Income Tax Appellate Tribunal - Ahmedabad
Gujarat Narmada Valley Fertilizers Co. ... vs Income Tax Officer on 15 October, 1998
Equivalent citations: [1999]71ITD66(AHD)
ORDER
Per Shri R. K. Bali (AM) These two appeals by the assessee are directed against the order dated 18-6-1977 passed by the Commissioner (Appeals)-H, Baroda.
The first appeal is directed against the action of the Commissioner (Appeals) in upholding the action of the assessing officer in making an order under section 20 1 (1) read with section 192 deeming the assessee to be an assessee in default in respect of Financial Year 1995-96 for alleged non-deduction of tax from certain payments to its employees and creating a demand of Rs. 2,36,45,43 1.
The second appeal is directed against allowing partial relief to the assessee in respect of interest charged by the assessing officer under section 201 (1A) which was charged by the assessing officer at an amount of Rs. 51,72,501.
2. Briefly the facts are that the assessee Gujarat Narmada Valley Fertilizers Co. Ltd. had filed its annual return of salary under section 206 of the Act for the Financial Year 1995-96 on 24-5-1996. A survey was carried out at the premises of the assessee-company on 19-12-1996 by the Income Tax Officer (TDS). As a result of the survey the Income Tax Officer found that there were several payments made to the employees on which tax was not deducted at source which according to the Income Tax Officer (TDS), formed part of the salary to the employees and as such the assessee was duty bound to deduct the tax at source in respect of those payments as well. The details of such allowances/payments, since which year the assessee has been paying these allowances and what amount is actually being paid are as follows:
Paid from Particulars Rate Amount 1976 Vehicle allowance for vehicles of employees Rs. 380 to Rs. 2425 per month Rs. 2,47,90,929 01 July, 86 Cash Canteen Assistance Rs. 550 per employee per month Rs. 1,98,78,159 1976 Medical Reimbursement Rs. 410 per family per month Rs. 1,37,10,680 01 July, 86 Professional Books Allowance Rs. 75 to Rs. 650 a month Rs. 52,67,594 01 Jan, 84 Gardening Allowance Rs. 175 to Rs. 700 per employee per month.
Rs. 29,89,547 01 July, 94 Birthday Gift Rs. 251 to Rs. 501 per employee Rs. 9,69,111 01 July, 90 Safari Allowance Rs. 1300 to Rs. 2500 once in 2 years Rs. 14,87,600 The assessing officer accordingly issued a show-cause notice to the assessee as to why the payments enumerated above should not be treated as income of the employees and therefore to the extent of short deduction of tax the assessee should not be treated as an assessee deemed to be in default under section 201(1) of the Act. The assessee objected to the action of the assessing officer and submitted before him that none of the items listed above can be held to be taxable income of the employees and as such there was no short deduction of tax because in respect of other payments made to the employees the tax was rightly deducted and paid into the Government account. The assessing officer however held that the above referred payments were benefits under sections 2(24)(iiia)12(24)(iiib) read with sections 17(2)(iii) and 17(2)(iv) of the Act as these were allowances given to the employees in addition to salary by giving it different nomenclatures and as such these ought to have been included as salary income under section 15 and the assessee was duty bound to deduct the tax at source and since the assessee had failed to deduct the tax at source thereon, it had violated the provisions of section 192 of the Act. The assessing officer accordingly vide his order dated 14-3-1997 held the assessee-company to be an assessee deemed to be an assessee in default within the meaning of section 201(1) read with section 192 of the Act in respect of tax of Rs. 2,36,45,73 1. The assessing officer also charged interest under section 201(1A) in respect of this amount of Rs. 2 36,45,731 at an amount of Rs. 5 1,72,501 vide his separate order dated 14-3-1997.
3. The assessee appealed to the Commissioner (Appeals) who for the reasons given in detail in the impugned order upheld the action of the assessing officer in respect of treating the assessee-company deemed to be an assessee in default under section 201(1) in respect of tax of Rs. 2,36,45,731. However, in respect of the interest charged under section 20 1 (IA) the C1T(A) allowed partial relief by holding that the assessing officer was not justified in charging interest on monthly defaults but directed him to charge the interest on the basis of shortfall worked out under section 20 1 (1) of the Act. Aggrieved with the orders of the Commissioner (Appeals) the assessee has filed these two appeals.
