Income Tax Appellate Tribunal - Madras
Florind Shoes Ltd. vs Income-Tax Officer on 30 August, 1991
Equivalent citations: [1992]40ITD28(MAD)
ORDER
T.V. Rajagopala Rao, Judicial Member
1. These are appeals filed by the assessee relating to the assessment years 1987-88 to 1990-91 arising out of the orders passed by the Income-tax Officer under Section 201(1), which were all confirmed by the learned Commissioner (Appeals). The assessee is a private limited company carrying on business in the manufacture and export of finished leather and leather products. It is a hundred per cent exporter. It does not have the necessary infrastructure either for processing leather or for manufacture of shoes. It, therefore, used to purchase processed leather wherever it is possible or gets unprocessed leather processed by its sister concerns. The assessee also gives job work to its sister concerns for manufacture of shoes and shoe uppers. The previous years relevant to these four assessment years ended by 30-6-1986, 30-6-1987, 30-6-1988 and 31-3-1990 respectively. For the assessment years 1987-88 to 1990-91 the following payments were made by the assessee to the various contractors (sister concerns) it had engaged for the manufacture of shoes or for processing of leather :--
Assessment year Name of the contractor Amount paid 1987-88 India Shoes Accessories, AJ 15, Anna Nagar, Madras-40 Rs. 8,55,480 1988-89 M/s Eastern Chrome Tanning Corpn. Rs. 43,31,162 United India Shoe Corpn. Rs. 14,93,612 India Shoe Accessories Rs. 8,49,728 Anaikar Shoe Co. P. Ltd. Rs. 7,89,049 Rs.74,63,551 1989-90 Abdulla Tanning Co. Rs. 9,13,815 Flora Footwear Pvt. Ltd. Rs. 2,68,920 Abdul Razhak & Sons Rs. 61,711 Saffarin Leather Exports Rs. 5,71,692 Tabasiya Tanning Industries Rs. 18,00,397 Unico Shoe Accessories Rs. 9,09,566 Rs.45,26,101 1990-91 Flora Footwear P. Ltd. Rs. 1,91,257 Saffarin Leather Exports Rs. 3,76,404 Eastern Chrome Tanning Corpn. Rs.3,07,28,087 Rs. 3,12,95,748
While making the above payments to the parties named above for each of the. assessment years under consideration towards job work charges, the assessee failed to deduct tax at source under Section 194C of the Income-tax Act from those payments. The Income-tax Officer issued notice dated 9-2-1990 calling upon the assessee to explain why it should not be treated as assessee in default under Section 201(1). The assessee-company filed its explanation dated 19-2-1990 through ils chartered accountant. The Income-tax Officer rejected the explanation offered by the assessee. He further found that the assessments of the payees for these assessment years were still pending. He further held the assessee as an assessee in default and the defaulted tax was computed at Rs. 17,110 for the assessment year 1987-XT8, Rs. 1,49,256 for the assessment year 1988-89, Rs. 2,03,031 for the assessment year 1989-90 and Rs. 6,77,828 for the assessment year 1990-91. Thus making the assessee an assessee in default in the various sums mentioned above for each of the assessment years under consideration, the Income-tax Officer passed separate orders, all dated 30-3-1990 for each of the four assessment years under Section 201(1) of the Income-tax Act.
