Full Judgment Text
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PETITIONER:
GANESH DASS SREERAM, ETC. A
Vs.
RESPONDENT:
INCOME TAX OFFICER, ’A’ WARD, SHILLONG AND OTHERS ETC.
DATE OF JUDGMENT30/10/1987
BENCH:
DUTT, M.M. (J)
BENCH:
DUTT, M.M. (J)
PATHAK, R.S. (CJ)
MISRA RANGNATH
CITATION:
1988 AIR 427 1988 SCR (1) 689
1987 SCC Supl. 442 JT 1987 (4) 208
1987 SCALE (2)894
ACT:
Income Tax Act, 1961-Interest charged by Income Tax
officer for delayed filing of returns-Legality of-Sub-
section (4) of section 139 of the Act, as it stood before
April l, 1971-Constitutional validity of. c
HEADNOTE:
%
The appellants, registered firms under the Income Tax
Act, 1961, filed delayed returns. The Income Tax officer
assessed the appellants under section 143(3) of the Act and
determined the total incomes of the appellants and the
amounts of the tax payable by them. The Income Tax officer
also determined and added, under sub-section (4) of section
139 of the Act, the amounts of interest on the amounts of
tax payable by the appellants. The appellants challenged the
charging of interest in the High Court by writ petitions.
The High Court dismissed all but some writ petitions which
were allowed in part to the extent that the Income tax
officer was directed to take into account the advance tax
paid by the assessees while calculating the interest. The
appellants have filed Civil Appeals Nos. 1032-1036 of 1973,
1927-1933 of 1978 and 1288 and 1289 of 1980 against the
decision of the High Court.
Allowing Civil Appeal No. 1035 of 1973 and dismissing
all the other appeals, the Court,
^
HELD: Sub-section (4) of section 139 of the Income Tax
Act is a substantive provision, which does not provide for
the making of an application to the Income Tax officer for
extention of the date for furnishing return. The sub-section
provides that even though a person does not furnish the
return within the time allowed under sub-section (1) or (2)
of section 139, yet he may furnish the same before the end
of four assessment years concerned. The substantive
provisions of subsections (1) and (2) specify the time
within which the return has to be filed. The provisos to the
sub-sections confer power on the Income-tax officer to
extend the date for filing the return on an application. The
expression "time allowed" in sub-section (4) is not confined
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only to the extension of time granted by the Income-tax
officer but also to the time originally fixed for
690
filing the returns under sub-section(1) and (2). [694G-
H;695A-D]
The Income-Tax officer is entitled to charge interest
in accordance with the provisions of clause (iii) of the
proviso to sub-section (1) of section 139 in a case where
time has been extended by the Income Tax officer to file
returns on application made by the assessee and the return
is not filed within the time allowed, and in a case where no
such application has been made by the assessee, and the
return is filed beyond the time allowed but before the end
of the four assessment years concerned. [695D-F]
Secondly, as decided by this Court in Central Provinces
Manganese Ore Co. Ltd. v. Commissioner of Income-Tax, [1986]
160 ITR 961, and Commissioner of Income Tax A.P. v. Chandra
Sekhar, (1955) 151 ITR 433, the interest is levied by way of
compensation, and not by way of penalty as contended by the
appellants. [696A]
The contention of the appellants that the provisions of
Sub-Section (4) of section 139, read with clause (iii) (a)
of the proviso to Sub-Section (1) of section 139 is
discriminatory and violative of Article 14 of the
Constitution because Sub-Section (4) has placed the
registered firms in a separate category inasmuch as they
have to pay interest calculated on the amount of tax payable
by them as unregistered firms, and a registered firm is
treated as an unregistered firm, for purposes of
qualification of interest, is not comprehensible, Section
139 (4) read with clause (iii)(a) of the proviso to section
139(1), as it stood prior to April 1, 1971, has placed the
registered firms and the unregistered firms on the same
footing and is not violative of Article 14 of the
Constitution and is quite legal and valid. [697H; 698A-D]
Where advance tax duly covers the entire amount of the
tax assessed, there is no question of charging a registered
firm with interest if the return is filed beyond the time
allowed, regard being given to the fact that payment of
interest is only compensatory in nature. As the entire
amount of the tax is paid by way of advance tax, the
question of payment of any compensation does not arise, and
accordingly, in the facts and circumstances of the case in
the C.A. No. 1035 of 1973, the Income Tax of officer was not
justifed in charging interest, and the assessee in that case
is entitled to refund of the amount paid by way of interest.
