Calcutta H.C : The interest under section 201(1A) was mandatory and automatic irrespective of the bona fide contentions/conduct of the appellant

High Court Of Calcutta

PILCOM vs. CIT (TDS), Kolkata

Assessment Year : 1995-96

Section : 201, 156

Bhaskar Bhattacharya And Sambuddha Chakrabarti, JJ.

IT Appeal No. 555 Of 2004

March 31, 2011

JUDGMENT

Bhaskar Bhattacharya, J. – This appeal under section 260A of the Income-tax Act, 1961 is at the instance of an assessee and is directed against an order dated 23-4-2004 passed by the Income-tax Appellate Tribunal, “A” Bench, Kolkata, in ITA No. 369/Kol./2004 for the assessment year 1995-96 thereby dismissing the appeal filed by the assessee against the order passed by CIT (Appeals).

2. Being dissatisfied, the assessee has come up with the present appeal.

3. It appears from the record that a Division Bench of this Court at the time of admission of this appeal formulated the following questions of law :

“(i) Whether the Tribunal was justified in law in holding that the interest under section 201(1A) was mandatory and automatic irrespective of the bona fide contentions/conduct of the appellant?

(ii) Whether and in any event, interest under section 201(1A) can be charged for the period from May 6, 1997 when the order under section 201 read with section 194E was passed and notice of demand was issued on the basis of which interest under section 220(2) has also been charged with effect from May 6, 1997 on the same amount resulting in concurrent charging of interest under section 201(1A) and section 220(2) for the period from May 6, 1997 to February 8, 2000 on the same amount?”

4. The facts giving rise to the filing of this appeal may be summed up thus :

(a) On 6-5-1997, the Income-tax Officer passed an order raising a demand of Rs. 2,18,29,300 under section 201 read with section 194E of the Income-tax Act, 1961. Against the said order dated 6-5-1997, an appeal was preferred before the Commissioner of Income-tax (Appeals) who, however, rejected the same by an order dated 17-11-1997. On further appeal, the Tribunal remanded the matter back to the Commissioner of Income-tax (Appeals) for a fresh decision.

(b) By an order dated 28-12-1998, the Commissioner of Income-tax (Appeals) partly allowed the said appeal as a result whereof the original demand stood reduced to Rs. 97,30,303. Against the said order dated 28-12-1998, the Department as well as the assessee filed two separate appeals before the Tribunal. The Tribunal by its order dated 4-1-2000 dismissed the appeal filed by the Department and gave partial relief to the assessee.

(c) Against the said order dated 4-1-2000 passed by the Tribunal insofar as the relief was not granted to the assessee, the said assessee filed an appeal under section 260A of the Act before this Court and the Department also filed an appeal under section 260A of the Act against the said order dated 4-1-2000.

(d) By an order dated January 31/1-2-2000, the Income-tax Officer gave effect to the said order dated 4-1-2000 and computed a revised demand of Rs. 38,88,731.

(e) It may not be out of place to mention here that earlier a bank guarantee for the entire demand of Rs. 2,18,29,300 was furnished pursuant to an order passed by the Tribunal on the stay application. By a letter dated 4-2-2000, the assessee informed the bank that it had not accepted the order of the Tribunal insofar as it had decided the issue against it and would be filing an appeal against the same. In such circumstances, without prejudice to its right to file appeal against the said order dated 4-1-2000 and under protest, the assessee requested the bank to honour the demand raised by the Income-tax Officer in terms of the said order of the Tribunal and in discharge of the obligation under the said bank guarantee. Accordingly, the bank paid the said sum of Rs. 38,88,731 to the Income-tax Officer.

(f) By a letter dated 8-2-2000, the Income-tax Officer requested the assessee to appear before him in connection with imposition of interest under section 201(1A) of the Act. By a letter dated 22-2-2000, the assessee duly objected to the proposal to impose interest on the ground that it was taking step to file an appeal against the said order dated 4-1-2000 before this High Court and without prejudice to its rights and contentions had already requested the bank to pay the said sum of Rs. 38,88,731. According to the assessee, since the question as to whether it was at all liable to deduct any tax would be the subject-matter of further proceedings, the question of computing any interest under section 201(1A) at that stage did not arise.

(g) Apart from the aforesaid ground, according to the assessee, it was not liable to deduct any tax under section 194E and the provisions of section 201 had no manner of application. The Income-tax Officer was requested to drop the proposal for imposing penal interest under section 201(1A).

(h) The Income-tax Officer, however, by an order dated 28-2-2000 held that the assessee was liable to pay interest under section 201(1A) which was computed by him at Rs. 26,86,697, such interest being computed on the sum of Rs. 38,88,731 from the date on which the Income-tax Officer considered that tax was deductible in the years 1993, 1994, 1995 and 1996, as the case may be, to the date on which tax was actually paid, i.e., 8-2-2000.

