Income Tax Appellate Tribunal - Pune
Executive Engineer vs Deputy Commissioner Of Income-Tax on 30 September, 1993
Equivalent citations: [1994]48ITD414(PUNE)
ORDER
Chander Singh, Accountant Member
1. This appeal by the assessee for assessment year 1989-90 has been directed against the levy of penalty under Section 272A(2)(g) of the Income-tax Act, 1961.
2. The appellant is a Semi-Government Undertaking Board appointed by the State of Maharashtra. During the year under consideration, the assessee was required to issue tax deduction certificates to 162 employees, which, according to the revenue, he failed to do. With respect to 162 employees, the Dy. CIT computed the delay of 813 days in issuing the tax deduction certificates. The Dy. CIT, therefore, was of the view that the assessee is liable to penalty under Section 272A(2)(g) of the Income-tax Act, 1961.
3. Accordingly, a show cause notice was issued to the assessee in response to which the assessee explained:
the practice of enclosing 16 number forms along with the annual return was not known to this office hence the forms were not submitted. Now it is difficult to submit the Form No. 16 of taxpayer pertaining the year 1989-90. Hence, may please be allowed and approve the same.
The Dy. CIT however was not satisfied with the explanation and concluded that-
(a) the tax deductor has not made any effort to issue unified certificates;
(b) ignorance of law cannot be an excuse.
Though, in this case, the total tax deducted amounted only to Rs. 1,61,605, yet the Dy. CIT imposed the penalty of Rs. 1,31,70,600 under Section 272A(2)(g) of the Act. The assessee also did not succeed before the first appellate authority.
4. Before us, the learned Counsel for the assessee, Shri K.A. Sathe contended and pleaded that the levy of penalty on the facts and in the circumstances of the case is not justified. He points out that the appellant is the Executive Engineer of Phaltan Division, M.S.E.B. Phaltan, a small Taluca place in Satara District of Maharashtra, where there is no Income-tax Office or any facility of Tax Consultants for the purpose of tax deduction matters. The tax matters of Phaltan are sent to the Income-tax Officer at Kolhapur which is about 160 kms. away from the town. The appellant's office is a technical branch which maintains the electricity works in rural area. The total strength of the Division is 565 employees out of which only 162 employees were having taxable income for the financial year 1989-90. The general administration in Phaltan is managed by the staff of one Head Clerk and one U.D.C. These two persons look after all the administrative matters including the tax matters. At the material time, the Head Clerk was working up to May 1990 and thereafter he was transferred and in his place a new Head Clerk worked only up to December 1991. The learned Counsel continues and states that the appellant's office has been deducting the tax at source from the salaries of 162 employees regularly and there were no cases of short deduction of tax or late payment of tax to the credit of the Government. The annual return which was to be filed under Section 206 by 30-4-1990 was filed by the appellant on 16-5-1990. There was a delay in filing the return under Section 206 of the Act but the said delay was condoned by the revenue and no penalty was levied. During the year under consideration, the total tax deducted at source was Rs. 1,61,605 for which the appellant was required to issue certificates of tax deduction to its employees in the unified Form No. 16 by 30-4-1990. The appellant's Office was, however, not aware about the new forms. It was also not aware that it has to apply for Tax Account No. (in short TAN) in 1989 when the provisions regarding tax deduction number came into effect. The application for TAN was made by the appellant on 19-4-1990 which could be allotted by the department only in October 1990. Not being aware of the changes in tax deduction certificate forms, the appellant's office issued certificates in the old forms which were being used in the past. These certificates in old forms were issued to-
(1) one employee on 14-6-1990;
(2) 48 employees on 27-6-1990; and (3) 113 employees on 11-7-1990.
Thus, in the case mentioned at S1. No. 1 above there was a delay of 71 days, at S1. No. 2, 57 days and at S1. No; 3, 43 days. The old certificates, the learned Counsel points out, contained the details of salaries and deductions therefrom from each employee. They also mentioned the tax payable and also bear the signature of the Executive Engineer. The certificate of tax deduction in the old forms submitted by the assessee during this year was accepted by the revenue and no objection was raised at any time in the previous years.
5. Just as the appellant was not aware of the changes in the new forms, it was also not aware of the fact that the penalty for not issuing the tax deduction certificates as per Section 203 was very heavy i.e. Rs. 100 per day. When the notice was issued by the ITO, TDS Circle, Kolhapur in July 1991 asking why the certificates were not attached to Form No. 24, the appellant submitted that it was not aware of the position and that the forms for 1989-90 could not be issued. In fact, same reply was given when the penalty proceedings under Section 272A(2)(g) were initiated. At that time also, the appellant had not engaged any tax consultant to advise about the correct position of law. Thus, it was due to ignorance on the part of the assessee due to which the tax deduction certificates in the new forms could not be issued by the assessee.