[699B-C, E]
Commissioner of Income- Tax, A . P. v. M. Chandra
Sekhar, [1955] 151 ITR 433, Central Provinces Manganese ore
Co. Ltd. v. Commissioner of Income Tax, [1986] 160 I.T.R.
961; Jain Brothers
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and others v. Union of India and others, [1970] 77 ITR 109;
M. Nagappa v. Income Tax officer, Central Circle I,
Bangalore, [1975] 99 ITR 33; Mahendra Kumar Ishwarlal and
Co. v, Union of India, [1973] 91 ITR 101 and [1974] 94 ITR
65; Chhotalal & Co. v. Income-Tax officer; [1976] 105 ITR
230; Jiwanmal Hospital v. Income-Tax officer, [1979] 119 ITR
439; Hindustan Steel Forges v. Commissioner of Income-Tax,
[1980] 121 ITR 793 and Mohanlal Soni v. Union of India,
[1983] 143 ITR 436, referred to.
JUDGMENT:
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CIVIL APPELLATE JURISDICTION: Civil Appeal Nos 1032-
1036 of 1973.
From the Judgment and order dated 16.2.1973 of the
Gauhati High Court in Civil Rule Nos. 1142 to 1146 of 1971
S.T. Desai, R.P Agarwala, Mrs Kum Kum Sen, Praveen
Kumar, D.N. Mukherjee, Ranjan Mukherjee and N.R. Choudhary
for the Appellants.
Dr. V. Gauri Shanker and Miss A. Subhashini for the
Respondents.
The Judgment of the Court was delivered by
DUIT, J.The appellants, who are all registered firms
within the meaning of section 2(39) of the Income-Tax Act,
1961, hereinafter referred to as ’the Act’, have preferred
these appeals against the judgments of the Gauhati High
Court overruling the challenge of the appellants as to the
legality of the interest charged by the Income-tax officer
for the delayed filing of returns and also as to the
constitutional validity of sub-section (4) of section 139 of
the Act, as it stood before April 1, 197 l
The relevant provisions of section 139, as it stood
prior to April 1. 1971, are as follows:-
"S. 139(1). Every person, if his total income ..
...... during the previous year exceeded the
maximum amount which is not chargeable to Income-
tax, shall furnish a return of his income
.................
(a) in the case of every person .. .. before
the expiry of six months from the end of
the previous
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year ... , or before the 30th day of
June of the assessment year, whichever
is later;
(b) in the case of every other person,
before the 30th day of June of the
assessment year:
Provided that, on an application made in the
pre scribed 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 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 nine per cent
per annum shall be pay able from the 1st
day of October or the 1st day of
January, as the case may be, of the
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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.
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reduced by the advance tax, if any,
paid or by any tax deducted at
source, as the case may be.
(2). In the case of any person, who in the
Income-tax officer’s opinion, is assessable under
this Act, whether on his own total income or on
the total income of any other person during the
previous year, the Income-tax officer may, before
the end of the relevant assessment year, serve a
notice upon him requiring him to furnish, within
thirty days from the date of service of the
notice, a return of his income or the income of
such other person during the previous year, in the
prescribed form and verified in the prescribed
manner setting forthwith such other particulars as
may be prescribed;
Provided that on an application in the
prescribed manner the Income-tax officer may, in
his discretion, extend the date for the furnishing
of the return, and when the date for furnishing
the return, whether fixed originally or on
extension, falls beyond the 30th day of September
or, as the case may be, the 31st day of December
of the assessment year, the provisions of sub-
clause (iii) of the proviso to sub-section ( 1)
shall apply.
(4). Any person who has not furnished a
return within the time allowed to him under sub-
section (1) or sub-section (2) may before the
assessment is made furnish the return for any
previous year at any time before the end of four
assessment years from the end of the assessment
year to which the return relates, and the
provisions of sub-clause (iii) of the proviso to
sub-section (1) shall apply in every such case."
