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income-tax Officer Vs. Lachmandas Raghunath Das Parihar - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Jaipur
Decided On
Judge
Reported in(1983)6ITD474(JP.)
Appellantincome-tax Officer
RespondentLachmandas Raghunath Das Parihar
Excerpt:
.....by three partners. it is carrying on kirana business. it has been in existence from 1962. the firm is registered under the act. the following particulars would be necessary to focus the point in issue :toal assessed income 88,780tax payablesurcharge 1,113 8,530less : tds 409 8121less : payment under 10,000refundable 1,979interest under section 627interest charged under section 139(8) 1,185refundable 1,421 3. the revenue wants to charge interest on the tax calculated on the basis of an unregistered firm by applying explanation 2 even though refund is due to the assessee. at this juncture it would be necessary to reproduce the relevant statutory provisions : 139(8)(a) : where the return under sub-section (1) or sub-section (2) or sub-section (4) for an assessment year is furnished.....
Judgment:
1. Whether a registered firm is liable to pay interest under section 139(8)(a) of the Income-tax Act, 1961 'the Act') read with Explanation 2 even in a case where there is no tax / able is the question to be decided by the Special Bench, 2. The assessee is a partnership firm constituted by three partners. It is carrying on kirana business. It has been in existence from 1962. The firm is registered under the Act. The following particulars would be necessary to focus the point in issue :Toal assessed income 88,780Tax payableSurcharge 1,113 8,530Less : TDS 409 8121Less : Payment under 10,000Refundable 1,979Interest under section 627Interest charged under section 139(8) 1,185Refundable 1,421 3. The revenue wants to charge interest on the tax calculated on the basis of an unregistered firm by applying Explanation 2 even though refund is due to the assessee. At this juncture it would be necessary to reproduce the relevant statutory provisions : 139(8)(a) : Where the return under sub-section (1) or sub-section (2) or sub-section (4) for an assessment year is furnished after the specified date, or is not furnished, then (whether or not the Income-tax Officer has extended the date for furnishing the return under sub-section (1) or subsection (2), the assessee shall be liable to pay simple interest at twelve per cent per annum, reckoned from the day immediately following the specified date to the date of the furnishing of the return or, where no return has been furnished, the date of completion of the assessment under section 144, on the amount of the tax payable on the total income as determined on regular assessment, as reduced by the advance tax, if any, paid, and any tax deducted at source :Provided that the Income-tax Officer may, in such cases and under such circumstances as may be prescribed, reduce or waive the interest payable by any assessee under this sub-section.

Explanation 2 : For the purposes of this sub-section, where the assessee is a registered firm or an unregistered firm which has been assessed under clause (b) of section 183, the tax payable on the total income shall be the amount of tax which would have been payable if the firm had been assessed as an unregistered firm.

The revenue has taken the stand that by virtue of Explanation 2 the tax payable should be determined on the basis of the total income as if the firm is an unregistered firm in which case obviously there will be deficiency in the tax payment and the assessee would be made liable to pay interest in accordance with the provisions of Section 139(8)(a).

The AAC, in appeal, did not accept the view of the ITO and held that since there is no tax payable by the registered firm, the question of charging interest .under Section 139(8)(a) would not arise and one need not go to Explanation 2 at all. This view of the AAC is assailed in appeal filed by the revenue.

4. Though the point seems to be very simple, the arguments advanced by both the sides covered a somewhat wider field. The sum and substance of the argument of the learned departmental representative who ably placed the case of the revenue can be stated as under : 1. A registered firm is to pay lesser tax by way of a benefit on fulfilling certain conditions. If such a firm which has got the benefit of payment of lesser tax commits default in filing the return, it must suffer certain consequences and, therefore, the provisions of section 139(8)0) and Explanation 2 thereof must be construed in such a manner so as to charge interest though no tax is payable by the firm.

2. The Explanation has to be applied the moment the following two conditions are satisfied under Section 139(8)(a) : According to the departmental representative, once these conditions are fulfilled then automatically the Explanation has to come into play and the tax should be determined on the basis of an unregistered firm.

3. The principles governing the levy of penalty under section 271(l)(a) in the case of a registered firm should not be applied as there is a substantial difference in the language of the two provisions and that at any rate the scope and ambit of the two provisions are different.

4. In the alternative, even if the principles governing the levy of penalties on a registered firm under section 271(l)(a) are taken into account, the majority of the decisions are in favour of the revenue and they should be followed in construing the provisions of section 139(8)(a) read with Explanation 2 thereof.

5. A subsidiary contention has also been raised that if the provisions of Section 139(8)(a) are construed in the manner in which the assessee wants, the whole provision would become nugatory as a registered firm pays very less tax and it is only the partners who pay the tax substantially. If there is delay in filing the return by the partnership firm, the partners would also take the advantage of the delay in filing the returns on the plea that they are not able to file the return until the firm files the return in which case the partners also will try to avoid the levy of interest because of the proviso to Section 139(8)(a).

