1. In this Rule the petitioner challenges the appellate order passed by the Appellate Assistant Commissioner of Income-tax. The appellate order is in the following terms:—
“IN THE OFFICE OF THE APPELLATE ASSISTANT COMMISSIONER OF INCOME TAX: RANGE: ‘AF’: CALCUTTA.
……..…….
Date of Order: 30.12.72
Appeal No. 59-AF/HC/Cal. 71-72.
Instituted on the 17th March, 1972 from the order of the Incom-tax Officer of E-Ward/HC/Cal. (Sri P.N Ghosh)
(1) Year of Assessment.
1967-1968
(2) Name of Appellant
Mohanlal Soni.
(3) Income assessed.
Rs. 73,970/-
(4) Tax demanded—Income tax/Super-tax
Rs. 11,366/-
(5) Section under which assessment was made.
143(3).
Date of hearing: 28.12.1972
Present for Appellant: Sri I.C Sancheti, Advocate.
APPELLATE ORDER AND GROUND OF DECISION.
The present appeal is against the I.T assessment order for the assessment order for the assessment year 1967-1968, passed by the I.T.O E-Ward/HC/Cal. on 31.1.72
2. At the time of appeal hearing, the objection was taken to the disallownce of general expenses to the tune of Rs. 2,000/-. Before me it was stated that for the earlier years also there was a disallowance of Rs. 2,500/- made by the I.T.O and the A.A.C allowed a relief of Rs. 1,000/-. Keeping the circumstance in view, I reduce disallowance to Rs. 1,000/-. The appellant gets a relief of Rs. 1,000/- in this regard.
3. The next ground regarding bad debt, was not pressed by the representative. Therefore, the disallowance regarding bed debt is confirmed.
4. The next ground that was pressed by the representative is regarding the charging of interest under S. 139(1). However, it is observed that the charging of interest under S. 139(1) is not appealable under S. 246 and as such, I decline to interfere in this regard.
5. In sum the appellant gets a relief of Rs. 1,000/-.
6. The I.T.O is directed to give effect to this order both in the hands of the firm and consequential effect in the hands of the partners.
The appeal is partly allowed.
Sd/- S. NARASIMHAN
Appellate Asstt. Commissioner of Income-tax, Range-AF, Calcutta”.
2. The fact leading to the order is that the petitioner is a Firm registered under the Indian Partnership Act as well as under the Income-tax Act, having at the material period three partners, namely, (1) Shri Mohanlal Soni (2) Shri Ramgopal Soni and (3) Shri Radhakissen Soni, each having 1/3rd share in the partnership business. The petitioner was assessed as such as a registered Firm within the meaning of S. 2(7) of the said Act and it is alleged that the method of accounting maintained by the petitioner is ‘Mercantile system,’ and the accounting period is Dewali year. In compliance with the notice under S. 210 of the Income-tax Act for payment of Advance Income-tax for the assessment year 1967-1968 the petitioner paid the Advance taxes of Rs. 1,316/- on 20th August, 1966 and Rs. 1,711/- on 4th February, 1967 amounting to Rs. 3,027,00. In respect of the period 1968-1969 the payment of Advance Income-tax was made on 5th March, 1968 the payment being Rs. 1,254/-. For the period 1969-1970 the Advance tax of Rs. 3,564/- was paid by two instalments, first on 7th December, 1968 and the last one on 13th March, 1969. For the assessment year 1967-1968 the petitioner furnished its Income-tax Return on 10th July, 1967 showing its income at Rs. 69,751.47 p. Thereafter the petitioner found certain discrepancies in the computation of its income and the petitioner furnished a ‘Duplicate Revised Return’ on 5th January, 1970 under S. 139(5) of the said Act and on the basis of the said Revised Return the petitioner paid further tax of Rs. 1,100/- on 19th January, 1972 under S. 140A of the Act. For the assessment year 1969-1970 the petitioner furnished the return, on 2nd January, 1970 showing the enhanced total income, and on the basis thereof the petitioner paid a further tax of Rs. 1,600/- under S. 140A of the Income-tax Act. The assessment for the assessment year 1967-1968 was completed on 31st January, 1972 under S. 143(3) of the said Act by which the Income-tax Officer charged interest of Rs. 7,415/- under S. 139(1) of the Act. In respect of the assessment year 1968-1969 and 1969-1970 the petitioner was assessed income of Rs. 71,935/- and 72,336/-. The respondant no. 4, Income-tax Officer charged interest under S. 139(1) of the Act for the two assessment years amounting to Rs. 3,661/- and Rs. 1,080/-. Being aggrieved by the said order of assessment, three appeals were made to the Assistant Appellate Commissioner, Income-tax, and the similar order as hereinbefore stated was passed. In so far as the assessment years 1967-1968 and 1969-1970 the interest charged under S. 139(1) of the Act was upheld holding therein that the appeals as against the interest charged are not maintainable. Being aggrieved by the said order of the Income-tax Officer and the appellate order the petitioner moved this Court and obtained the present rule. At the outset it must be stated that the finding of the Assistant Appellate Commissioner of Income-tax that no appeal lay against the order passed under S. 139(1) of the Income-tax Act is patently wrong. The charging of interest under S. 139(1) is according to me, appealable under S. 246 of the Income-tax Act. Therefore, in so far as the charge of interest is concerned, the learned Appellate Assistant Commissioner of Income-tax must re-hear the appeal to that extent. The order portion of that order, according to me, is to be affirmed, because, in my opinion, the argument advanced by Mr. Roy Chowdhury that S. 139(1) is ultra vires of Article 14 of the Constitution of India is misconceived.