In all these cases, it is not disputed that no
application for extension of time to file returns was made
by the appellants for the relevant assessment years. The
returns were submitted before the assessment was made and
also before the end of the four assessment years as
mentioned in sub-section (4) of section 139 of the Act. The
Income-tax officer assessed the appellants under section
143(3) of the Act and determined the total incomes of the
appellants and the amounts of tax payable by them. In view
of sub-section (4) of section 139, the Income tax officer
also added to the amount of tax interest calculated at the
rate of six per cent per annum on the amount of tax which
would have H
694
been payable if the firms had been assessed as unregistered
firms. A Being aggrieved by the charging of interest under
sub-section (4) read with clause (iii)(a) of the proviso to
sub-section ( I) of section 139 of the Act, the appellants
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filed writ petitions before the Gauhati High Court,
challenging the charging of interest and the validity of
subsection (4) read with clause (iii)(a) of the proviso to
sub-section ( 1) of section 139 of the Act as violative of
Article 14 of the Constitution The Gauhati High Court, as
stated already, overruled the challenge and dismissed the
writ petitions except that some writ petitions were allowed
in part only as the High Court directed the Income-tax
officers to take into account the advance tax paid by the
assessees before calculating the interest. Hence these
appeals.
The first contention made on behalf of the appellants
is that it is clear from the provisos to sub-sections ( 1)
and (2) of section 139 of the Act that unless an application
is made for extension of the date for furnishing the return,
the question of charging any interest on the amount of tax
does not at all arise. A similar contention was made before
the High Court by the appellants, but the High Court
overruled the same.
Much reliance has been placed on behalf of the
appellants on an observation of this Court in Commissioner
of Income-tax, A.P. v. M. Chandra Sekhar, [1955] 151 ITR
433. In that case, this Court has observed that it is only
where the Income-tax officer extends the time for furnishing
the return beyond September 30, or December 31, as the case
may be, the interest becomes payable The said observation
has been made by this Court relating to clause (iii) of the
proviso to sub-section ( 1) of section 139 of the Act while
considering the question whether charging of interest
indicated that the Income-tax officer was satisfied that
there was sufficient cause for the delay in filing the
return of income and whether the cancellation of the
penalties levied under section 27(1)(a) of the Act was
justified. Nothing has, however, been said by this Court in
respect of sub-section (4) of section 139 of the Act.
Sub-section (4) is a substantive provision and it does
not provide for making an application to the Income-tax
officer for the purpose of extension of the date for the
furnishing of the return. What is provided in sub-section
(4) is that even though a person does not furnish the return
within the time allowed to him under sub-section (I) or
subsection (2), yet he may furnish the same before the end
of the four assessment years concerned.
695
The substantive provision of sub-sections (l) and (2)
of section 139 specify the time within which the return has
to be filed The provisos to sub-sections (1) and (2) confer
power on the Income-tax officer to extend the date for
filing the return on an application in that regard made by
the assessee. So, it is clear that the expression ’time
allowed’ in sub-section (4) of section 139 is not confined
only to the extension of time granted by the Income-tax
officer, but also to the time originally fixed for the
filing of returns under sub-sections ( 1) and (2) of section
139 of the Act.
There may be two types of cases for the late filing of
returns, namely ( 1) the assessee after getting the date
extended by the Income tax officer under sub-section ( 1) or
sub-section (2) of section 139 of the Act, does not file the
return within the extended date, but files the same before
the end of four assessment years concerned and (2) the
assessee without filing any application for extension of
time, files the return beyond the period mentioned in sub-
section ( 1) or sub-section (2) but before the end of four
assessment years in question. In either case, the provision
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of clause (iii) of the proviso to sub-section (l) of section
139 will apply. In other words, the Income-tax officer will
be entitled to charge interest on the amount of tax in
accordance with the provision of clause (iii) of the proviso
to sub-section ( 1) of section 139. Thus, where time has
been extended by the Income-tax officer on an application
made in that regard by the assessee and the assessee does
not file the return within the time allowed and where no
such application has been made by the assessee, but the
return is filed by him beyond the time allowed, but before
the end of the four assessment years concerned, in either
case, the Income-tax officer will be entitled to charge
interest in accordance with the provision of clause (iii) of
the proviso to sub-section (1) of section 139 of the Act.
There is, therefore, no substance in the contention of the
appellants that as the appellants had not made any
application praying for the extension of time for the filing
of returns, the Income-tax officer had no authority to
charge interest under the provision of clause (iii) of the
proviso to sub-section ( I) of section 139 of the Act
The next question that requires consideration relates
to the validity of sub-section (4) read with clause (iii)(a)
of the proviso to subsection (I) of section 139. It is
submitted by the learned Counsel appearing on behalf of the
appellants that as, in view of the late filing of the
returns, there is postponement of the payment of tax and the
Revenue suffers loss on account of delayed payment of tax,
the interest when levied takes the character of penalty This
contention
696
need not detain us long, for it has already been decided by
this Court in Central Provinces Manganese ore Co. Ltd.. v.
