TaxTMI 
TaxTMI 
1998 (5) TMI 408
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....r section 201(1A) were concerned. That is how, assessee is in appeal in five of its appeals before us. The sixth appeal filed by the assessee, i.e., ITA No. 4442/Bom/87 is for the assessment year 1983-84 pertaining to Assessing Officer's order under section 221 read with section 201(1) in as far as the Assessing Officer has directed the assessee to pay the amount of tax deductible from two payments of Rs. 7,27,823 and Rs. 1,19,974 made on 28-6-1982 and 17-6-1982 respectively. 2. The brief facts giving rise to these set of appeals are as under : The assessee is a limited company which had entered into an agreement with another limited company, viz. The Great Eastern Shipping Co. Ltd., referred to as "GESCO" in various parts of the orders as well as in the grounds of appeal. According to this agreement, the assessee company had purchased a ship from the other company for about Rs. 4.87 crores. Out of this, an amount of Rs. 53.07 lakhs was to be paid on signing the agreement. A further instalment of like amount was to be paid within three days after the vessel was ready for delivery. The balance amount along with interest at 15% was to be paid in twenty equal quarterly ins....
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....ault regarding payments to three individual parties of Jaipur on 14-5-80 and 8-8-80 against whom he computed the interest at Rs. 2,528. 3. The assessee went in appeal against the above-mentioned orders and took various grounds against the orders passed by the Assessing Officer. The ld. CIT(A) passed a common order deciding all the appeals after taking into account various decided cases on the subject including the decision of the Bombay High Court in the case of Bennet Coleman & Co. Ltd. v. V.P. Damle, Third ITO (1986) 157 ITR 812/(1985) 21 Taxman 131 . He ordered that the Assessing Officer should call for information regarding the assessments and payments of taxes of GESCO and charge interest for the periods from the dates on which the tax was deductible under section 194A to the dates on which the tax was actually paid by GESCO on completion of regular assessment for the respective assessment years. Further, if any of such payment was made on a date beyond the date on which the payment was made by the appellant company pursuant to the impugned orders, interest is to be charged only up to the date of payment by the appellant. Further, if in the case of GESCO any of the relevant....
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....T (1996) 84 Taxman 34(Tax-Mag.) . He pointed out that the Tribunal had held that in view of judicial decisions, when assessments of the payees have been completed and no tax is payable by them, the TDS cannot be realised once again from the prayer. Similarly, regarding charging of interest under section 201(1A), the Tribunal had held that under section 201(1A) interest is chargeable from the date on which tax was deductible to the date on which the tax is actually paid. In that case, as in the case of the assessee before us, assessee had not paid the tax at all and hence, the TDS could not be recovered from the assessee as the payees were not liable to tax. Further, if interest was held to be chargeable, it would be chargeable from the date on which the tax deductible to the indefinite period because interest was chargeable till payment was actually made while in the instant case, no payment was made. For this proposition the ld. Members had relied on the ratio of decision in the case of CIT v. B.C. Srinivasa Setty (1981) 128 ITR 294/5 Taxman 1(SC) . 7. The ld. counsel referred to the provisions of section 231 and pointed out that since the penalties were barred by time as held ....
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....decision on the basis of any reason whatsoever, not to deduct the tax at source. He pointed out that non-deduction of tax at source made the assessee, an assessee in default according to section 201 of the Act and hence, all other consequences for imposing penalty, directing payment and recovery of tax and charging of interest follow. In this way, according to the ld. Departmental Representative, the orders of the Assessing Officer were legally sound and had to be restored on all the points. He further pointed out that according to the decision of the Bombay High Court in the case of Bennet Coleman & Co. Ltd. (supra) the liability starts immediately on default and that interest under section 201(1A) was not a penal provision. He further referred to the decision in the case of B.D. Khaitan v. ITO (1978) 113 ITR 556(Cal.) where it was held that in the context of the language of section 231 a proceeding for imposition of penalty is not a proceeding for the recovery of taxes. Further, the fact that other proceedings for recovery of tax had been taken would not operate as res judicata to bar a proceeding for imposition of penalty. He also referred to the decision in the case of CIT v. S....
