Income Tax Appellate Tribunal - Pune
Income-Tax Officer vs India Woollen Emporium on 20 March, 1992
Equivalent citations: [1993]44ITD225(PUNE)
ORDER
T.A. Bukte, Judicial Member
1. The revenue has filed all these appeals against the consolidated order of the CIT (Appeals) Pune dated 2-8-1988 on four common grounds. All the common grounds are in respect of only one point of deleting the interest levied under Section 201(1A) of the Income-tax Act, 1961. The ITO levied the interest of Rs. 9,247 for the assessment year 1983-84, Rs. 7,881 for the assessment year 1984-85, Rs. 6,220 for the assessment year 1985-86 and Rs. 4, 197 for the assessment year 1986-87 under appeals, on the ground that the assessee firm paid interest of Rs. 1,69,000, Rs. 1,74,960, Rs. 1,75,990 and Rs. 1,78,010 for the aforesaid assessment years respectively to M/s Bhopatkar Finance Corporation. He further found that the assessee had deducted only Rs. 3,200 at source for each of the assessment years under appeals and the assessee had failed to deduct the interest at source in accordance with the provisions of Section 194A of the Income-tax Act, 1961.
2. Therefore, the ITO issued a show-cause notice to the assessee. The assessee stated that the income of M/s Bhopatkar Finance Corporation was all along below Rs. 50,000 and the said M/s Bhopatkar Finance Corporation had applied for lower deduction of tax to the ITO T Ward, Pune. A deduction of Rs. 3,200 was made at the request of M/s Bhopatkar Finance Corporation only. It was also explained that there was no wilful default on the part of the assessee and it was purely due to a technical misunderstanding the lower amount of tax was deducted at source. It was further contended that the assessee-firm did not deduct the tax on interest on the basis of application under Section 197 made by M/s Bohpatkar Finance Corporation. No certificate was issued by the ITO T Ward, Pune in this respect. Therefore, the ITO held that the action of the assessee-firm in not deducting the tax at source as per the provisions of Section 194A was not justified and it contravened the said provisions. Therefore, he charged interest under Section 201(1A) of the Act as mentioned above.
3. We have heard the learned departmental representative Shri A.K. Khaladkar and the learned representative for the assessee Shri G.N. Gadgil at length. Their arguments are taken into consideration.
4. At the time of hearing of this appeal, Shri Gadgil did not press the explanation that the lapse on the part of the assessee was not wilful and it was purely a technical misunderstanding. Therefore, we are not required to give any finding on this part of the explanation of the assessee. It would thus become quite clear from the facts narrated by the Assessing Officer that, the assessee acted upon the instructions of M/s Bhopatkar Finance Corporation even without producing a certificate from the ITO 'T' Ward, Pune. It is a different point why the ITO 'T' Ward, Pune, did not issue a certificate to the said firm and why the said firm of M/s Bhopatkar Finance Corporation did not insist upon the ITO 'T' Ward, Pune to issue a certificate for less deduction of a tax on the interest income at source. But the assessee was not entitled to follow the oral instructions or a request from M/s Bhopatkar Finance Corpn. on the due dates of either crediting the interest for each year to the account of M/s Bhopatkar Finance Corporation or of making the actual payment of the said interest. Once having been credited either to the account of the creditor or having paid the interest due to the creditor the assessee's duty on such credits was to deduct the interest according to the provisions of Section 194A of the Act and not to contemplate anything else for and on behalf of the creditor without production of certificate from the ITO. The assessee was not expected to act as a super-Income-tax Officer to do the duties of the ITO of contemplating that the certificate should have been issued on the application of the creditor and the creditor's income was below Rs. 50,000. To plead this point on behalf of the creditor, it appears that the assessee was much more interested in not deducting the tax at source on the interest in accordance with the provisions of Section 194A of the IT Act.