2. Aggrieved against the orders passed by the Income-tax Officer under Section 201 (1) the assessee went in appeal before the learned Commissioner (Appeals). In the appeal it was contended that there was no specific agreement between the assessee and its sister concerns under which it had entrusted the manufacturing work to them giving the processed leather for making the shoes and shoe uppers and getting the unprocessed leather processed through its sister concerns was the common trade practice in the line of leather business undertaken by the assessee. Since there were no standing agreements, the trade in this line of business always understood that the question of treating the other associate concerns as contractors did not arise. For the first time the Income-tax Officer raised this issue in his show-cause notice dated 15-2-1990. The assessee had no reason to believe that even such a trade relationship between it and its associate concerns and others comes within the scope of Section 194C of the Income-tax Act. This view was held by the assessee ever since 1972, since when Section 194C was brought into the statute book. Further the payees were income-tax assessees and the tax due from them for each of these assessment years had already been paid by them. The associate concerns of the assessee besides being regular income-tax assessees were also paying advance tax. According to the assessee the nature of relationship existing between it and its associate concerns and others does not fall under Section 194C. The assessee could not be taken to be an assessee at default even after the tax determined as per assessments completed for these assessment years were duly collected from the payees. Since the tax due from the payee for each of these assessment years was already paid by them, any tax deduction on the payees account from the assessee would only result in refund due to the payees, which is unwarranted and unjustified. It was contended before the Commissioner (Appeals) that processing of each leather is a separate contract and the value of the same is less than Rs. 10,000 and therefore it comes as an exempted expenditure laid down in Section 194C(3)(i)and therefore there was no obligation to deduct TDS while making any of the payments to the payees. It was contended .that under Section 191 in cases where provision is not made under Chapter XVII for deducting income-tax at the lime of payment and in any case where income-tax has not been deducted in accordance with the provisions of Chapter XVII, income-tax shall be payable by the assessee directly. The learned counsel for the assessee intends in claim this provision as meaning that even assuming that there was liability to deduct tax, the said liability shifts from the person responsible to deduct the tax at source, to the person who is assessable, in respect of the income, when once the payment is made without deducting lax at source. When once the tax is paid directly by the payee then the liability of the payer to deduct tax at source would cease and he would be ceased to be an assessee in default under Section 201(1). Under Section 201(2) only when the tax has not been remitted to the Government after it has been deducted at source, then only the amount of tax together with simple interest thereon shall form a charge on the assets of the person responsible to deduct tax. The wording of Section 201 (2) would show, that it does not comprehend a situation where a person has failed to deduct tax at source. When the assessee had not deducted the tax at source but the payee had directly paid the tax under Section 191, the assessee cannot be held responsible to deduct the tax at source. Deducting the tax at source is only one of the few methods of collecting taxes. Having regard to Sections 191, 202 and 205 it was contended that when tax is collected by one mode of recovery, the privilege of pursuing the other mode of recovery would come to an end. When once the tax has been paid by the payee directly the very purpose of deeming a person as assessee in default would not serve its intended purpose. The learned Commissioner (Appeals) found that the Income-tax Officer took the position that under the provisions of Section 201(1) both types of cases, viz., tax was not at all deducted and also where tax was deducted but not remitted were covered. The Income-tax Officer also found to have held that the defaulting assessee who had, defaulted to deduct tax at source, will be treated under Section 201(1) as an assessee in default in respect of such tax and the said treatment is without prejudice to any other consequences. After having considered Sections 190, 191, 200 and 201(1) the learned Commissioner (Appeals) with reference to Section 201(1) says that it lays down that if any such person does not deduct or after deducting fails to pay the tax as required by the Act without prejudice to any other consequences, which he or it may incur be deemed to be an assessee in default in respect of tax. He held that the scheme of deduction of tax and its payment is so self-contained that the Act had provided penal action to be taken in case of failure against the persons responsible for deduction and payment of tax to the Revenue. He further found that in the present case the assessee had given job work of substantial quantity to several of its own sister concerns continuously without any break for several years. The payees are quite distinct from the assessee apart from the fact that they are also separate taxable entities. Therefore this was a case where the assessee was clearly liable to deduct tax under Section 194C of the Income-tax Act. He recorded a finding that the assessee knowingly contravened the provisions of the Act by not deducting the tax at source. The explanation of the assessee was held to be not at all convincing. He had applied the ratio of the decision of the Tribunal in the case of Pay & Accounts Officer (EW) v. ITO [1989] 28 ITD 403 (Delhi). In that case the Income-tax Officer made a short deduction of tax at source amounting to Rs. 4,944 from the salaries of two of its employees. The case of the revenue was that the assessee rendered itself liable under Section 201(1) of the Income-tax Act and therefore the Income-tax Officer treated the assessee in default in respect of the deduction of Rs. 4,944. The Tribunal held that the assessee did not discharge the statutory duty cast upon it by the Legislature. The explanation given by the assessee for not discharging its duty on facts was not satisfactory and, therefore, the assessee was also rightly treated as assessee in default. Similarly applying the said decision of the Tribunal the learned Commissioner (Appeals) held that the Income-tax Officer rightly treated the assessee in these appeals before us as an assessee in default under Section 201(1) of the Income-tax Act. He, therefore, dismissed the appeal for the assessment year 1987-88 by his order dated 27-7-1990. Adopting the reasoning given by him in his order dated 27-7-1990 he had disposed of the appeals for the assessment years 1988-89 to 1990-91 by his separate orders dated 27-7-1990.
