Bombay High Court
Ito vs Manav Greys Exim (P) Ltd. on 11 September, 2000
Equivalent citations: (2002)75TTJ(MUMBAI)115
ORDER
D. Manmohan, J.M. These cross-appeals pertain to the assessment year 1990-91. The issue centres round the questions as to whether assessee can be deemed to be in default in respect of the tax and interest is chargeable, even if the recipients filed the returns and paid the tax on such income.
2. Facts in short are that the assessee-company is a manufacturer of textile goods. A part of the process such as dyeing, bleaching, etc., was given on job work basis to outsiders. Payments were made to them without deducting tax at source as required under section 194C of the Act. Total payments made to different concerns during the year was Rs, 1,02,01,292 on which the assessee was to deduct tax at 2.24 per cent and make payment in the government treasury. Assessee failed to pay. Hence, the assessing officer passed an order under section 201(1) of the Act directing the assessee to pay Rs. 2,28,508, by holding that the assessee is a deemed defaulter. He also charged interest of Rs. 1,37,100 under section 201(1A) of the Act. For the purpose of computation the assessing officer has taken the period starting from 1-4-1990 (date on which such tax is deductible), to 28-3-1994 (date of passing order).
3. Aggrieved, assessee contended before the Commissioner (Appeals) that there was no default on the part of the assessee, as envisaged in section 194C of the Act and there was no obligation to deduct tax at source from the job work payments made to different parties as there was no contract between the assessee and the recipients. Even if it is assumed that the payments fall under section 194C of the Act, the transactions involving consideration of less than Rs. 10,000 per contract should be excluded from the purview of section 194C. It was submitted that the total amount covered by bills more than Rs. 10,000 was Rs. 79.50 lakhs only. It was also contended that if the payer has defaulted under section 194C, proceeding under section 201(1) cannot be automatically initiated if the regular assessments in the cases of the payees had already been completed and taxes payable have been fully paid by them before initiation of proceeding under section 201(1) of the Act. Placing reliance on the decision of Hon'ble Madhya Pradesh High Court in the case of CIT v. MP. State Co-op. Dev. Bank Ltd. (1982) 137 ITR 230 (MP), authorised representative submitted that in the cases of the following persons the tax was already collected by the revenue from the payees :
(1) Valson Dyeing, Bleaching & Printing Works (2) The Phoenix Mills Ltd.
(3) Vishnu Dyeing Works (4) Gemini Dyeing & Printing Mills (P) Ltd.
(5) Premier Textiles Processors It may be stated here that the details filed in respect of the aforementioned five parties is not complete.
4. As regards levy of interest under section 201(1A) of the Act, it was contended that no interest is chargeable when the assessee is not deemed to be in default and in this regard assessee relied upon various decisions of the Tribunal. In the alternative it was contended that in the circumstances of the case no interest is chargeable inasmuch as section 201(1A) lacks machinery for determining a definite sum because the section speaks of charging interest up to the date of payment whereas in the instant case there is no question of assessee paying the tax again since it was already collected from the recipient of the income. It was further contended that charging of interest in the hands of the assessee would lead to unjust enrichment for the government as the amount has already been recovered from the recipient/payee.
5. The Commissioner (Appeals) accepted the contention of the assessee insofar as the first issue is concerned. He observed that even though an assessee had committed the default in the matter of deduction of tax at source, he should not be asked to make good his default by initiating recovery proceedings under section 201(1), if it can be shown that the defaults have been eventually and otherwise made good by the recipients of income, before such initiation. Based on the certificates from five recipients produced by the assessee the matter was set aside to the file of the assessing officer to verify their assessment records to find out whether really the defaults committed by the assessee-company had been wiped off by the recipients of income prior to 28-3-1994, in the light of the decision of the Hon'ble Madhya Pradesh High Court (1982) 137 ITR 230 (MP) and the decision of the Hon'ble Kerala High Court in the case of Kannan Devan Mill Produce Co. Ltd. v. CIT (1987) 161 ITR 489 (Ker). It may be stated here that the assessee's contention that each payment which is less than Rs. 10,000 is not attracted by section 194C of the Act because it is not a payment against contract, was not accepted by the Commissioner (Appeals).
