High Court Of Delhi
CIT vs. Majestic Hotel Ltd.
Sections 194A, 201(1), 201(1A)
Asst. Years 1995-96, 1996-97, 1997-98, 1998-99, 1999-2000, 2000-01, 2001-02, 2002-03
T.S. Thakur & Shiv Narayan Dhingra, JJ.
IT Appeal Nos. 723, 724 & 726 to 737 of 2006
2nd June, 2006
Counsel Appeared
R.D. Jolly & Ms. Sonia Mathur, for the Appellant : Ajay Vohra & Ms. Kavita Jha, for the Respondent
JUDGMENT
T.S. Thakur, J. :
All these appeals arise out of a common order passed by the Tribunal, Delhi Bench and shall stand disposed of by this order. Before adverting to the questions that arise for consideration, it is necessary to briefly state the facts giving rise to these appeals. The respondent-company is running a five-star hotel in Ludhiana, Punjab. In the course of a survey of the premises of the respondent, it was found that it had failed to deduct tax at source under s. 194A of the IT Act, 1961 (for short “the Act”), while paying interest on the loan borrowed by the respondent from the Tourism Finance Corporation of India Ltd. (“TFCI”). The AO held the respondent-company to be ‘an assessee in default’ in terms of s. 201(1) of the Act for the financial years 1994-95 to 2001-02. An aggregate tax liability of Rs. 3,41,46,984 was, on that basis, determined against the respondent. In addition, a sum of Rs. 2,13,89,341 towards interest was held payable by it under s. 201(1A) of the Act. Aggrieved by the said order, the respondent appealed to the CIT(A) and argued that payments made to TFCI towards interest were immune from any deduction at source in terms of s. 194A(3) (iii)(b) of the Act. It was alternatively argued that even if the deduction at source was in law necessary, the respondent could not be treated as ‘an assessee in default’ as it was labouring under a bona fide belief that TFCI was covered under the provisions mentioned above and payments made to it were exempt from any deduction at source. Reliance was also placed by the assessee upon a notification issued by the Central Government notifying TFCI for purposes of s. 194A(3)(iii)(b) of the Act. The said notification, it was argued, was applicable retrospectively to grant immunity from deduction even in regard to payments made to the Corporation before the same was issued. The CIT(A) repelled all these contentions. The CIT(A) held that TFCI did not fall under s. 194A(3)(iii)(b) of the Act nor was the notification relied upon by the respondent applicable retrospectively. The CIT(A) was also of the opinion that no defence based on “reasonable cause” or “bona fide belief” justifying non-deduction of tax at source was available to the assessee in proceedings meant to determine whether the assessee was or was not in default. Repelling the contention that the order passed by the AO was not made within a reasonable period, the CIT(A) remitted the matter back to the AO to ascertain whether the TFCI had paid the amount of tax due on the amount received by it from the assessee and if so, to give credit of such payments to the respondent while recalculating the short deduction, if any. Dealing with the question of payment of interest on the amount of tax which should have been but was not deducted, the CIT(A) observed : “The appellant cannot escape the liability to pay interest under s. 201(1A) of the Act on the ground that the tax had been paid by the deductee. CBDT circular of 29th Jan., 1997 referred to earlier clarifies that liability to charge interest under s. 201(1A) of the Act till the date of payment of taxes by the deductee does not get altered even if the taxes were paid by the deductee assessee. Interest under s. 201(1A) of the Act is mandatory and there is no precondition of consideration of reasonable cause or ‘good and sufficient cause’. In fact proviso to s. 201 incorporates the principle of ‘good and sufficient’ reasons but only for the purposes of penalty under s. 221. The language of s. 201(1A) uses the term ‘shall’. Interest under s. 201(1A) of the Act is mandatory and automatic and is compensatory in nature as held by Delhi High Court in the case of CIT vs. Prem Nath Motors (P) Ltd. (2001) 170 CTR (Del) 424 : (2002) 253 ITR 705 (Del). This proposition is also supported by Kerala High Court judgment in the case of CIT vs. K.K. Engineering Co. (2001) 167 CTR (Ker) 209 : (2001) 249 ITR 447 (Ker), Bombay High Court judgment in the case of Pentagon Engineering (P) Ltd. vs. CIT (1996) 131 CTR (Bom) 78 : (1995) 212 ITR 92 (Bom) and Gauhati High Court judgment in the case of CIT vs. Assam Small Industries Development Corporation Ltd. (1996) 134 CTR (Gau) 354 : (1996) 219 ITR 324 (Gau). Interest for the period commencing from the date of deductibility of tax till the payment by the deductee shall, therefore, be charged under s. 201(1A) of the Act.”
