Income Tax Appellate Tribunal - Amritsar
Income-Tax Officer vs Khushi Ram And Sons on 9 June, 1989
Equivalent citations: [1989]31ITD151(ASR)
ORDER
S. Grover, Judicial Member
1. In these four Revenue's appeals cancellation of interest levied under Section 201(1A) of the Income-tax Act, 1961, hereinafter referred as the Act, amounting to Rs. 317, Rs. 475, Rs. 49 and Rs. 55 in respect of assessment years 1981-82, 1982-83,1983-84 and 1984-85 respectively is contested.
2. Right at the outset, I would like to state that though the amounts involved are small but the principle governing these appeals is singularly important there being no precedent available.
3. After framing the assessments and noticing that the respondent-assessee had not deducted tax from interest paid to Shri Salamat Rai Sehgal of Jalandhar levied interest under Section 201(1A) of the Act and the following graphical chart shall project the necessary related details : -
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Asst. Intt. Tax to be Date of Actual Period Intt.
year paid deducted payment date of of late Under Section
at source to the payment payment 201(1A)
Govt. Y M
A/c
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81-82 4800 480 April, 81 7-11-86 5 - 6 317 82-83 8800 880 April, 82 7-11-86 4 - 6 475 83-84 13000 1300 April, 83 8-7-83 0 - 3 49 84-85 6000 600 April, 84 6-12-84 0 - 7 55
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The learned AAC by a cryptic order and without understanding the implications of the provisions of Section 201(1A) of the Act cancelled the interest and it is considered expedient to produce the relevant portion of his order because it must necessarily be shown that not only the decision was incorrect but the judgment of the Honourable Madhya Pradesh High Court and the order of the Income-tax Tribunal, which were relied upon for giving relief had no application to the case at all: -
It has been stated before me that it was held by Jaipur Bench of IT AT in appeal ITA No. 20/JP/86 for the assessment year 1980-81 in the case of ITO v. Rathi Gun Industries, that tax deduction provision is only to ensure that the taxes payable by the assessee are paid. When a person who had received the payment without tax deduction has paid tax on such income, there is no purpose served by levying the interest Under Section 201. It was observed that the intention of the Legislatures in introducing the tax deduction provision is only to ensure that the taxes are paid and there should be no loss to the revenue. It was held by the Tribunal that interest is not chargeable where the tax has been paid by the recipient. The Tribunal followed the decision of CIT v. LIC.
4. It would be sufficient if I refer to the judgment of the Honourable Madhya Pradesh High Court in the case of CIT v. Life Insurance Corporation of India. In that case, in accordance with the provisions of Section 206 of the Act, the Divisional Manager of the Life Insurance Company of India, Sagar filed for the assessment year 1977-78, the annual return of salary in respect of its employees showing the amount of tax deductible under Section 192 of the Act. The ITO noticing that tax was not properly deducted in the case of some of the employees recomputed the income of those employees and demanded under Section 201 of the Act, the additional tax that should have been deducted under Section 201 of the Act by the LIC. The CIT(A), however, allowed the first appeal because the employees had paid their proper taxes. The Tribunal though dismissed the Revenue's appeals but gave reference of the following reproduced question under Section 256(1) of the Act:-, Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that where regular assessment of an employee has been completed and the amount of tax fully paid by him, the ITO(TDS) has no jurisdiction under Section 201 of the Act, 1961, to demand further tax from the employer in respect of the tax short deducted relating to such employed?
5. The Honourable High Court in view of its earlier decision in the case of CIT v. Divisional Manager, New India Assurance Co. Ltd. [1983] 140 ITR 818 (MP)in which it had been held that where the regular assessment of an employee had been completed and the amount of tax fully paid, the ITO, Salary Circle had no jurisdiction under Section 201 of the Act to demand further tax from the employer in respect of the tax short deducted in respect of the employee, answered the question in the affirmative, i.e. against the Department and in favour of the assessee. In the said case, there was no question of applicability of provisions of Section 201(1A) which is an independent and separate provision and which is without prejudice to Sub-section (1) of Section 201.
6. Section 201 has two distinct limbs, as far as the defaults stated therein are concerned. Whereas in respect of default contemplated under Sub-section (1) it is provided that no penalty shall be charged under Section 221 of the Act unless the Assessing Officer is satisfied that non-deduction of tax at source was without reasonable cause, there is no such rider in relation to Sub-section (1A). Sub-section (2) operates in an entirely different field and provides that the charge shall be upon all the assets. To complete the picture, Section 201 should be brought in close focus and, therefore, reproduced as under:
Consequences of failure to deduct or pay.
201.(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 not deduct or after deducting fails to pay the tax as required by or under this Act he 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.
(1A) (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 it shall be liable to pay simple interest at (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 not 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 (1A) 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).
7. It should be stated here that Sub-section (1A) was inserted by the Finance Act, 1966, w.e.f. 1-4-1966 and there was no proviso attached to the same as provided with Sub-section (1).
8. The Finance Act, 1966 made some fundamental changes w.e.f. 1-4-1966 in Section 201, inasmuch as, in the proviso to Sub-section (1) the words "without good and sufficient reasons" were substituted for the word "wilfully". Sub-section (1 A) was inserted but the rate referred to therein was 6% at that time which was increased to 9% w.e.f. 1-10-1967 by the Taxation Laws (Amendment) Act, 1967 and later increased to 12% w.e.f. 1-4-1972 by the Finance Act, 1972. A further amendment by the Taxation Laws (Amendment) Act, .1984, w.e.f. 1-10-1984 has increased the rate of interest to 15% but the amendment has clarified that the increase in the rate of interest will apply in respect of any period falling after 30-9-1984 and also in those cases where the interest became chargeable or payable from an earlier date.
9. Reverting back to the provisions of Section 201 whereas failure to deposit tax could attract penalty and also other consequences like prosecution but there was rider in the shape of the proviso but in relation to charging of interest under Sub-section (1A) there was no such provision that the same would not be levied on the assessee showing any reasonable cause. Therefore, charging of interest was mandatory from which there could be no escape. The AAC, therefore, was in complete error in cancelling the interest by referring to the Tribunal decision which related to the consequence arising from non-deduction of tax at source.
10. Besides before me Shri Anil Miglani, advocate, on query from the Bench stated that the assessee deposited the interest under Section 201(1 A) of the Act after an agreement with the ITO that no prosecution proceedings shall be launched for non-deduction of tax. Such understanding and payment of interest, therefore, were in the nature of agreed arrangements from which no cause of action could arise for filing appeals.
11. One more aspect, which comes to my mind is that charging of interest under Section 201(1A) of the Act is provided when the Revenue is deprived of timely payment i.e. within a prescribed period when the deduction is to be made and, therefore, it cannot be said to be in the nature of penalty at all which is separately provided under Section 201(1) of the Act.
12. Therefore, I reverse the AAC's order and restore the interest charged on two counts, independent of each other; firstly that the provisions of Section 201(1A) which contemplated charging of interest are mandatory and secondly that from an agreed arrangement to pay interest subject to no other penal action being taken under the Act, debarred the assessee from filing the appeals.
13. Since the interest levied for the four years under Section 201(1A) are restored, the Revenue's appeals stand allowed.