impugned provision "). The respondents contended in the writ petitions that as the interest was required to be levied on all taxpayers who failed to file the returns within the due date irrespective of the fact that extension of time had been granted for purposes of filing the returns and the returns were filed within the extended time, on the amount of tax which was due to the department, after the deduction of advance tax, if any, out of the amount of tax assessed, but only i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me reasoning holds good for the differential levy of interest under s. 139 of the Act. In support of his submission, he also relied on the following decisions: (i) Chhotalal Co. v. ITO [1976] 105 ITR 230 (Guj), (ii) Ganesh Das Sreeram v. ITO [1974] 93 ITR 19 (Gauhati), (iii) Mahendrakumar Iswarlal Co. v. Union of India [1974] 94 ITR 65 (Mad), (iv) Mahendrakumar Ishwarlal Co. v. Union of India [1973] 91 ITR 101 (Mad), (v) Jiwanmal Hospital v. ITO [1979] 119 ITR 439 (MP) and (vi) Hindustan Steel Forgings v. CIT [1980] 121 ITR 793 (P H), in which several High Courts have applied the ratio in the case of Jain Brothers [1970] 77 ITR 107 (SC), for upholding the validity of the impugned provision. In particular he relied on the judgment of the Punjab High Court in Hindustan Steel Forgings [1980] 121 ITR 793, in which the Punjab High Court has expressed disagreement with the judgment under appeal. He submitted that the learned, single judge was not right in distinguishing the decision of the Supreme Court in Jain Brothers [1970] 77 ITR 107, and holding that the impugned provision was violative of art. 14 of the Constitution. (2) Sri K. Srinivasan and Sri G. Sarangan, learned coun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch 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 assessment year, up to 31st day of December of the assessment year without charging any interest; and (iii) up to any period falling beyond the dates mentioned in clauses (i) and (ii), in which case, interest at nine per cent. per annum shall be payable from the 1st day of October or the 1st day of January, as the case may be, of the assessment year to the date of the furnishing of the return (a) in the case of a registered firm or an unregistered firm which has been assessed under Clause (b) of section 183, on the amount of tax which would have been Payable if the firm had been assessed as an unregistered firm, and (b) in any other case, on the amount of tax Payable on the total income, reduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urns beyond the maximum period, during which no interest is chargeable or not in view of the impugned provision, the interest payable is calculated on the notional amount of tax which would have been payable had it been an unregistered firm, irrespective of the fact, that the advance tax paid covered or exceeded the actual tax payable, or even if no tax was payable. It appears that in some of the cases, time had been extended by the competent authority to file the return after the period during which no interest was chargeable and in other cases time had not been extended, but it makes no difference for the levy of interest as in all the cases there has been delay in filing the return. Hence, interest at the rate of 9 per cent. was levied on the notional amount of tax, which would have been payable by the assessees had they been unregistered firms. In order to appreciate the contention for the assessees it is sufficient to set out the facts relating to the case of the respondent in W.A. No. 425 of 1974. For the assessment year 1969-70, the respondent had paid the advance tax. The respondent was required to file the return before September 30, 1969. The respondent applied for ext ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are liable to pay interest only on the actual amount of tax withheld by them, the registered firms alone are subjected to a differential treatment. The illustration of the case of the respondent in W.A. No. 425 of 1974 is glaring. The question for consideration is whether this differential treatment of registered firms is discriminatory and, therefore, violates the right of equality guaranteed under article 14 of the Constitution. The principles on the basis of which the answer to such a question should be found out are well settled. (See Ram Krishna Dalmia v. Justice Tendolkar, AIR 1958 SC 538). The injunction addressed to the State not to deny equal treatment to any person means that persons similarly situated should not be subjected to discriminatory laws, the law shall not favour one and discriminate against another, both of whom are similarly situated, in relation to the particular object or purpose sought to be achieved by the legislation. Two categories of persons may be similarly situated for one purpose, and may not be so situated for another purpose. It is for the Legislature to make the necessary classification for purposes of legislation and to make the laws, in