Income Tax Appellate Tribunal - Jodhpur
Income Tax Officer vs Emrald Construction Co. (P) Ltd. on 31 August, 2007
Equivalent citations: [2008]304ITR338(JODH), (2008)116TTJ(JODH)904
ORDER
1. We proceed to decide both these appeals by a common order as these are cross-appeals filed against the order of the CIT(A), Udaipur, dt. 5th Aug., 2002 for asst. yr. 1996-97.
2. The background facts of the case in nutshell are that the assessee company filed its return on 30th Nov., 1996 declaring a loss of Rs. 1,18,413. The assessment was completed under Section 143(3) on 30th March, 1999 at an income of Rs. 5,95,990. The assessee had made payments of contract and interest but did not deduct requisite tax. The AO charged interest under Section 201(1A) on account of non-deduction of tax. In first round, the learned CIT(A) vide order dt. 24th Jan., 2000 remanded this issue back after setting it aside. In the set aside the AO, while giving effect to the order of the learned CIT(A) issued a letters dt. 12th Dec, 2000 requiring the assessee to file complete details of payment and interest of Rs. 22,14,293. The assessee company replied in detail vide letters dt. 18th Dec, 2000 and dt. 18th July, 2001. The AO was of the opinion that the assessee company was liable to deduct tax at source (TDS) and to pay the same to the account of the Central Government in respect of following payments:
Payee Nature of payment Amount of TDS M/s A.R. Enterprises Contractual 1,47,134 M/s Mutual Finance (P) Ltd. Interest 3,65,754 M/s Mewar Polytex Ltd. Interest 1,25,019
Actually, the assessee company had neither deducted TDS on the above payments and so the question of deposit in the Government account did not rise.
3. In the original assessment made under Section 143(3) the AO had charged interest of Rs. 2,79,081 under Section 201(1A) upto the date of assessment order. The assessee contended that all the above payees had already deposited (paid) enough tax and for the relevant current year all of them were entitled to refund from the IT Department. It was also submitted that all of these payees were running into losses. The assessee company also produced the computation of their total incomes for the asst. yr. 1996-97 along with the acknowledge of returns filed by these payee companies. It was also contended by this assessee company before the learned AO that the payees had brought this fact to its knowledge and protested deduction of TDS by not agreeing. All the payees also assured the assessee company that they would file non-deduction certificate after obtaining from their assessing authorities. The assessee had debited the accounts of the payees by passing accounting entries but did not deduct TDS. So, according to the assessee company there was no loss of revenue to the Department and as such charging of interest under Section 201(1A) was not justified. Nevertheless, the learned AO levied interest under Section 201(1A) @ 15 per cent on the total amount of TDS of Rs. 6,37,907 from the date when the payments were made (when the TDS was to be deducted) till the date it was actually paid. The learned CIT(A) confirmed the charging portion of the order of the learned AO but the extent to which the interest is to be charged was restricted to the dates of assessments completed in the hands of respective payees. The date of deduction was taken as 31st March, 1996. From this order of the learned CIT(A) dt. 5th Aug., 2002, both the parties are aggrieved. The Department wants that the finding of the learned AO be restored, whereas, the assessee contends that no such interest is chargeable from it at all.
4. We have heard the rival submissions and perused the evidence available on record.
5. Having cogitated the rival submissions circumspectiously, in the light of the relevant provisions of the Act and the case law on the subject we give our finding in this regard as follows. Chapter XVII of the IT Act deals with the collection and recovery of tax. Part B of this chapter deals with "deduction of tax at source". Sections 192 to 196D deal with various types of payments-salary, interest on securities, dividends, interest other than "interest on securities", winning from lottery or cross-word puzzle, winning from horse race, payment to contractors and sub-contractors, insurance et.al; in cash, by cheque or draft or by credit of such sum or by any other mode, on which tax has to be deducted, accordingly. In case the recipients/payees obtain a certificate from the AO for no deduction of tax or deduction at a lower rate qua the payments, the provisions of Sections 197 and 197A came into play. The TDS made in accordance with Sections 192 to 196D and paid to the Central Government is treated as a payment of tax by the recipient and credit of the same is given for the amount of tax so deducted, at the time of assessment of the relevant year, as per the provisions of Section 199. A failure to deduct such tax and to pay the same to the Government treasury makes the deductor (the payer) as an assessee in default as per Section 201 of the Act. The assessee in default is also liable to pay interest in accordance with the provisions of Sub-section (1A) of Section 201. If the concerned person fails to deduct and pay the tax (TDS) as required under the Act, he is liable to pay interest from the date on which such tax was deductible to the date on which such tax is actually paid.
