1. This civil rule relates to the assessment year 1965-66.
The petitioner is a registered firm having its head office at Shillong. For the assessment year 1965-66, the petitioner submitted the return of income under Section 139 of the Income-tax Act, 1961 (briefly 'the Act'), to the Income-tax Officer, 'A' Ward, Shillong (respondent No. 1), on 11th April, 1966, and it was provisionally assessed under Section 141 on a total income of Rs. 4,25,393 on the basis of its return and a demand notice was accordingly issued for payment of Rs. 61,379*21 and actually Rs. 22,219.21 being reduced by the advance tax of Rs. 39,160, already paid. Thereafter, the respondent No. I made an assessment under Section 143(3) of the Act and determined the total income of the petitioner as Rs. 4,22,111 (annexure 'A'). A demand notice accordingly was issued on 16th December, 1968, for a sum of Rs. 56,142 which, after adjustment of the amounts paid earlier, came to Rs. 2,584. The calculation arrived at included a sum of Rs. 3,158 charged as interest under Section 139 (annexure 'B'). The petitioner submitted an application to the respondent No. 1 on 15th March, 1967, for waiver of the interest under Section 139(8) read with Rule I17A of the Income-tax Rules (annexure 'C'). The respondent No. 1 also made an order under Section 154 of the Act rectifying his earlier assessment made under Section 143(3) and thereby the total income was reduced to Rs. 4,17,954. Although the total income was reduced, the total tax charged was enhanced to Rs. 56,372 and the interest charged under Section 139 was also enhanced to Rs. 4,091 from Rs. 3,158. After calculating the amounts already paid, the amount of tax payable was determined at Rs. 2,916 (annexures 'D' and 'E'). Thereafter, the respondent No. 1 issued a notice on 30th March, 1971, under Section 148 of the Act and the petitioner filed the return of income on 25th May, 1971, and the assessment was completed by the respondent No. 1 under Section 147/143(3). In accordance with the reassessment order, the tax demand after adjustment of payments came to Rs. 21,023 which included Rs. 4,959 as interest under Section 139 (annexures 'F', 'G' and 'H ').
2. The petitioner avers that the amount of interest charged under Section 139 has been calculated not on the amount of tax payable or required to be paid by the petitioner-firm, but has been calculated on the amount of tax which would have been payable if the petitioner-firm had been assessed as an unregistered firm (para. 13). The petitioner further avers that while charging interest under Section 139, the respondent No. I has calculated interest on the gross amount of tax without allowing the deduction of advance tax paid by the petitioner (para. 15). The petitioner also avers that it never made any application to the Income-tax Officer praying for extending the time to file the return of income and as such no extension of time was granted (para. 22).
3. The Income-tax Officer has in his counter-affidavit submitted that the interest charged on the petitioner has been calculated strictly in accordance with the provisions of Section 139 of the Act treating the firm as an unregistered one and that such charge of interest is not at all inconsistent with the provisions of law. In a further affidavit, the same officer has averred, without any replication by the petitioner, that a notice dated 20th May, 1965, under Section 139(2) of the Act was served on the petitioner on 28th May, 1965, requiring it to furnish a return of its income during the previous year within thirty days from the date of service of the notice and that the petitioner did not submit any return in pursuance to that notice, but submitted the same only on 11th April, 1966, and hence the 'interest was legally payable by the petitioner under the proviso to Sub-section (2) of Section 139 read with Clause (iii) of the proviso to Section 139(1) of the Act, as was in force during the relevant assessment year '.
4. In the above premises, Mr. Baruah, the learned counsel for the petitioner, made the following submissions :
(1) The Income-tax Officer can charge interest under proviso (iii) to Section 139 only when he allows extension of time for filing the return to the assessee on an application made by him and, in the instant case, the petitioner not having applied for extension of time, the charging of interest for delayed return is without jurisdiction.
(2) Clause (a) of proviso (iii) to Section 139 is violative of Article 14 of the Constitution inasmuch as while all other assessees are liable to pay compensatory interest on the balance of tax actually found due, the petitioner, a registered firm, has to pay interest on a much more onerous basis and not on the amount due from it but on a very much higher amount that would have been due if the assessee had been assessed as an unregistered firm.
(3) The Income-tax Officer is bound in law to allow the petitioner credit for advance tax paid by it while computing the interest payable under proviso (iii).
5. Before we deal with the first submission, we may set out the relevant provision of Section 139 as was in force at the relevant time.
