Income Tax Appellate Tribunal - Kolkata
Subarna Plantation And Trading Co. Ltd. vs Income-Tax Officer on 7 June, 1988
Equivalent citations: [1989]28ITD177(KOL)
ORDER
Y. Upadhyay, Vice-President
1. These five appeals filed by the same assessee are taken together and disposed of by this consolidated order for the sake of convenience.
2. The appeals are directed against the charging of interest under Section 201(1A) of the Income-tax Act, 1961. The assessee-company deducted tax amounting to Rs. 1,345, Rs. 12,950, Rs. 4,610, Rs. 9,071 and Rs. 13,945 on various dates during the assessment years 1979-80, 1980-81, 1981-82, 1982-83 and 1983-84 respectively. The amounts so deducted were not paid by the assessee till 1-2-1985 to the credit of the Central Government. Therefore, the Income-tax Officer passed orders under Section 20K1A) for the respective years and charged interest @ 12 per cent from 30-9-1984 and thereafter @ 15 per cent till 31-1-1985 at Rs. 1,156, Rs. 9,582, Rs. 2,858, Rs. 4,518 and Rs. 4,526 for the respective years.
3. Being aggrieved, the assessee came up in appeal before the Commissioner of Income-tax (Appeals) and contended that the amounts payable to the Government had all along been shown in the liability side of the balance sheet. Though the ITO assessing the assessee was aware of this fact, he omitted to inform the assessee of its obligation to remit sums to the Government. Certain refunds were issued to the assessee but the ITO failed to adjust such refunds against the deductions withheld by it. It was pointed out that some of the directors who were in the knew of things had retired from the company. Thus, it was contended that the ITO should have taken a lenient view of the matter since the assessee had paid the taxes so deducted before the interest and penalty were levied. The second argument taken by the assessee was that no proceedings for recovery of any sum payable could be initiated and that the proceedings were barred by limitation under Section 231 of the Act. In this connection reliance was placed on the decisions in CIT v. Dunlop Rubber Co. (India) Ltd. [1980] 121 ITR 476 (Cal.) and CIT v. Eyre Smelting (P.) Ltd. [1978] 114 ITR 51 (Cal.). Reliance was also placed on the order of the Tribunal in the case of IAC v. Kedia Textiles (P.) Ltd. [IT Appeal Nos. 400 to 405 (Cal.) of 1985]. The CIT (A) did not accept any of the contentions of the assessee by observing as under :
I have considered the submission of the appellant and the arguments of the learned representative. It is rather naive to argue that the ITO should have reminded the appellant about its obligation. The statute casts a duty on the appellant to pay taxes deducted at source within the prescribed time. I have to record that the default of the appellant in retaining moneys due to the Govt. for years together is almost criminal. The decisions cited by the learned representative of the appellant in support of the claim that the levies are time barred will not apply to the appellant's case. In these cases, the Calcutta High Court held that initiation of recovery proceedings against an employer for his failure to deduct taxes at source from salary was barred by limitation, since the recovery certificate in these cases were issued beyond the time limit prescribed in Section 231. It is, therefore, clear that the ratio of these decisions will not apply to the appellant's case. The appellant admitted its default, though very belatedly and paid the taxes deducted at source. No recovery proceeding of any sort is involved in any of the impugned orders. Therefore, the ratio of the decision of the Calcutta High Court relied on by the learned representative of the appellant will not apply to the appellant's case. In my view, Section 201 has to be viewed in isolation to the provisions contained in Section 231. The time limit contained in Section 231 will not apply to the default committed by the appellant to the default contemplated in Section 201.
At the time of hearing, learned representative of the appellant relied on the decision of the ITAT, Calcutta in the case of IAC v. Kedia Textiles (P.) Ltd. [IT Appeal Nos. 400 to 405 (Cal.) of 1985], assessment years 1978-79 to 1980-81 and contended that the decision supports the appellant's case that the levy of interest and penalty is time-barred. The facts of this case and those of the appellant's case are also different. In that case, the Hon'ble Tribunal was concerned with the issue whether tax has to be deducted or interest credited to interest payable account. The Tribunal confirmed the finding of the CIT(A) in that case to the effect that the tax need not be deducted at source when interest is credited to interest payable account.
