TaxTMI 
TaxTMI 
2002 (8) TMI 258
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to the rival arguments, it would be appropriate to refer to the facts and background giving rise to the appeal before us. The assessee-company is a subsidiary of M/s Wipro Ltd. It appears that the company credited an income of Rs. 6,51,74,974 representing interest to the account of Wipro Ltd., as on 31st March, 2000. The assessee was required to deduct tax at source on such income in terms of the provisions contained in s. 194A. However, the assessee did not deduct the tax at source. The AO enquired from the assessee the reasons for such non-deduction. It was, in turn, pleaded by the assessee that the required tax deduction at source was not made as the recipient holding company, Wipro Ltd., had promised to furnish an exemption certificate in terms of s. 197(1) of the Act. Subsequently, such certificate was not furnished by the recipient-company, but it claimed that an adequate amount of tax was deposited with the Government before April, 2000. On this basis, if was argued that the recipient-company had complied with the requirements of s. 191 of the Act for having made good the default of the assessee is not deducting the tax at source. The assessee also submitted that as the imp....
X X X X Extracts X X X X
X X X X Extracts X X X X
....it was submitted that the tax that was required to be deducted at source by the assessee was indeed lower than the amount of refund accruing to the recipient-company. Thus it could be taken to mean that the exchequer did not stand to lose in terms of collection of tax. It was argued that the due date of deposit of tax deductible by the assessee in the instant case was 31st May, 2000, while factually it could be appreciated that the impugned amount deposited with the Government on 16th March, 2000, and if not so, latest by 28th April, 2000, wherein an amount of Rs. 7.92 crores was paid, the only difference being that the said amount was deposited by the recipient of the income instead of the assessee itself. 3(ii). It was further submitted by the learned counsel that the levy of interest under s. 201(1A) is to be regarded as compensatory in nature. The objection being to compensate the exchequer for the delay in depositing and for withholding the taxes which ought to have been deposited with the Government before the specified dates. Ostensibly, it was submitted that on the due date of 31st May, 2000, there was no amount left to be paid by the assessee as the same was paid by the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....learned Departmental Representative dwelt at length with the phraseology of s. 201(1A) and argued that the use of the word "shall" therein makes an assessee liable, in case of default, for payment of interest mandatorily and such a levy is automatic. He referred to a host of decisions in this regard as follows : Pentagon Engineering (P) Ltd. vs. CIT (1996) 131 CTR (Bom) 78 : (1995) 212 ITR 92 (Bom), CIT vs. Rathi Gum Industries (1995) 127 CTR (Raj) 413 : (1995) 213 ITR 98 (Raj), CIT vs. Premnath Motors (P) Ltd. (2002) 253 ITR 705 (Del), as also Grindlays Bank Ltd. vs. CIT (1992) 101 CTR (Cal) 164 : (1993) 200 ITR 441 (Cal). 4(ii). With regard to the assessee's argument that the interest was not leviable as the recipient had paid the taxes on 16th March, 2000 and 28th April, 2000, i.e., within the due dates, the learned Departmental Representative assailed the same by taking the following argument. Although the factum of recipient having paid the taxes was not in dispute, the learned Departmental Representative submitted that whether the recipient had paid taxes on the relevant income could be verified/or scrutinised by the AO only on the scrutiny of the return of the recipien....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... pay interest to the recipient-company on which tax was required to be deducted under s. 194A at the rates prescribed therein. Undoubtedly, it failed to deduct the same as per s. 194A. Sec. 201 deals with the provisions relating to the consequences for failure to deduct or after having deducted failure to pay such tax to the credit of the Government. Sub-s. (1) of s. 201 requires collection of tax which has not been deducted in total or in part or after having deducted there is a failure to deposit the same as required under the Act. The assessee in the present case, has not been held to be an assessee-in-default in accordance with sub-s. (1) of s. 201. This is primarily because of the fact that there is no dispute to the effect that the impugned amount of tax has indeed been deposited with the Government. It would also be relevant here to refer to the circular/instruction of the CBDT F. No. 276/201/95-IT(B), dt. 29th Jan., 1997, which is placed in the paper book before us. It is opined therein that the demand envisaged under s. 201(1) of the Act need not be enforced by the Revenue if it is found that the taxes due therein have been paid by the deductee i.e., the recipient. The nex....