5. Mr. Chaudhary, the learned counsel for the assessee, while repudiating most of the contentions raised by the learned departmental representative tried to impress upon us that the scope and ambit of the two provisions, namely, sections 139(8)(a) and 271(l)(a) are different.

Mr. Chaudhary explained to us that the purposes are different and, therefore, while construing the provisions of Section 139(8)(a) different considerations should prevail. No doubt he also tried to bring in the principles governing the construction of Section 271(l)(a) as an alternative argument. According to Mr. Chaudhary, there must be tax payable and this condition should also be satisfied before invoking the fiction under Explanation 2. The learned counsel for the assessee pointed out that since interest is only a compensation for withholding the Government money, when there is no money being withheld, the question of charging interest would not arise. He has alsoraised a contention that the provisions of Section 139(8)(a) in relation to the registered firm are discriminatory in character as held by the Karnataka High Court in the case of Addl. CIT v. Mahadeshwara Lorry Service [1981] 129 ITR 516 and that should be followed by the Tribunal as explained by the Bombay High Court in CIT v. Smt. Godavaridevi Saraf [1978] 113 ITR 589. Finally, Mr. Chaudhary raised the off-taken plea that when there are two views possible, the view which is in favour of the assessee should be adopted.

6. Mr. Ruhela, the learned departmental representative, in reply, pointed out that so far as the validity of the provisions of Section 139(8)(a) in relation to a registered firm is concerned, there are other authorities, and he relied on the Punjab and Haryana High Court decision in the case of Hindustan Steel Forgings v. CIT [1980] 121 ITR 793 and the Madras High Court decision in the case of Mahendrakumar Iswarlal & Co. v. Union of India [1974] 94 ITR 65. It may be also mentioned that even though both the parties have referred to a number of decisions, we will refer to such of them which we consider relevant and necessary.

7. It is better to start with the scope and ambit of the two provisions, namely, sections 139(8)(a) and 271(l)(a) of the Act. Our task to differentiate these two provisions has become lighter in view of judicial pronouncements already in the field. The Karnataka High Court in the case of Mahadeshwara Lorry Service {supra) has brought out the salient features of distinction between the provisions of sections 139(8)(a) and 271(l)(a). It may be recalled here that the Supreme Court in Jain Bros. v. Union of India [1970] 77 ITR 107 has held that there is no discrimination in levying penalty so far as registered firms are concerned. The Karnataka High Court distinguished this decision on the ground that the provisions of Section 271(l)(a) are different from the provisions of Section 139(8)(a). However, the other High Courts have adopted the same logic as has been applied by the Supreme Court in relation to penalty proceedings under Section 271(l)(a) in upholding the validity of Section 139(8)(a) of the Act. Be that as it may, one thing is very clear that the purpose of Section 139(8)(a) which is brought into the statute book is quite different from the purpose and intent behind enacting Section 271(l)(a). In this connection we would like to refer to two decisions, one is that of the Gujarat High Court in the case of Addl.CITv. Santosh Industries [1974] 93 ITR 563. The relevant observations are : . . . In the first place, it is not correct to say that interest chargeable to a person who files his return of income under Section 139, sub-section (4), is 'penal interest', though that is an expression which is commonly in use in income-tax parlance. It is not by way of penalty that interest is chargeable from a person who does not file his return within the time allowed to him under Sub-section (1) of Section 139. If we look at clause {Hi) of the proviso to Sub-section (1) of Section 139, it is clear that even where the Income-tax Officer grants extension of time to a person to file his return of income, the person to whom extension of time is granted is liable to pay interest, if the extended date falls beyond a particular date. There is no question in such a case of levying any penalty on the person concerned, because extension of time having been granted to him he is not in default. Interest is not charged to him by way of penalty but he is required to pay it, because by reason of extension of time, the filing of the return would be delayed and that would in its turn delay the assessment, and consequent realisation of tax from the assessee. It is, therefore, by way of compensation for delay in realisation of tax that interest is required to be paid by the assessee. Now, obviously, if a person who obtains extension of time beyond a certain date is required to pay interest, a person who does not seek extension of time but files the return of income under sub-section (4) of Section 139 after the time specified in Sub-section (1) of Section 139 cannot be allowed to escape payment of interest. The latter cannot be placed in a better position than the former and, therefore, with a view to putting the latter on par with the former in this respect, the Legislature made the provision in clause (iii) of the proviso to subsection (1) applicable in a case where a person files his return of income under Section 139, sub-section (4). This interest which a person filing his return under Section 139, sub-section (4), is required to pay is thus not by way of penalty but it is only by way of compensation for delay in realisation of tax. It is very much different from the penalty for default in furnishing return of income within the time allowed under Sub-section (1) or sub-section (2) of Section 139. . .