4. Shri LP. Shah, the learned counsel for the assessee submitted that these allowances are being paid since last several years, majority of them by way of reimbursement, the assessee-company had not deducted the tax on bona fide understanding that these are not taxable in the hands of the employees and the fact of the matter is that none of them were taxed in the hands of any employee in their regular assessments and there are more than 2700 employees to whom these allowances are paid. It was submitted that all the employees are income-tax assessees and they file the returns and all these payments have been made through bank transfers to the bank account of the employees.
It was submitted that the assessee has been regularly deducting the tax from the payments of salary to the employees. The issue of correct deduction of tax arose for the first time on 24-9-1993 when the assessing officer issued a notice in respect of salary paid in F.Y. 1992-93 proposing to charge the interest under section 201(1A) on approximately Rs. 3,50,000 but the proceedings were subsequently not pursued further and the assessee is under the belief that these must have been dropped. Again a notice covering F Y. 1993-94 was issued on 16-5-1994 and on explanation furnished by the assessee these proceedings were not further pursued. It was submitted that as such the assessee company was under the bona fide belief that the tax deducted from the salaries /allowances of the employees was in order and nothing more was required to be done by the assessee company till it received the orders passed by the assessing officer under sections 201(1) and 201(1A) dated 14-3-1997 considering the assessee-company to be an assessee in default for the amount of Rs. 2,36,45,731 and also liable to pay interest of Rs. 51,72,501. The assessee has furnished copies of letter dated 11 - 11- 1994 from the Income Tax Officer (TDS)-2 addressed to the assessee for the alleged non-deduction/short-deduction of tax at source and also letter dated 9-12-1994 from the Dy. CIT, Range-3, Baroda relating to tax deduction at source from the salaries, copies of which have been furnished to us at pages 62 and 63 of the paper book but these were not further pursued on explanation furnished by the assessee copy of which has been given to us at pages 64 to 68 of the paper book. It was submitted that all these created a bona fide impression in the mind of the officer-in-charge of the assessee-company entrusted with the responsibility of tax deduction at source, that the tax is not deductible on the above items. It was submitted that on all other payments which include salary and other allowances about which the company had no doubt, it did deduct the tax and paid the same in time. It was further submitted that the assessments of all the employees have been completed without adding any of the above items in their personal assessments. At the time of hearing, Shri J.P, Shah, the learned counsel for the assessee filed a copy of an order passed under section 154 in the case of one employee Shri Kirit RamnikIal Raval whereby library allowance/book allowance of Rs. 2200 which was added by the assessing officer under section 143(1)(a) was rectified by granting deduction holding that the mistake of addition was apparent. That assessee had also shown other allowances which were not taxed. Shri LP. Shah has furnished a copy of an order in the case of Krishnadas Chaterjee which was passed under section 143(3) for the assessment year 1996-97 wherein none of the above items came to be taxed. Accordingly it was submitted that the assessee-company under the circumstances was under the bona fide belief that the above payments are not taxable in the hands of the employees. It was further submitted that the assessee-company took from the employees the receipts to the effect that the employees had spent the above amounts and therefore requested for reimbursement and got the same. Accordingly it was submitted that the assessing officer as well as the Commissioner (Appeals) were not justified in holding the assessee-company to be an assessee in default under section 201(1) for the amount of Rs. 2,36,45,731 and also for charging interest under section 201(1A). Reliance was placed on the decision of the Hon'ble Andhra Pradesh High Court in the case of P. V Rajagopalv. Union of India (1998) 233 ITR 678/99 Taxman 475 as well as the decisions in the cases of CIT v. Manager, M.P. State Co-op. Development Bank Ltd. (1982) 137 ITR 230/11 Taxman 226 (MP); CITv. Karman Devall Hill Produce Co. Ltd (1986) 161 ITR 477/30 Taxman 460 (Ker.); Gwalior Rayon Silk Co. Ltd. v. CIT (1983) 140 ITR 832/14 Taxman 99 (MP); KLM Royal Dutch Airlines v. ACIT (1998) 62 TTJ (Delhi) 268; and Industrial Credit & Investment Corpn. of India Ltd. v. Fourth Income Tax Officer (1993) 47-TTJ(Bom.) 401. Reference was also invited to a CBDT Circular No. 662, dated 27-9-1993 wherein it is clarified that the reimbursement of medical expenses, wages of sweeper, gardener and refreshment during the office hours need not be included in the total income of the recipient employee. Reference was also invited to the decision of the Delhi Bench of the Tribunal in the case of Nestle India Ltd. v. ACIT(1997) 61 ITI 444wherein it is held that penalty under section 201 can be levied only if the department proves that the conduct of the assessee in not deducting the tax at source was a mala fide one. Accordingly it was submitted that the action of the assessee in not deducting the tax at source on the disputed payments enumerated above has not been proved by the department to be mala fide and as such section 20 i (1) does not apply and the order of the departmental Authorities treating the assessee company to be an assessee in default under section 201(1) and also charging interest under section 201(1A) are required to be quashed. Reliance was also placed on the decision of the Tribunal in the case of ONGC Ltd. v. Income Tax Officer IT Appeal No. 4772 (Ahd.) of 1996 decided on 23-9-1997.
5. The learned D.R. strongly supported the orders of the Commissioner (Appeals) arid further submitted that the amounts paid by the assessee-company are not reimbursement of actual expenses incurred by the assessee but are monthly payments of fixed amounts and are in addition to the salary shown in Form No. 16. It was submitted that the salary certificate did not contain the details of these payments and as such the assessee-company has deliberately attempted to conceal this information from the department which was discovered only as a result of survey carried out by the Income Tax Officer (TDS). Accordingly it was pleaded that the departmental authorities were justified in treating the assessee-company deemed to be an assessee in default within the meaning of section 201 (1). Reliance was placed on the decision of the Hon'ble Patna High Court in the case of Banwarilal Satyanarain v. State of Bihar (1989) 179 ITR 387/46 Taxman 289 (Pal). It was further submitted that the persons who are bound under the Act to make deduction of income-tax at the time of making payments of any income, profits or gains are not concerned with the ultimate result of the assessments of the persons to whom the payments are made. Strong reliance was placed for the above proposition on the decision of the Hon'ble Supreme Court in the case of Aggarival Chamber of Commerce Ltd. v. Ganpat Rai HiraLal (1958) 33 ITR 245. It was further submitted that in view of the decision of the Supreme Court, the reliance placed by the learned counsel for the assessee on the decisions of the High Courts is not very relevant and the Tribunal should adjudicate the issue in favour of the revenue on the basis of the decision of the Supreme Court referred to supra- As far as charging of interest under section 201(1A) is concerned, the learned D.R. relied on the decisions of the Hon'ble Bombay High Court in the case of Bennet Coleman & Co. Ltd. v. Income Tax Officer (1986) 157 ITR 812/21 Taxman 831 and Pentagon Engg. (P) Ltd v. CIT (1995) 212 ITR 92 (Bom.).
6. We have considered the rival submissions and have also gone through the orders passed by the assessing officer as well as the Commissioner (Appeals). The collection and recovery of taxes is governed by Chapter XVII of the Act by way of deduction of tax at source and advance payment. Sections 192 to 196 provide for deduction of tax at source in respect of various kinds of income. Section 200 imposes a duty on the person deducting the tax to pay it within the prescribed time to the credit of the Central Government. Section 201 provides that if the person so obliged to deduct, does not deduct or, after deducting fails to pay the tax, he shall be deemed to be an assessee in default and liable to penalty under section 221 as well as penal interest under section 201(1A). Section 203 provides for the issue of a certificate for tax deducted which is to be given credit and section 205 bars direct demand on the assessee in respect of the tax so deducted.
