1982 (9) TMI 137 - AT - Income Tax

Tribunal upholds interest levy for tax default despite lack of funds defense

Executive Engineer And Administrative Officer, Tamil Nadu Housing Board. Versus First Income-Tax Officer.

Executive Engineer And Administrative Officer, Tamil Nadu Housing Board. Versus First Income-Tax Officer. - ITD 002, 336, Issues Involved:1. Levy of interest under section 201(1A) of the Income-tax Act, 1961.2. Failure to deduct and pay tax to the government.3. Whether good and sufficient reasons can exonerate the assessee from the levy of interest.4. Applicability of the decision of the Tribunal and Supreme Court on similar issues.5. Requirement of giving an opportunity of being heard before levying interest.Issue-wise Detailed Analysis:1. Levy of Interest under Section 201(1A):The assessee, Tamil Nadu Housing Board, failed to pay the deducted tax to the Central Government as required under section 194C of the Income-tax Act, 1961. Consequently, the Income Tax Officer (ITO) levied interest under section 201(1A) for the assessment years 1973-74 and 1975-76. The ITO's action was based on the statutory provision that mandates the levy of interest for failure to deduct or pay the tax, which is compensatory in nature.2. Failure to Deduct and Pay Tax:The ITO identified that the assessee had deducted tax from payments made to contractors but failed to remit these deductions to the government in a timely manner. The ITO communicated these irregularities to the assessee, who cited a lack of funds and requested additional time for payment. Despite this, the ITO imposed interest for the delayed payments, amounting to Rs. 36,781 for 1973-74 and Rs. 838 for 1975-76.3. Good and Sufficient Reasons for Exoneration:The assessee argued before the Appellate Assistant Commissioner (AAC) that the lack of funds should exonerate it from the levy of interest. They also referenced a Tribunal decision in a similar case (Executive Engineer & Administrative Officer, Salem Housing Unit v. ITO), where the Tribunal had accepted the reasons provided by the assessee and did not charge interest. However, the AAC disagreed and upheld the ITO's decision, leading to the appeal before the Tribunal.4. Applicability of Tribunal and Supreme Court Decisions:The Tribunal considered its earlier decision in the Salem Unit case and another decision by the Calcutta Bench in ITO v. Aeicorp (P.) Ltd. The Calcutta Bench held that the ITO had no discretion to waive interest once a default was established. The Tribunal also referred to the Supreme Court's decision in Associated Cement Co. Ltd. v. CTO, which clarified that interest is compensatory and mandatory for the deprivation of government funds, regardless of the assessee's reasons for non-payment.5. Requirement of Opportunity of Being Heard:The Tribunal discussed whether the ITO must provide an opportunity of being heard before levying interest under section 201(1A). It concluded that, although section 201(1A) does not explicitly require this, the principles of natural justice imply that such an opportunity should be given. In this case, the ITO had given the assessee an opportunity to explain the delay, which the assessee responded to, but the ITO found the reasons unsatisfactory.Conclusion:The Tribunal dismissed the appeals, affirming the levy of interest. It concluded that the interest under section 201(1A) is mandatory and compensatory for the delay in remitting tax deductions. The Tribunal emphasized that an opportunity of being heard should be provided, which was done in this case. The Tribunal found no conflict between the decisions of the Calcutta and Madras Benches, as both agreed that the levy of interest is automatic once a default is established.