6. In the given case the piquant question raised on behalf of the assessee is that the Act is silent about such cases where the tax is not "actually paid" as it is not to be paid or already paid and refund was due to the recipient (of payments), in that case this machinery provision become inoperative. The forceful contention of the learned Authorised Representative is that the law makers in their wisdom thought it proper not to answer such a situation because in such cases the provisions of this Chapter XVII are not attracted. According to him the charging provisions are mandatory but compensatory, as has been held by various Courts, Tribunals and even the Hon'ble jurisdictional High Court. On the other hand, after admitting that the Act is silent on such situations but the date of framing of assessment in the hands of payee on which date it is crystalised that no taxes are payable is the relevant date and upto that date (date of assessment order) interest under Section 201(1A) has to be charged as per the provisions of the Act. There is no dispute with regard to the settled position of the law that charging of interest under Section 201(1A) is mandatory. The first date from which interest is to be charged is 31st March, 1996 on which date payments were made/credited to the recipients in this case. But, when the assessments of all these recipients were completed no payment of tax was due and they were entitled to refund from the IT Department. This fact is not in dispute and in a way has been accepted by the learned CIT(A), as well.
7. To argue that no interest under Section 201(1A) is chargeable from this assessee, the learned Authorised Representative took shelter under the judgment of Hon'ble jurisdictional High Court given in the case of CIT v. Rathi Gum Industries , to submit that in this case the nature of this interest has been taken as compensatory. Learned Departmental Representative has also relied on this case to submit that charging of interest is mandatory. There are plethora of judgments by which it is almost settled that the charging of interest under Section 201(1A) is mandatory in nature. But at the same time there are numerous decisions whereby the nature of this "interest" is taken as 'compensatory'. Before we discuss the case law on this point, we may mention that when the nature of this "interest" is compensatory in nature, how it can be charged when no loss occurs to the IT Department, like in the case we are dealing with. In this case, it was found that no tax was payable qua these payments (incomes) or qua any other incomes of the recipients, so the question of loss to Revenue does not arise. Hence, it can be safely concluded that the "last" date upto which interest is to be charged would never happen in this case and as such the provisions of Section 201(1A) would become non-operational, meaning thereby that no interest shall be charged at all. In that eventuality, the question of charging interest upto framing of assessment orders in the hands of the recipients would not arise because 'no tax dues' are found against them and as such there was no loss of revenue. The interest cannot be charged for the sake of charging of interest only, it has to be charged in accordance with a provision. The provisions of Section 201(1A) lay down the end-point as "till the payment of tax", which was already paid by the payees even before these payments were paid to them.
8. We may mention the exact position of assessments in the case of recipients. The clear cut facts, which emerge, are that the assessments for all the three payees, as mentioned above, were completed before 28th Feb., 2002. The returns for the relevant assessment years in the cases of M/s A.R. Enterprises and M/s Mutal Finance Ltd. were processed under Section 143(1)(a) on 3rd Feb., 1997 and 31st March, 1997 determining refund of Rs. 42,805 and loss of Rs. 8,01,600, respectively. In the case of M/s Mewar Plytex the assessment under Section 143(3) was completed on 29th Dec, 1998 determining loss of Rs. 32,09,840. It is also a fact that non-deduction of tax at source from the payments made to the above three companies has not resulted in any loss of revenue to the Government.
9. Having stated the relevant facts, we now turn towards the legal position in such like cases. The interest to be charged under Section 201(1A) is not a penalty but a compensation of revenue loss for the delay in the payments of tax. Chapter XVII of the IT Act, 1961, lays down the manner in which tax has to be deducted at source from various payments and then deposited in the Government account. Secs. 192 to 196D deal with various payments on which TDS has to be deducted. Secs. 197 and 197A provide certain exceptions to the above mandatory provisions by allowing the payees/recipients to obtain certificate from the AO for non-deduction of tax or for deductions at lower rate(s) as per Section 199. All TDS deducted as above, shall be treated, as a payment of tax by the recipients and credit of the same shall be given in their respective assessments of the relevant year. Section 201 deals with the consequences of the failure to deduct and deposit the tax. Section 201(1A) deals with the cases where TDS has not been deducted, by making the deductor liable to pay interest as prescribed 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.
