Income Tax Appellate Tribunal - Bangalore
M/S Avestagenome Projects ... vs The Deputy Commissioner Of Income ... on 1 August, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL,
BANGALORE BENCH 'A'
BEFORE SHRI JASON P BOAZ, ACCOUNTANT MEMBER
AND
AND SHRI LALIET KUMAR, JUDICIAL MEMBER
ITA No.426, 429, 432 & 436/Bang/2018
(Asst. Year 2008-09, 2009-10, 2010-11 & 2012-13)
Avestagen Quality Agricultural Pvt. Ltd., (ITA Nos.429,432 & 436)
Avestagenome Project Intl. Pvt. Ltd., (ITA No.426)
Regus-UB City, Concorde, 15th Floor,
Vittal Mallya Road,
Bengaluru. . Appellant
PAN - BLRD00606E. (ITA Nos.429,432 & 436)
PAN - BLRA07291E. (ITA No.426)
Vs.
The Dy. Commissioner of Income-tax,
(TDS),
Circle-16(1),
Bengaluru. . Respondent
Assessee by : Shri H.N Khincha, C.A
Revenue by : Shri B.R Ramesh, JCIT
Date of Hearing : 19-07-2018
Date of Pronouncement : 01-08-2018
ORDER
PER SHRI JASON P BOAZ, ACCOUNTANT MEMBER:
These four appeals by the above mentioned two assessee's are directed against the separate orders of the CIT(A)- 13, Bangalore all dated 30/11/2017 for asst. years 2008-09, 2009- 10, 2010-11 and 2012-13. As connected/common issues are ITA Nos.426, 429, 432 & 436 2 involved, these appeals were heard together and are being disposed off by way of this common order for the sake of convenience.
2. Briefly sated, the facts of the case are as under:-
2.1 These assessee companies are engaged in the business of research in the field of bio-sciences. Survey action u/s 133A of the Income-tax Act, 1961 (in short 'the Act') were conducted at the business premises of both these assessee's on 26/7/2013. In the course of survey operations, it was noticed that these assessee's had not remitted the tax deducted at source on certain payments made. Rejecting the explanations put forth by the assessee's, the Assessing Officer ('AO') proceeded to treat the assesseess as an 'assessee in default' u/s 201(1) of the Act, determined the tax liability thereon and charged interest u/s 201(1A) of the Act in orders dated 30/6/2014. 2.2 On appeal, the CIT(A)-13, Bangalore vide the impugned orders dated 31/11/2017allowed the assessee's partial relief. 3.1 Aggrieved by the orders of the CIT(A)-13, Bangalore for asst. years 2008-09, 2009-10, 2010-11 and 2012-13 all dated 31/11/2017, the above two assessee's have filed these appeals for the aforesaid asst. years raising the following identical grounds challenging the action of the ld CIT(A) in upholding the charging of interest u/s 201(1A) of the Act:-
1. The learned Income-tax Officer has erred in passing the order in the manner passed andthe learned CIT (A) -13 has erred in ITA Nos.426, 429, 432 & 436 3 confirming the same. The impugned order being bad in law and is liable to be quashed. 2.1 The authorities below have erred in
a) not appreciating that;
i. Interest u/s. 201(1A) is compensatory in nature.
ii. The recipient of income having filed loss returns no taxes were payable to the Government.
iii. No taxes being payable to the Government, the question of delay in recovery of taxes and interest for delay does not arise.
b) levying /confirming the interest u/s 201(1 A) of the Act.
2.2 The action of the authorities below being contrary to facts and circumstances of the case and the law applicable is to be negated.
2.3 The levy of interest u/s. 201(1 A) being without proper appreciation of laws and contrary to various judicial pronouncements is to be deleted.
3. In any case and without prejudice the calculation of interest as done is erroneous and excessive.
4. In view of the above and on other grounds to be adduced at the time of hearing, it is requested that the impugned order be quashed or atleast interest levied/confirmed u/s. 201(1A) be deleted."
3.2 In these common grounds, raised in the four appeals before us (Supra), the sum and substance of the assessee's contentions are that the authorities below have erred in charging/ confirming the interest u/s 201(1A) of the Act without proper appreciation of law, judicial pronouncements and the fact that the recipient of the ITA Nos.426, 429, 432 & 436 4 income has filed loss returns of income and no taxes were payable to the government.