6. The learned Counsel also points out that the computation of delay worked out by the Dy. CIT is erroneous. She has taken the delay of 813 days without any justifiable reasons. As a matter of fact, the contravention by the assessee is only one and not as many as the employees liable for tax deduction at source. Thus, the levy of penalty is not justified. The ignorance of law can also be treated as a justifiable reason under certain circumstances. If the case of the assessee is viewed from the angle that the tax consultant was not available in Phaltan, that tax deduction certificate in the old form was accepted by the department in the previous years, that the assessee was working with only two staff members and that tax deducted at source was fully deposited in time it would be clear that the assessee was under the bona fide belief that the old tax deduction forms will be accepted by the revenue. He therefore, urges that levy of penalty is not at all justified. He therefore, prays that the order of the Dy. CIT should be cancelled.
7. The case of the revenue was argued by the learned Senior Departmental Representative Shri S.U. Pathak. He takes us through the provisions of Section 272A(2)(g) of the Act and points out that the provisions are mandatory. Once the default has been committed by the assessee, the penalty for the failure to issue the tax deduction certificates in Form No. 16 is automatic. In addition, the learned Senior Departmental Representative relies on the order of the Dy. CIT and the CIT(A).
8. We have heard the rival submissions in the light of judicial precedents brought to our notice. The provisions regarding tax deduction at source under the Income-tax Act and the Rules made thereunder have undergone several material changes. We, therefore, consider it essential to deal first with the relevant provisions and the changes made at the relevant time. Section 190 to Section 206B deal with tax deduction at source. In Section 192 any person responsible for paying any income chargeable under the head 'Salaries' is required to deduct tax at the time of payment of such salary and as per Section 200 he is required to pay such tax deducted to the credit of the Central Government within the prescribed time. Sections 193, 194, 194A, 194B, 194BB, 194C, 194D, 194E, 194EE, 194F, 194G, 194H, 195,196B, 196C and 196D are other sections which provide for deduction from different types of payments which is interest on securities, dividends etc. Different time limits are prescribed for paying the deducted tax to the credit of the Central Government.
9. The persons deducting tax under different provisions are required to apply for allotment of tax deduction account number (TAN) within the prescribed time. These provisions were inserted by the Finance Acter, 1987 with effect from 1-6-1987. The TAN is required to be quoted by tax deductor on all challans for paying the tax deducted to the credit of the Government, on the certificates of tax deduction, on all returns required to be delivered under sections 206, 206A, 206B and all other documents relating to tax deduction.
10. Section 206 requires filing annual returns in prescribed forms, giving the information regarding tax deducted at source during the year. Different forms of returns are prescribed for different types of deductions. For deduction of tax from salaries, Form No. 24 is prescribed Under Rule 37 of the Income-tax Rules. Prior to 28-2-1991 the last date for filing Form No. 26 was 30th April every year. By Income-tax (Sixth Amendment) Rules, 1991 with effect from 28-2-1991 the time limit prescribed was 31st May. In the case of employers other than Government, a monthly statement in respect of salaries paid in case of employees leaving service, in Form No. 21 or monthly certificates of tax deduction from salaries in Form No. 23 was required to be filed every month.
11. Section 203 provides that every person deducting tax in accordance with the provisions of Sections 192 to 196B shall, within the prescribed time of credit or payment of the sums, furnish to the person to whose account such credit is given or to whom such payment is made, a certificate to the effect that tax has been deducted and specifying the amount so deducted, the rate at which the tax has been deducted and such other particulars as may be prescribed. Concerned rule is Rule 31. Rule 31 of the Income-tax Rules, however, underwent a change first by Income-tax (Ninth Amendment) Rules, 1988 effective from 1-4-1989. This amended rue 31 had been explained by the Board Circular No. 529, dated 13-2-1989 reported in [1989] 176 ITR (Statute) page 239, which is reproduced for the sake of convenience:
So far different forms were prescribed Under Rule 31 for certificates of tax deducted under different sections of the Act. By notification No. S.O. 937 (E), dated 10-10-1988 however, old Rule 31 has been substituted by a new rule which provided for a unified form to be issued in Form No. 16 in respect of tax deducted under all the aforementioned sections. Another important departure from the existing provisions is that the said certificate shall now be issued on a paper serially numbered and printed by the Central Government in book form and supplied for a nominal consideration to the person deducting tax at source on an application to be made by him in Form No. 17 to the Commissioner of Income-tax having jurisdiction over him in this regard. ... This amendment shall come into force on 1-4-1989.