(i) By another order dated 28-2-2000, the Income-tax Officer without affording any opportunity to the assessee charged interest under section 220(2) amounting to Rs. 19,24,922. Such interest was calculated on the sum of Rs. 38,88,731 from the date of service of the demand notice, i.e., 6-5-1997 to the date of payment, i.e., 8-2-2000.

(j) Against the said order dated 28-2-2000, the assessee preferred an appeal before the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax (Appeals), however, by an order dated 7-12-2000 dismissed the appeal against the order imposing interest under section 220(2) of the Act holding that the same was not maintainable. By another order dated 14-12-2000, the said appellate authority upheld the levy of interest under section 201(1A) and dismissed the other appeal also.

(k) Against the said orders dated 7-12-2000 and 14-12-2000, the assessee preferred appeals before the Tribunal being ITA Nos. 370 and 369 (KOL)/2001.

(l) Both the aforesaid appeals were dismissed by the Tribunal by an ex parte order dated 18-12-2002 as “un-admitted”. However, the assessee filed application before the Tribunal for recalling the said ex parte order dated 18-12-2002 and also filed appeal under section 260A of the Act before this Court against the said order dated 18-12-2002 being ITA No. 123 of 2003.

(m) The Tribunal by order dated 14-1-2004 recalled the said ex parte order dated 18-12-2002 and as such, ITA No. 123 of 2003 filed by the assessee had become infructuous.

(n) Both the appeals thereafter were heard by the Tribunal and the Tribunal by an order dated 31-3-2004 dismissed those appeals. By the said order, the Tribunal held that interest under section 201(1A) was mandatory and automatic and that no appeal lay against the levy of interest under section 220(2) of the Act.

(o) After the receipt of the said order dated 31-3-2004, the assessee filed an application under section 264 of the Act before the Commissioner of Income-tax against the said order dated 28-2-2000 charging interest under section 220(2) contending, inter alia, that no interest under section 220(2) could be charged on any amount falling within the purview of section 201 particularly when sub-section (1A) of section 201 provided for payment of interest right up to the date of payment of the amount falling within the purview of sub-section (1). In the said application, the assessee highlighted that the interest on the sum of Rs. 38,88,731 had been concurrently charged both under section 201(1A) and section 220(2) of the Act for the period from 6-5-1997 to 8-2-2000.

(p) In view of the fact that this High Court had decided that an order charging interest under section 220(2) is not appealable under the Act and such decision had been followed by the Tribunal in the order dated 31-3-2004, the assessee felt that no purpose would be served by filing an appeal under section 260A against the said order of the Tribunal insofar as it related to interest charged under section 220(2). Accordingly, the assessee preferred appeal against the order dated 31-3-2004 by the Tribunal insofar as it related to interest charged under section 201(1A).

5. Mr. Bajoria, the learned senior Advocate appearing on behalf of the appellant, has contended before us that the procedure provided in the Act for recovery starting from section 156 of the Act, followed by the provision of section 220(1) and the consequential order under section 220(4) of the Act and the ultimate provision for recovery under section 222 are not applicable in a case where an order has been passed under section 201(1A) of the Act.

6. Mr. Bajoria, therefore, only prays for an observation in this appeal that section 201 of the Act read with sections 195 and 200 would indicate that a person responsible for deduction of tax at source in terms of section 195 is deemed to be in default if he does not either deduct the tax at source, or having deducted it, does not pay it as required by section 200 within the time prescribed under Rule 30. According to Mr. Bajoria, section 201 further indicates that the failure of such a person makes him an assessee in default, although he would not, but for the default, be an assessee in respect of the sum referred to in section 195 and it is his failure to discharge his statutory obligation that visits him with the liability of an assessee in default. Mr. Bajoria submits that the said liability is cast upon his client under the aforesaid provisions, not because of any order or notice of demand, but because of the operation of the statute itself and this is quite unlike a regular assessment under which a tax becomes payable only upon service of a notice of demand under section 156. Mr. Bajoria, therefore, submits that in such a case, there was no necessity of issuing any notice of demand in terms of section 156 of the Act.

7. The learned Advocate appearing on behalf of the revenue has, however, supported the order impugned and has prayed for dismissal of the appeal by giving answer to both the questions in favour of the revenue.

8. In order to appreciate the question involved herein it would be profitable to refer to the following provisions of the Act as it stood at the relevant point of time :

“156. Notice of demand.—When any tax, interest, penalty, fine or any other sum is payable in consequence of any order passed under this Act, the Assessing Officer shall serve upon the assessee a notice of demand in the prescribed form specifying the sum so payable :

Provided that where any sum is determined to be payable by the assessee under sub-section (1) of section 143, the intimation under that sub-section shall be deemed to be a notice of demand for the purposes of this section.