3. Against the impugned orders of the Commissioner (Appeals) the assessee came up in second appeals and filed these four appeals before us and thus these four appeals having common grounds came up for our consideration. We have heard Shri V. Jagadisan, the learned counsel for the assessee and Shri A. Bancrjcc, the learned departmental representative. The arguments addressed to as by the learned counsel for the assessee, which were given in the shape of written arguments in a paper book, were on the following lines. Each one of those arguments were countered by the learned departmental representative stating that the arguments are untenable. With regard to the arguments concerning Section 191 the learned departmental representative, in our opinion, rightly contended that the provisions of that section is an enabling provision available to the Revenue. It only creates an additional authority in the revenue to proceed against the payee directly. Simply because there is such an enabling provision in the statute that duty cast upon the payer while making the payment is not absolved. Section 191 should not be read in such a way as to make Section 190 otiose or ineffective. The elementary rule of interpretation is that a harmonious construction should be put against the provisions contained in a statute and as far as possible such a construction must be adopted where two seemingly hostile provisions would harmoniously exist side by side and one is not redundant because of the other. Now, as regards the argument concerning Section 201(2) it is neither here nor there. That provision is intended to point out in what cases the tax deducted at source shall constitute a charge on the assets of the payer. In that connection the Parliament in its wisdom had felt that it is but justifiable to make the tax deducted at source but which was not paid to the Revenue should be made charge upon all the assets of the payer. Perhaps the Parliament felt it to be unjustifiable to fasten the charge upon the properties of the payer in a case where he failed to deduct the tax at source when making the payment to the payee. We are certain in our minds that the provisions of Section 201(2) do not help the assessee to contend that only in cases where tax was deducted at source but was not remitted the payer can be considered to be an assessee in default but not in a case where the payer did not deduct the tax at source at all. Section 201 (1) covers both the situations. It comprehends both a company whose principal officer does not deduct or after deducting fails to pay the tax, when a payment is made in instances covered under Section 194. In both the cases the payer is to be held to be an assessee in default in respect of the tax. Thus when the provisions of Section 201(1) themselves are very clear there is no necessity to interpret those provisions with reference to its sister provisions. The question of interpretation arises only when the provisions are ambiguous and give rise to meanings more than one. It is contended that deduction of tax at source is provided for only in certain specified cases. Direct levy of tax and levy of collection at source are only modes of collecting tax. When the tax was not deducted at source then the other mode of recovery was always open and it can always be resorted to. Once tax is recovered directly from the payee the mode of recovery under Section 194C abates. This argument, in our opinion, is not at all correct and it should be rejected. The regular assessment of the payee may commence long after the payment was made by the payer to the payee. The payer might have paid to the payee in one assessment year and the said payment might have been assessed in another assessment year in the hands of the payee. However, that does not absolve the duty cast on the payer to deduct tax at source. This position was made very clear even by the provisions of Section 190. Simply because there are several enabling provisions available to the Revenue one does not foreclose the other. The failure to observe the duty cast upon the payer under Section 194C brings in the consequence of the payer being held as an assessee in default for the tax deductible at source. This consequence cannot be avoided simply because the Revenue has got the authority to make a direct assessment against the payee and also the authority to realise the full tax from the payee. Chapter XVII, Part-A is general, Part-B deals with deduction at source, Part-C deals with advance payment of tax and Part-D deals with collection and recovery. The intendment of Part-B of Chapter XVII is to make the process of realisation of tax easy and also to prevent several persons who might have received huge sums of money from evading income-tax. Therefore we have no reservations in our minds to come to the conclusion that if a payer company omits to deduct lax at source while making a payment, the payer cannot escape the liability of being treated as an assessee in default towards the tax failed to be deducted. As for the contention of the assessee that when in the regular assessments all the payees pay the whole of the taxes payable by them or the payees even before the completion of their assessments, made substantial payments towards advance tax and also paid substantial amounts towards self-assessment tax under Section 140A and therefore, it was no longer necessary to treat the assessee as an assessee in default, as regards the tax omitted to be deducted at source, we have already held that the assessee cannot evade its liability under Section 201(1).