X X X X Extracts X X X X
X X X X Extracts X X X X
....aid deposit is made by the recipient-deductee and not the deductor-assessee. In our considered view, under such circumstances, it cannot be held that there was any deprivation of money to the Government and consequently, the payer has not only to be absolved of the responsibility of not only paying the tax but also the levy of interest. Therefore, the action of the lower authorities in treating the assessee to be in default under s. 201(1A) is not correct. 5(iv). Now, coming to the argument of the learned Departmental Representative to the effect that the levy of interest under s. 201(1A) is not only compensatory but also mandatory and it is attracted automatically as soon as the default is committed. In this regard, we do not have any quarrel with the aforesaid principle, but the same can be applied only if such circumstances exist. Admittedly in the instant case, the tax has been deposited to the credit of the Government within the due date envisaged by the Act, albeit not by the assessee but by the recipient. We appreciate the argument of the learned Departmental Representative with regard to the compulsory and mandatory nature of the levy, but the same is to be understood as....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e AO at a later stage, may notice the default, but in any case the levy has to be restricted up to the date of actual payment of tax by the assessee. Therefore, the argument of the learned Departmental Representative on this issue is fallacious. In any case, in the instant case, we have already held that there was no cause for the Revenue to have levied interest under s. 201(1A) having regard to the facts and circumstances of the case. 6. Before we part with the issue, we would like to discuss some of the case laws relied upon by the rival counsel. The learned Departmental Representative and the first appellate authority have relied upon the decision of the Hon'ble High Court of Kerala in CIT vs. Dhanalakshmy Weaving Works. Briefly the facts, before the Hon'ble Court the assessee-firm therein paid interest to the lender without deducting the tax at source. The assessee therein produced before the AO, evidence to show that the income-tax assessments of the lenders were already completed admitting interest received from the assessee and the taxes were also paid by the lender on such assessment. The Revenue in accordance with the provisions of s. 194A of the Act held the assessee t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pany. The plea of the assessee for escapement from s. 201(1A) is not with respect to the ultimate liability to pay tax in the hands of the recipient, but in contradistinction, the plea is to the effect that the tax has been paid within the due date applicable to the assessee to pay such tax, albeit, the only difference being that it was paid by the recipient and not by the assessee itself. Therefore, the ratio of this decision in our considered view is not attracted having regard to the facts and circumstances of the present case. 6(ii). Another decision relied upon by the Revenue is of the Bombay High Court in Pentagon Engineering (P) Ltd. vs. CIT. The facts of the case before the Hon'ble Bombay High Court were that the assessee therein had failed to remit within the prescribed time into the Government treasury the taxes that had been deducted from the salaries paid to the employees. The Revenue levied interest under s. 201(1A) of the Act from the date on which the salaries were payable to the employees up to the date on which the taxes were to be paid into the Government treasury. The assessee canvassed that the levy of interest was not mandatory and there was a precondition o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ered on account of late receipt of the tax. It has not been stated in the present case that the recipient has deposited the tax received within the time at which the assessee was required to deduct and deposit the tax. The Tribunal has ignored the fact that the provisions of interest are mandatory and automatic and interest has to be paid from the date on which the tax was deductible till the date on which the tax is actually paid. In the present case, the assessee who has entered into agreements with different persons, it cannot be possible nor it has been discussed or found as a fact by the Tribunal that the tax amount was deposited in time. The view which has been taken by the Tribunal following the decision of the Kerala High Court referred to above is not applicable to the facts of the present case as that was a case where the assessment was already completed and the tax was paid and thereafter proceedings under s. 201 were initiated to demand further tax/interest from the employer." The underlined portion of the aforesaid extract provides an insight into the reasoning that prevailed with the Hon'ble Court to conclude that the levy of interest under facts as found therein w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e therein had borrowed monies from two of its sister-concerns and paid interest to these concerns without deducting the tax at source as required under s. 194A of the Act, although no declaration or certificate was filed by the recipient-concerns to the effect that their income was below taxable limits. Against the aforesaid facts, the Tribunal therein had accepted the plea that no interest under s. 201(1A) was leviable on the ground that one of the lender concerns had filed a loss return and the other lender concern had claimed refund. The Hon'ble High Court reversed the decision of the Tribunal by holding that the provision requiring deduction of tax on interest payment does not make the duty to effect deduction contingent upon the likely liability to tax in the hands of the recipient of such income. The Hon'ble High Court found that one of the lender-concerns which had filed the loss return was at the time of assessment found liable to pay tax and the other lender-concern which had claimed refund at the time of filing the return was found during