3.3.1 We have heard both parties and perused the material on record. It was fairly agreed to by the counsel of both the assessee and Revenue that the issue before us i.e whether the assessee's are liable to pay interest u/s 201(1A) of the Act has been considered at length and held against the assessee by the decision of the co-ordinate bench of this Tribunal in the case of power and control systems in ITA Nos.883 to 887/Bang/2018 dated 4/6/2018 holding as under at paras 3 to 11 thereof:-
3. The plea of the assessee in the proceedings initiated u/s 201(1) and 201(1A) of the Act was that the payee non-resident suffered losses and has filed returns of income declaring loss, therefore, assessee cannot be treated as 'an assessee in default' for non deduction of tax at source because no tax is due to the exchequer. This plea was accepted by the Revenue. The Revenue, however proceeded to levy interest u/s 201(1A) of the Act. The provisions of sec.201(1A) of the Act reads thus:
"(lA) 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 the whole or any part of the tax 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,
(i) at one per cent for every month or part of a month on the amount of such tax from the date on which such tax was deductible to the date on which such tax is deducted; and
(ii) at one and one-half per cent for every month or part of a month on the amount of such tax from the date on ITA Nos.426, 429, 432 & 436 5 which such tax was deducted to the date on which such tax is actually paid, and such interest shall be paid before furnishing the statement in accordance with the provisions of sub-section (3) of section 200."
Provided that in case any person including the principal officer of a company fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid to a resident or on the sum credited to the account of a resident but is not deemed to be an assessee-in-de fault under the first proviso to sub-section (1), the interest under clause (i) shall be payable from the date on which such tax was deductible to the date of furnishing of return of income by such resident.
4. The proviso to section 201(1A) was inserted by Finance Act, 2012 w.e.f. 01.07.2012. Prior to the insertion to this proviso, the section contemplated only one situation where the tax was actually paid belatedly by the deductor. In 2007, the judgment of Hon'ble Supreme Court, in the case of Hindustan Coco Cola Beverages Pvt. Ltd. (supra) widened the scope to include a situation where the payment of tax is made by the deductee. The relevant part of the decision is reproduced below:-
"10. Be that as it may, Circular No. 2751201195-IT(B) dated 29.01.1 997 issued by the Central Board of Direct Taxes, in our considered opinion, should put an end to the controversy. The circular declares "no demand visualized under Section 201(1) of the Income Tax Act should be enforced after the tax deductor has satisfied the officer in charge of TDS, that taxes due have been paid by the deductee assessee. However, this will not alter the liability to charge interest under Section 201(1-A) of the Act till the date of payment of taxes by the deductee assessee or the liability for penalty under Section 271-C of the Income Tax. [emphasis supplied]"ITA Nos.426, 429, 432 & 436 6
5. W.e.f. 01.07.2012, in a situation where the tax is paid by the deductee, the interest is to be computed up to the date of furnishing of return of income by such deductee. This proviso makes no distinction whether the deductee files a return with positive income, nil income or even losses. Starting date for computing the interest liability is the date on which the tax was deductable and -the terminal date is the date of furnishing of return of income by the payee/deductee.
6. According to the Revenue, even in a case where the recipient of income had no tax liability embedded in such payments, will there be any interest liability; becaue of losses, the person making payment will be liable to pay interest on tax no deducted at source from the date on which tax ought to have been deducted till the due date of filing of return of income by the payee. The CIT(A) in coming to the above conclusions relied on the decision of the Hon'ble Punjab & Haryana High Court in the case of CIT(TDS) Chandigarh vs. Punjab infrastructure Development Board 76 taxmann.com 365 (P & H) wherein, it was held that de-hors the amendment w.e.f 1/7/2012 by insertion of first proviso to sec. 201(1A) of the Act, the assessee would be liable to pay interest u/s 201(1A) and that the interest U/s 201(1A) of the IT Act has to be calculated from the date on which tax should have been deducted till the date on which the deductee should have filed return. The Hon'ble Punjab & Haryana HC had followed the decision of the Hon'ble Madras High Court in the case of CIT Vs. Ramesh Enterprises 250 ITR 465 (Mad) and CIT Vs. Chennai Metropolitan Water Supply and Sewerage Board, 348 ITR 530 (Mad). The relevant extract from the judgment of the Hon'ble Punjab & Haryana High Court is as below:-
"13. The language of Section 201 is clear and unqualified. It indeed does not permit an assessee to decide for itself what the liability of the deductee assessee is or is likely to be. That ITA Nos.426, 429, 432 & 436 7 is a matter for the assessing officer who assesses the returns of the deductee assessee. It is in fact not even possible for him to do so. He cannot ascertain with any degree of certainly as to the financial position of the deductee assessee. A view to the contrary would enable an assessee to prolong the matter indefinitely. If accepted, it may even entitle the assessee to contend that it is not liable to pay interest till the finalisation of the assessment of the deductee assessee. This could never have been contemplated by the Legislature. The language of Section 201 does not even suggest such an intention.
