AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2015 (7) TMI 812
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..../s. 221 of the I.T. Act, 1961, for failure to pay tax deducted at source within the prescribed time?" 3. The two appeals under Section 260A of the Act arise from common order dated 16 March 2000 of the Tribunal for the Assessment Years 1987-88 and 1988-89. Both appeals were admitted on 22 January 2002 on the following substantial questions of law: "1. Whether the interpretation placed by the Tribunal upon Sections 221 and 201 of the Income Tax is correct? 2. Whether the Tribunal, in any event acted unreasonably and perversely in confirming the levy of penalty upon the appellant to the extent of 5% of the TDS?" 4. It is agreed position between the Counsel that the issue in all the three matters is with regard to imposition of penalty under Section 221 of the Act for failure to deposit tax deducted at source in accordance with Section 201 of the Act. It is further stated that the question of law as admitted arise from facts which are substantially similar. 5. In the abov....
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....d of its operations. This was as the requisite information from offices situated all over India had to be collected before depositing the amounts deducted as tax at source. In any case, it was submitted that no penalty can be imposed under Section 221 of the Act, when failure to deduct and deposit is for good and sufficient reasons. In this case, it was submitted by the appellant that there were good and sufficient reasons for delay in depositing the tax with the revenue. Thus it was submitted that no penalty under Section 221 of the Act be imposed. 10. The Deputy Commissioner of Income Tax by an order dated 31 August 1990, titled as an order under Section 221 read with Section 201 of the Act disposed of the show cause notice dated 24 July 1990. By the above order the Deputy Commissioner of Income Tax condoned the delay in certain cases, while imposing a penalty Rs. 76.79 Lacs on the appellant under Section 221 of the Act. This was about 10% of the quantum of delayed deposit of tax deducted at source. The aforesaid order was a common order passed under Section 221 r/w 201 of the Act. 11. Being aggrieved by the order dated 31 August 1990, the appellant preferred an appeal before t....
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....pport submits as under: (a) Impugned order and proceedings leading to penalty under Section 221 of the Act are without jurisdiction as the condition precedent for the exercise of the same is that an assessee is in default or is deemed to be in default in making a payment of tax is not satisfied. This being in default or being deemed to be in default can only arise when an appealable order is passed under Section 201(1) of the Act prior to initiation of penalty proceedings. This admittedly is not done in all the three cases under consideration; (b) An order under Section 201 of the Act has to be speaking order preceded by notice, determining the question of tax to which the assessee is a defaulter before proceedings under Section 221 of the Act can commence. This requisite of a speaking order under Section 201 of the Act is evident from the fact that it is an appellable order under Section 246 of the Act. Further reliance is placed upon the decision of the Madras High Court in M....
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....ime of initiation of penalty proceedings. In the present case, the applicant/appellant has paid the tax alongwith interest thereon much before notice to impose penalty under Section 221 of the Act was issued; (f) Section 201(1) of the Act was amended by Finance Act, 2002 with retrospective effect from 1 April 1962 to cover cases where there has been a failure to deduct whole or any part of the tax. At the relevant time, when these proceedings commenced and orders passed, no penalty was imposable in case there was part payment of the tax deducted at source to the revenue; (g) In any case, no penalty ought to have been levied upon the appellant in view of proviso to Section 221 of the Act which provides in case of default for good and sufficient reasons, no penalty can be imposed. It is the appellant's submission that delay in payment of the tax deducted at source into the revenue was due to its diverse locations, lack of computerization and financial stringency. These were a....
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....s only in case of a person who has failed to deduct and pay tax i.e. both the conditions must be satisfied. In the present case, the appellant has undisputedly deducted the tax and deposited the same with the revenue beyond the period provided under the Act. Thus the procedure adopted for imposition of penalty under Section 221 of the Act cannot be faulted with; (d) It is submitted that above view stands fortified by the fact that under Section 205 of the Act, where tax has been deducted and not deposited, the revenue cannot proceed against the person from whose income, tax has been deducted. Thus the proviso to Section 201(1) of the Act has no application where tax is deducted but not deposited; (e) The penalty for the Assessment Years 1985-86, 1986-87, 1987-88 and 1988-89 is reasonable. For the first two years it was Rs. 1 lakh and 1.50 lakh while for subsequent two years it was higher bearing in mind that appellant is a persistent defaulter having defaulted in Assessment Years 198....
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....ucting fails to pay the tax as required by or under this Act, he or it shall be liable to pay simple interest at [fifteen] per cent per annum on the amount of such tax from the date on which such tax was deductible to the date on which such tax is actually paid.] (2) Where the tax has not been paid as aforesaid after it is deducted, [the amount of the tax together with the amount of simple interest thereon referred to in sub- section (1A)] shall be a charge upon all the assets of the person, or the company, as the case may be, referred to in sub-section (1).]" "Penalty payable when tax in default. 221. [(1) When an assessee is in default or is deemed to be in default in making a payment of tax, he shall, in addition to the amount of the arrears and the amount of interest payable under sub-section (2) of section 220, be liable, by way of penalty, to pay such amount as the [Assessing] Officer may direct, and in the case of a continuing default, such further amount or amounts as the [Assessing] Officer may, from time to time, direct, so, however, that the total amount of penalty does not exceed the amount of tax in arrears: Provided that before levying any such penalty, the assess....