'139. (1) Every person, if his total income .... during the previous year exceeded the maximum amount which is not chargeable to income-tux, 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 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 :
6. 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 ..... the previous year in respect of which expired on or before the 31st day of December .... 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 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, reduced by the advance tax, if any, paid or by any tax deducted at source, as the case may be ....
(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 Subsection (1) shall apply in every such case ....
(8) Notwithstanding anything contained in Clause (iii) of the proviso to
sub-section (1), the Income-tax Officer may, in such cases and under such
circumstances as may be prescribed, reduce or waive the interest payable by
any person under any provision of this section.' (Inserted by the Finance
7. Mr. Baruah submits that the petitioner in this case had not made any application for extension of time to furnish its return and there was, therefore, no occasion for the Income-tax Officer to extend time. He submits that an application by the assessee and a consequent order extending time for furnishing the return are conditions precedent for authorising the Income-tax Officer to charge interest under Clause (iii) of the proviso to Section 139(1) which is invoked in this case by the department. Under section 139(1), every person who has a taxable income in the previous year is under an obligation to furnish a return of his income, different time-limits for submission of return are mentioned in Clauses (a)'and (b). These time-limits are allowed under the Act and there is no need for any application when the return is submitted within the time allowed under Section 139(J)(a) and (b). There is also no question of payment of any interest when returns are submitted in compliance with Section 139(1). Secondly, a further relaxation in the matter of charging of interest is made when an assessee makes an application in the prescribed manner praying for extension of time for furnishing the return under the proviso to Section 139(1). Here again certain time-limits are specified within which returns may be filed without liability to pay interest, provided an application is made for time and the Income-tax Officer has granted the time up to the periods mentioned in Clauses (i) and (ii) of the proviso. There is, however, a third case which comes under Clause (iii) of the proviso, where up to any period falling beyond the periods mentioned in Clauses (i) and (ii) of the proviso, 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.
8. Mr. Baruah submits that since the petitioner tiled its return on 11th April, 1966, beyond the dates mentioned in Clauses (i) and (ii) of the proviso and it made no application under the proviso in the prescribed form and consequently there was no order of the Income-tax Officer extending the date for furnishing the return, no interest could be charged under Clause (iii) of the proviso. This submission, however, fails to take count of Subsection (4) of Section 139, which we have set out above. The assessee in this case has submitted its return under Section 139(4) and it may be described as a person who has not furnished a return within the time allowed to him under Sub-section (1) or Sub-section (2). It is clear that it did, not submit its return voluntarily under Section 139(1) and it also made no application for extension of time in order to submit its return. The assessee, therefore, in this case did not furnish a return within the time allowed to it under Sub-section (1). It also did not submit its return notwithstanding the service of notice under Section 139(2) on 28th May, 1965, calling upon it to submit the return within thirty days of the service of the notice. The petitioner is, therefore, clearly an assessee who has not furnished a return within the time allowed to it under Sub-section (1) or Sub-section (2) and it has taken the benefit of Sub-section (4) to furnish the return for the previous year on 11th April, 1966, before the assessment has been made in this case and before the expiry of the period mentioned in the sub-section. That immediately attracts Clause (iii} of the proviso to Sub-section (1) which empowers the Income-tax Officer to charge interest for late submission of the return. Sub-section (4) of Section 139 is, therefore, a complete answer to the first submission of Mr. Baruah. There is, therefore, no substance in this contention.
9. Mr. Baruah has drawn our attention to a decision of the Andhra Pradesh High Court in Kishanlal Haricharan v. Income-tax Officer,  82 I.T.R. 660 (A.P.) and he strenously urges us to take the same view as expressed in the following passage relied upon by him :
'A perusal of the proviso (proviso to Section 139(1)) makes it clear that it is only when an assessee requests for time under the third Clause, he can be directed to pay penal interest as provided in the clause. Where the assessee does not request for time for submitting a return, the third clause has no application. Other consequences may follow. For example, the petitioner may subject himself to the penalty provided in Section 271 of the Act.'
10. With respect, we are unable to agree with the above decision which has taken no note of Section 139(4) of the Act. For the reasons given by us and in view of the provisions of Sub-section (4) of Section 139, there is no escape from the conclusion that Clause (iii) of the proviso is attracted to the case of the present assessee and the Income-tax Officer is fully justified in charging interest in the case.