“220. (1) Any amount, otherwise than by way of advance tax, specified as payable in a notice of demand under section 156 shall be paid within thirty days of the service of the notice at the place and to the person mentioned in the notice :

Provided that, where the Assessing Officer has any reason to believe that it will be detrimental to revenue if the full period of thirty days aforesaid is allowed, he may, with the previous approval of the Joint Commissioner, direct that the sum specified in the notice of demand shall be paid within such period being a period less than the period of thirty days aforesaid, as may be specified by him in the notice of demand.

(2) If the amount specified in any notice of demand under section 156 is not paid within the period limited under sub-section (1), the assessee shall be liable to pay simple interest at one per cent for every month or part of a month comprised in the period commencing from the day immediately following the end of the period mentioned in sub-section (1) and ending with the day on which the amount is paid :

Provided that, where as a result of an order under section 154, or section 155, or section 250, or section 254, or section 260 or section 262, or section 264 or an order of the Settlement Commission under sub-section (4) of section 145D, the amount on which interest was payable under this section had been reduced, the interest shall be reduced accordingly and the excess interest paid, if any, shall be refunded :

Provided further that in respect of any period commencing on or before the 31st day of March, 1989 and ending after that date, such interest shall, in respect of so much of such period as falls after that date, be calculated at the rate of one and one-half per cent for every month or part of a month.

(2A) Notwithstanding anything contained in sub-section (2), the Chief Commissioner or Commissioner may reduce or waive the amount of interest paid or payable by an assessee under the said sub-section if he is satisfied that :—

(i) payment of such amount has caused or would cause genuine hardship to the assessee;

(ii) default in the payment of the amount on which interest has been paid or was payable under the said sub-section was due to circumstances beyond the control of the assessee; and

(iii) the assessee had co-operated in any inquiry relating to the assessment or any proceeding for the recovery of any amount due from him.

(3) Without prejudice to the provisions contained in sub-section (2), on an application made by the assessee before the expiry of the due date under sub-section (1), the Assessing Officer may extend the time for payment or allow payment by instalments, subject to such conditions as he may think fit to impose in the circumstances of the case.

(4) If the amount is not paid within the time limited under sub-section (1) or extended under sub-section (3), as the case may be, at the place and to the person mentioned in the said notice the assessee shall be deemed to be in default.

(5) If, in a case where payment by instalments is allowed under sub-section (3), the assessee commits defaults in paying any one of the instalments within the time fixed under that sub-section, the assessee shall be deemed to be in default as to the whole of the amount then outstanding, and the other instalment or instalments shall be deemed to have been due on the same date as the instalment actually in default.

(6) Where an assessee has presented an appeal under section 246 or section 246A the Assessing Officer may, in his discretion and subject to such conditions as he may think fit to impose in the circumstances of the case, treat the assessee as not being in default in respect of the amount in dispute in the appeal, even though the time for payment has expired, as long as such appeal remains undisposed of.

(7) Where an assessee has been assessed in respect of income arising outside India in a country the laws of which prohibit or restrict the remittance of money to India, the Assessing Officer shall not treat the assessee as in default in respect of that part of the tax which is due in respect of that amount of his income which, by reason of such prohibition or restriction, cannot be brought into India, and shall continue to treat the assessee as not in default in respect of such part of the tax until the prohibition or restriction is removed.

Explanation.—For the purposes of this section, income shall be deemed to have been brought into India if it has been utilised or could have been utilised for the purposes of any expenditure actually incurred by the assessee outside India or if the income, whether capitalised or not, has been brought into India in any form.

222. Certificate of Tax Recovery Officer.—(1) When an assessee is in default or is deemed to be in default in making a payment of tax, the Tax Recovery Officer may draw up under his signature a statement in the prescribed form specifying the amount of arrears due from the assessee (such statement being hereafter in this Chapter and in the Second Schedule referred to as “certificate”) and shall proceed to recover from such assessee the amount specified in the certificate by one or more of the modes mentioned below, in accordance with the rules laid down in the Second Schedule—

(a) attachment and sale of the assessee’s movable property;

(b) attachment and sale of the assessee’s immovable property;

(c) arrest of the assessee and his detention in prison;

(d) appointing a receiver for the management of the assessee’s movable and immovable properties.

Explanation.—For the purposes of this sub-section, the assessee’s movable or immovable property shall include any property which has been transferred, directly or indirectly on or after the 1st day of June, 1973, by the assessee to his spouse or minor child or son’s wife or son’s minor child, otherwise than for adequate consideration, and which is held by, or stands in the name of any of the persons aforesaid; and so far as the movable or immovable property so transferred to his minor child or his son’s minor child is concerned, it shall, even after the date of attainment of majority by such minor child or son’s minor child, as the case may be, continue to be included in the assessee’s movable or immovable property for recovering any arrears due from the assessee in respect of any period prior to such date.