10. In this case, as per law, the assessee was required to deduct tax at source and to pay the same to the Government upto 31st March, 1996. The recipient company did not either obtain or file the requisite certificates with the assessee. To be very straight this assessee was required to deduct tax at source at the time of payments in question, may be, by making actual payment or by passing an entry or by allowing credits, as the case may be. The assessee has clearly and admittedly not deducted the TDS in this case while making payments to all the above three companies.
11. First we will examine as to what is the real nature of interest to be charged under Section 201(1A) of the Act. The Hon'ble Madras High Court while deciding the case of CIT v. Ramesh Enterprises , has held this interest as a 'penalty'. The Hon'ble Kerala High Court in the case of CIT v. K.K. Engineering Co. has held that levy of interest is automatic on the failure to pay the amount of tax by the due date. This Court did not admit the plea that the component of taxes paid by the recipient by way of advance tax and self-assessment tax, and even held that the date of such payments was not relevant to decide the issue under Section 201(1A) of the Act.
12. But the decision of the same High Court in the case of CIT v. Dhanalakshmy Weaving Works the High Court held that the levy of interest is compensatory. The purpose of the levy is to claim compensation on the amount which ought to have been deducted and deposited and has not been so deducted and deposited.
13. In yet another case, the Hon'ble Kerala High Court held that not deducting tax and also not including the same in the total income of the employee and the assessment of the employee was completed; and the amount was not found to be includible In the employee's income. Employer cannot be deemed to be an assessee in default. The Hon'ble High Court has held thus:
The provisions of Sections 192 and 201 and connected sections of IT Act, 1961, regarding deduction of tax at source and payment of tax so deducted to the Revenue lay down only a mode of recovering tax due from the employee. 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. 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, the liability of the employer does not survive.
Where an assessee (employer) had been deducting tax at source and remitting the same to the Government, but in doing so, did not include a certain amount in the total income for the purpose of the computation of tax and had not deducted tax at source on that amount and the assessment on the employees had been completed and had become final treating the amount as not includible in the assessee's income and the assessment could not be reopened in accordance with the provisions of the Act that the employer could not be deemed to be an assessee in default within the meaning of Section 201 of the IT Act, 1961 for not deducting at source tax payable on the amount.
14. The cumulative effect of the above decisions is that the rigours of Section 201 are flexible and not rigid as would not admit any sort of explanation with regard to deduction at source. The charging of interest under Section 201(1A) is definitely mandatory, but this 'mandatory' nature has to take colour from the main charge of the deduction of tax at source under Section 201. So to say, when the 'tax' which was to be deducted under Section 201 was not payable at all, it would be unjust to conclude that, in all eventualities, come what may, interest under Section 201(1A) is to be charged from the deductor.
15. In case we rush through the catena of judicial pronouncements, we would find that the 'rigours' of Sub-section (1A) of Section 201, are also not so rigid. The charging of interest is mandatory but consequential. Almost all the Hon'ble High Courts have categorically held that the charging of interest under Section 201(1A) is mandatory and compensatory in nature. Before, we cite the decisions of different High Courts, we cite the decision of the Hon'ble Supreme Court of India, who has held that the charging of interest is a procedural matter providing machinery for the recovery of tax which is compensatory in nature.
We may refer the case of Karimtharuvi Tea Estate Ltd. v. State of Kerala , inter alia. The relevant decisions of the Hon'ble High Courts are given under:
(1) CIT v. Prem Nath Motors (P) Ltd. ;
(2) Bennet Coleman & Co. Ltd. v. Mrs. V.P. Damle, ITO ;
(3) Grindlays Bank Ltd. v. CIT ;
(4) British Airways v. CIT ;
(5) CIT v. Kumudam Publications (P) Ltd. > (6) Pentagon Engineering (P) Ltd. v. CIT .