The relevant provisions on the basis of which the assessee has been treated deemed to be an assessee in default are as under:
"Section 201. Consequences of failure to deduct or pay.
(1) If any such person and in the cases referred to in section 194, the principal officer and the company of which he is the principal officer does riot deduct or after deducting fails to pay the tax as required by or under this Act, lie 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 :
Provided that no penalty shall be charged under section 221 from such person, principal officer or company unless the assessing officer is satisfied that such person or principal officer or company, as the case may be, has without good and sufficient reasons failed to deduct and pay the tax.
(IA) Without prejudice to the provisions of sub-section (1), if any such person, principal officer or company as is referred to in that sub-section does not deduct or after deducting fails to pay the tax as required by or under this Act he or its shall be liable to pay simple interest of fifteen per cent per annum on the amount of such tax from the date on which such tax was deductible to the date on which such tax is actually paid.
(2) Where the tax has riot been paid as aforesaid after it is deducted, the amount of the tax together with the amount of simple interest thereon referred to in sub-section (IA) shall be a charge upon all the assets of the person, or the company, as the case may be, referred to in sub-section (1)."
The above section came up for adjudication before the Hon'ble Andhra Pradesh High Court in the case of P. V. Rajagopal (supra) and the Hon'ble High Court at page 269 held as under:
"This section has two limbs, one is where the employer does not deduct tax and the second where after deducting tax, the employer fails to remit it to the Government. There is nothing in this section to treat the employer as the defaulter where there is a shortfall in the deduction. The department assumes that where the deduction is not as required by or under the Act, there is a default. But the fact is that this expression "as required by or under this Act grammatically refers only to the duty to pay the tax that is deducted and can not refer to the duty to deduct the tax. Since this is a penal section, it has to be strictly construed and it can not be assumed that there is a duty to deduct the tax strictly in accordance with the computation under the Act and if there is any shortfall due to any difference of opinion as to the taxability of any item the employer can be declared to be an assessee in default."
The Hon'ble Madhya Pradesh High Court in the case of Manager, M.P. Stale Co-op. Development Bank Lid. (supra), has held as under:
"Where a regular assessment of an employee has been completed and the amount of tax is paid by him, the Income Tax Officer, Salaries Circle, has no jurisdiction under section 201 of the Income Tax Act, 1961, to demand further tax from the employer in respect of the tax alleged to have been short deducted at source in respect of the employee."
Similarly, in Gwalior Ravon Silk Co. Ltd.'s case (supra) the Hon'ble Madhya Pradesh High Court has held as under:
'That in the instant case it had not been found by the Income Tax Officer or the Tribunal that the assessee's estimate was not honest and fair. The assessee had deducted tax from the salary of the employees on the salary income honestly estimated by it and had also paid the tax as required by section 200. It could not be said to be an assessee in default in respect of the tax. Therefore, the provision of section 201 (1 A) also were not attracted.
Held also, that where the regular assessment of an employee had been completed and the amount of tax was fully paid by him, the Income Tax Officer (TDS) had no jurisdiction under section 201 to demand further tax from the employer in respect of tax short-deducted relating to such employee."
Similarly in Kannan Devan Hill Produce Co. Ltd's case (supra) the Hon'ble Kerala High Court held as under:
"As we have pointed out, the provisions regarding deduction of tax al source and payment of tax so deducted to the Revenue lay down only a mode of recovering tax due from the employee. In other words, the duty on the employer is not an end in itself. It is only a means to an end, viz. recovery of tax payable by the employee. Tax paid over to the Revenue after deduction by the employer is for and on behalf of the employee. This is subject to the ultimate assessment to be made on the employee and the tax so deducted and paid is to go in adjustment of the employee's liability. In other words, the liability of the employer to make deduction at source and pay over the tax to the Revenue is not independent of the liability of the employee to pay tax. It is dependent entirely on the liability of the employee to pay tax. If, on the estimated income of the employee, no tax is due, the employer has no liability to deduct tax at the source. The liability of the employer and the employee is interconnected and not independent of each other. Where the assessment in relation to an employee has been completed and has become final and no further tax is found due from the employee, that puts an end to the liability of the employer. Thereafter, it can not be said that the liability of the employer survives. We are here dealing with a case where the assessment on the employee has become final. It is admitted that it can not be reopened under any of the provisions of the Act. The present discussion is confined to such cases.