14. Even if the assessee is in a position to ascertain the tax liability of the deductee assessee, it would make no difference for the reasons already stated. The section does not distinguish between cases where an assessee is in a position to determine the tax liability of the deductee assessee and cases where it is not in a position to do so. This view is supported by the following further observations of the Madras High Court in the above judgment:--
"10. The Tribunal was clearly in error in accepting the case pleaded for the assessee that it had no duty to pay tax at source solely on the ground that one of its sister concerns had filed a loss return and the other sister concern had claimed refund. The concern which had filed the loss return was at the time of assessment found liable to pay tax and the concern which had claimed refund at the time of original assessment was found not entitled to the refund, though such refund was directed in appeal. The assessee had a duty to deduct tax at source. It apparently did not do so as payments were made to its own sister concerns and it did not wish to part with any part of that interest to the Revenue at that point of time. That however cannot be an acceptable reason for its failure to deduct tax at source and remit the same to the Government."
15. This judgment was followed by another judgment of a Division Bench of the Madras High Court in CIT v. Chennai Metropolitan Water Supply & Sewerage Board [20121 348 ITR 530 (Mad). It was contended that as the recipient i.e. the deductee assessee was a loss-making entity, the question of payment of interest did not. arise. The contention was negated ITA Nos.426, 429, 432 & 436 8 on the basis of the judgment in Ramesh Enterprises (supra). Paragraphs 15 to 18 of the judgment, read as under:--
"15. As far as the present case is concerned, while the assessee had short deducted the tax under Section 195 of the Income Tax Act, it did not make good the shortfall on the ground that the payee company was a loss making company and had filed a return so. In the circumstances, the question of it further making a deduction and remitting to the State did not arise. The Circular referred to recognises the fact that once the payee remits the differential tax the question of further recovery of the self-same sum from the payer did not arise and till the payment made by the,(utee assessee, interest would be charged.
16. Applying the said circular herein, with no liability thus arisen at the hands of the payee, the terminal point as regards the calculation of interest necessarily has to be given a meaningful interpretation. Given the fact that the interest levy is an automatic one, the determination on the ultimate liability of the payee company to pay or not to make payment being a procedural exercise has nothing to do with the liability of the assessee to deduct TDS. As such, the loss return filed by the payee company cannot be treated as a circumstance to be taken in in favour of the assessee company from not applying the provisions of Section 201(JA) of the Income Tax Act. On the facts herein, the only reasonable interpretation one can give to the provision under Section 2010A) as regards the terminal point upto which interest has to be calculated would be the date on which the return has to be filed by the payee, so that the calculation of interest under Section 201(1A) of the Income Tax Act in such case would really be meaningful.
17. In the circumstances, conforming to the object of the provisions regarding the levy of interest under Section 201(1A) of the Income Tax Act on the failure to deduct tax in accordance with Section 195 of the Income Tax Act, the starting point for the levy of interest thus to commence from the date on which the assessee should have deducted the tax, the terminal point herein has to be taken as the date on which the payee should have filed ITA Nos.426, 429, 432 & 436 9 its return, so that the calculation of interest under the said provision does not suffer any illegality.
18. As already pointed out, the payee company is stated to have filed a loss return. Nevertheless, this fact needs to be verified by the Assessing Officer and if it is found to be so, the question of further recovery from the hands of the assessee company herein does not arise - vide (2007) 293 ITR 226 (Hindustan Coca Cola Beverage P. Ltd. v. Commissioner of Income-Tax). However, as far as levy of interest is concerned, it being an automatic one, the order of the Tribunal merits to be set aside as far as this aspect of the question is concerned.
Accordingly, the assessment order regarding levy of interest has to undergo necessary modification to the effect that interest under Section 201(JA) of the Income Tax Act has to be calculated from the date on which tax should have been deducted to the date on which the payee should have filed its return under the provisions of the Income Tax Act. Accordingly, both the Tax Cases stand disposed of No costs."
We are in respectful agreement with these observations as well. In particular, we agree with the judgment insofar as it holds that the terminal point has to be taken as a date on which the payee/deductee should have filed returns. Thus, even before and de hors the amendment of 1st July, 2012, the assessee would be liable to pay interest under Section 201(1A).
16. The amendment which introduced inter-alia the first proviso to Section 201(1) is of no assistance to the assessee either. We would apply the ratio of the judgment in Chennai Metropolitan Water Supply & Sewerage Board (supra) to the proviso to sub-section (1A) of Section 201."