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....that the assessee should be in default or deemed to be in default. Being in default or being deemed to be in default, can only take place when the assessee has been so declared under Section 201 of the Act. It is contended that a declaration under Section 201 of the Act has to be by way of a speaking order and in support thereof placed reliance upon the decision of the Madras High Court in Mettur Chemicals (supra) and Section 246 of the Act which provides for filing of appeal separately from orders under Section 201 and 221 of the Act. 18. As against the above, it is contended by the revenue that in the present facts, the requirement of either a notice or a speaking order under Section 201 of the Act would not arise. Therefore an order passed under Section 221 of the Act would not be bad in law. The entire exercise of issuing a notice and passing an order, first under Section 201 and thereafter by a separate order under Section 221 of the Act would only be academic in these facts. This is so as it is an admitted position that the Assessing Officer has passed an order which is tittled as an order under Section 201 and 221 of the Act. The impugned order imposing penalty is after hav....
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....ustment of refund due to it against payment by its various collaborators on account of the statement made by them i.e. collaborators. In the present case there is no dispute that the assessee is in default. Moreover in terms of Section 221 of the Act, the only condition precedent to impose of penalty upon the assessee is that it should be in default or deemed to be in default. In the present facts this position is not disputed. Dehors, the above, one more feature to be noticed is that Section 201(1) of the Act itself provides that where there is failure of an assessee to deduct tax and pay to the revenue, such an assessee is deemed to be in default. The failure to deposit in time is accepted/admitted position. There is no dispute about the questions. Thus the appellant is deemed to be in default. Therefore, it cannot be said that the penalty proceedings are without jurisdiction under Section 221 of the Act. In view of the above, the decisions of Delhi High Court in Modi Cement v. UOI 193 ITR 91 and of Rajasthan High Court in Rajasthan State Electricity Board v. DCIT 200 ITR 434 relied upon by the petitioner can have no application. Both the above decision were rendered in the conte....
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....ax, keep the money so deducted which belongs to another person for its own use. In the second class of cases, the assessee concerned does not take any advantage as he pays the entire amount to the payee without deducting any tax and does not enrich itself at the cost of the government. Therefore, although penalty is also imposable in the second class of cases, yet in view of the proviso to Section 201(1) of the Act, it is open to such assessee to satisfy the Assessing Officer that as they have good and sufficient reasons no penalty is imposable. It is in the above view that in the first class of assessees the Parliament has provided for prosecution under Section 276B of the Act for failing the pay the tax deducted at source. Therefore the first class of assessee to which the appellant belongs would be liable for prosecution. Thus the proviso would only apply in respect of the second class of assessee i.e. such class of assessee who have not deducted the tax and consequently failed to pay the tax. 23. Therefore in our view, the proviso under Section 201 would have no application to the facts of the present case. The legislature did not provide for the words "by or under this Act" i....
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....deducted at source within the time provided under the Act. This default is not wiped away by the assessee depositing the tax after the prescribed time. It is in the above circumstances, that the reliance of the petitioners upon the decision of the Apex Court in Sri Hohan Wahi v. CIT 248 ITR 79 seems inappropriate. In the present facts we are concerned with imposition of penalty and the above decision of the Apex Court in Sri Hohan Wahi (supra) dealt with recovery of tax for failure to issue a mandatory notice under Section 156 of the Act. Reliance placed upon the decision of the Gauhati High Court in Pranavi Ram Bahuva v. Asst. Controller of Estate Duty 102 ITR 580 rendered under the Estate Duty Act. The notice of demand, in the above case to the accountable person being bad and so held, penalty proceedings were also set aside. This decision also does not in our view support the petitioner's contention. Thus we find no merit in the appellant's above submission that no penalty can be imposed as there was no default at the time when penalty proceedings were initiated. 26. It was next urged on behalf of the appellant that Section 201(1) of the Act was amended by the Finance A....
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....he period provided under the Act. Financial stringency would not justify deducting tax from the amount paid to the payee and not paying it to the revenue. Otherwise it would amount to using somebody else's money for the purposes of one's business. In such circumstances, the question of financial stringency, to our mind, hardly gives rise to a good and sufficient reason for not depositing tax which was an amount otherwise payable to the payee or on behalf of the payee to the revenue. Moreover, the impugned order dated 16 March 2000 records the fact that the appellant has not produced any evidence to show that it was in financial difficulty. Similarly diverse locations and lack of computerization are hardly any reasons to justify the failure to pay under the Act. The assessee is entitled to do business in as many locations as it desires but that would not by itself justify not paying taxes which are due to the revenue. The obligation to pay taxes is absolute. The reliance was placed by the appellant on the decision of this Court in Commissioner of Wealth Tax v. S.L. Hendra 191 ITR 565 where penalty was set aside under the Wealth Tax Act on payment of self assessment tax due t....