With the new amendment coming into force, as can be seen from the Board's Circular, the printed forms for issue of unified tax deduction certificate should have been available in substantial numbers. However, at the relevant time, the printed forms were not available in substantial number and requirement of making an application first in prescribed form created further difficulties in obtaining the forms in time. Due to these difficulties, number of representations were made by the taxpayers to the Central Board of Direct Taxes. As a result of these representations, the CBDT amended Rule 31 by Income-tax (Sixth Amendment) Rules, 1991 with effect from 28-2-1991. Instead of unified form of tax deduction certificate for all types of deductions which too was to be given on Government supplied form, three different forms viz., Form Nos. 16, 16-A and 16-B were prescribed by amendment of Rule 31. These new provisions have been explained in Board Circular No. 597, dated 27-3-1991 reported in [1991] 189 ITR (Statute) page 32. It is stated in circular that new scheme is introduced with a view to streamline the work of issuing of certificates for tax deducted at source and avoiding the problems experienced in the use of the unified Form No. 16. As per the new scheme, new Form No. 16 was to be used for tax deductions from salaries, while Form No. 16-A was to be used for issuing of certificates for tax deducted from interest on securities under Section 193, from dividends under Section 194 and from insurance commission under Section 194-D. Form Nos. 16 and 16-A could, therefore, be issued on a private stationery of the tax deductor or the printed forms available in the market, without approaching the Income-tax Department. Form No. 16-B was to be used for other types of deductions and it had to be on a paper serially numbered and printed by the Central Government in book form and supplied on an application in Form No. 17. New forms were to be used as per the above circular for tax deducted at source after 28-2-1991. Rule 31(3) prescribes time limit within which a certificate of tax deduction is to be issued. Second proviso to Rule 31 (3) provides that certificate of tax deduction from salaries is to be furnished within one month from the close of the financial year in which deduction is made. Thus if the tax deduction was for financial year 1989-90, a certificate was to be given before 30-4-1990.
12. In addition to the rules and the various changes discussed above, we also consider it essential to deeply look into Section 272A which was originally inserted by the Taxation Laws (Amendment) Acter, 1975, with effect from 1-4-1976 and which was in existence up to 31-3-1989. The said section prescribed for penalty for default in respect of filing annual return under Section 206 or in respect of issue of tax deduction certificate. under Section 272A(2)(a) if a person failed to furnish in due time the return in Section 203 and Section 272A(2)(c) any person failed to furnish tax deduction certificate under Section 203 he was liable to pay penalty which may extend to ten rupees for every day during which the failure continued. As per Section 273B penalty however, was not imposable if a person concerned proved that there was a reasonable cause for the failure to issue a tax deduction certificate in time. In Section 272A, before amendment, the minimum penalty was not provided and maximum penalty was Rs. 10 per day of default. Section 272A was however, amended from 1-4-1989 by Direct Tax Laws (Amendment) Acter, 1989. As per new section, failure to file in time the return under Section 206 covered under Section 272A(2)(c) though failure to issue certificate of tax deduction under Section 203, covered under Section 272A(2)(g) was made liable for penalty which shall not be less than Rs. 100 but which may extend to Rs. 200 per day during which the failure continued. There was no upper limit prescribed for these penalties but Finance (No. 2) Acter, 1991 effective from 1-10-1P91 prescribed that the penalty leviable for failure in relation to return under Section 206 was not to exceed the amount of tax deductible. No upper limit however, is yet provided in respect of failure to issue a certificate of tax deduction under Section 203.
13. From the above, it can therefore, be seen that the income-tax provisions and the Rules made thereunder have undergone several changes. It is to be considered whether in a place like Phaltan, a small town, where there are no facilities for tax consultation it could be presumed that every one knows the law. In other words, whether the plea of ignorance pleaded by the assessee can be accepted as a reasonable cause to fulfil the statutory obligations. The Supreme Court in the case of Motilal Padampat Sugar Mills Co. Ltd. v. Stale of Uttar Pradesh [1979] 118 ITR 326 has examined whether the ignorance of law can be taken as an excuse. At page 339 Their Lordships have observed:
Moreover, it must be remembered that there is no presumption that every person knows the law. It is often said that every one is presumed to know the law, but that is not a correct statement: There is no such maxim known to the law. Over a hundred and thirty years ago, Maula, J. pointed out in Martindale v. Falkner [1846] 2 CB 706: 'There is no presumption in this country that every person knows the law: it would be contrary to common sense and reason if it were so'.