4. Aggrieved by the common order passed by the CIT(A) for all the financial years, the parties preferred cross- appeals before the Tribunal. While the respondent-assessee assailed the finding recorded by the CIT(A) that the assessee was in default under s. 201(1) of the Act in relation to payments made to TFCI, the Revenue was in appeal before the Tribunal on the question of deletion of the amount of tax which, according to it, should have been deducted apart from levy of interest only upto date the payee had made the payment of tax. The Tribunal has, by the common order impugned in these appeals, dismissed the appeals filed by the Revenue while allowing those filed by the assessee. The Tribunal held that payments made to TFCI were not exempt from TDS under s. 194A(3)(iii)(b) of the Act. It further held that assessee was under a bona fide belief that tax was not required to be deducted from the payment of interest to TFCI.
5. On the question of limitation, the Tribunal was of the opinion that the AO ought to have made an order within a period of four years as held by it in the case of Raymond Woollen Mills vs. ITO (1997) 57 ITD 536 (Bom) and that the order in the present case, was beyond the said period. The Revenue has, in these appeals, assailed the correctness of the said finding. The following substantial question of law arises for our consideration : “Whether the Tribunal was right in law in holding that the assessee could not be treated to be in default under s. 201 of the IT Act as he was under a bona fide belief that the payments made to TFCI were exempt from deduction of tax at source under s. 194A(3)(iii)(b) of the said Act. If so, what is the effect of non-deduction of the tax in the facts and circumstances of the present case?”
6. We have heard learned counsel for the parties at some length and perused the record. As seen earlier, one of the points that was argued before the CIT(A) and the Tribunal was whether payment to TFCI was exempt from deduction from tax at source. The CIT(A) as also the Tribunal have both held and, in our opinion, rightly so that such payments were not exempt from deduction at source. That finding is in favour of the Revenue and in the absence of any appeal by the AO (sic–assessee) against the same, we are not called upon to examine the correctness thereof. Learned counsel for the parties have, therefore, argued these appeals on the assumption that the payments made to TFCI were not exempt from deduction of tax at source.
7. Mr. Jolly contended that the Tribunal was in a palpable error in holding that the respondentassessee was under a bona fide belief that payments made to TFCI were not (sic) exempt from deduction of tax at source. He urged that there was neither any basis for recording that finding nor was any such consideration germane to the question whether the assessee was in default. We find merit in those submissions. The AO and the CIT(A) had both repelled the contention based on the alleged bona fide belief of the assessee that payments made to TFCI were exempt from TDS. There is indeed no material to support the plea of bona fide belief of the assessee nor has any such evidence been referred to or discussed in the order impugned in these appeals. More importantly the question whether the assessee had any bona fide belief or reasonable cause for not making the deduction at source was wholly irrelevant to the question whether it was in default within the meaning of s. 201 of the Act. It was only for purposes of levy of a penalty as contemplated under s. 201 r/w s. 221 of the Act that the sufficiency of reasons for the failure to deduct or to pay the tax assume importance. That is evident from the proviso to s. 201(1) of the Act, which reads as under : “201. (1) If any such person referred to in s. 200 and in the cases referred to in s. 194, the principal officer and the company of which he is the principal officer does not deduct the whole or any part of the tax or after deducting fails to pay the tax as required by or under this Act, he or it shall, without prejudice to any other consequences which he or it may incur, be deemed to be an assessee in default in respect of the tax : Provided that no penalty shall be charged under s. 221 from such person, principal officer or company unless the AO is satisfied that such person or principal officer or company, as the case may be, has without good and sufficient reasons failed to deduct and pay the tax.”