6. As regards the chargeability of interest under section 201(1A) of the Act, the Commissioner (Appeals) observed that the interest can be charged independent of the default under section 201(1) of the Act because of the use of the words 'Without prejudice to the provisions of sub-section (1), . . . . . . . . . . . .. in section 201(1A) of the Income Tax Act. He further observed that the expression the date on which such tax is actually paid', in section 201(1A), means the date on which payment was made by the deductor or by the recipient of income; there is no reason that such actual payment would always have to be ascribed to the deductor. In the case of Salwan Construction Co. v. Asstt. CIT (1995) 53 TTJ (Del-Trib) 39, the Tribunal has placed narrow interpretation on the aforementioned expression and held that the words 'actually paid' means actually paid by the assessee and not by the recipient and since the assessee need not pay there is no question of charging any interest. In the light of a different interpretation placed upon those words by the Commissioner (Appeals), the order of Tribunal cited supra was not followed. He, therefore, concluded that interest is chargeable from the date of default to the date of completion of regular assessments in the cases of the different payees and where such dates are not available, upto 31-3-1993 (the last day of completion of such assessment, as per section 153).
7. Assessee as well as the revenue are aggrieved against the order of the Commissioner (Appeals). The plea of the revenue is that a statutory obligation is cast upon the assessee to deduct the tax and make payment in the government treasury and in default thereof the assessee should be treated as an assessee in default under section 201(1) of the Act. It was further contended that the interest is chargeable under section 201(1A) of the Act from the date of default till the date of passing the order under section 201(1A) inasmuch as the assessee defaulted in making the payment. On the other hand, the case of the assessee is that the payments by it are outside the purview of section 194C of the Act as it is not a contract for work but a manufacturing agreement. Alternatively, such payment which is less than Rs. 10,000 should be taken out of the purview of section 194C of the Act. It was also contended that interest under section 201(1A) is not chargeable because the assessee is not in default. Alternatively, the language used in section 201(1A) of the Act is not workable in the instant case because the assessee cannot be treated as an assessee in default and hence no amount is payable by the assessee; consequently it is not possible to compute the length of delay/default for the purpose of calculating interest and in the light of the decision of the Tribunal cited supra interest is not chargeable. In the second alternative it was contended that even if interest is chargeable the length of duration should be computed by reckoning from the date of default to the date of payment of tax by recipients.
8. At the time of hearing the learned counsel for the assessee submitted that ground No. 1 raised in the assessee's appeal is not pressed. It is, therefore, not necessary to express any opinion on the issue as to whether the job work falls outside the purview of section 194C of the Act allegedly on the ground that it involves transformation of goods into distinct commercial commodity.
9. Vide ground No. 2 assessee contends that each payment has to be considered as a separate contract in which event payments against bills for a sum below Rs. 10,000 would fall outside the purview of section 194C of the Act in as much as tax is not deductible on such payments. The learned counsel contended that the assessee has not entered into a written agreement/contract with the manufacturers/parties and hence each job work/each bill should be treated as a separate contract. Adverting our attention to pp. 7 to 33 of the paper book, learned counsel submitted that in all those cases the payment of each bill is less than Rs. 10,000 and, therefore, tax is not deductible thereon.
10. Ground No. 3 is not pressed for our consideration and, therefore, rejected.
11. Vide ground No. 4 assessee contends that the Commissioner (Appeals) erred in directing the assessing officer to levy interest under section 201(1A) of the Act upto the date of completion of regular assessment of the different payees or upto 31-3-1993. Apart from the main contention that the interest is not chargeable in a case where the payees have filed the returns, it is also submitted that even if interest is chargeable it should be limited till the date of payment of tax by the recipient because interest is charged only towards compensation and the purpose would be served if the interest is charged upto the date of collection of tax from the recipient. Learned counsel relied upon the following decisions :
(1) Salwan Construction Co. v. Asstt. CIT (supra); (2) Munak Investment (P) Ltd. v. ITO (1995) 55 ITD 429 (Chd-Trib); (3) ITO v. Sood Enterprises (1992) 41 lTD 234 (Del-Trib); and (4) N.K. Patel & Co. v. ITO (1993) 69 Taxman 39 (Ahd).