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....ations made by the Hon'ble Courts, all the provisions of law had to be interpreted sympathetically, reasonably and keeping in mind the scheme of the Act. Literal interpretation of a section of words had to be avoided if it led to absurd results or would defeat the obvious intention of the legislation. With this background he submitted that there was no justification in charging interest from the assessee when no tax was payable by the payee and that even if the tax had been paid, it should have resulted in a refund to the payee, viz., GESCO. He claimed that non- deduction of tax at source neither gave any advantage to the assessee nor does it result in a loss to the revenue. 12. So far as the appeals filed by the revenue are concerned, the ld. Departmental Representative stated that since the ld. CIT(A) had not held that the proceedings for the assessment year 1983-84 were time barred, he may have to seek instructions from the department as to why this appeal had been filed. Since the revenue has not been able to give any justification for filling this appeal, this is dismissed. 13. In his arguments for the other appeals, the ld. Departmental Representative submitted that all....
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....he cases of Krishna Bhatta v. Agrl. ITO (1981) 132 ITR 21 (Ker.), K.P. Narayanappa Setty & Co. v. CIT (1975) 100 ITR 17(AP), Ram Kishan Baldeo Prasad v. CIT (1967) 65 ITR 491(All.) and Mohd. Atiq v. ITO (1962) 46 ITR 452(All.) to the effect that there was no time limit for imposition of penalty under section 221 although it should be initiated and imposed within a reasonable time. He also filed a copy of the decision of the Bombay Bench of ITAT in the case of Asstt. CIT v. Vile Parle Sanjivani Co-op. Housing Society [IT Appeal No. 8647 (Bom.) of 1988]. He pointed out that assessee's explanation that he had not deducted the tax at source by over sight was contrary to his other explanation that Shri J.L. Khanna had taken a conscious decision not to deduct the tax. He submitted that when as per agreement with GESCO the instalments included payment of interest which amounts were seperately mentioned covering a period of five years it was difficult to believe that a company like the assessee which has got the benefit of best of advice besides its own finance and taxation cell, would not be under a legal obligation to deduct the tax at source from payment of interest amounting to several....
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....de. In any case, according to the ld. Departmental Representative the reasons given by the assessee company for not deducting tax at source were not convincing and hence, he urged that the orders of the Assessing Officer imposing penalties and directing payment of tax from the assessee company GESCO be restored. The ld. counsel for the assessee in his rejoinder submitted that the arguments of the ld. Departmental Representative were not relevant because the question of limitation under section 221 was not in issue. He submitted that in these appeals the issue is as to whether there were good and sufficient reasons for not deducting tax at source. He referred to the decision in the case of Dr. Narottam Shah (copy of the order filed) where the ITAT Bombay had cancelled the penalty imposed under section 221 which was imposed for non-payment of advance tax. The ld. counsel referred to a good number of cases such as the case of Hindustan Steel Ltd. v. State of Orissa (1972) 83 ITR 26(SC), CIT v. Smt. Vijayanthimala (1977) 108 ITR 882(Mad.) and CIT v. Dadu Wala & Co. (1988) 170 ITR 491(Raj.), etc., to canvass that if there was reasonable and sufficient cause, no penalty should be imposed....
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.... the person who has signed the statement is known to him) . (3) The provisions of sub-section (1) shall not apply - (i) where the amount of such income or as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year by the person referred to in sub-section (1) to the account of, or to, the payee, does not exceed one thousand rupees; (ii) to such income credited or paid before the 1st day of October, 1967 ; (iii) to such income credited to or paid to - (a) any banking company to which the Banking Regulation Act, 1949 (10 of 1949), applies, or any co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank), or (b) any financial corporation established by or under a Central, State or Provincial Act, or (c) the Life Insurance Corporation of India established under the Life Insurance Corporation Act, 1956 (31 of 1956), or (d) the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963), or (e) any company or co-operative society carrying on the busi....
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....e. Section 197(1) Where, in the case of any income of any person other than a company - (a) income-tax is required to be deducted at the time of credit or, as the case may be, at the time of payment at the rates in force under the provisions of sections 192, 193, 194A, 194B, 194BB, 194D and 195. (b) being a non-resident (income-tax is required to be deducted at the time of payment at the rates in force under the provisions of section 194, the Income-tax Officer is satisfied that the total income of the recipient justifies the deduction of income-tax at any lower rates or no deduction of income-tax , as the case may be, the Income-tax Officer shall, on an application made by the assessee in this behalf, give to him such certificate as may be appropriate. (2) Where any such certificate is given, the person responsible for paying the income shall, untill such certificate is cancelled by the Income-tax Officer, deduct income-tax at the rates specified in such certificate or deduct no tax as the case may be. (3) Where the principal officer of a company considers that, by reason of the provisions of section 80K, the whole or any porti....
