MAHENDRAKUMAR ISHWARLAL AND CO Vs. UNION OF INDIA

JUDGEMENT

(1.) AS the points raised in all tbese petitions are the same, it is convenient to deal with them together. The facts are more or less common in all these cases and hence the facts in Writ Petition No. 954 of 1969 alone are set out hereunder.

(2.) THE petitioner therein was a partnership firm and it has been granted the status of a registered firm by order of the respondent dated March 17, 1969. THE firm was dissolved in January, 1968, THE firm submitted its return of income for the assessment year 1964-65, under Section 139(1) of the Income-tax Act, 1961, after obtaining extension of time from the respondent. On the basis of the said return the respondent by his order of assessment dated February 28, 1965, determined the total income at Rs. 1,03,021 and the tax payable thereon at Rs. 7,03.4. In the said order of assessment the respondent determined the interest payable by the firm under Section 139 at Rs. 3,868. THE said interest has been calculated at 6 per cent, on the total income of Rs. 1,03,021 treating the firm as an unregistered firm as per proviso (iii)(a) of that section. THE petitioner has challenged the said assessment so far as it relates to the levy of interest. THE challenge has been made on two grounds: (1) the proviso (iii)(a) to Section 139(1) enabling the Income-tax Officer to treat the registered firm as an unregistered firm while calculating the interest payable by the firm is arbitrary and ultra vires being a colourable exercise of the legislative power; (2) the proviso (iii)(b) to Section 139(1) which allows deduction of the advance tax paid for purposes of the levy of interest in respect of other assessees, has not been extended to registered firms and this clearly amounted to discrimination violative of article 14 of the Constitution. According to the petitioner, the levy of interest treating a registered firm as an unregistered firm without reference to its actual tax liability practically amounts to a penalty and ceases to be compensatory and that though the object of the levy of interest is to deter persons liable to pay income-tax from retaining the money after the date on which it ought to have been paid to the Government, the legislature has no power to levy interest on a notional income payable by the registered firm as if it were an unregistered firm and such a levy is violative of articles 19(1)(g) and 31 of the Constitution. It is also urged by the assessee that in regard to assessees other than registered firms the interest levied is on the amount of tax actually assessed minus the advance tax paid. In the case of registered firms, however, the levy is not on the actual amount of tax due by the assessee but on a sum which, by importing a fiction, is treated as being due from him and even there without deducting the advance tax paid.

(3.) THEN taking up the first contention, the assessee's main grievance is that the treatment of registered firms as unregistered firms in the matter of levy of interest for default in submission of the return is unreasonable in that in the case of unregistered firms who have committed the same default they will be paying interest on the amount of tax actually payable by them but in the case of registered firms interest is made payable on a notional income and a notional tax calculated on that income and that, therefore, the levy of interest in the case of registered firms, on such notional income clearly amounts to a penalty. It is also urged by the petitioner that the levy of interest could only be compensatory and that if it has no relation to the amount of tax payable by the assessee it becomes penalty, and, therefore, confiscatory. The learned counsel for the petitioner refers to the decision in T. Venkata. Krishnaiah & Co. v. Commissioner of Income-tax, in support of his contention that interest is normally leviable on actual income and not on any notional income. In that case the question arose as to whether the Income-tax Officer had the power to levy a penalty under Section 271(1)(a) when he had already levied interest under Section 139. In dealing with that question the court had to consider the intendmenl; and purpose of Clause (iii) to the proviso to Sub-section (1) of Section 139, and after comparing that provision with the other provisions in the Act such as Sections 140A and 141, the court expressed :