TMI Blog2002 (8) TMI 258X X X X Extracts X X X X X X X X Extracts X X X X ..... 1st March, 2000. The assessee was required to deduct tax at source on such income in terms of the provisions contained in s. 194A. However, the assessee did not deduct the tax at source. The AO enquired from the assessee the reasons for such non-deduction. It was, in turn, pleaded by the assessee that the required tax deduction at source was not made as the recipient holding company, Wipro Ltd., had promised to furnish an exemption certificate in terms of s. 197(1) of the Act. Subsequently, such certificate was not furnished by the recipient-company, but it claimed that an adequate amount of tax was deposited with the Government before April, 2000. On this basis, if was argued that the recipient-company had complied with the requirements of s. 191 of the Act for having made good the default of the assessee is not deducting the tax at source. The assessee also submitted that as the impugned interest income has been credited to the account of the recipient on the last day of the accounting year, therefore, in accordance with r. 30(1)(b)(i) of IT Rules, 1962, the assessee had time till 31st May, 2000, to deposit the same with the exchequer, whereas the recipient had deposited a sum of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f deposit of tax deductible by the assessee in the instant case was 31st May, 2000, while factually it could be appreciated that the impugned amount deposited with the Government on 16th March, 2000, and if not so, latest by 28th April, 2000, wherein an amount of Rs. 7.92 crores was paid, the only difference being that the said amount was deposited by the recipient of the income instead of the assessee itself. 3(ii). It was further submitted by the learned counsel that the levy of interest under s. 201(1A) is to be regarded as compensatory in nature. The objection being to compensate the exchequer for the delay in depositing and for withholding the taxes which ought to have been deposited with the Government before the specified dates. Ostensibly, it was submitted that on the due date of 31st May, 2000, there was no amount left to be paid by the assessee as the same was paid by the recipient and that also within the time prescribed under law, hence, the assessee could not be deemed to have been in default in terms of s. 201(1A). The counsel for the assessee placed heavy reliance on the decision of the 'E' Bench of the Delhi Tribunal in ITO vs. Sood Enterprises (1992) 41 ITD 234 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... follows : Pentagon Engineering (P) Ltd. vs. CIT (1996) 131 CTR (Bom) 78 : (1995) 212 ITR 92 (Bom), CIT vs. Rathi Gum Industries (1995) 127 CTR (Raj) 413 : (1995) 213 ITR 98 (Raj), CIT vs. Premnath Motors (P) Ltd. (2002) 253 ITR 705 (Del), as also Grindlays Bank Ltd. vs. CIT (1992) 101 CTR (Cal) 164 : (1993) 200 ITR 441 (Cal). 4(ii). With regard to the assessee's argument that the interest was not leviable as the recipient had paid the taxes on 16th March, 2000 and 28th April, 2000, i.e., within the due dates, the learned Departmental Representative assailed the same by taking the following argument. Although the factum of recipient having paid the taxes was not in dispute, the learned Departmental Representative submitted that whether the recipient had paid taxes on the relevant income could be verified/or scrutinised by the AO only on the scrutiny of the return of the recipient. According to him, the factum of the recipient having paid the taxes corresponding to the liability that was visited on the assessee to pay the tax, could be gauged only at that point of time and, therefore, according to him, the assessee was liable to pay interest till such date as the AO scrutinise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to pay such tax to the credit of the Government. Sub-s. (1) of s. 201 requires collection of tax which has not been deducted in total or in part or after having deducted there is a failure to deposit the same as required under the Act. The assessee in the present case, has not been held to be an assessee-in-default in accordance with sub-s. (1) of s. 201. This is primarily because of the fact that there is no dispute to the effect that the impugned amount of tax has indeed been deposited with the Government. It would also be relevant here to refer to the circular/instruction of the CBDT F. No. 276/201/95-IT(B), dt. 29th Jan., 1997, which is placed in the paper book before us. It is opined therein that the demand envisaged under s. 201(1) of the Act need not be enforced by the Revenue if it is found that the taxes due therein have been paid by the deductee i.e., the recipient. The next provision which is relevant is s. 201(1A). This section provides for charging of interest by the Revenue on the amount of tax not deducted or after deducting there is a failure to pay the tax as required by the Act. Such interest is chargeable on the amount of impugned tax "from the date on which suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax but also the levy of interest. Therefore, the action of the lower authorities in treating the assessee to be in default under s. 201(1A) is not correct. 