regula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... classified partnership firms into two categories registered and unregistered. Registered firms are conferred certain benefits in the matter of tax payable under the Act. There is no dispute that there had been higher exemption limit and also lower rate of tax prescribed, which was applicable to registered firms. The share income of each partner is taxable in the hands of the partner; consequently not only the individual partners come under the lower slab, but it is quite possible that in a given case they may fall within the exempted limit also. Even taking the tax payable by the firm and the tax payable by the individual partners, the total tax payable is lesser compared to the tax payable by the same firm if it was an unregistered firm. Unregistered firm is treated as an unit for purposes of tax and, therefore, subject to higher incidence of taxation. Therefore, there can be no doubt that the Legislature has, in its wisdom, classified partnership firms into two categories for purposes of levy of tax under the Act and its validity for purposes of taxation is not questioned. The above classification made, holds good, according to the provisions of the Act itself, for the assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rest on the notional amount of tax due, deeming it as an unregistered firm, though no such amount is due. Thus, it will be seen that in the matter of levy of interest, a heavy burden, without reference to the actual amount of tax due is imposed, by the impugned provisions on the registered firm. To put it differently, while all the categories of taxpayers are liable to pay only the interest on the principal amount due to the revenue, the registered firms are liable to pay interest, in view of the impugned provision, on the principal amount not due to the revenue. The nature of levy of interest under s. 139 is compensatory in character. This is the view taken in Chhotalal v. ITO [1976] 105 ITR 230 (Guj), N.V.N. Nagappa Chettiar Co. v. ITO [1958] 34 ITR 583 (Mad) and in Express Newspapers (P.) Ltd. v. ITO [1973] 88 ITR 255 (Mad). The very concept of interest is that it is an amount payable or paid by one person to another, in respect of a principal amount due to the latter from the former. Relevant part of the meaning of the expression " interest " in Jowitt's Dictionary (vol. I), 2nd Edn., at p. 997, reads: " Interest also signifies a sum payable in respect of the use of ano ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is discernible from the provisions of the Act and no such surrounding circumstances are brought to our notice as to why the registered firms have been subjected to discriminatory treatment. Except trying to justify the impugned provision on the ground that registered firms are a separate, class, learned counsel for the department was unable to indicate any nexus between the object of the levy and the impugned provision. Therefore, in our view, the impugned provision is patently arbitrary and unjust and, therefore, violative of article 14 of the Constitution and the view taken by the learned single judge has to be affirmed. Learned counsel for the department, however, strenuously contended that the ratio of the decision of the Supreme Court in lain Brothers [1970] 77 ITR 107 upholding the constitutional validity of s. 271(2) of the Act, which provides for the levy of penalty on registered firms for filing belated returns, on the basis of tax payable as if it were an unregistered firm, equally applied to this case. He also relied on the decisions of the several High Courts taking such a view. In the judgment under appeal, the learned single judge considered this submission, but h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alal [1976] 105 ITR 230 by the Gujarat High Court, Ganesh Das Sreeram [1974] 93 ITR 19 by the Gauhati High Court, Mahendrakumar Iswarlal and Company [1974] 94 ITR 65 and [1973] 91 ITR 101 by the Madras High Court, Jiwanmal Hospital [1979] 119 ITR 439 by the Madhya Pradesh High Court and Hindustan Steel Forgings [1980] 121 ITR 793 by the Punjab High Court. In all the above decisions, the various distinguishing features, to which we have adverted, have not been considered. In particular, the position, that a registered firm is liable to pay interest, even if advance tax paid was covered or was even in excess of the tax assessed as in the case of the respondent in W.A. No. 425 of 1974 or even in cases in which it has no taxable income, has not been examined. The Division Bench of the Punjab and Haryana High Court, which distinguished the judgment under appeal, observed as follows (p. 796); " It is open to the Legislature to say that once a registered firm committed a default attracting the payment of interest it should be deemed or considered to be an unregistered firm for the purposes of imposition of interest. There is nothing to prevent the Legislature from giving the benefit o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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