8. Even under s. 273B of the Act, the reasonableness of the cause for the imposition of a penalty is relevant only in relation to the provisions referred to in the said section. Levy of interest under s. 201(1A) of the Act is neither treated as a penalty nor has the said provision been included in s. 273B to make “reasonableness of the cause” for the failure to deduct a relevant consideration. The Tribunal was, in that view of the matter, in error when it held that assessee had a bona fide belief that the payments made by it were exempt from deduction at source or that any such belief was in any way relevant leave alone sufficient to absolve the assessee of its obligation to pay interest at the stipulated rate. It was next argued by Mr. Jolly that if payments to TFCI were not exempt as has been held by the authorities below and the alleged bona fide belief was irrelevant as we have observed above, the assessee must be deemed to be in default for purposes of s. 201(1) in which event the consequences envisaged in sub-s. (1A) of s. 201 must flow unhindered. He contended that failure to deduct tax at source would make not only the amount of tax that ought to have been deducted recoverable from the assessee but also the interest on the said amount at the stipulated rate calculated from the date on which the said tax was deductible to the date such tax was actually paid. Inasmuch as the Tribunal had overlooked the true legal position, it had committed an error apparent on the face of the record.
On behalf of the respondent, it was contended by Mr. Vohra that even in cases where the assessee was in default, the Revenue could not recover the amount of tax twice over by insisting that the person liable to make the deduction should not only pay interest but the principle amount of tax also. He contended that in cases where tax had been paid by the deductee, the person responsible to make the deduction at source will not be liable to make any further payment. All that was necessary in such cases was payment of interest under s. 201(1A) of the Act from the date the amount should have been deducted till the date the deductee-assessee has paid the tax. In support of the submission he relied upon the instructions issued by the CBDT dt. 29th Jan., 1997. He contended that pursuant to the order passed by the CIT(A), the AO has verified whether the payee/deductee has paid taxes on the amounts received from the assessee and come to the conclusion that such payments had in fact been made by the deductee in the form of advance tax. The AO had, taking note of such payments, determined a total amount of Rs. 67,110 (sic) towards interest for the financial years in question. That payment had, according to Mr. Vohra, been already made by the assessee leaving no other angle or issue to be examined by this Court. It was submitted by Mr. Vohra that if this Court came to the conclusion that interest was indeed payable upto date the deductee made the payments of tax, the payments already made pursuant to the order passed by the AO, should satisfy the Revenue and the appeals disposed of without going into the question whether the assessment orders made by the AO were within or beyond the period of limitation.
In the light of what we have observed earlier there can be no dispute that the assessee was in default on account of its failure to make the deductions at source. That default would render it liable to pay the tax amount as also interest on the same after giving it credit for the payments if already made by the deductee. That is precisely what was directed by the CIT(A). Consequently, the AO had, on the basis of information available with him, examined the matter and came to the conclusion that no amount remained outstanding against the deductee for any one of the financial years. The deductee has admittedly paid the entire amount of tax for all the assessment years in advance. The AO has determined the amount of interest payable by the assessee in terms of s. 201 (1A) from the date the tax was deducted upto the date the same was actually paid, which amount has also been deposited by the assessee. There is, in our opinion, no escape from the liability arising from s. 201(1A) in case where the assessee does not deduct or does not pay after deduction the amount deducted. Interest at the stipulated rate is inevitable and can be legitimately recovered from the assessee in default. Mr. Jolly’s submission, that the expression ‘date on which such tax was actually paid’ must relate to the date when tax is paid by the assessee, needs notice only to be rejected. If tax has been paid by the deductee as is the position in the instant case, there is no question of the assessee paying the same over again either in full or part. Tax could be recovered from the assessee only once. If that be so, interest must stop accruing, the moment, the amount of tax is paid to the Revenue. It is immaterial whether the tax is paid by the deductee or the assessee who had made the deduction. What is significant is that the interest which is compensatory in character is paid to the Revenue till the date the amount of tax is actually deposited. That is precisely what has been done in the instant case. The question framed earlier is answered accordingly. In the result, we allow these appeals; set aside the order passed by the Tribunal and restore that passed by the CIT(A). Parties are, however, left to bear their own costs.
[Citation : 293 ITR 185]