Commissioner of Income-tax, [ 1986] 160 ITR 1961 that
interest is levied by way of compensation and not by way of
penalty. In Chandra Sekhar’s case (supra? this Court also
has taken a similar view. The High Court, however, has taken
the view that the interest charged partakes also of a penal
character. In expressing that view, the High Court has
placed reliance upon a decision of this Court in Jain
Brothers and others v. Union of India and others, [ 1970] 77
ITR 109. In that case, this Court was mainly considering a
challenge to section 271(2) of the Act, which is a penal
provision, on the ground of contravention of Article 14 of
the Constitution. The question whether charging of interest
under the proviso to section 139(1) of the Act was in the
nature of penalty or not, was not considered by this Court.
Indeed, the subject-matter was different from that with
which we are concerned. In view of the decisions of this
Court in Chandra Sekhar’s case (supra) and in the case of
Central Provinces Manganese ore Co. Ltd. (supra), we hold
that the charging of interest did not become transformed to
penalty.
It is urged on behalf of the appellants that all the
assessees who are charged with interest for the late filing
of returns, should be classified in one and the same
category inasmuch as they are similarly situated, but sub-
section (4) read with clause (iii) of the proviso to sub-
section ( I) of section 139 of the Act has without any
reasonable justification placed the registered firms in a
separate category inasmuch as for the late filing of returns
by such firms they are-saddled with interest to be
calculated on the amount of tax payable by them as
unregistered firms. It is submitted that such separate
classification of the registered firms for the purpose of
payment of interest under section 139, does not bear any
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nexus to the object sought to be achieved by the section
and, accordingly, the provision of sub-section (4) read with
clause (iii)(a) of the proviso to sub-section (1) of section
139 of the Act is discriminatory and violative of the
provision of Article 14 of the Constitution and, as such, is
void.
In support of the contention, the appellants have
placed much reliance upon a decision of the Karnataka High
Court in M. Nagappa v. Income-tax officer, Central Circle 1,
Bangalore, [ 1975] 99 ITR 33. In that case, a learned Single
Judge of the Karnataka High Court has struck down as void
the provision of sub-section (4) read with clause (iii)(a)
of the proviso to sub-section ( 1) of section 139 The reason
that weighed with the learned Judge is that the loss
suffered by the Government which is sought to be compensated
by the legislative measure
697
should be the same in all cases, irrespective of the fact
that the assessee who is responsible for it is a registered
firm or. any other kind of assessee. If that is the case,
then the amount claimed by way of interest should be
directly correlated to the amount of tax withheld by the
assessee without reference to the kind of assessee concerned
in a given case. It is observed that the object of levy of
interest being just reimbursement of what the Government
would lose by delayed payment of tax resulting from the
delayed filing of the return, it is clear that the levy of
interest in the case of a registered firm on the tax which
would have been payable if the firm had been assessed as an
unregistered firm, is outside the said object. Accordingly,
it has been held that section 139(4) to the extent it
required a registered firm to pay interest at the specified
rate on the tax assessed as if it were an unregistered firm,
whenever the registered firm did not file the return within
the specified time, was violative of Article 14 of the
Constitution and is, therefore, void. That decision of the
learned Single Judge has been upheld by a Division Bench of
the Karnataka High Court and is since reported in [ 1981]
129 ITR 516.
The Karnataka High- Court, before holding that
provision of sub-section (4) of section 139 read with clause
(iii)(a) of the proviso to sub-section ( 1) of section 139
of the Act as violative of Article 14 of the Constitution,
has not considered the reason why, when a registered firm
submits a return beyond time, it is charged with interest
calculated on the amount of tax which would have been
payable if the firm had been assessed as an unregistered
firm. It is because of certain privileges which have been
conferred on a registered firm. One of the privileges is
that the firm is considered as an assessable unit and is
taxed at a reduced rate and the partners are assessed on
their respective shares in the income of the firm. This
privilege which has been conferred on a registered firm by
the Act, is not available to an unregistered firm. The
Legislature is, however, competent to withhold any of the
privileges conferred on a registered firm if it violates any
of the provisions of the Act. A registered firm is required
to file its return within the time as prescribed by the Act.
Clause (iii)(a) of the proviso to section 139(1) read with
sub-section (4) of section 139 in effect only provides for
the withdrawal of the privilege of the registered firm to be
assessed at a reduced rate because of its non-compliance
with the provisions of sub-sections (1) and (2) of section
139 of the Act. In other words, the registered firm is
treated as an unregistered firm for purposes of
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quantification of interest.
