TMI Blog2000 (6) TMI 795X X X X Extracts X X X X X X X X Extracts X X X X ..... the business premises of the assessee. In the course of survey proceedings, it was observed that the assessee had allowed exemption of leave travel allowance (LTA) without verifying the actual incurrence of the expenditure as required by the provisions of section 10(5), read with rule 2B of the Income-tax Rules, 1962. Similarly, it was also noticed that the assessee had reimbursed drivers'; salary to some of the employees but the same had not been valued at cost while considering its perquisite value. According to the ITO, therefore, the assessee had committed default within the meaning of section 201 of the Act. Before the ITO, assessee had pleaded that it had acted on the declarations from the employees with regard to the details of the travel and was, therefore, justified in not deducting tax thereon. As regards reimbursement of drivers'; salary, assessee relied on rule 3(c)(ii) of the IT Rules, 1962 and contended that there was no short deduction of tax. The ITO rejected the argument of the assessee-company and accordingly passed an order under section 201 directing the company to pay the tax which was short deducted along with the interest. 3. An appeal was preferr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as included in the total computation of salary on a fair interpretation of rule 3(c)(ii) and tax was deducted therefrom on the basis thereof. Our attention was also drawn to the various decisions which were cited before the Commissioner (Appeals). In addition, reliance was also placed on the decision of the Punjab and Haryana High Court in the case of State Bank of Patiala v. CIT (1999) 236 ITR 281 in support of the proposition that section 192 did not vest any power in the employer to disbelieve the genuineness of the declarations filed by the employee. Support was also drawn from the decision of the Chandigarh Bench of the Tribunal in the case of Munak Investment (P.) Ltd. v. ITO (1995) 55 ITD 429wherein, it was held that the employer was bound by the declarations filed by the employees. Similarly, reliance was placed on the decision in Nestle India Ltd. v. Asstt. CIT (1997) 61 ITD 444(Delhi) and CIT v. Nestle India Ltd. (2000) 109 Taxman 403(Delhi). Our attention was also drawn to the order of the Mumbai High Court dated 13-6-1997 in Income-tax Application No. 39, 40 and 41 of 1997 wherein the Hon';ble High Court had declined to interfere with the order of the Tribunal [IT A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... even if he had failed to deduct tax for any reason whatsoever. At this stage, Shri Vyas relied upon certain fundamental principles of a taxing statute that a strict interpretation is required on a provision which seeks to levy a charge or on a provision which creates a vicarious liability or on a provision which is penal in nature. Section 201 is a deeming provision with regard to a person who may be deemed to be an assessee in default in the event of failure to deduct tax, but confers no power express or implied on the income-tax authority to collect from such person tax payable by any person. If such was the intention of the Legislature, section 201(1) would have been enacted in a manner similar to section 206C(6) or section 179 or section 161(1) and in the absence of such express provision in Chapter XVII, according to Mr. Vyas, Courts were forbidden from adding any words to the statute, in view of the decision of the Supreme Court in the case of Smt. Tarulata Shyam v. CIT (1977) 108 ITR 345. Our specific attention was drawn to section 190(2) which, according to him, had not affected the primary charge of tax on the assessee-employee in relation to the tax which was not deducte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held as follows : A duty is cast on an employer to form an opinion about the tax liability of his employees in respect of the salary income. While forming this opinion, the employer is undoubtedly expected to act honestly and fairly. But if it is found that the estimate made by the employer is incorrect, this fact alone, without anything more, would not inevitably lead to the inference that the employer has not acted honestly and fairly. Unless that inference can be reasonably raised against an employer, no fault can be found with him. In this view of the matter, considering the facts of the present case, it cannot be gainsaid that the assessee-company did not act fairly and in a bona fide manner. In the case of State Bank of Patiala (supra) it has been held that it was not open for the employer company to suspect that several assessee-employees had filed bogus declaration. The same view can be taken with regard to the action of the assessee-company in relying upon section 3(c)(ii) for adopting the amount with regard to the taxability of reimbursement of drivers'; salary. Thus, on the facts of the case, it has to be held that in the present case, the company has hone ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s with a view to clarify the basic legal position section 191 is enacted and placed just before the machinery for deducting tax at source starts rolling. This is also confirmed by sub-section (2) of section 190 which makes it clear that the collection and recovery of tax will not prejudice the charge created by section 4(1) of the Act. Thus, at the cost of repetition it has to be emphatically stated that there is nothing in section 191 whereby the primary obligation of the assessee is transferred to the payer of the income in the event of failure to deduct tax thereon under Chapter XVII. 12. Let us see the provisions of section 201. As observed by the Andhra Pradesh High Court (supra), section 201 is penal in nature. Therefore, the provision of section shall also have to be construed very strictly. A fair reading of section 201 indicates that it just serves the purpose of creating a fiction whereunder a person is deemed to be in default. In addition to this, section does not confer any further power of any nature whatsoever on the taxing authority. It simply prescribes a particular situation, viz., that when the company fails to deduct or after deducting fails to pay the tax it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preme Court in the case of State of UP v. Raza Buland Sugar Co. Ltd. (1979) 118 ITR 50 held as follows : The principle that is applicable in tax statutes is that the income is subject to tax in the hands of the same person only once. Thus, if an association or a firm is taxed in respect of its income the same income cannot be charged again in the hands of the members individually and vice versa. The trust income cannot be taxed in the hands of the settlor and also in the hands of the trustee as well as the beneficiary. These principles are, of course, subject to any special provision enabling double taxation in the statute. (p. 55) 14. In the present case, upon the completion of the assessment of the assessee-employee, nothing prevents the department from passing reassessment order under section 147 after including above two items in disputes and recover tax, penalty and interest from them such absurd reasons resulting in double taxation must be avoided. Accordingly, the third argument raised by Shri Vyas also requires to be accepted. 15. In view of the above, it is held that the order passed by the ITO under sections 201(1) and (1A) is hereby quashed as being bad in l ..... X X X X Extracts X X X X X X X X Extracts X X X X
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