(2) The Tax Recovery Officer may take action under sub-section (1), notwithstanding that proceedings for recovery of the arrears by any other mode have been taken.

201. Consequence of failure to deduct or pay.—(1) Where any person, including the principal officer of a company, :—

(a) who is required to deduct any sum in accordance with the provisions of this Act; or

(b) referred to in sub-section (1A) of section 192, being an employer, does not deduct, or does not pay, or after so deducting fails to pay, the whole or any part of the tax, as required by or under this Act, then, such person, shall, without prejudice to any other consequences which he may incur, be deemed to be as assessee in default in respect of such tax :

Provided that no penalty shall be charged under section 221 from such person, unless the Assessing Officer is satisfied that such person, without good and sufficient reasons, has failed to deduct and pay such tax.

(1A) Without prejudice to the provisions of sub-section (1), if any such person, principal officer or company as is referred to in that sub-section 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 be liable to pay simple interest,—

(i) at one per cent for every month or part of a month on the amount of such tax from the date on which such tax was deductible to the date on which such tax is deducted; and

(ii) at one and one-half per cent for every month or part of a month on the amount of such tax from the date on which such tax was deducted to the date on which such tax is actually paid, and such interest shall be paid before furnishing the statement in accordance with the provisions of sub-section (3) of section 200.

(2) Where the tax has not been paid as aforesaid after it is deducted, the amount of the tax together with the amount of simple interest thereon referred to in sub-section (1A) shall be a charge upon all the assets of the person, or the company, as the case may be, referred to in sub-section (1).

(3) No order shall be made under sub-section (1) deeming a person to be an assessee in default for failure to deduct the whole or any part of the tax from a person resident in India, at any time after the expiry of—

(i) two years from the end of the financial year in which the statement is filed in a case where the statement referred to in section 200 has been filed;

(ii) four years from the end of the financial year in which payment is made or credit is given, in any other case :

Provided that such order for a financial year commencing on or before the 1st day of April, 2007 may be passed at any time on or before the 31st day of March, 2011.

(4) The provisions of sub-clause (ii) of sub-section (3) of section 153 and of Explanation 1 to section 153 shall, so far as may, apply to the time limit prescribed in sub-section (3).”

9. On a plain reading of the aforesaid provisions, we find that by virtue of the provision under section 201 of the Act, a person is “deemed to be an assessee in default” in view of the statutory provision contained therein and in such a case, there is no scope of giving further notice of demand under section 156 of the Act which is applicable only in cases “when any tax, interest, penalty, fine or any other sum is payable in consequence of any order passed under this Act”. It is well settled that a tax becomes payable only upon service of notice of demand under section 156 of the Act. The reason is that no liability arises in such a case until service of a notice of demand, because the liability to pay tax, until determined by means of a proper assessment, remains merely ambulatory and becomes fixed only upon completion of the assessment and demand M.M. Parikh, ITO v. Navanagar Transport & Industries Ltd.[1967] 63 ITR 663 (SC).

10. However, the provisions contained in sections 195, 200 and 201, if conjointly read, deal with a liability which, at no point of time, depends on passing any order under this Act, but is attracted immediately upon the happening of the default mentioned therein, i.e., the failure to deduct under section 195 or failure to credit the sum deducted as required by section 200. As soon as such failure occurs, the liability arises automatically and there is no further requirement of computation or assessment or even the service of a notice of demand under section 156 unless the revenue decides to initiate proceedings for imposition of penalty in terms of the proviso to section 201(1) read with section 221.

11. Even in the provisions for issue of certificate under section 220 of the Act, there is clear indication that such certificate may be drawn up under two circumstances i.e., (1) when an assessee is in default, meaning thereby, that it is preceded by service of a notice under section 156 of the Act or (2) when he is deemed to be in default in making a payment of tax under the Act, a circumstance covered under section 201 of the Act.

12. Therefore, the combined effect of all those provisions of the Act is that if a case is one of “deemed default” under section 201, in that event, the service of notice under section 156 is not called for and to be ignored.

13. We, therefore, dispose of this appeal by clarifying the order of the Tribunal below that in a case where section 201(1) is attracted there is no need of giving any notice under section 156 of the Act and if any such notice is given the same should be held to be redundant.

14. The point No. 1 formulated by the Division Bench as indicated earlier is, however, answered in the affirmative and the point No. 2 is decided in the negative.

15. The appeal is, thus, disposed of in terms of the aforesaid order.

16. In the facts and circumstances, there will be, however, no order as to costs.

[Citation : 347 ITR 410]

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