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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 ..... king 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 the denial of counter interest towards advance tax paid by the firm is an open negation of a just right. It is stated that the modus operandi envisaged in the above section for the calculation of interest on the hypothetical tax or notional income-tax payble by the defaulting registered firm is an abuse of legislative power and hence unconstitutional. The mere fact that the return was not submitted in time would not authorise the creation of such a discrimination as between a registered firm and any other assessee. Mainly for this reason the petitioners have come up t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ms. 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 impugned provision is intended to induce such firms to file the returns in time and primarily to act as a deterrent against submission of delayed return. If it is discovered that the conduct of a particular assessee, who is a registered firm, in filing delayed returns was contumacious, then penalty was leviable under section 271. If, however, sufficient cause is shown for the delay in the submission of returns, the Income-tax Officer is vested with a discretion to excuse such delay but condition it in accordance with the proviso as above and compel the assessee to pay suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of the firm which shall be included in his total income and assessed to tax accordingly. A partner in a registered firm has the privilege of setting off the loss, if any, sustained by him in the registered partnership business against his other income or carrying forward and setting off in accordance with the provisions of sections 70 to 75 of the Act. Besides, a registered firm has certain benefits in the matter of the rate of taxation and limit of exemption from tax. Under section 183, an unregistered firm is assessed on the basis of the total income, of the firm an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - (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 assessment year, up to the 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 six 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 for the differentia which was thought of. On a fair reading of the above provisions it cannot be doubted that the classification created in the above situation subserves the object of sustaining the privileges which a registered firm could claim under the Act and also to act as a deterrent against delayed submission of returns. There is, therefore, a nexus between the object with which the provision has been made and the differentia projected in the proviso to section 139(1). Let us now consider some of the privileges and the benefits which a registered firm has both ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 proviso in treating a defaulting registered firm in a manner different from that of other assessees, by itself, is indicative of discrimination and, therefore, violative of article 14. I have already dealt with the privileges which a registered firm enjoys by getting itself registered after due application under the Income-tax Act. After securing such privileges it is obligatory on its part to sustain such privileges without committing any default on its part. In order to induce it to be prompt and so as to deter it from filing returns beyond time, a classification as abov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 case they are classified for the particular purpose of imposing a heavier quantum of liability in a particular situation, then it cannot be said that the discrimination achieved is hopelessly unguided and not prompted by any public interest or based upon rational principles. Such a difference, as is made in the instant case, is on an intelligible differentia and has a rational relationship to the purpose of the statute. The case law has gone one step further to uphold classifications in a taxing statute. As a matter of fact, the field of discretion vested in the legisl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 clearer in V. Venugopala Ravi Varma Rajah v. Union of India : " The equal protection clause of the Constitution does not enjoin equal protection of the laws as an abstract proposition. Laws being the expression of legislative will intended to solve specific problems or to achieve definite objectives by specific remedies, absolute equality or uniformity of treatment is impossible of achievement. Again, tax laws are aimed at dealing withcomplex problems of infinite variety necessitating adjustment of several disparate elements. The courts accordingly admit, subject to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ters 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 differential treatment accorded to a defaulting registered firm as envisaged in the proviso to section 139(1), any discrimination under article 14 of the Constitution would arise. The other argument that even if the earlier portion of the proviso is not hit by article 14 yet the disentitlement contemplated in the proviso, for interest on advance tax on registered firms dealt with as unregistered firms due to late submission of returns, is discriminatory appears to be well-founded. Reliance was placed upon the main intention of the legislature and also the punctuation marks u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iling 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 a default prospectively. The payment of advance tax is a normal and uniform event which applies both to registered firms as well as to all other assessees. It, therefore, follows that the benefit which is attributable to such payment of advance tax should be equally available to all the assessees and there should be no discrimination in this behalf. It cannot be said in the instant case that, by reason of the textual exposition of sub-clauses (a) and (b) as above in the official publication, the legislature has given out strongly by necessary intendment its intention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner 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 considered as the clause which conjuncts sub-clauses (a) and (b). It is only then that we could properly understand the intendment of the legislature and the force of the punctuation and the conjunction used therein. In any event a doubt has arisen as to whether the concession of reduction on advance tax contemplated in sub-clause (b) is to be restricted to assessees other than the petitioner and persons similarly placed. There is no warrant for accepting this interpretation as urged by the revenue, as it would not only lead to a discrimination between similar assess ..... X X X X Extracts X X X X X X X X Extracts X X X X
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