The contention of the appellants that by treating the
registered
698
firms as unregistered firms for the charging of interest,
the Legislature has placed the registered firms in a
separate category is not at all comprehensible. On the other
hand, by treating the registered firms as unregistered
firms, the Legislature has avoided the discrimination that
would have been there if the registered firms were not so
treated for the purpose of charging of interest. In other
words, if the registered firms had been charged with
interest on the amount of tax assessed at a reduced rate for
the late filing of the returns, there would have been
discrimination between registered firm and unregistered
firms. When a registered firm and an unregistered firm
commit the same default in filing returns beyond the time
allowed under sub-sections ( 1) and (2) of section 139 of
the Act, it would be unreasonable and unjust to charge two
different rates of interest-one at a reduced rate for the
registered firm and the other at a higher rate for the
unregistered firm. So, in our opinion, section 139(4) read
with clause (iii)(a) to the proviso of section 139(1) of the
Act, as it stood prior to April 1, 1971, has placed the
registered firms and the unregistered firms on the same
footing as, for the purpose of interest, they are similarly
situated.
Dr. Gouri Shankar, learned Counsel appearing for the
Revenue, has pointed out to us that except the Karnataka
High Court, other High Courts, namely, Madras High Court,
Gujarat High Court, Madhya Pradesh High Court, Punjab &
Haryana High Court and the Calcutta High Court in
Mahendrakumar Ishwarlal & Co. v. Union of India, [1973] 91
ITR 101, since affirmed on an appeal reported in [1974] 94
ITR 65; Chhotalal & Co. v. Income-tax officer, [1976] 105
ITR 230; Jiwanmal Hospital v. Income-tax officer, [1979] 119
ITR 439; Hindustan Steel Forges v. Commissioner of Income-
tax, [ 1980] 121 ITR 793 and Mohanlal Soni v. Union of
India, [ 1983] 143 ITR 436 respectively have taken the view
that treating of registered firms as unregistered firms for
the purpose of charging of interest for the late filing of
returns cannot be said to be arbitrary and violative of
Article 14 of the Constitution. The view expressed in these
decisions, in our opinion, is correct. As has been noticed
already, the Karnataka High Court did not consider the
question of withholding of the privileges conferred on the
registered firm on their default in filing returns within
the time allowed under sub-sections (1) and (2) of section
139 of the Act, so that they may be treated on equal footing
with unregistered firms making the same default. In the
circumstances, no discrimination has been made between a
registered firm and an unregistered firm and, accordingly,
the provision of sub-section (4) of section 139 read with
clause (iii)(a) of the proviso to sub-section (1) of section
139 of the Act is not violative of Article 14 of the
Constitution and is quite
699
legal and valid. The decision of the Karnataka High Court in
Nagappa’s case (supra), as affirmed on appeal by the
Division Bench of that High Court, in so far as it declares
the said provision as ultra vires Article 14 of the
Constitution, is erroneous.
Before we part with these appeals, we think we should
clarify one situation, namely, where the advance tax duly
paid covers the entire amount of tax assessed, there is no
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question of charging the registered firm with interest even
though the return is filed by it beyond the time allowed,
regard being had to the fact that payment of interest is
only compensatory in nature. As the entire amount of tax is
paid by way of advance tax, the question of payment of any
compensation does not arise.
In C.A. No. 1035 of 1973, it appears that total tax for
the assessment year 1968-69 was assessed at RS.. 16,288. The
assessee paid advance tax amounting to Rs.39,018 in three
instalments on 25.9.1967, 24.1.1968 and 2.3.1968. It is
apparent that the amount of advance tax paid by the assessee
fully covered the amount of tax payable by it. In spite of
that, the Income-tax officer charged the assessee for the
said assessment year a sum of Rs. 14,233 as interest under
section 139 of the Act for the delayed filing of the return.
As has been observed earlier, when the amount of tax and
already been paid in the shape of advance tax, the question
of payment of compensation by way of interest does not arise
and the Income-tax officer was not, therefore, justified in
charging interest. The assessee is, therefore, entitled to
get refund of the amount paid by way of interest for the
said assessment year. The Income-tax officer is directed to
refund to the assessee the amount paid on account of
interest.
In the result, C.A. No. 1035 of 1973 is allowed and the
remaining appeals are dismissed. There will, however, be no
order as to costs in any of these appeals.
S.L. Appeal No. 1035/73 allowed and others dismissed.
700