The decision of the Hon'ble Karnataka High Court in the case of Vikrant Tyres Ltd. v. ITO , would make it clear that the charging of interest is mandatory and consequential also. The Hon'ble High Court has held thus:
An initial order of assessment gets effaced by the appellate or revisional order and the only effective order is the ultimate order of the superior authority. This ultimate order of the appellate authority relates back to the date of the original order, as otherwise, the very concept of having a hierarchy of appellate and revisional forums will be defeated.
Interest is payable as compensation towards deprivation of the benefit of money which lawfully belongs (to) a person or authority. The income-tax due to the State is certainly an amount which lawfully belongs to the State; if the payment is postponed for any reason, there can be no doubt that the State is deprived of the benefit of the amount which lawfully belongs to the State. It is in this background that Section 220(2) of the IT Act, 1961 will have to be considered.
The liability to pay income-tax is debt due on the last date of the accounting period. Therefore, jurisprudentially, the Revenue is a creditor and the taxpayer is a debtor and there is nothing strange if the law contemplates that the debtor should compensate the creditor by paying interest on the amount due. The fact that the law postponed the discharge of tax liability to the date of issuance of a demand notice and the period of 30 days from the date of the demand, would not alter the nature of the said liability.
In respect of the asst. yrs. 1977-78, 1978-79 and 1980-81, assessment orders were made on the assessee and demand notices were issued. The assessee complied with the demands by paying the tax due. The appellate authority allowed the appeals filed by the assessee and the taxes paid were refunded to the petitioner. The Tribunal dismissed the appeals filed by the Revenue. The High Court upheld the view taken by the assessing authority, which resulted in the upholding of all the assessment orders. Thereafter, fresh demands were raised and the assessee paid the taxes as assessed. The Revenue invoked Section 220(2) of the IT Act, 1961 and demanded interest in respect of the assessed tax for the period commencing with the refund of the taxes consequent on the first appellate order till the taxes were finally paid after the disposal of the references. On a writ petition, the assessee contended that it was not at all at default because the assessee paid the taxes in compliance with those demands and the original demands did not survive consequent on the order of the appellate authority and hence this was not a case where the assessee' failed to comply with the demand notices issued. The Revenue contended that the order of assessment, the appellate orders and the order made on the references resulting in the consequential order are only different steps in the same proceeding and the ultimate order relates back to the original order itself and that, further, in view of Section 3 of the Taxation Laws (Continuation and Validation of Recovery Proceedings) Act, 1964 the original demand notices were revived by operation of law and due effect had to be given to such revival. The assessee contended that the operation of the Validation Act had to be confined to the purpose of recovery of the assessed tax and its provisions could not be extended to treat an assessee as a defaulter and to pass an order to the effect that the assessee was liable to pay interest; that Sub-section (2) of Section 3 of the Taxation Laws (Continuation and Validity of Recovery Proceedings) Act, 1964 kept alive the earlier demand notice and treated the same demand notice as having been kept alive all along if ultimately the assessment order was upheld by the higher forum. Having regard to the nature and quality of interest leviable under Section 220(2), the law of interest was valid.
16. The Hon'ble jurisdictional High Court in the case of CIT v. Rathi Gum Industries (supra), has held thus:
Section 201 of the IT Act, 1961, provides not only for collection of tax which has not been deducted but for levy and charge of interest also. Sub-section (1A) of the said section provides for liability to pay simple interest @ 12 per cent per annum on the amount of tax from the date on which the tax was deductible till the date the tax was actually paid. The provisions for payment of interest are mandatory and automatic and interest has to be paid from the date on which the tax was deductible till the date on which the tax is actually paid. If the tax has already been paid by the recipient on such income the IT Department may not be justified to recover the said amount of tax, but so far as the liability of interest is concerned, that cannot be considered to be non-existent on account of deposit of tax by the recipient at a subsequent or later stage.
From the reading of the above decision it does not transpire that the interest has to be charged till the date of assessment in the case of the deductor or the recipient, rather it has to be charged until the date of actual payment having been made by the payees. In this case, no tax was payable by the recipient companies and therefore, the relevant time would be the date of their assessment order when it was decided or finalised that no tax was payable by them. This decision of the Hon'ble High Court does not deal with a case when no tax is actually payable by the recipients.