3. Mr. Roy Chowdhury relied upon the two cases in support of his contention. The case reported in 99 ITR 32 affirmed the case reported in 129 ITR 560. It is argued by Mr. Roy Chowdhury that under S. 139(iii)(a) the equation of registered firm and unregistered firm is ultra vires of Art. 14 of the Constitution. The case as hereinbefore stated supports Mr. Roy Chowdhury's contention but with due respect to the Hon'ble Judges of the Division Bench of the Karnatak High Court, I am not able to accept the principles laid down in the said decision. In the case reported in 77 ITR (Jain Brothers v. Union of India) the Supreme Court held as follows:—
“Lastly, the challenge to S. 271(2) of the Act of 1961 on the ground of contravention of article 14 may be considered. According to that provision when the person liable to penalty is a registered firm then notwithstanding anything contained in the other provisions of the Act of 1961, the penalty imposable under sub-s. (1) shall be the same amount as would be imposable on that firm if that firm were an unregistered firm. It is pointed out that in the case of assessees other than registered firms the maximum penalty impossible under S. 271(1)(1) cannot exceed in aggregate 50% of the tax payable by the assessee; whereas in the case of a registered firm the maximum penalty is not made to depend upon the tax assessed on or payable by such firm. On the contrary the registered firm will have to pay the same penalty as an unregistered firm which may far exceed the maximum limit of 50% prescribed by the above provision. This, according to the appellants, constitutes discrimination under article 14 of the Constitution. 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 unregisted firm for the purpose of its imposition. No question of discrimination under Article 14 can arise in such a situation.”
I respectfully disagree with the view of the Division Bench of Karnatak High Court to the effect that the distinction made by the Hon'ble Judges of Supreme Court does not apply. On the other hand, in my opinion, for the delay of filing the return, the registered firm by the operation of law has to pay the same penalty as an unregistered firm has to pay. It is open to the legislature as it has been stated that once the registered firm committed a default attracting penalty, it should be deemed to be an unregistered firm for the purpose of imposition. In such case, in my opinion, no discrimination between the same class of persons which attracts the provision of Art. 14 of the Constitution arises because by the operation of law, as soon as the registered firm makes a default, it is treated as unregistered firm and therefore all the unregistered firms are equally treated under the said section. In my opinion, the same view was taken by the Madras High Court in the case reported in 94 ITR 65 (Mahendrakumar Iswarlal & Co. v. Union of India). It has been held by the Madras High Court that it is only in cases where the returns have been withheld without sufficient cause, that the interest contemplated under S. 139(1) is levied. Therefore, the proviso (iii)(a) to S. 139(1) cannot be said to be unreasonable or discriminatory.
4. In the circumstances, therefore, the rule is made absolute to the extent indicated above. The Assistant Appelleate Commissioner of Income tax will re-hear the appeal in so far as the interest is concerned and dispose of the same in accordance with law. I hereby affirm the other portion of the appellate order. There will be no order as to costs.
5. The same order was passed in respect of other two appeals filed for the assessment years 1969-1979 and 1970-1971.
Let the operation of this order be stayed for four weeks from to-day.
Rule made absolute in part.