12. On the other hand, the learned Departmental Representative submitted that it is not necessary to enter into a written contract and the fact that the assessee had regularly given the job work contract to specific parties indicates that there is an implied contract and, therefore, the total payment made during the year has to be taken into consideration and in this regard he relied upon the observations of the Commissioner (Appeals). Regarding the charging of interest under section 201(1A) of the Act, the learned Departmental Representative relied upon the decision of the Hon'ble Rajasthan High Court in the case of CIT v. Rathi Gum Industries (1995) 213 ITR 98 (Raj). He submitted that the payment of interest is mandatory regardless of payment of tax by the recipient and the interest has to be collected upon the date of passing of the order under section 201(1A) of the Act. He placed reliance on the following decisions :
(1) CIT v. Madras Fertilisers Ltd. (1984) 149 ITR 703 (Mad); and (2) Bennet Coleman & Co. Ltd. v. ITO (1986) 157 ITR 812 (Bom).
13. In the appeal filed by the revenue it is contended that the Commissioner (Appeals) erred in directing the assessing officer to verify the assessment records of five contractors and abandon the recovery proceedings for collection of the tax deducted at source amount if they have already paid the tax. The learned Departmental Representative relied upon the language of section 201(1A) of the Act to submit that the assessee should be deemed to be in default if it had not deducted and paid the tax irrespective of the fact whether the recipient had filed the return and paid the tax or not.
14. Vide ground No. 2 it was contended that the Commissioner (Appeals) erred in directing the assessing officer to recompute the interest under section 201(1A) of the Act upto 31-3-1993. The learned Departmental Representative submitted that in the present case the non-deductibility of tax at source continues till the date of order passed in the assessee's case and hence interest is chargeable upto that date. On the other hand the learned counsel appearing on behalf of the assessee submitted that the assessee should be presumed to be an assessee in default only if the recipient had not paid the tax. Placing reliance on the following decisions, he relied upon the order of the Commissioner (Appeals) on this issue to submit that the assessee is not a defaulter under section 201(1) of the Act :
(1) CIT v. Divisional Manager, New India Assurance Co. Ltd. (1983) 140 ITR 818 (MP); (2) CIT v. Life Insurance Corpn. (1986) 166 ITR 191 (MP); (3) CIT v. Manager, M.P. State Co-op. Development Bank Ltd. (1982) 137 ITR 230 (MP); (4) Salwan Construction Co. v. Asstt. CIT (1995) 53 TTJ (Del-Trib) 39; (5) Munak Investment (P) Ltd. v. ITO (supra) (6) ITO v. Sood Enterprises, (supra); and (7) N.K. Patel & Co. v. ITO (supra).
15. It could be seen from the grounds raised by the revenue as well as the assessee that the issues are common in both the matters. Only two issues arise for our consideration, i.e. (a) whether the assessee is deemed to be in default under section 201(1) of the Act and (b) whether interest is chargeable under section 201(A) and, if so, whether the period of default should be limited to the date of payment of tax by the recipient or the date of passing the order under section 201(1A) of the Act.
16. We have carefully considered the rival submissions and perused the record. Assessee furnished some details before the Commissioner (Appeals) which would prima facie show that five contractors have paid the tax and their assessments were completed. The Courts have unanimously taken a view that if the tax has already been paid by the recipient on such income it may not be justified to recover the said amount to tax particularly in the light of the provisions of section 191 of the Income Tax Act wherein the legislature provided for collection of tax directly from the recipient. The learned Departmental Representative was unable to show any contrary decision on this issue. Therefore, by respectfully following the decisions cited by the learned counsel, we hold that the assessee cannot be called upon to pay the amount under section 201(1) of the Income Tax Act and thus uphold the order of the Commissioner (Appeals) on this issue.