4. Shri K.D. Singhania, counsel of the assessee, filed a paper-book containing seven pages. The paper-book includes a chart with facts and figures, copy of the Tribunal's order in Kedia Textiles (P.) Ltd.'s case (supra) and citation of some decisions of the Hon'ble High Courts. The counsel referring to, those decisions and the statement at pages 1 and 2 of the paper-book indicated that the limitation under Section 231 for the years under consideration expired on 31-3-1980, 31-3-1981, 31-3-1982, 31-3-1983 and 31-3-1984 respectively. The interest under Section 201(1A) was levied on 1-5-1985 for all the years and, therefore, the recovery proceedings were barred by limitation. The counsel supported his argument by the list of cases given in the paper-book and the decision of the Tribunal (supra). The departmental representative, on the other hand, relying on the decision in Southern Brick Works Ltd. v. CIT [1984] 146 ITR 479 (Mad.), supported the order of the CIT(A).
5. The assessee was required to deduct tax under Sections 192 to 194 from salary, interest and dividend. The assessee deducted tax of Rs. 1,345 from salary during the assessment year 1979-80 but did not pay the same to the credit of the Govt. of India. Similarly, a tax of Rs. 1,450 was deducted from salary and Rs. 11,500 from dividend totalling to Rs. 12,950 during the assessment year 1980-81 but the same was not paid to the credit of the Government. During the assessment year 1981-82, a sum of Rs. 4,610 was deducted from salary Rs. 6,190 and Rs. 2,881 were deducted from salary and interest respectively during the assessment year 1982-83 and Rs. 13,945 was deducted from interest during the assessment year 1983-84. But the assessee failed to deposit the amounts to the credit of the Central Government. The ITO, therefore, took action under Section 201(1A) and charged interest @ 12 per cent up to 30-9-1984 and thereafter @ 15 per cent till 31-3-1985.
6. The orders passed by the ITO were appealable under Section 246(1)(Z) of the Act and, accordingly, it appealed before the CIT(A). The first contention of the assessee was that a lenient view should be taken because the ITO knowing fully the fact did not inform the assessee to pay the tax nor did he adjust the amount against refunds. The second argument taken by the assessee was that the orders passed by the ITO were barred by limitation under Section 231. The assessee relied on the decision of the High Courts and the Tribunal (supra).
7. Orders have been passed by the ITO under Section 201 by which he has charged interest on the* amount of tax deducted at source by the assessee which it failed to deposit to the credit of the Central Government. Section 201 (1A) of the Act was introduced by the Finance Act, 1966 with effect from 1-4-1966. The rate of interest at 6 per cent was substituted for 9 per cent by the Taxation Laws (Amendment) Act, 1967 with effect from 1-10-1967. The rate of interest was again enhanced from 9 per cent to 12 per cent by the Finance Act, 1972 with effect from 1-4-1972 and the 12 per cent was substituted for 15 per cent by the Taxation Laws (Amendment) Act, 1984 with effect from 1-10-1984. The assessee admittedly deducted tax under Sections 192 to 194 of the Act and it failed to pay the deducted amounts to the credit of the Central Government. Under the said circumstances, the provisions of Section 201(1A) of the Act were applicable and the ITO correctly passed the orders and charged interest on the assessee. The assessee took a plea before the CIT(A) that the ITO should have reminded the assessee to pay the deducted amounts to the Government. Sections 192 to 195 cast an obligation upon the assessee to deduct and pay the amount so deducted to the credit of the Central Government and it does not require any reminder from the ITO. Therefore, such argument of the assessee was rightly rejected. Moreover, there was no substance in the other argument of the assessee that the amount could be adjusted against the refunds due. The refund is created under specific order of the ITO and unless such an order is passed, refund is not a debt. The facts are not available on record relating to this aspect of the matter and, therefore, no finding is given.
8. A strong argument has been made by the assessee before the Tribunal that the proceedings were barred by limitation under Section 231 of the Act and, therefore, the orders passed by the ITO under Section 201(1A) should be quashed. The counsel of the assessee has not clearly made the distinction between recovery of the amount payable by the assessee under Sections 192 to 195 and the amount payable by way of penalty and interest. The amounts deducted under Sections 192 to 195 become payable according to the statutory provisions and if there is any default, the assessee can be treated as an assessee in default, and recovery proceeding starts. The same principle does not apply either to penalty or interest for non-payment of the amount deducted at source under Sections 192 to 195 of the Act. The reason thereof is that there is an obligation upon the assessee to deduct tax under Sections 192 to 195 and to pay the same, according to law, to the credit of the Central Government. Such obligation does not automatically start for penalty or interest. The obligation for payment of penalty and/or interest starts when the ITO passes an order and issues a demand notice to the assessee. Thus, tax recovery proceedings start from the issuance of the demand notice after passing necessary order by the ITO. This distinction has been overlooked. The assessee has jumped upon the provisions of Section 231 of the Act without making any distinction and taking into consideration the provisions of Section 201(1A) and other relevant sections
9. The assessee has cited several decisions and they have been carefully perused. It is found that except the case in T.R. Rajakumari v. ITO [1972] 83 ITR 189 (Mad.) cited by the assessee, all other cases are related to recovery of deduction of taxes under Sections 192 to 195 of the Act. The case in T.R. Rajakumari (supra) was a writ case before the Madras High Court and that case does not help the assessee in any way. Therefore, none of the cases cited by the assessee related to the recovery of levy of interest under Section 2O1(1A) of the Act. The assessee has also relied upon the order of the Tribunal in the case of Kedia Textiles (P.) Ltd. (supra). This case is related to recovery of tax deducted within the meaning of Sections 192 to 195 of the Act and also levy of interest. The Tribunal in the aforesaid case, without making any distinction, relied in Dunlop Rubber Co. (India) Ltd.'s case (supra) and Eyre Smelting (P.) Ltd.'s case (supra) and held that the proceedings initiated by the assessing officer under Section 201(1) and 2O1(1A) were barred by limitation.