11. With regard to the second submission of Mr. Baruah on the score of Article 14 of the Constitution, it is sufficient to point out that Section 139(1)(iii)(a) deals with registered firms which have committed certain defaults under the law. It is obvious that registered firms are entitled to certain privileges under the provisions of the Income-tax Act vis-a-vis other assessable entities. There is, therefore, a reasonable classification in placing them in one group subjecting them to certain liabilities in the case of some defaults. Since there can be no grievance on the score of the registered firms being placed in an advantageous position in certain matters including the quantum of tax payable by them, there is no discrimination amongst entities similarly placed or equally circumstanced in the matter of payment of interest for late submission of return in their case. The justice and reasonableness of the registered firms being placed in one class for the purpose of enjoyment of certain privileges go hand in hand with certain liabilities imposed under the law in the case of non-performance of legal obligations under the Act. The classification being founded on an intelligible differentia and the said differentia having a rational relation to the object of the provisions for charging interest, there is no discrimination to make it void for violation of Article 14 of the Constitution. The object indeed is not to let registered firms, with the benefits conferred upon them by the Act, slip in one of their essential duties to submit a return in time. .
12. Mr. Baruah submits that interest payable under Clause (iii) of the proviso to Section 139(1) of the Act is of a compensatory nature and not penal as such. There is, therefore, according to him no rational basis for charging penal interest. We are unable to agree that the interest charged under Section 139 does not partake of a penal character. It is indeed more penal than compensatory and may even be said to partake of a twin character of being penal as well as compensatory. It is penal as it entails (sic) on account of a breach of the mandate of Section 139 and hence has relevance only to default in submission of a return and not to wrongful detention of money due. We are not required to consider in this case whether the position would be the same in cases of interest payable under several other provisions of the Act, such as, Sections 215, 217, 220(2) and 243 of the Act wherein withholding of money due to a party appears to be the relevant consideration. Mr. Baruah strenuously submitted that we should hold charging of interest as a compensatory measure instead of it being penal in order to steer clear of the decision of the Supreme Court in Jain Brothers v. Union of India,  77 I.T.R. 107, 118 ;  3 S.C.R. 253 (S.C.). In that case, a challenge was made to Section 271(2) of the Act of 1961, on the ground of contravention of Article 14. The Supreme Court held in that case as follows :
'Now a firm when registered is treated as a separate entity liable to tax. After 1956 it has to pay tax at a special reduced rate. If a firm got itself registered the partners were entitled to certain benefits and advantages. It was, however, open to the legislature to say that once a registered firm committed a default attracting penalty, it should be deemed or considered to be an unregistered firm for the purpose of its imposition. No question of discrimination under Article 14 can arise in such a situation, We fully share the view of the High Court that there was nothing to prevent the legislature from giving the benefit of a reduced rate to a registered firm for the purpose of tax but withhold the same when it committed a default and became liable to imposition of penalty.'
13. Mr. Baruah frankly submits that if we hold that charging of interest is penal, the case will be governed by the ratio decidendi of the above decision of the Supreme Court. We have already held that the interest charged partakes also of a penal character. That being the position, the principle laid down in the above decision of the Supreme Court is clearly attracted. The submission of Mr. Baruah, therefore, fails.
14. With regard to the third submission, we feel that the same has good deal of force. Mr. Baruah submits that the assessee's case is governed by Clause (iii)(a) of the proviso to Section 139(1) and the interest when charged has to be reduced by crediting the advance tax paid by the assessee. Mr. Bhattacharjee submits that the clause 'reduced by the advance tax, if any, paid' has relation only to Sub-clause(b) of Clause (iii) of the proviso to Section 139(1). A perusal of Clause (iii) of the proviso would clearly show that the words 'reduced by the advance tax, if any, paid or by any tax deducted at source, as the case may be' have relation to both sub- Clauses (a) and (b) of Clause (iii) of the proviso. We do not find any ambiguity in the sub-clauses calling for a different interpretation. Under Clause (iii) of the proviso interest shall be payable in the two given cases under sub-clauses fa) and (b) which is clear from the conjunctive 'and' used in Sub-clause(a) and in both cases, therefore, the tax to be taken into account for charging interest will be tax payable by the assessee reduced by the advance tax paid. There is, therefore, no force in the submission that the advance tax will be taken into account only in a case covered by Sub-clause(b) of Clause (iii) of the proviso. The submission of Mr. Bhattacharjee is of no avail. The Income-tax Officer was, therefore, not justified in not making allowance for the advance tax paid when determining the interest to be charged in the instant case.
15. In the result, the application is partly allowed. While the order of the Income-tax Officer charging interest holds good, he is directed to determine the actual interest payable by the assessee by making appropriate allowance of the advance tax paid by the assessee. As both sides have shared success in this civil rule, we leave the parties to bear their
B.N. Sarma, J.
16. I agree.