The other case is the one in Kerala Tile & Clay Works v. CIT [1976] 104 ITR 597 (Ker.). We may further add that provision for payment of interest is in the nature of compensation for money withheld. The Government in this case has to be compensated for the delay in payment of the money due as taxes. It is a sort of civil liability statutorily recognised. Payment of interest also arises as a contractual liability and also under various enactments. Such a liability is always taken as liability in the shape of compensation to one for the use of money by another. Interest under the Interest Tax Act has also the same concept.

So far as penalties are concerned, they are punitive in character and stand on a different footing. They fall in the realm of criminal law.

At any rate penal provisions under the taxation laws have been considered to be quasi-criminal in nature and as such the penal provisions like the one under Section 271(l)(a) also come under that category. Such provisions are also considered to be punitive and deterrent. The purpose is altogether different from collecting interest for the money withheld. We are, therefore, clearly of the opinion that one need not compare the provisions of Section 271(l)(a) or the decisions rendered thereunder to construe the provisions of Section 139(8j(a) read with Explanation 2. We, accordingly, start on the basis that we have to decide the matter looking to the provisions of Section 139(8)(a) read with Explanation 2 thereof independent of the conflicting views of the different High Courts on Section 271(l)(a).

Accordingly, we refrain from referring to any of those decisions which touch upon the provisions of Section 271(l)(a) and referred to by both the sides. We may make it clear that even in construing Section 271(l)(a) in relation to registered firms, there is conflict of views.

There are two direct decisions on the point, the earliest one is that of the Gujarat High Court in the case of CIT v. R. Ochhavlal & Co.

[1976] 105 ITR 518 (in favour of the department) and the later case is that of the Gauhati High Court in the case of CIT v. Maskara Tea Estate [1981] 130 ITR 955 in favour of the assessee. 8. Now let us carefully analyse the provisions of Section 139(8)(a) in the light of the purpose and intent behind this provision. As already mentioned, the Government wants to impose a liability on a taxpayer to pay interest whenever there is delay in filing the return which results in delay in payment of tax. The whole purpose behind the provision is to see that the returns are filed in time and in case they are not filed in time and because of that the assessee is in default, the assessee has to pay interest on the tax due. The whole argument centres round as to at what stage the fiction under Explanation 2 has to be applied. Forget for the moment Explanation 2 and let us see how Section 139(8)(a) works. It is true that as contended by Mr. Ruhela that this provision applies if two conditions are fulfilled, viz., that there is taxable income and there is delay in filing the return. But we are not able to agree that there is no other condition to be fulfilled. The third condition to be satisfied is that there should be 'tax payable on the total income as determined on regular assessment'. But again the tax payable should be reduced by the payment of advance tax paid as also the tax deducted at source. In the case of an assessee other than a registered firm there can be no quarrel that once the total income is determined and the tax payable is also determined and if there is no balance left after taking into account the advance tax and tax deducted at source, such assessee is not liable to pay interest even if there is delay in filing the return. Will it make any difference when we take the case of a registered firm In other words, even if there is no tax payable, on the total income determined on regular assessment, after taking into account the advance tax and tax deducted at source, will a registered firm be liable for payment of interest To our mind it looks that it cannot be made liable to pay interest once it is found on determination of the whole matter as envisaged under Section 139(8)(a) that there is nothing payable by an assessee including a registered firm. It makes no difference whether it is a registered firm or any other assessee in so far as the application of Section 139(8)(a) is concerned once it is found that there is no tax payable because of the payment of the pre-paid taxes in the shape of advance tax or tax deducted at source.

The reason is obvious especially when we bear in mind the whole purpose behind this provision. This provision has been made for the purpose of compensating the Government for withholding of tax by an assessee, which is due at a particular point of time. If nothing is payable by an assessee, because payment has already been made, where is the question of charging any compensation In such a situation, there is no question of money being withheld by the assessee at all. Section 139(8) achieves the purpose of enforcing the filing of the return in time as assessment and determination of tax is possible on the filing of the return except in a case where the assessment is made ex parte. It is only on determination of tax that a demand is raised. The delay in filing the return delays the payment of tax and so interest is charged.

But if tax is already collected by way of advance tax, the purpose is already achieved. The fiction under Explanation 2 can only be pressed into service if there is tax payable by an assessee including a registered firm.

9. It is well settled that the legal fiction must be extended to its logical conclusion and at the same time it should be construed strictly. These two axioms are well known. When we want to apply the legal fiction, we must find out when the legal fiction would come into play. The legal fiction, according to us, can be applied when there is some tax payable by a registered firm. If there is no tax payable, one need not go to the legal fiction at all. The argument of the learned departmental representative that the tax payable should be calculated on the basis of the total income as if the total income is that of an unregistered firm cannot be accepted because of the very wording of Explanation 2 which indicates that it is only for the purpose of Section 139(8)(a) that the fiction is to be applied and it means that it is for the purpose of charging interest in case any tax is payable.