17. The Jodhpur Bench of Tribunal while deciding such a situation, which seems to be akin to the facts of the case in hand, has held in the case of MLV Textile Institute v. Asstt. CIT, by following the decision of the Delhi Bench given in the case of ITO v. Sood Enterprises (1992) 41 ITD 234 (Del) that in a case where payee has already paid tax leaving nothing for the payer and it thus happened to be on time, interest under Section 201(1A) cannot be charged.
18. Thus, it is established by now that the charging of interest under Section 201(1A) is mandatory, compensatory and consequential as well, but not penal in nature. That is why the legislature in its wisdom did not mention the period upto which such interest is chargeable. But, it is certain that the interest is chargeable from the date on which the tax is due for deduction. The starting point has been envisaged in the Act but not the end-point. The 'benchmark' of the end-point is to be decided after taking into consideration various factors. The interest is chargeable, on the amount of tax to be deducted. In case the chargeable tax at source increases or decreases, the interest amount varies accordingly. But in a case where the tax was not payable at all, then in that case how an interest can be charged. The word 'compensatory' clearly suggests this conclusion. In case the tax is not payable at all, where is the question of any loss to the Revenue and for that matter why and what for the compensation is required. In wider perception, the end-point or benchmark may be either:
(i) upto the assessment order of the deductor (i.e., assessee in default) or
(ii) upto the assessment order of the recipient (payee), or
(iii) upto the end of the financial year in which it was to be deducted.
But in this case, the tax was not deductible, which fact stands established on record. Therefore, Clauses (i) and (ii) as above, cannot apply in this case. Let us see whether Clause (iii) will apply or not. Now, the question arises that when the tax is not deducted and thereafter it has never been deducted or paid then, upto what date the interest is to be levied. Certainly it cannot be levied for infinite period. Interest is always compensatory in nature and should be levied for a period for which there is loss of tax to the Revenue. If it is examined that for how much period there is loss of tax to the Revenue one can find out that, in any case, it is upto the end of the year, i.e., 31st March of the concerned financial year. In case the payee has paid the entire taxes as advance tax or no tax is payable by the payee due to losses in his case and tax has been deducted in his case, the same shall have to be refunded back to him along with interest under Section 244A. Therefore, the maximum loss of taxes to the Revenue, in such cases is loss for the period from the due date of deduction to the date of the year end i.e., 31st March of the financial year.
19. The decision of Hon'ble Gujarat High Court in the case of CIT v. Rishikesh Apartments Co-operative Housing Society Ltd. is the only decision of any High Court, which guides us in this respect. The facts of the case were as under:
The assessee is a co-operative society who had entered into two contracts with Ravi Builder for construction of its building. From the amount, which was to be paid by the assessee society to the contractor, the assessee did not deduct any amount of tax, which it was required to deduct as per the provisions of Section 194C of the Act. It is pertinent to note that though the assessee society did not deduct the amount of tax as per the provisions of Section 194C of the Act, Ravi Builder, the contractor, had paid advance tax as well as tax on self-assessment with respect to the amount received by it from the assessee society. As the assessee society had not deducted the tax at source, in the process of assessment of the income of the assessee society for the asst. yrs. 1974-75 to 1977-78, the AO charged interest under the provisions of Section 201(1A) of the Act, on the tax which was deductible by the assessee society from the amount which was paid to the contractor. It was the case of the assessee that though no tax was deducted from the amount payable to the contractor, the contractor had already paid tax and, therefore, interest under the provisions of Section 201(1A) could not have been levied by the Revenue on the assessee but the said argument of the assessee did not find favour with the AO.
We would like to reproduce the major part of this decision to understand the ratio of this decision:
We have heard Mr. Akil Qureshi, the learned advocate, appearing for the Revenue, and Mr. Bhargav Karia, the learned advocate appearing for the respondent assessee.
Mr. Akil Qureshi, the learned advocate, appearing for the Revenue, has submitted that as per the provisions of Section 194C of the Act, the assessee was duty-bound to deduct income-tax from the amount which the assessee had paid to Ravi Builder. As income-tax had not been deducted by the assessee society under the provisions of Section 194C of the Act, the society had committed a default and as a result thereof, the amount of tax, which ought to have been paid to the Revenue was not paid and, therefore, the AO had rightly levied the interest as per the provisions of Section 201(1A) of the Act upon the assessee.