the course of assessment not entitled to refund. Under these circumstances the Hon'ble High Court held that the assessee therein had a ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... was pleaded that there was no loss of revenue to the Department. It was with the aforesaid pleadings that a case was sought to be made out by the assessee for having a reasonable cause for not having deducted the tax at source on interest income credited to the account of its holding company on 31st March, 2000. The aforesaid plea was rejected by the AO and the penalty was levied under s. 271C. The AO while doing so noticed that the reasonable cause pertaining to the obtaining of the certificate under s. 197 for nil deduction was only an afterthought as the recipient-company could not have obtained the same in view of its positive taxable income. The AO also disapproved of the assessee's argument to the effect that the ultimate tax liability having been discharged by the recipient, and held that it was of no help to the assessee and held it liable for non-compliance with the requirements of s. 194A. Aggrieved by the aforesaid findings, the matter was carried in appeal before the first appellant authority wherein similar arguments were taken by the assessee. The first appellate authority has sustained the action of the AO. The first appellate authority did not find any substance in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the said argument, the learned counsel referred to the decisions of the Delhi High Court in Sequoia Construction Co. (P) Ltd. vs. P.P. Suri, ITO (1986) 47 CTR (Del) 277 : (1986) 158 ITR 496 (Del); Azadi Bachao Andolan vs. Union of India (2001) 167 CTR (Del) 154 : (2001) 252 ITR 471 (Del), Detecon India Project Office vs. ITO & Ors. (1995) 123 CTR (Del) 416 : (1994) 210 ITR 260 (Del), Tribunal decision of Delhi "C" Bench in Mitsui & Co. Ltd. vs. Dy. CIT (1999) 65 TTJ (Del) 1 as also the decision of the Tribunal, Bangalore Bench in P.C. Mohan vs. Asstt. CIT (1993) 47 TTJ (Bang) 221 : (1993) 45 ITD 251 (Bang). 9.(ii). The learned counsel submitted that the reason for the assessee for not deducting the tax at source on 31st March, 2000, was the explicit promise made by the recipient-company to furnish prescribed certificate under s. 197(1) for nil deduction of tax at source. He submitted that this imbibed in the assessee a bona fide belief that the said certificate shall be forthcoming and, therefore, it was not required to deduct the tax at source. It was only subsequently it transpired that the said certificate was not forthcoming. Therefore, at a subsequent date, the only reco....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t it was merely an averment made by the assessee and the same was not demonstrated on facts. Therefore, according to him, the same needs to be disregarded by the Bench. Reliance has also been placed on the Gujarat High Court decision in Ganapatlal N. Dalwadi vs. CIT (1993) 112 CTR (Guj) 294 : (1993) 200 ITR 503 (Guj) in this regard. The learned Departmental Representative submitted that the averments regarding the furnishing of certificate under s. 197 was merely an afterthought as by the date of deduction i.e., 31st March, 2000, evidently the recipient-company has not even made an application in this regard to its AO. 10(i). With regard to the reliance placed by the assessee on the case of Hindustan Steel Ltd. the learned Departmental Representative made the following argument. Our attention was drawn to the following observations of the apex Court: "Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the s....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... s. 271C, which inter alia required only the assessee to establish reasonable cause. He submitted that the Hon'ble High Court of Rajasthan has in similar circumstances held that the provisions relating to charging of interest under s. 201(1A), the penal provisions under Chapter XXI and the criminal prosecution envisaged under s. 276B are separate and independent provisions and the existence or the absences of one or the other is no bar to any one of them. 11. We have heard the rival submissions, perused the material on record as also the case laws cited at Bar. We have already in the earlier part of the order dealt with the various provisions of the Act which have a bearing on the impugned dispute. Evidently, the assessee was required in terms of s. 194A to deduct the tax at source on the income credited to the account of the recipient-company before 31st March, 2000. Failure to do so led to the invoking of penalty provisions of s. 271C, which read as under: "Sec. 271C: (1) If any person fails to: (a) deduct the whole or any part of the tax as required by or under the provisions of Chapter XVII-B; or (b) pay the whole or any part of the tax as required by or under: (....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ding of the aforesaid decision leads to the inference that the assessee therein was substantively liable to sales-tax on its transaction, therefore, was required to register itself as a dealer. In this light the company is seen to have committed merely a technical and venial breach by not registering itself with the State authorities. 11(ii). However, in the instant case, we are dealing with the provisions relating to collection and deduction of taxes at source on various payments made by an assessee. Undoubtedly, the deduction of tax at source by a payer of income/amounts as envisaged under Chapter XVII-B is de hors the substantive taxing provisions contained in the IT Act. In fact, the entire provisions of Chapter XVII-B relating to the collection and deduction of tax at source are independent of the actual liability to tax of the recipient. Therefore, they are to be understood as sections requiring technical compliance, both procedurally and otherwise by the assessee. The distinction between the facts before the apex Court and the case before us are unambiguous, while the breach in the case of Hindustan Steel Ltd. was seen as technical and venial with regard to the substantiv....