5. The assessee agitated the action of charging the interest before the CIT (Appeals). Before the CIT (Appeals) the income assessed, tax assessed, tax deducted at source and the creditor was entitled to get the refund for all the assessment years under appeal were brought to the notice of the CIT (Appeals). We are not hearing any appeal for and on behalf of the creditor of the assessee. It must be borne in mind that we are hearing the appeal filed against the assessee and not against M/s Bhopatkar Finance Corporation. Even giving a chart to show the income assessed, tax assessed, tax deducted at source from the said creditor for the assessment years 1983-84 to 1986-87 along with the refunds would amount that the assessee was over enthusiastic to help the creditor instead of performing its duties. If the ITO did not issue a certificate on the application dated 14-7-1982 then there was a remedy open for the assessee to approach the superior Officer in that respect. The honest impression held by the assessee is also not pressed before us. The assessee was not expected to know on the dates of either crediting the interest to the account of the creditor or making the payment of interest that the lesser deduction of tax at source was sufficient to meet the final income-tax liability of the creditor. This again gives an impression that the assessee was much more interested in not deducting the actual tax at source. The deduction of tax at source as given in the chart reproduced by the CIT (Appeals) does not mean it was a proper deduction of tax on the dates of crediting of interest to the account 'creditor'. That may be so after the assessment was made and that was not expected either to know or to act upon by the assessee.
6. The CIT (Appeals) firstly has not relied on the binding decision of the Bombay High Court in the case of Bennet Coleman & Co. Ltd. v. V.P. Damle, Third ITO [1986] 157 ITR 812. The Bombay High Court has held in that case that:
Section 201(1) of the Income-tax Act, 1961, deems a person to be and assessee in default in respect of tax if, after deducting tax deductible at source, he fails to remit it as required under the Act. Under Sub-section (1A), if that person, after deducting the tax, fails to remit it as required under the Act, he is made liable to pay interest at the rate of 12 per cent per annum. The liability arises immediately upon each default and is to be computed only with reference to the law as it then stood.
Section 201(1A) makes the payment of simple interest mandatory. The payment of interest thereunder is not a penal provision. There is, therefore, no question of the waiver of such payment on the basis that the default was not intentional or on any other basis.
Rule 119A of the Income-tax Rules, 1962, which was introduced with effect from 1-1-1975, and which provides that the levy of interest for defaults of less than one month should be ignored and the amounts on which interest is to be calculated should be rounded off to the nearest multiple of Rs. 100, is not applicable to the period up to 31-12-1974, and interest has to be calculated for that period as if the rule was not in existence.
Rule 40 of the Income-tax Rules, 1962 does not contemplate the waiver of interest payable under Section 201(1) of the Act.
Secondly, the CIT (Appeals) neither made any mention of this decision nor distinguished it, nor followed the same. As seen from the arguments of the learned departmental representative as well as the grounds of appeal, it is quite clear that this decision was cited and relied upon before him. Thirdly, he held that there are various decisions regarding deduction of tax at source and the payment of tax so deducted to the revenue laid down only a mode of recovering tax due from the person to whom the income accrues or by whom the income is received. According to the CIT (Appeals) a person requiring him to deduct tax is not an end itself. It only means to an end namely a recovery of tax payable by the receiver. Tax paid over to the revenue after deduction is for and on behalf of the recipient. It is laid down that even if the person who deducts the tax at source and pays into the Government treasury, he is expected to follow the principles instead of violating the same. If he violates, then the interest is liable to be paid. A person who deducts the tax at source takes the place of an assessee either for non-deduction or for wrong deduction or for non-payment after the deduction of tax at source. In this case, firstly, the assessee wrongly deducted the tax at source and secondly raised several pleas which did not find any substance.
7. It is immaterial when the assessments of the recipient are completed and that they have become final. It is also immaterial what was the assessed tax after the final assessment and whether the creditor was entitled for refund. The liability does not survive after the finalisation of the assessment but it would be incorrect to say that there was no liability before finalisation of the assessment. It appears that non-survival of the liability after the assessment is tried to be connected to the survival of the liability before making assessment. We do not agree on this point. When a binding decision of the Bombay High Court squarely applies to the point in question, side-tracking the said decision on one hand and following the other decision on the other hand, was also unwarranted.