Mr. Qureshi, in support of his submissions, has relied upon a judgment delivered in the case of CIT v. Darshan Trading & Finance (P) Ltd. (1995) Tax LR 1203, by this Court. In the said case, no amount of tax was deducted under the provisions of Section 194B of the Act and this Court held in the said case that the assessee was liable to pay interest under Section 201(1A) of the Act. Upon a perusal of the facts of the said case, we are of the opinion that the facts of the said case and the case, which is on hand, are absolutely different. In the case of CIT v. Darshan Trading & Finance (P) Ltd. (supra), it was submitted by the assessee and it was also held by the Tribunal that the assessee was liable to pay interest from the date of default till the date of actual payment of tax but as the tax was not paid, the amount of interest chargeable under Section 201(1A) could not have been quantified. This Court, in the said case did not approve the view expressed by the Tribunal and looking to the facts of the case, this Court opined that the assessee was liable to pay interest under Section 201(1A) of the Act.
On the other hand, Mr. Karia, the learned advocate appearing for the assessee, has submitted that the assessee had to deduct tax from the amount payable to Ravi Builder and as Ravi Builder had admittedly discharged its liability with regard to payment of tax, no loss of whatsoever type had been caused to the Revenue. It was not proper on the part of the Revenue to levy any interest under Section 201(1A) of the Act on the assessee especially when the tax payable by Ravi Builder had already been paid to the Revenue. As a matter of fact, as submitted by Mr. Karia and held by the AAC, much more amount of advance tax was paid by the contractor than what was payable by it for both the years in question. He has, therefore, submitted that the law as interpreted by the Tribunal is just and proper and, therefore, the reference should be decided in favour of the assessee.
We have heard the learned advocates at length and have also perused the relevant provisions and judgments cited by them.
If one looks at the provisions of the Act which pertain to imposition of tax, it is very clear that as per the provisions of Section 4 of the Act, which is the charging section, the tax is to be paid on the income of the assessee and as per the provisions of the Act, the said tax can also be deducted at source. The portion of the tax which was payable by Ravi Builder was to be paid by the assessee by deducting tax at source under the provisions of Section 194C of the Act. When the assessee was supposed to deduct tax at source and pay the same to the Revenue, the assessee had to pay the same on behalf of Ravi Builder, one who was in fact liable to pay the tax on the income which was earned from the amount which was paid by the assessee to Ravi Builder. According to the provisions of Section 190 of the Act, in certain cases, as provided under Chapter XVII of the Act, the tax is to be paid by deduction at source. The said amount is to be deducted by way of tax by the person who has to make payment to the concerned person and as per the provisions of Section 199 of the Act, whenever any person who deducts tax before making payment to another person pays the same to the Central Government, he pays the tax which is payable by the payee of the said amount. Thus, the assessee was to pay an amount of tax on behalf of Ravi Builder by deducting the same from the amount payable to it under the provisions of Section 194C of the Act.
If one looks at the fact whether Ravi Builder had in fact paid the amount of tax payable by it on the amount, which was paid to it by the assessee, one finds that Ravi Builder had paid the tax. In fact for both the years, it had paid more advance tax than what was payable by it. Thus, the entire amount of tax which was payable by it had been duly paid. Had Ravi Builder not paid tax on the amount, which it had received from the assessee, the Revenue could surely saddle the assessee with the liability of payment of interest under the provisions of Section 201(1A) of the Act. But in the instant case, as Ravi Builder had already paid the tax on the income, in our opinion, there was no question of levying any interest on the assessee as the amount which was payable to the Revenue had been duly paid. In other words, we may say that the liability of the assessee society to make deduction at source and pay the tax to the Revenue is not independent of the liability of the contractor or Ravi Builder to pay the tax. If assessment in relation to income of Ravi Builder, i.e., the contractor, had become final and no further tax was found due from Ravi Builder, that would put an end to the liability of the assessee society and as the assessee society was not liable to make any payment of tax on behalf of the contractor, no amount of interest could be leviable under the provisions of Section 201(1A) of the Act. If one looks at the facts of the present case, it is not in dispute that Ravi Builder, on whose behalf the tax was to be deducted and paid under Section 194C of the Act had paid more amount of tax by way of advance tax than what was payable and had also paid tax on self-assessment. Thus, it is not at all in dispute that for the relevant two years the amount of tax was paid by Ravi Builder on its income as per the provisions of the Act, and for the other two years, tax was paid by Ravi Builder a little late. So far as the late payment is concerned, the AAC held that the assessee had to pay interest under Section 201(1A) for the said years and the assessee accepted the said finding. Thus, it can very well be seen that the facts of the case which has been relied upon by Mr. Qureshi cannot help the Revenue for the reason that in the said case it was not known whether the person on whose behalf the tax was to be paid to the Revenue had in fact paid the tax payable by him. In the instant case, the contractor, viz., Ravi Builder, had admittedly paid the amount of tax payable by it and thus no loss of whatsoever nature had been caused to the Revenue on account of non-deduction of tax at source by the assessee.