5(iv). Now, coming to the argument of the learned Departmental Representative to the effect that the levy of interest under s. 201(1A) is not only compensatory but also mandatory and it is attracted automatically as soon as the default is committed. In this regard, we do not have any quarrel with the aforesaid principle, but the same can be applied only if such circumstances exist. Admittedly in the instant case, the tax has been deposited to the credit of the Government within the due date envisaged by the Act, albeit not by the assessee but by the recipient. We appreciate the argument of the learned Departmental Representative with regard to the compulsory and mandatory nature of the levy, but the same is to be understood as to operate to the extent it is required to compensate the exchequer for withholding the tax which ought to have gone to it within the time prescribed in law. In other words, in our considered view, the levy of interest under s. 201(1A) is undoubtedly mandatory and automatic but only to the extent wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at there was no cause for the Revenue to have levied interest under s. 201(1A) having regard to the facts and circumstances of the case. 6. Before we part with the issue, we would like to discuss some of the case laws relied upon by the rival counsel. The learned Departmental Representative and the first appellate authority have relied upon the decision of the Hon'ble High Court of Kerala in CIT vs. Dhanalakshmy Weaving Works. Briefly the facts, before the Hon'ble Court the assessee-firm therein paid interest to the lender without deducting the tax at source. The assessee therein produced before the AO, evidence to show that the income-tax assessments of the lenders were already completed admitting interest received from the assessee and the taxes were also paid by the lender on such assessment. The Revenue in accordance with the provisions of s. 194A of the Act held the assessee to be liable for interest under s. 201(1A) even though not treating the assessee in default in accordance with s. 201(1). Against the aforesaid factual matrix, the Hon'ble High Court of Kerala held that the levy of interest was of compensatory nature for withholding the tax which ought to have gone to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e only difference being that it was paid by the recipient and not by the assessee itself. Therefore, the ratio of this decision in our considered view is not attracted having regard to the facts and circumstances of the present case. 6(ii). Another decision relied upon by the Revenue is of the Bombay High Court in Pentagon Engineering (P) Ltd. vs. CIT. The facts of the case before the Hon'ble Bombay High Court were that the assessee therein had failed to remit within the prescribed time into the Government treasury the taxes that had been deducted from the salaries paid to the employees. The Revenue levied interest under s. 201(1A) of the Act from the date on which the salaries were payable to the employees up to the date on which the taxes were to be paid into the Government treasury. The assessee canvassed that the levy of interest was not mandatory and there was a precondition of appraising the existence of a reasonable cause for non-payment of taxes before interest under s. 201(1A) could be levied. It was against the aforesaid facts the Hon'ble Bombay High Court held that the liability to pay interest was mandatory and that there was no precondition of considering the presen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. In the present case, the assessee who has entered into agreements with different persons, it cannot be possible nor it has been discussed or found as a fact by the Tribunal that the tax amount was deposited in time. The view which has been taken by the Tribunal following the decision of the Kerala High Court referred to above is not applicable to the facts of the present case as that was a case where the assessment was already completed and the tax was paid and thereafter proceedings under s. 201 were initiated to demand further tax/interest from the employer." The underlined portion of the aforesaid extract provides an insight into the reasoning that prevailed with the Hon'ble Court to conclude that the levy of interest under facts as found therein was attracted. The plea of the assessee to the effect that the taxes were deemed to have been collected in the hands of the recipient was rejected and it was so held by the High Court in the following extract: "The provision of s. 201 provides not only for collection of tax which has not been deducte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Against the aforesaid facts, the Tribunal therein had accepted the plea that no interest under s. 201(1A) was leviable on the ground that one of the lender concerns had filed a loss return and the other lender concern had claimed refund. The Hon'ble High Court reversed the decision of the Tribunal by holding that the provision requiring deduction of tax on interest payment does not make the duty to effect deduction contingent upon the likely liability to tax in the hands of the recipient of such income. The Hon'ble High Court found that one of the lender-concerns which had filed the loss return was at the time of assessment found liable to pay tax and the other lender-concern which had claimed refund at the time of filing the return was found during the course of assessment not entitled to refund. Under these circumstances the Hon'ble High Court held that the assessee therein had a duty to deduct the tax at source, which the assessee had failed to do; hence the interest under s. 201(1A) was attracted. The facts of the instant case before us are on a different footing. The aforesaid decision of the Madras High Court does not