17. Insofar as the interest chargeable under section 201(1A) of the Act is concerned, we are of the view that the assessee has committed a default and interest is chargeable upto the date of payment of tax by the recipient. Before considering the above issue in detail it may be necessary to consider the alternate contention of the assessee, i.e., transactions involving considerations of less than Rs. 10,000 per contract has to be excluded by virtue of section 194C(3) of the Income Tax Act. The assessee is admittedly a manufacturer of textile goods and part of the work such as dyeing, etc., was got done by giving such work to others on job work basis. There is no doubt that some of the bills were for a sum less than Rs. 10,000. According to the assessee each bill is an independent contract. We are unable to appreciate the contention of the assessee. Admittedly assessee had regular dealings with the persons and looking at the regularity at which the work was entrusted to the parties it indicates that there is an implied contract as regards the charges for job work as otherwise the bills for odd figures such as Rs. 40.30, etc., would not have been passed without raising any queries. In our opinion the assessee entered into a contract with each party for a stipulated period, whereas the payments were made as and when each bill is raised. Merely because each bill is less than Rs. 10,000 it cannot be said that the contract is for a sum involving less than Rs. 10,000. At any rate it is not the intention of the legislature as could be seen from the provisions of section 194C(3) of the Act. We therefore hold that the total payments to each party during the previous year relevant to the assessment year under consideration should be taken into consideration, in which event the assessee is liable to deduct tax at source. This leaves us with the main issue as to whether interest is chargeable under section 201(1A) of the Act. The contention of the assessee is mainly based on the decision of the Tribunal, Delhi Bench, in the case of Salwan Construction Co. cited supra wherein it was held that interest under section 201(1A) is not chargeable in a case where the payer has not deducted and paid the tax at all. The Bench interpreted the words "to the date on which such tax is actually paid" to mean the amount payable by the assessee and since there was no question of payment by the assessee- recipient having paid the taxit is not practicable to compute the length of delay because interest cannot be charged for an indefinite period. Under these circumstances it was held that interest was not chargeable under section 201(1A) of the Act. Another reason given by the Bench was that when two views are reasonably possible, the view which is favourable to the assessee should be adopted. It may be stated here that the Delhi Bench has not considered the issue in detail as to whether really two views are possible or not. With due respects we are unable to persuade ourselves to agree with the view taken by the Delhi Bench of the Tribunal for the following reasons. .
18. While considering the issue that the assessee is deemed to be an assessee in default under section 201(1) of the Act, the courts have unanimously taken a view that the payment made by the recipient of income would absolve the assessee from paying the tax in spite of the rigid language of the section which states that if an assessee has not deducted or after deducting failed to pay the tax he shall be deemed to be an assessee in default in respect of the tax. It implies that the payment made by the recipient was deemed to be a payment made by the assessee and accordingly interpreted the words "to pay the tax as required by or under this Act" in favour of the assessee. Section 201(1A) of the Act starts with a non obstante clause. It begins with the words "without prejudice to the provisions of sub-section (1)". If the assessee failed to deduct tax a simple interest is chargeable from the date of default to the date on which such tax is actually paid. Charging of interest is compensatory in nature inasmuch as the revenue was deprived of enjoying the tax money from the date of default till the date of payment. Till the payment is made, either by the assessee or by the recipient of income, the revenue deserves to be compensated for the loss of funds and therefore a simple interest is stipulated under section 201(1A) of the Act. Since payment by the recipient of income was deemed to be a payment by the assessee for the purpose of holding that the assessee is not in default, under section 201(1) of the Act, the same logic applies while interpreting the provisions of section 201(A) of the Act in which event the date of payment made by the recipient should be considered the date on which 'tax is actually paid'. Any other interpretation would, in our humble opinion, lead to an absurd result and makes the provision of section 201(1A) of the Act nugatory and otiose in all the cases where an assessee has completely failed to deduct tax at source. It would also lead to a situation where a honest assessee who deducts the tax and makes a delay of couple of months in payment or a person who deducts the tax after a delay of couple of months would suffer payment of interest under section 201(1A) of the Act, whereas an assessee who do not comply with the provisions of the. Act by not deducting the tax and paying the same would escape payment of interest, even though in both cases the recipient ultimately files the return, Certainly the legislature would not have intended such a result.