7. Aggrieved by the aforesaid orders of the CIT(A), the assessee has preferred present appeals before the Tribunal.
8. The short argument of the ld counsel for the assessee was that interest is compensatory and is levied only for the right lost by ITA Nos.426, 429, 432 & 436 10 the revenue for using money due to the Govt. by way of tax. When no tax is payable there cannot be any loss to the exchequer and, therefore, levy of interest which is compensatory in nature cannot be sustained. In this regard, the ld counsel for the assessee placed reliance on the following decisions:-
9. In particular reliance was placed on the decision of the Calcutta Tribunal in the case of Haldia Petro Chemical Ltd. (Supra), wherein the Tribunal held that when the primary conditions to be satisfied before treating the payer assessee as 'assessee in default' and when no tax at all payable at any point in time, consequent interest u/s 201(1A) of the Act cannot be levied on the assessee. The computation mechanism itself fails in such a situation.
ITA Nos.426, 429, 432 & 436 117. The ld DR placed reliance on the order of the CIT(A) and also distinguished the cases relied upon by the ld counsel for the assessee.
8. We have given a carefully consideration to the rival submission. Section 201(1A) of the Act has under gone a statutory amendment by the Finance Act of 2012 w.e.f 1/7/2012. A proviso was introduced to sec. 201(1A) of the Act which provides as follows:-
"[Provided that in case any person, including the principal officer of a company fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid to a resident or on the sum credited to the account a resident but is not deemed to be an assessee in default under the first proviso to sub- section (1), the interest under clause (1) shall be payable from the date on which such tax was deductible to the date of furnishing of return of income by such resident.]"
9. Prior to the insertion of the proviso, the Hon'ble Madras High Court in the case of Chennai Metropolitan Water Supply and Sewerage Board, 348 ITR 530 took the same view which is now statutorily recognized as a proviso to sec. 201(1A) of the Act. The Hon'ble Madras High Court dealt with the case of the assessee suffering loss and still came to the conclusion that liability to pay interest u/s 201(1A) of the Act is mandatory.
10. It is no doubt true that in the case of the Haldia Petro Chemical Ltd., (Supra), the Kolkata ITAT has made a reference to the decision of the Hon'ble Madras High Court in the case of CWSSB (Supra) but has not elaborated on the principle laid down in the aforesaid decision. In all the decisions cited on ITA Nos.426, 429, 432 & 436 12 behalf of the assessee, the assessment involved were prior to assessment year 2012-13 i.e prior to the statutory amendment to sec. 201(1A) of the Act. We are also of the view that there is a difference between case where the amount paid is chargeable to tax but the payee has suffered loss or does not have positive income and a case where the payments made are not chargeable to tax at all. The argument made on behalf of the assesee can be considered only where the payment in question is not chargeable to tax at all. But in a case where payment in question is chargeable to tax but the payee has suffered loss or does not have positive income then the person making the payment is obliged to deduct tax at source. The fact that the payee does not have positive income will absolve the person making payment from being treated as 'an assessee in default' for not deducting tax at source but cannot absolve the payee from paying interest u/s 201(1A) of the Act.
11. In our view, this vital distinction has not been noticed in the decisions cited by the ld counsel for the assessee before us, especially in the case of Haldia Petrochemicals Ltd., (Supra). In any event, the decision of the Hon'ble Madras High Court being a decision of the Hon'ble High Court which has also been followed by the Hon'ble Punjab and Haryana High Court in the case of CIT (TDS) Vs. Punjab Infrastructure Development, 76 taxmann.com 365 (P & H), we are of the view that the decisions of the High Court should be followed. We, therefore, concur with the view of the CIT(A) and dismiss all the appeals of the assessee."
ITA Nos.426, 429, 432 & 436 133.3.2 Respectfully following the aforesaid decision of the co- ordinate bench of this Tribunal in the case M/s Power and Control Systems (Supra) which followed the decisions of the Hon'ble Madras High Court in CIT vs. Research Enterprises (250 ITR 465) (Mad) and CIT Vs. CIT Vs. Chennai Metropolitan Water Supply and Sewerage Board (348 ITR 530) (Mad) and Hon'ble Punjab & Haryana High Court in Punjab and Infrastructure Development 76 taxmann.com 365 (P&H); we concur with and uphold the view of the ld CIT(A). Consequently, all four appeals of these two assessee's are dismissed.
4. In the result, all four appeals of the assessees are dismissed.
Order pronounced in the open court on 1st August, 2018.
Sd/- Sd/-
(LALIET KUMAR) (JASON P BOAZ)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Bangalore
Dated : 1/8/2018
Vms
Copy to :1.The Assessee
2.The Revenue
3.The CIT concerned.
4.The CIT(A) concerned.
5.DR
6.GF By order
Sr. Private Secretary, ITAT, Bangalore
ITA Nos.426, 429, 432 & 436
14
1. Date of Dictation .................................
2. Date on which the typed draft is placed before the dictating Member .........................
3. Date on which the approved draft comes to Sr. P.S..............................
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