10. Ordinarily, the Tribunal must follow a decision given earlier by a Bench unless the facts are distinguishable ; otherwise, the case must be referred to a Special Bench. However, firstly, we find that the Tribunal in the aforesaid case did not make any distinction between the recovery of interest charged by the ITO and the amount which remained unpaid being tax deducted at source by the assessee. It is true that recovery proceedings under the Act commence within one year from the last date of the financial year in which the demand is made or in the case of a person who is deemed to be an assessee in default from the last date- of the financial year in which the assessee is deemed to be in default. The assessee was not deemed to be in default because neither there was any charge of interest on the assessee nor the assessee was under obligation to pay interest to the Government. Therefore, the assessee can be considered as in default only after the expiry of one year from the date when the demand for interest was raised. This position becomes clear from the decision of the Hon'ble Calcutta High Court in the case of B.D. Khaitan v. 1TO [1978] 113 ITR 556. The Tribunal in the case of Kedia Textiles (P.) Ltd. (supra) did not take* into consideration the decision of the Hon'ble Calcutta High Court (supra) otherwise its decision would have been different; since the decision of the Hon'ble Calcutta High Court is binding on the Tribunal. The question of limitation for penalty and interest arose before the Hon'ble High Court and the Court found. that interest had been charged under the Income-tax Act, 1961 though there was no such provision under the Indian Income-tax Act, 1922. The Hon'ble High Court concluded that proceedings for penalty and interest were not barred by limitation. However, the Hon'ble High Court remitted the matter in respect of levy of interest to the ITO for reconsideration having in mind that there was no provision for charging interest under the 1922 Act. The Hon'ble High Court in this connection observed as under:
Penalty is a measure for ensuring that taxes are paid but by imposing penalty the amount demanded as tax is not recovered as such. Imposition of penalty was not a mode of recovery of arrears of taxes within the meaning of Section 47 of the Act of 1922. The Act of 1961 has not changed the law in this respect. In the context of the language of Section 231 a proceeding for imposition of penalty is not a proceeding for the recovery of taxes. The fact that other proceedings for recovery of taxes have been taken would not operate as res judicata to bar a proceeding for imposition of penalty. Therefore, the time limit laid down by Section 231 of the Income-tax Act, 1961 would not also apply to a proceeding for imposition of penalty.
There was no provision for levy of interest on outstanding tax in the Indian Income-tax Act, 1922 and, therefore, no penalty could be levied for non-payment of such interest. However, a penalty notice issued under Section 221 of the Income-tax Act, 1961 would not be wholly bad merely because it related in part to interest in respect of an assessment completed before the commencement of the Act of 1961.
A similar view was expressed by the Hon'ble Calcutta High Court in the case of Anandram Gajadhar v. CIT [1978] 113 ITR 566 and the Hon'ble Gauhati High Court in the case of CIT v. Shyam Sunder Tea Co. (P.) Ltd. [1978] 114 ITR 116. In these cases, the Hon'ble High Courts have made distinction between the recovery of penalty and interest and tax deducted at source within the meaning of Sections 192 to 195 of the Act,
11. After considering all the facts, the various decisions cited by the assessee and the revenue and the earlier order of the Tribunal in the case of Kedia Textiles (P.) Ltd. (supra) it is found that the matter is concluded by the decision of the Hon'ble Calcutta High Court in the case of B.O. Khaitan (supra) and, consequently, the proceedings initiated by the ITO could not be taken as barred by limitation. The interest charged by the ITO for all the years under consideration was in accordance with the provisions of Section 201 (1A) of the Act. Consequently, the consolidated order of the CIT(A) is maintained.
12. In the result, the appeals are dismissed.