4. The next question as to in what amount the assessee should be laken as the assessee in default, whether there are any mitigating circumstances in that regard and whether there is any scope for any principle of equity to operate and whether the subsequent events can be taken into consideration while determining the amount in which the assessee should be declared to be an assessee in default, under Section 201 of the Income-tax Act, is according to us quite a different and separate point. However, as regards the preliminary liability to declare the assessee to be an assessee in default we have to hold that the assessee is rightly considered as an assessee in default under Section 201(1).
5. Coming to the question as to in what amounts the assessee is to be considered as an assessee in default for these four years we wish to state the following. The Revenue collects the tax deducted at source only towards the realisation of tax due from the payee. Suppose, the payee in an assessment made against it or him pays the whole amount due as tax and nothing is due from him towards tax arrear no purpose would be served by considering the payer as an assessee in default under Section 201 with regard to the whole of the tax omitted to be deducted at source for each of the assessment years. The Revenue can realise the full tax from the payee. In cases where such full tax was already realised we feel that principle of equity can be applied while determining the quantum of tax with reference to which the assessee can be declared to be an assessee in default. In these appeals it is the case of the assessee that each of these payees to whom payments were made had already paid the full lax either in the shape of advance tax or self-assessment tax deducted at source for the four accounting years under consideration and also regular assessments were already made. The truth or otherwise of this representation in the case of each of the payees in each of these assessment years is to be verified and if ultimately it is found to be correct then since the tax from the payees for each of the assessment years under consideration was already realised by the Government, we feel that it is equitable not to order further amounts towards tax due and not to declare the assessee as assessee in default. But on the other hand if either in the case where the assessments of the payees or any one or more of the payees were not yet complete and there is shortfall in the taxes already paid by the payee or any of the payees, then we feel, that it is equitable to order that the assessee should be held to be an assessee in default only to the extent of shortfall of tax which is yet to be realised from the payee for each or any of the assessment years under consideration. It is no doubt contended for the assessee that there was no specific contract entered into stipulating a particular sum of money as charges for either manufacturing of shoes or processing of unfinished leather into finished leather. According to the contract the charge is for each piece of work turned out by the contractor and since the contracted piece rate is less than Rs. 10,000 the assessee is entitled to exemption under Section 194C(iii) of the Income-tax Act. As regards this contention we have to hold that the assessee failed to prove it. When there is no written contract what are the actual terms of contract on which the work is assigned to the contractors are only known to the assessee and to the payees, who are none other than the subsidiaries of the assessee-company. Except raising a mere plea in this regard the assessee did not substantiate what is the piece rate at which the contract is entered into and no entries in the account books either of the assessee or the payee companies were produced before us to substantiate this plea. However, it would appear that there is a running account between the assessee on the one hand and each of the payees on the other and once in a year the account is settled and the amount is paid. Therefore, we have to hold that whenever the account is settled between the assessee and the payee companies, the payment under the contract is made vide Bishan Chand v. Girdhar Lal 67 MLJ 110 (PC) and the assessee failed to prove that it is a piece contract. For this Reason we hold that the assessee is not entitled to exemption under Section 194C(iii). For all the reasons stated above we have to allow the appeals for statistical purposes remanding the matter back to the Income-tax Officer with a direction to verify the assessments made against the payee companies for these four years and pass orders under Section 201 afresh noting down the amounts in which the assessee should be held to be an assessee in default for each of the four assessment years under consideration according to the directions contained in our order.