Any other view would lead to absurdity."
Now, coming to the decisions relied upon by the learned D.R., it is seen that the decision of the Supreme Court in the case of Aggarwal Chamber of Commerce Lid (supra) is distinguishable on facts. in that case the dispute was between the two parties and not between the Revenue and the assessee. In that case the appellant company acting as a Commission Agent on behalf of the Respondent entered into several transactions of forward delivery with a firm of Hapur in British India, in which there was a considerable amount of profits. The Hapur firm deducted and paid the income-tax in respect of the profits on these transactions under the Indian Income Tax Act, 1922, for the purpose of which Act both the appellant company and the respondent were non-residents. In the winding up proceedings of the company the respondent, being a shareholder, was placed on the list of contributories, and the liquidator applied for a payment order against the respondent for a sum of money which included the amount paid by the Hapur firm as income-tax on behalf of the respondent on the profits accruing from the forward transactions. The respondent objected, inter al&4 on the ground that as the respondent had no taxable income in the relevant year of account and was not liable to pay any income-tax under the Indian Income Tax Act, 1922, the appellant had no right to demand any tax from the respondent. It was on these facts that the Hon'ble Supreme Court held as under:
the question what would be the effect and result of the application of section 17 when appropriate proceedings were taken was not a matter which would arise between the appellant company and the respondent and could not be adjudicated upon in these proceedings; it was one entirely between the respondent and the Income-tax authorities;
as between the appellant-company and the respondent the tax paid by the Hapur firm had to be taken into account irrespective of the ultimate result of the assessment on the respondent and, therefore, liquidator of the appellant-company was entitled to a payment order against the respondent for the amount of income-tax on the profits of the transactions."
The observations relied upon by the learned D.R. were in entirely different context and are not applicable to the facts of the case.
As regards the decisions of the Bombay High Court in the cases of Bennet Coleman & Co. Ltd. (supra) and Pentagon Engg. (P.) Ltd. (supra), they are also distinguishable on facts as those related to the cases where tax has been deducted by the employer but not paid to the Government Accountant in such a situation the Court held the assessees to be in default and upheld the levy of interest under section 201(1A). However, in the case before us whatever tax was deducted by the assessee-company was paid into the Government Account and this was done under the bona fide belief that the disputed payments enumerated above were not liable to tax in the hands of the employees and as such the assessee was not required to deduct the tax at source from those payments.
Thus, keeping in view the totality of the facts and circumstances of the case and the material on record as well as settled legal position in the cases of P. V Rajagopal (supra)., Manager, MP. State Co-operative Development Bank Ltd. (supra); GwaliorRayon Silk Co. Ltd. (supra); Kannan Deven Hill Produce Co. Ltd. (supra) as well as the decisions of the Tribunal in the cases of Industrial Credit & Investment Corpn. of India Ltd. (supra) Nestle India Ltd. (supra), we are of the opinion that the departmental Authorities have not proved that the action of the assessee in not deducting the tax on the above payments was a malafide one. On the other hand, in view of the fact that the proceedings initiated by the assessing officer for Asst. Yrs. 1992-93 and 1993-94 in respect of the alleged short deduction of TDS were not further pursued, we are of the opinion that the assessee under the bona fide belief, did not deduct the tax at source from the disputed payments and it could not be held to be an assessee deemed to be in default under section 201(1). Accordingly we quash the orders passed by the assessing officer under section 201 (1) and 201(1A) of the Act.
7. Since we are cancelling the order passed by the assessing officer under section 201 on the ground that the assessee can not be treated to be an assessee deemed to be in default on the ground of bona fide belief, we do not adjudicate on merit the taxability of the disputed amounts in the hands of the employees.
8. In the result, the appeals are allowed.