8. Shri Khaladkar, the learned departmental representative while arguing on the chargeability of the interest urged that Section 194A fixes an independent liability on the assessee. The interest is not by way of penalty as held by the Bombay High Court in Bennet Coleman & Co. Ltd.'s case (supra). Why the ITO did not inform, does not become a good ground for the assessee to deduct the lesser tax at source. The assessee was not issued any directions to deduct the lesser tax in writing. Shri Khaladkar further relied on the decision of the Supreme Court in the case of Ganesh Doss Sreeram v. ITO [1988] 169 ITR 221, wherein it is held that the payment of interest was only a compensatory in nature. According to him, the ITO was perfectly justified to charge the interest and question of intention, or wilful neglect on the part of the assessee does not come into play.
9. As against this, Shri Gadgil has tried to distinguish the decision of the Bombay High Court in the case of Bennet Colcman & Co. Ltd. (supra) by pointing out that that was a writ matter before the High Court. Whether it is a writ or reference the point involved and the decision thereon assumes the importance. The point involved was identical as in these appeals and the decision thereon squarely applies to the facts of the instant appeals. He has also tried to advance an argument that the assessee has deducted the tax at source partly and therefore, the provisions of Section 201(1A) or 194A do not come into play. We are unable to agree with this contention, because failure to deduct and failure to pay after deduction is covered by Section 201(1A) of the Act and failure to deduct does not mean failure to deduct partly and failure not to deduct partly. We are further unable to agree with Shri Gadgil that the default cannot be construed on the part of the assessee. He has relied on several decisions. He has cited the decisions of the Madhya Pradesh High Court in the cases of Gwalior Rayon Silk Co. Ltd. v. CIT [1983] 140 ITR 832, Orient Paper & Industries Ltd. v. CIT[1983] 12 Taxman 348 and CIT v. Manager, Madhya Pradesh State Co-operative Development Bank Ltd. [1982] 137 ITR 230. The first decision in Gwaliar Rayon Silk Co. Ltd. 's case (supra) is regarding the deduction between the employer and employee and the same point is again involved in Manager, Madhya Pradesh Co-operative Development Bank Ltd. 's case (supra). He has again stressed on the point that the assessments have already been made on the creditor and tax demand was found to be much less. He has also relied on the decision of the Kerala High Court in the case of CIT v. Kannan Devan Hill Produce Co. Ltd. [1986] 161 ITR 477 again between the employer and employee. He has also relied on three more decisions of M.P. High Court i.e., CIT v. Divisional Manager, New India Assurance Co. Ltd. [1983] 140 ITR 818, CIT v. Life Insurance Corpn. [1987] 166 ITR 191 and CIT v. M.P. Agro Morarji Fertilizers Ltd. [1989] 176 ITR 282. All these decisions are distinguishable on facts. The decision of the Bombay High Court in the case of CIT v. New Great Insurance Co. Ltd. [1973] 90 ITR 348 is on the point of gross dividend or net dividend. There cannot be any dispute about the rate of interest.
10. Shri Khaladkar questioned that how the assessee was entitled to do all these things. Shri Gadgil pointed out that no details of charging interest were given by the ITO. We have made it expressly clear at the time of hearing itself that the assessee is liable to pay interest from the date of crediting interest to the account of the creditor up to the date of making the assessment on the creditor. There is no doubt that the assessee has not complied with the provisions of Section 197 also. The assessee has not made an application for every year in a separate form for certificate. There are so many lapses on the pant of the assessee.
11. After examining the facts and order of the CIT (Appeals) coupled with the case law and the arguments, we are of the opinion that the interest levied by the ITO is jurtified. The deletion of the same by the CIT (Appeals) does not appear proper. However, we are of the opinion that the interest should be levied on the amount which was not deducted at source though deductible from the date of crediting them to the account of the creditor up to the date of making the assessment on the creditor which dates are given as 1-10-1984 for assessment year 1983-84, 18-11-1984 for assessment year 1984-85, 18-11-1985 for assessment year 1985-86 and 22-8-1986 for assessment year 1986-87 and the ITO is directed to verify these dates before levying interest as directed.
12. In the result, the revenue succeeds and the appeals are partly allowed as indicated above.