In these facts it was held by the Hon'ble Court that:
From the legal provisions discussed hereinabove, it is crystal clear that in the instant case Ravi Builder, on whose behalf the tax was to be paid by the assessee, had duly paid its tax and was not required to pay any tax to the Revenue in respect of the income earned by it for the assessee. If the tax was duly paid and that too at the time when it had become due, it would not be proper on the part of the Revenue to levy any interest under Section 201(1A) of the Act especially when Ravi Builder had paid more amount of tax by way of advance tax than what was payable by it. As the amount of tax payable by the contractor had already been paid by it and that too in excess of the amount which was payable by way of advance tax, in our opinion, the Tribunal was absolutely right in holding that the tax paid by the contractor in its own case, by way of advance tax and self-assessment tax, should be deducted from the gross tax that the assessee should have deducted under Section 194C of the Act while computing interest chargeable under Section 201(1A) of the Act. If the Revenue is permitted to levy interest under the provisions of Section 201(1A) of the Act, even in a case where the person liable to pay the tax has paid the tax on the date due for the payment of the tax, the Revenue would derive undue benefit or advantage by getting interest on the amount of tax which had already been paid on the due date. Such a position, in our opinion, cannot be permitted.
In view of the aforesaid reasons, we answer the question in the affirmative, i.e., in favour of the assessee and against the Revenue. The reference is thus answered accordingly and is disposed of with no order as to costs.
Thus, the Hon'ble Gujarat High Court in CIT v. Rishikesh Apartments Co-operative Housing Society Ltd. (supra) has held that where the entire tax had been paid by the payee as advance tax and tax on self-assessment, interest under Section 201(1A) could not be levied.
20. The latest decision of the Hon'ble jurisdictional High Court in this regard was given in the case of CIT v. Rajasthan Rajya Vidyut Prasaran Nigam Ltd. (2007) 161 Taxman 133 (Raj), a copy of this judgment has been filed. In this case it has been held by Their Lordships that when there is failure to deduct tax and to pay when the tax has already been paid by the recipient and had claimed refund, no interest under Section 201(1A) can be levied. The judgment of the Hon'ble jurisdictional High Court is binding upon us. This is a direct authority on this issue, which supports the claim of the assessee.
21. In the given case the payees had to pay no tax as stated above. Therefore, in our view even by applying the ratio of the decision of Hon'ble jurisdictional High Court (supra), in our considered view, no interest can be charged under Section 201(1A). The Hon'ble Rajasthan High Court has held that the levy of interest is mandatory, which can be charged from the relevant date of deduction till the same is subsequently paid by the payee. We are in total agreement with the above proposition. But, when the recipient did not pay such a tax as they had nothing to pay, would it mean that it would be charged infinitely. No, this cannot be the intention of the legislature. The charging of interest is only compensatory in nature and when no tax is payable, no interest can be charged.
22. This view, analogically, finds support from the decisions of Hon'ble Gujarat, High Court and Hon'ble Rajasthan High Court and the decisions of the Jodhpur and the Delhi Benches. Therefore, no interest under Section 201(1A) can be charged in this case.
23. In the result, the appeal of the assessee is allowed and that of the Revenue is dismissed.