19. Our view is also supported by the latest decision of the Hon'ble Kerala High Court in the case of CIT v. Dhanalaksmy Weaving Works (2000) 245 ITR 13 (Ker) and of the Hon'ble Rajasthan High Court in the case of Rathi Gum Industries (supra) wherein it was held that even if the tax has already been paid by the recipient on such income, so far as the liability of interest is concerned, that cannot be considered to be non-existent on account of deposit of tax by the recipient at a subsequent or later stage. The aforecited decision was not available to the Delhi Bench of the Tribunal and therefore a different view was taken in the said case. However, in the light of the later decision, i.e., of the Hon'ble High Court of Rajasthan, we are of the view that interest is chargeable under section 201(1A) of the Act even in a case where the recipient of income has paid the tax. Admittedly there is no decision of the jurisdictional High Court on this issue. As our view coincides with the view taken by the Hon'ble Rajasthan High Court, we prefer to follow the said decision in preference to the decision of the Tribunal, Delhi Bench, cited supra. A perusal of the decision of the Tribunal in the case of Salwan Construction Co. (supra) shows that one of the factors which weighed with them in holding a view in favour of the assessee was on the ground that when two views are possible the one which is in favour of the assessee should be taken. The Hon'ble jurisdictional High Court had considered an identical issue in the case of CIT v. Thana Electricity Supply Ltd. (1994) 206 ITR 727 (Bom) and at page 745 of the report the hon'ble court observed as under :
"Similarly, in CIT v. Naga Hills Tea Co. Ltd. (1973) 89 ITR 236 (SC), at page 240, the Supreme Court had observed as follows :
'If a provision of a taxing statute can be reasonably interpreted in two ways, that interpretation which is favourable to the assessee, has got to be accepted. This is a well-accepted view of law.' The above observations will be applicable only if the court which is called upon to decide the issue is satisfied that two views are reasonably possible, one of them being favourable to the assessee. As observed by the Supreme Court in Escorts Ltd. v. Union of India (1993) 199 ITR 43 (SC) :
'In our view, there was no difficulty at all in the interpretation of the provisions. The mere fact that a baseless claim was raised by some over-enthusiastic assessees who sought a double allowance or that such claim may perhaps have been accepted by some authorities is not sufficient to attribute any ambiguity or doubt as to the true scope of the provision .........
It is, therefore, clear that it is the satisfaction of the court interpreting the law that the language of the taxing provision is ambiguous or reasonably capable of more meanings than one, which is material. If the court does not think so, the fact that two different views have been advanced by parties and argued forcefully, or that one such view which is favourable to the assessee has been accepted by some Tribunal or High Court, by itself will not be sufficient to attract the principle of beneficial interpretation. In the instant case, as we are not satisfied with the interpretation given by the Tribunal or the Calcutta High Court to section 33(6) of the Act, in our opinion, accepting those decisions by applying the test of beneficial interpretation does not arise."
20. As we are of the opinion that the interpretation placed upon the provisions of section 201(1A) by the Hon'ble Rajasthan High Court is the only proper view on the matter, in the light of the decision of the Hon'ble Bombay High Court cited supra, we respectfully follow the decision of the Honble Rajasthan High Court and hold that interest is chargeable under section 201(1A) of the Act even in a case where the recipient of income has paid the tax.
21. The next question that survives for our consideration is the date upto which interest is chargeable. Under the circumstances of the case it is fair and equitable to hold that the date of payment of tax by the recipient or 31-3-1993, should be taken as end point for computing the period of default for the purpose of charging interest under section 201(1A) of the Act. The plea of the revenue that interest has to be charged upto the date of passing the order under section 201(1A) is hereby rejected as the interest, which is compensatory in nature, deserves to be collected only till the date the revenue suffer the loss of possession of funds.
22. In the result, the appeal filed by the revenue as well as the assessee are hereby dismissed.