What is tax payable is already implied in Section 139(8)(a) itself. It is the amount reduced by the advance tax and tax deducted at source.

That is what we have to understand even for the purpose of construing Explanation 2. The tax payable, according to the language of Explanation 2, should be read as tax payable as reduced by the advance tax and tax deducted at source. If after that process there is no tax payable on the total income, there is no question of determination of tax payable as if the assessee is an unregistered firm. The Explanation can have no place whatsoever in a situation where no tax is payable because of the very provisions of Section 139(8)(a). There is also the argument that the Explanation should be engrafted in Section 139(8) when we deal with the case of a firm for the purpose of determining tax payable as if the Explanation defines what is tax payable in the case of a firm. This is again unacceptable to us for two reasons. Firstly, the scope of Explanation does not permit such a construction. Secondly, when we come to the words 'tax payable' we cannot ignore the rest of the words falling in Section 139(8)(a), namely, 'advance tax and tax deducted at source'. 'Tax payable' should mean the amount outstanding after deduction of advance tax and tax deducted at source. It is only at that stage we should look to Explanation 2.

10. The argument of the learned departmental representative based on proviso to Section 139(8)(a) that even the partners would avoid the liability of payment of interest when the firm itself will delay the filing of the return on the plea that the partners have reasonable cause is an argument which is based on various assumptions. First of all there cannot be an assumption that the partners file returns late.

Secondly, there cannot be an assumption that the partners' liability to pay interest will be reduced or waived by the ITO. The ITO has to exercise his discretion for reduction or waiver of interest on an application by an assessee. This is again governed by Rule 117 of the Income-tax Rules, 1962 framed under the Act. Thirdly, what the learned departmental representative is pointing out may be a consequence but a consequence cannot be taken as a guiding factor for considering a statutory provision. We do not find that by construing the provisions in the manner as indicated, Section 139(8)(a) would become nugatory.

The purpose of Section 139(8)(a) can be very much achieved by the construction put on it by us.

11. The Tribunal is undoubtedly not empowered to consider the vires of the provisions on the ground of discrimination or otherwise, but it can still take note of an argument that a provision of law is to be construed in such a manner that an attack on its validity either on the ground of discrimination or otherwise is avoided. True it is that so far as the validity of the provisions of section 139(8)(a) vis-a-vis is a registered firm, there is conflict of opinions of different High Courts the majority of the view being in favour of the revenue. All the same we can follow the principle that the provisions of Section 139(8)(a) should be harmoniously construed in order to avoid attack on ground of discrimination. The way in which we construe the provisions would not lead to any difficulty whatsoever nor can it be argued that the provisions are discriminatory. It may be also mentioned that the Karnataka High Court while deciding the validity of the provisions assumed that a registered firm has to pay interest even though there is no tax payable on regular assessment. Unfortunately, there was no argument before the Court that if there is no tax payable, no interest is chargeable. We have, however, tried to show that by construing Section 139(8)(a) in the light of the object for which the provision is made and also construing Explanation 2, no interest is chargeable, if there is no tax payable. In this view of the matter, we need not further dilate on the question of discrimination raised by the learned counsel for the assessee nor is it within our competence to decide the issue. In view of the conflict of views also on the question, the principle in Smt. Godavaridevi Sarafs case {supra) need not be applied.

12. There was some argument by the assessee regarding the fiction to be extended to its logical conclusion. The argument proceeded on the footing that if the total income is to be determined on the basis of an unregistered firm, the tax payable should also be calculated on the same basis. In other words, the fiction is sought to be applied totally but this would lead to absurd results. We do not want to go so far in extending the principle on an application of legal fiction to such a situation arising under Section 139(l)(a), in the manner suggested.

13. There was also another argument which was raised during the course of hearing. That related to borderline cases where suppose tax payable is hardly Rs. 10, then the firm will have to pay interest on the basis of tax payable as an unregistered firm. In all borderline cases the position would be the same. Cases falling on' one side of border will have to be treated differently from the cases falling on the other side of the border. This situation is not uncommon. This happens in cases regarding penalty under section 271(l)(a). We, therefore, do not see any logic in the objection that by our construction there would be any hardship or that the borderline cases would be hit.

14. Lastly, we would like to agree with the learned counsel for the assessee that even if there is some doubt as to the way in which we have construed and some possibility is there to have another view of the matter, the view in favour of the assessee should be taken. This is again based on the well known dictum recognised by the Supreme Court in the case of CIT v. Vegetable Products Ltd. [1973] 88 ITR 192. We, accordingly, hold that in this case the assessee is not liable to pay interest and the view taken by the AAC is upheld.


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