envisage the situation wherein the recipient of income h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arch, 2000. The aforesaid plea was rejected by the AO and the penalty was levied under s. 271C. The AO while doing so noticed that the reasonable cause pertaining to the obtaining of the certificate under s. 197 for nil deduction was only an afterthought as the recipient-company could not have obtained the same in view of its positive taxable income. The AO also disapproved of the assessee's argument to the effect that the ultimate tax liability having been discharged by the recipient, and held that it was of no help to the assessee and held it liable for non-compliance with the requirements of s. 194A. Aggrieved by the aforesaid findings, the matter was carried in appeal before the first appellant authority wherein similar arguments were taken by the assessee. The first appellate authority has sustained the action of the AO. The first appellate authority did not find any substance in the argument that the non-deduction was with reasonable cause arising out of the bona fide belief that the recipient would furnish the certificate as promised and such non-furnishing was a circumstance beyond the control of the assessee. According to the first appellate authority, as the assessee-comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dia Project Office vs. ITO Ors. (1995) 123 CTR (Del) 416 : (1994) 210 ITR 260 (Del), Tribunal decision of Delhi "C" Bench in Mitsui Co. Ltd. vs. Dy. CIT (1999) 65 TTJ (Del) 1 as also the decision of the Tribunal, Bangalore Bench in P.C. Mohan vs. Asstt. CIT (1993) 47 TTJ (Bang) 221 : (1993) 45 ITD 251 (Bang). 9.(ii). The learned counsel submitted that the reason for the assessee for not deducting the tax at source on 31st March, 2000, was the explicit promise made by the recipient-company to furnish prescribed certificate under s. 197(1) for nil deduction of tax at source. He submitted that this imbibed in the assessee a bona fide belief that the said certificate shall be forthcoming and, therefore, it was not required to deduct the tax at source. It was only subsequently it transpired that the said certificate was not forthcoming. Therefore, at a subsequent date, the only recourse open to the assessee was to ensure that the default is made good by depositing the tax due within the time stipulated for the assessee to deposit the same. It was submitted that after 31st March, 2000, the assessee could not have deducted the tax at source and, therefore, the only recourse open wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 ITR 503 (Guj) in this regard. The learned Departmental Representative submitted that the averments regarding the furnishing of certificate under s. 197 was merely an afterthought as by the date of deduction i.e., 31st March, 2000, evidently the recipient-company has not even made an application in this regard to its AO. 10(i). With regard to the reliance placed by the assessee on the case of Hindustan Steel Ltd. the learned Departmental Representative made the following argument. Our attention was drawn to the following observations of the apex Court: "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." The learned Departmental Representative submitted that the proposition laid down by the apex Court to the effect that a technical or venial breach of the provisions of the Act should not be penalised but with the help of the aforesaid extract, it was argued that the same must be demonstrate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... secution envisaged under s. 276B are separate and independent provisions and the existence or the absences of one or the other is no bar to any one of them. 11. We have heard the rival submissions, perused the material on record as also the case laws cited at Bar. We have already in the earlier part of the order dealt with the various provisions of the Act which have a bearing on the impugned dispute. Evidently, the assessee was required in terms of s. 194A to deduct the tax at source on the income credited to the account of the recipient-company before 31st March, 2000. Failure to do so led to the invoking of penalty provisions of s. 271C, which read as under: "Sec. 271C: (1) If any person fails to: (a) deduct the whole or any part of the tax as required by or under the provisions of Chapter XVII-B; or (b) pay the whole or any part of the tax as required by or under: (i) sub-s. (2) of s. 115-O; or (ii) the second proviso to s. 194B, then such person shall be liable to pay, by way of penalty a sum equal to the amount of tax which such person failed to deduct or pay as aforesaid." The said section provides for the levy of penalty of a sum equal to the amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tself with the State authorities. 