X X X X Extracts X X X X
X X X X Extracts X X X X
....anation and the onus of proof to be discharged by the assessee in proceedings under s. 201(1) was much higher and heavier than in an criminal prosecution for offence under s. 276B. The Hon'ble Court opined that in a criminal prosecution for an offence under s. 276B, the dictates of law merely demand the requirement of reasonable cause, i.e., what appears ex facie to reason. In this light, the Hon'ble Court held that such an onus was on a much milder footing than that to be discharged by the assessee in provisions under s. 201(1). 11(iv). On the other hand, the decision of the Rajasthan High Court relied upon by the Department in Universal Supplies Corpn. wherein a contrary proposition is opined by the Hon'ble Court. It is also pertinent to note that the Hon'ble High Court of Rajasthan has dealt with and referred to the decision of the Hon'ble High Court of Delhi in Sequoia Construction Co. (P) Ltd. and has departed from it by relying upon the decision of the apex Court in P. Jayappan vs. S.K. Perumal, ITO (1984) 42 CTR (SC) 180 : (1984) 149 ITR 696 (SC). The Hon'ble Court has specifically rejected the argument that in the absence of penal provisions against an assessee, the crim....
X X X X Extracts X X X X
X X X X Extracts X X X X
....te the prosecution. The assessee can be charged interest as well as punished by prosecution. No such presumption can also be drawn that, in case penalty proceedings were initiated, the petitioners would have satisfied the appellate authority that there were good and sufficient reasons for the delay in payment. I am also fortified by the judgment of the apex Court in P. Jayappan vs. S.K. Perumal, First ITO (1984) 42 CTR (SC) 180 : (1984) 149 ITR 696 (SC) wherein it was held as under: 'It is true that, as observed by this Court in Uttam Chand vs. ITO (1982) 133 ITR 909 (SC), the prosecution once initiated may be quashed in the light of a finding favourable to the assessee recorded by an authority under the Act subsequently in respect of the relevant assessment proceedings but that decision is no authority for the proposition that no proceedings can be initiated at all under ss. 276C and 277, as long as some proceeding under the Act in which there is a chance of success of the assessee is pending. A mere expectation of success in some proceeding in appeal or reference under the Act cannot come in the way of the institution of the criminal proceedings under ss. 276C and 277 of the A....
X X X X Extracts X X X X
X X X X Extracts X X X X
....faith. The question of compounding the offence may also be considered by the concerned authority prior to the initiation of criminal proceedings if such notice is given by the assessee desirous to compound the offence." Ostensibly, the view of the two Hon'ble High Courts differ. We are of a considered view to follow the decision of the Rajasthan High Court. The Rajasthan High Court decision is a later decision and has taken into consideration the earlier decision of the Delhi High Court. Therefore, we are not inclined to agree with the argument of the assessee's counsel to the effect that as the Department has not treated the assessee in default under s. 201(1), for good and sufficient reasons the same test should also hold good as being a reasonable cause vis-a-vis the levy of penalty under s. 271C r/w s. 273B. In fact, the levy of penalty under s. 271C is independent of the other provisions of levy of interest, penalty under s. 221, prosecution under s. 276B, etc. 11(v). The only argument of the assessee's counsel left to be dealt with pertains to the existence or otherwise of a reasonable cause for not having deducted the tax at source as required under s. 194A. The reason....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ars. (c) co-operated in any enquiry relating to assessment of income. A case of non-deduction of tax at source cannot prima facie be placed on a higher pedestal than concealment of income or furnishing inaccurate particulars. The situation is rather the reverse. Therefore, application of the ingredients/citeria applicable to s. 273A to a case governed by s. 273B cannot be held without logic or justification. The matter may be looked at from another angle. In a hypothetical case, penalty under s. 271C is levied, and the matter is carried to the Tribunal in appeal. The Tribunal applies the parameters applicable to s. 273A and cancels the penalty levied holding that reasonable cause existed. In that event a case for reference under s. 256(1) or (2) of the Act would not arise." A perusal of the aforesaid leads to the conclusion that according to the Hon'ble High Court if in a given situation, the yardsticks which are applied for granting of waiver of penalty under s. 273A, etc. can also be used to test the efficacy of levy of penalty under s. 271C. Therefore, we proceed to test the application of the ingredients of s. 273A to the present case which is governed by s. 273B. The ....