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....e like that of the assessee (where the question is being considered in the light of deduction of tax at the time of payment of income by way interest), within one week from the last date of the month in which the deduction is made. According to sub-rule (3) of Rule 30 of Income-tax Rules the person responsible for deducting the tax at source from interest income "is required to remit the tax so deducted within one week", as mentioned above, in a branch of Reserve Bank of India or State Bank of India "accompanied by a income-tax challan, blank copies of which will be supplied by the Income-tax Officer on request for the purpose, . . . . .". 19. Section 201(1) lays down that "if any 'such person' does not deduct or after deducting fails to pay the tax, he or it shall, without prejudice to any other consequences which he or it may incur, be deemed to be an assessee in default in respect of the tax". Sub-section (1A) of section 201 prescribes as under : "(1A) Without prejudice to the provisions of sub-section (1), if any such person, principal officer or company . . . . . . does not deduct or after deducting fails to pay the tax as required by or under this Act, he or it sh....
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.... 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 Income-tax Officer may direct, and in the case of a continuing default, such further amount or amounts as the Income-tax Officer may, from time to time, direct, so, however, that the total amount of penalty does not exceed the amount of tax in arrears. Explanation to section 221 clarifies "For the removal of doubt, it is hereby declared that an assessee shall not cease to be liable to any penalty under section 221(1) merely by reason of the fact that before the levy of such penalty he has paid the tax." Sub-section (2) of section 221 prescribes that "Where as a result of any final order the amount of tax, with respect to the default in the payment of which the penalty was levied, has been wholly reduced, the penalty levied shall be cancelled and the amount of penalty paid shall be refunded". 24. We have reproduced the various provisions which concern us in order to examine as to what extent the arguments advanced from both the sides can be considered in the light of these provisions and how far the ra....
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.... the CIT could not again pass an order under section 33B (of the Old Income-tax Act) . In such a situation the Hon'ble Supreme Court observed - "According to the construction contended for by the assessee and which found favour with the High Court the answer was in the affirmative, because sub-section (2) (b), on its literal construction was absolute. In our view, such literal construction would lead to a manifestly absurd result, because in a given case like the present one, where the appellate authority (Tribunal) has found (a) the ITO's order to be clearly erroneous as being prejudicial to the interest of the revenue ; and (b) the Commissioner's order unsustainable as being in violation of principles of natural justice, how should the appellate authority exercise its appellate powers ? Obviously, it could not withhold its hands and refuse to interfere with the Commissioner's order altogether, for, that would amount to perpetuating the Commissioner's erroneous order, nor could it merely cancel or set aside the Commissioner' wrong order without doing anything about the ITO's order which had been found to be manifestly erroneous as being prejudicial to the revenue. . . . S....
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....in the preceding part of this order, we find that if the contentions of the ld. counsel for the assessee are accepted, it would render not merely one sub-section or a clause of a section or even one full section otiose, but would make the entire scheme contained in sections 190 to 206C redundant. We may notice that the scheme behind these sections is that the Legislature laid down that even while some payments by way of income are being made to a payee, an obligation is cast upon the payer to deduct tax at source at the rates in force. The person paying the tax is not given an option to determine the income or loss which may be earned or sustained by the payee in that current year. Thereafter certain exceptions are provided, e.g., in the proviso to section 194A. But for that also an affidavit has to be filed, or a statement in writing is to be given, a declaration has to be made. Even for these exceptions, a company, as is the case before us, was not included in the financial years relevant for these appeals. This would mean that the Legislature consciously did not want a company to be saved from the scheme of deduction of tax at source, while receiving interest income. Even if tho....
