1982 (7) TMI 104 - AT - Income Tax

Tribunal reduces penalties, upholds interest levy for non-deduction of tax at source.

The Tribunal partially allowed the appeals by reducing penalties under section 221, read with section 201, to 25% of the total tax deductible. The levy of ... Deduction Of Tax At Source, Interest Other Than Interest On Securities Issues Involved:1. Imposition of penalties under section 221, read with section 201, of the Income-tax Act, 1961.2. Levy of interest under section 201(1A) for non-deduction of tax at source.Detailed Analysis:1. Imposition of Penalties Under Section 221, Read with Section 201:The primary issue revolves around the imposition of penalties on the assessee-company for failing to deduct tax at source on interest payments to Co-operative Cane Development Unions or Councils. The IAC imposed penalties under section 221, read with section 201, for the assessment years 1969-70 to 1978-79, except 1974-75 for the Gauri factory branch, and other specified years for the Padrajna and Kathjuiyan factory branches. The penalties were imposed because the interest payments exceeded the prescribed limits of Rs. 400 up to 31-3-1975 and Rs. 1,000 thereafter, and no tax was deducted at source as required by section 194A of the Income-tax Act, 1961.The assessee's counsel, Dr. Vaish, raised a preliminary objection that the IAC considered only sub-section (1) of section 201 and not the proviso thereto, which states that no penalty shall be imposed unless the ITO is satisfied that the failure to deduct tax was without good and sufficient reasons. Dr. Vaish argued that the Co-operative Cane Development Unions or Councils were not liable to tax and their income was exempt under section 80P(2)(iii), and hence, there was no liability to deduct tax at source. Furthermore, he contended that the interest received was passed on to the cane growers, whose individual interest payments did not exceed the prescribed limits, and thus, no tax deduction was warranted.The departmental representative, Shri Prakash, countered that the obligation to deduct tax at source applies regardless of whether the payee's income is chargeable to tax. He argued that the onus was on the assessee to establish good and sufficient reasons for the default, which was not done. Shri Prakash also pointed out that the Co-operative Cane Development Unions or Councils were not wholly financed by the Government, and hence, the exemption notification did not apply.The Tribunal held that the provisions of section 194A were applicable to the assessee-company and that the default of failure to deduct tax at source was established. However, considering the payments were made to co-operative societies of cane growers and this being the first penalty for such defaults, the Tribunal took a lenient view and reduced the penalties from 50% to 25% of the total tax deductible.2. Levy of Interest Under Section 201(1A):The IAC also levied interest under section 201(1A) for the default of not deducting tax at source. The assessee contended that since the provisions of section 194A were not applicable, the levy of interest under section 201(1A) was also not justified.The departmental representative argued that the levy of interest under section 201(1A) is mandatory and there is no discretion to waive or reduce it. The Tribunal upheld the levy of interest, stating that it is obligatory where the assessee is held to have committed the defaults as laid down by section 194A and section 201(1). There was no evidence to show that the interest was incorrectly worked out.Conclusion:The appeals were partly allowed. The penalties under section 221, read with section 201, were reduced to 25% of the total tax deductible. The levy of interest under section 201(1A) was upheld.