14. The highest Court of the land therefore, has laid down that there is no presumption in law that everybody knows the law. The assessee therefore, when it pleaded before the revenue that it was on account of ignorance that the tax deduction certificate could not be issued in new Form No. 16, was in our opinion, justified to take such a plea. The bona fides of the assessee could also be seen from the facts that there is no failure on its part to deduct the tax at source and pay it to the Government treasury. The failure if at all is to issue tax deduction certificate in new form as the assessee had already issued the tax deduction certificates in old forms which were hitherto accepted by the revenue. However, the default, in our opinion, whatever may be its nature, should not result in any fine or penalty merely because the default is punishable with fine or penalty. It is trite law to mention that merely because there.is a provision for levy of fine, fine must be imposed. Such an imposition depends on various circumstances.
15. The Supreme Court in the case of Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26 has laid down that an order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute. In the case before us, in our view, the assessee, if at all, was guilty of technical default and the breach, if at all, was a venial breach, there was no failure on the part of the assessee to deduct the tax at source paid to the Government and issue the tax deduction certificate albeit in the old form. The bona fide of the assessee, in our view, is therefore, established.
16. It is settled that the penalty proceedings are quasi-criminal in nature and therefore, before imposition of penalty, the intention of a defaulter has to be taken into account. Under the Income-tax Act, where the offence is a creation of a particular section, normally, without saying more, the requirement of an element of mens rea is imported into concept of offence unless there is something expressed or implied in the language of the provisions which goes against such presumption. Therefore, in order to justify the imposition of penalty under any of the sections of the Income-tax Act, the authority must not only confine that there is a default but should also consider the question whether there is good and sufficient reason for the default and if only he finds that there was none he should impose the penalty. In other words, if there was a sufficient or reasonable cause for an assessee for the failure to perform the statutory obligations no penalty need be imposed on an assessee. This leads us to examine the import of the words 'reasonable' or 'sufficient cause'. Before a cause can be said to be reasonable or not, it must be found as a fact that the particular cause operated upon the mind of the assessee which prevented him from discharging his legal obligations. Thus, before imposition of penalty the authority must be satisfied not arbitrarily but judicially that the assessee has without a reasonable cause failed to perform statutory obligations. There must be the absence of a reasonable cause and this fact has to be objectively found by the authority concerned in the light of the explanation offered by the assessee. Such a case however, has to be decided on the basis of preponderence of probabilities as in a Civil case and not necessarily be proved beyond a reasonable doubt. Therefore, before imposition of penalty the explanation of the assessee has to be considered from all angles. We need not repeat the explanation filed by the assessee, we consider it sufficient to say that in our view the assessee was prevented by a reasonable cause on account of which the tax deduction certificates could not be issued in the new Form 16. Having issued the tax deduction certificates in the old forms, the assessee therefore, in our view, was under the genuine and bona fide impression that the requirement of law is satisfied. Looking to the totality of the circumstances therefore, we are of the view that the assessee was prevented by a reasonable cause and hence not liable to penalty under Section 272A(2)(g) of the Act.
17. The careful reading of Section 272A(2)(g) of the Act indicates that the imposition of penalty has been prescribed for the total default. In other words, if the assessee has failed to furnish the certificate as required by Section 203 or Section 206C he is liable to be penalised under the said section. In the case of the assessee, the total failure is absent as the certificates in new Form 16 were issued albeit after the imposition of penalty. Such forms were issued by the assessee in December 1992. Even if the issue of tax deduction certificate subsequent to the imposition of penalty is to be ignored, the fact remains that the assessee had issued the tax deduction certificates in the old forms as mentioned above. We are therefore, of the view that the imposition of penalty of Rs. 1,31,70,600 as against the total tax deducted at Rs. 1,61,605 is totally unwarranted.
18. The computation of delay by the Dy. CIT in issuing the tax deduction certificates in Form No. 16 is also not in accordance with law. The Dy. CIT has taken into account, while computing the delay in issuing tax deduction certificates, each and every employee and computed the delay separately. Since the appellant was required to issue 162 TDS the Dy. CIT has taken 162 separate violations. As a rnatter of fact, the assessee, if at all, has committed, only one default viz., not issuing the TDS certificates to its employees. There are no separate 162 defaults as worked out by the Dy. CIT. Even on this count, the levy of penalty of Rs. 1,31,70,600 cannot be justified. In view of above, we are of the view that the levy of penalty is not justified on the facts and circumstances of the case and, therefore, the order of the revenue is cancelled.
19. With the result, the appeal is allowed.
20. Coming to the Cross Objection, it is seen that the revenue has taken this cross-objection to support the decision of the CIT(A). As the impugned order has been cancelled by us, the C.O. does not survive and hence dismissed.