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....e in the prescribed verified in the prescribed manner that their estimated total income of the previous year will be less than the minimum liable to income-tax. Even in such a case the person responsible for deducting tax at source was required to deliver a copy of such declaration to the CIT before the seventh day of the month next following the month in which the declaration is furnished to him. It may again be noticed that even this newly inserted provisions do not allow a payer to make payment without deduction of tax at source to a company. Even in the case of an individual lot of formalities have to be followed. According to the arguments advanced on behalf of the assessee and material on record, it would mean that where the assessee made the payments to GESCO on, e.g., 20-9-1977 of an amount of interest at Rs. 14,29,590. The GESCO filed its return of income for the assessment year 1979-80 only on 27-6-1979 because its accounting year ended on 30-6-1978. Further as per the information supplied by the assessee collected from the GESCO, the assessment order of the company for the assessment year 1979-80 was made on 27-9-1982. It is stated to be assessed at a loss of about Rs. 8....
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....h is ultimately refunded by the Government to the payee. According to us, it is clear from the various provisions of the Act particularly which we have quoted above that the Legislature required that any company which is to receive some income by way of interest cannot receive it unless the tax is deducted at source and that its information should reach the Income-tax Department within a short time. When the assessee files its return of income it may claim the credit for such tax which has been deducted at source and if the deduction of tax at source or advance payment of tax has been higher than the assessed tax, the surplus shall be refunded to it. During this period the Government would have the benefit of retaining this amount with it. Further, as can be gathered from the other provisions which we have quoted above, that the scheme of these sections enables the Income-tax Department to have proper information about the payments and receipts of amounts which bear the character of income. It may also enable the Income-tax Department to ensure that the persons who have got receipts of income, disclose it before the Income-tax Department even if it is for the purpose of getting a r....
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.... with impunity to the tune of about Rs. 32 lakhs and is discovered to have committed the default after several years can get away from the liability of paying this interest under section 201(1A) because he has not actually deduct and paid the tax and the interest under section 201(1A) could not be computed as there was no actual date of payment. In our opinion, this would be a very unreasonable interpretation and unfair to a person who partly complies with law as compared to a person who totally defies it. Hence, we approve that the interpretation given by the CIT(A) to the effect that the date determined by him for making the payment of tax, which the assessee was required to deduct at source, becomes the initial date for charging interest under section 201(1A) . Thereafter, it remains a continuing default and continues till the tax is actually paid by the defaulter or till the Assessing Officer assessing the payee determines that no tax is payable by that assessee or orders a refund to be given to that payee-assessee, as GESCO in this case. Again, if the interpretation given by the ld. counsel for the assessee is accepted, all provisions in the Income-tax Act relating to refund w....
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....ry and the liability to pay interest under this section starts the moment the default is committed by not deducting tax at source at the time of payment, etc., or after deducting the tax at source not paying it to the Government account within the prescribed time. This liability continues till such tax is actually paid. Hence when tax is not deducted and not paid, till it is decided in the case of the payee as to what is the amount of tax to be actually paid by the payee-assessee, the liability to interest for non-payment of tax deductible at source continues. In our opinion, it is only the Assessing Officer assessing the payee who can decide whether tax is payable or not payable by his assessee and no other person can decide this issue, much less a person who is making the payment in the current year, assessment of which may be made after about five years as in the case before us. We, therefore, uphold the orders of the ld. CIT(A) with regard to his decision pertaining to section 201(1A) and dismiss the appeals filed by the assessee. The logic behind this decision is that by defying the specific provisions of law, viz., sections 194A and 197(1) of the Income-tax Act, the assessee ....
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....ted on 7-3-1986 and assessment year 1983-84 which assessment was completed on 24-3-1987, and in any case, even if those assessments have not been completed, they should now have become barred by time, we hold that now the tax cannot be realised from the assessee before us. 35. Therefore, all the appeals filed by the revenue in this regard, viz., IT Appeal Nos. 5550, 5552, 5554, 5556 and 5558/Bom/87 have to be dismissed as infructuous, although when the CIT(A) made the order, he had upheld the order of the Assessing Officer for assessment year 1983-84. 36. In this view of the matter, the appeal filed by the assessee for assessment year 1983-84, objecting to the order of the CIT(A) upholding Assessing Officer's direction to the assessee to pay the tax on amounts paid on 28-6-1982 and 17-6-1982 has to be allowed at this stage. 37. So far as revenue's appeals are concerned against orders of CIT(A) cancelling penalties under section 201(1) read with section 221(1), we find some force in them. We have already quoted from Explanation to section 221(1) according to which a person does not cease to be liable for penalty merely because, before imposition of penalty, he had paid the ....