11(ii). However, in the instant case, we are dealing with the provisions relating to collection and deduction of taxes at source on various payments made by an assessee. Undoubtedly, the deduction of tax at source by a payer of income/amounts as envisaged under Chapter XVII-B is de hors the substantive taxing provisions contained in the IT Act. In fact, the entire provisions of Chapter XVII-B relating to the collection and deduction of tax at source are independent of the actual liability to tax of the recipient. Therefore, they are to be understood as sections requiring technical compliance, both procedurally and otherwise by the assessee. The distinction between the facts before the apex Court and the case before us are unambiguous, while the breach in the case of Hindustan Steel Ltd. was seen as technical and venial with regard to the substantive provisions, whereas in the instant case before us, the assessee has committed a breach of the provisions requiring technical and procedural adherence as opposed to the substantive provisions. Therefore, the provisions of Chapter XVII-B by itself being of technical nature, the said proposition of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e requirement of reasonable cause, i.e., what appears ex facie to reason. In this light, the Hon'ble Court held that such an onus was on a much milder footing than that to be discharged by the assessee in provisions under s. 201(1). 11(iv). On the other hand, the decision of the Rajasthan High Court relied upon by the Department in Universal Supplies Corpn. wherein a contrary proposition is opined by the Hon'ble Court. It is also pertinent to note that the Hon'ble High Court of Rajasthan has dealt with and referred to the decision of the Hon'ble High Court of Delhi in Sequoia Construction Co. (P) Ltd. and has departed from it by relying upon the decision of the apex Court in P. Jayappan vs. S.K. Perumal, ITO (1984) 42 CTR (SC) 180 : (1984) 149 ITR 696 (SC). The Hon'ble Court has specifically rejected the argument that in the absence of penal provisions against an assessee, the criminal element disappears and it cannot be said that the default was without any reasonable cause. It was held by the Hon'ble Court that there are separate provisions for levy of interest, penalty and criminal prosecution each having different purposes and are independent of each other. The following obs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment. I am also fortified by the judgment of the apex Court in P. Jayappan vs. S.K. Perumal, First ITO (1984) 42 CTR (SC) 180 : (1984) 149 ITR 696 (SC) wherein it was held as under: 'It is true that, as observed by this Court in Uttam Chand vs. ITO (1982) 133 ITR 909 (SC), the prosecution once initiated may be quashed in the light of a finding favourable to the assessee recorded by an authority under the Act subsequently in respect of the relevant assessment proceedings but that decision is no authority for the proposition that no proceedings can be initiated at all under ss. 276C and 277, as long as some proceeding under the Act in which there is a chance of success of the assessee is pending. A mere expectation of success in some proceeding in appeal or reference under the Act cannot come in the way of the institution of the criminal proceedings under ss. 276C and 277 of the Act. In the criminal case, all the ingredients of the offence in question have to be established in order in secure the conviction of the accused. The criminal Court, no doubt, has to give due regard to the result of any proceeding under the Act having a bearing on the question in issue and, in an appro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed view to follow the decision of the Rajasthan High Court. The Rajasthan High Court decision is a later decision and has taken into consideration the earlier decision of the Delhi High Court. Therefore, we are not inclined to agree with the argument of the assessee's counsel to the effect that as the Department has not treated the assessee in default under s. 201(1), for good and sufficient reasons the same test should also hold good as being a reasonable cause vis-a-vis the levy of penalty under s. 271C r/w s. 273B. In fact, the levy of penalty under s. 271C is independent of the other provisions of levy of interest, penalty under s. 221, prosecution under s. 276B, etc. 11(v). The only argument of the assessee's counsel left to be dealt with pertains to the existence or otherwise of a reasonable cause for not having deducted the tax at source as required under s. 194A. The reason advanced for the non-deduction is to the effect that the recipient-company made it known to the assessee that it would furnish the certificate under s. 197(1) for non-deduction of tax at source. Admittedly, the recipient is a holding company of the assessee. It can be prudent and appropriate to envisa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edients/citeria applicable to s. 273A to a case governed by s. 273B cannot be held without logic or justification. The matter may be looked at from another angle. In a hypothetical case, penalty under s. 271C is levied, and the matter is carried to the Tribunal in appeal. The Tribunal applies the parameters applicable to s. 273A and cancels the penalty levied holding that reasonable cause existed. In that event a case for reference under s. 256(1) or (2) of the Act would not arise." A perusal of the aforesaid leads to the conclusion that according to the Hon'ble High Court if in a given situation, the yardsticks which are applied for granting of waiver of penalty under s. 273A, etc. can also be used to test the efficacy of levy of penalty under s. 271C. Therefore, we proceed to test the application of the ingredients of s. 273A to the present case which is governed by s. 273B. The three conditions for allowing the waiver under s. 273A as found outlined in the aforesaid paragraphs are that firstly the assessee has prior to detection of concealment furnished particulars of its income. Secondly the assessee must have made full and true disclosure voluntarily and in good faith. Thir ..... X X X X Extracts X X X X X X X X Extracts X X X X
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