Karnataka H.C : Whether, on the facts and circumstances of the case, the Tribunal is correct in law in entertaining the appeals relating to levy of interest under s. 201(1A) of the IT Act, 1961, when the orders levying interest under s. 201(1A) of the Act are not appealable orders ?

Counsel Appeared

E.R. Indrakumar, for the Appellant : King and Patridge, for the Respondent

JUDGMENT

A.V. SRINIVASA REDDY, J.:

Being aggrieved by the order passed by the Tribunal, Bengalore Bench, the Revenue has preferred this appeal raising the following questions of law, for our decision :

“(a) Whether, on the facts and circumstances of the case, the Tribunal is correct in law in entertaining the appeals relating to levy of interest under s. 201(1A) of the IT Act, 1961, when the orders levying interest under s. 201(1A) of the Act are not appealable orders ?

(b) Whether, on the facts and circumstances of the case, the Tribunal is correct in law in holding that the respondent-assessee was not obliged to deduct tax at source in respect of the amounts credited in its books of account as there was no agreement in force ?

(c) Whether, on the facts and circumstances of the case, the Tribunal is correct in law in holding that the respondent-assessee was not obliged to deduct tax at source in respect of the amounts credited in the books of accounts ?”

The respondent-assessee herein is a resident Indian company carrying on its business in collaboration with its major shareholder M/s Robert Bosch, GmbH of Germany, a non-resident company. The collaboration agreement was started in 1961 and renewed from time to time with an interval of 5 years. The agreement was valid till 31st Dec., 1985. The Government of India granted approval for renewal on 10th Dec., 1985. The foreign collaborator was not satisfied with the Government’s order since royalty payments were restricted on certain items and rates of royalty on items in respect of which the Government permitted royalty payments were not to the satisfaction of the foreign collaborator. Finally after the Government’s order dt. 12th Dec., 1988, the agreement was formalised and signed on 15th Feb., 1989, with retrospective effect from 1st Jan., 1986, for a period of 6 years. In the meanwhile, however, the foreign collaborator did not discontinue or snap its ties with the assessee-company but continued its service uninterruptedly. On its part, the assessee-company went on crediting the amounts payable to the collaborator to a suspense account like ‘the amounts payable’. The assessee did not deduct tax at source as per s. 195(1) of the Act r/w Explanation thereto. Hence, interest under s. 201(1A) was levied by the Asstt. CIT (TDS) for the assessee’s said default. The assessee preferred appeals before the CIT(A). The CIT(A) dismissed the appeals holding that the tax was deductible at source. It was further held that the assessee having failed to so deduct the tax at source, interest was rightly charged under s. 201(1A) from the date on which tax was so deductible till its payment. The assessee took the matter in appeal before the Tribunal, Bangalore Bench, Bangalore. The Tribunal allowed the appeal in favour of the assessee holding that there was no agreement in force at the relevant point of time. Hence, the present appeal by the Revenue.

We have heard the learned counsel on both sides. Question No. 1 : The facts emerging from the record reveal that the assessee not only challenged the order directing payment of interest but also the order passed by the Asstt. CIT deeming him to be an assessee in default in respect of the tax to be paid under s. 195 of the Act. Sec. 246(1) of the Act lists out the orders that are appealable. It reads : “246(1) Subject to the provisions of sub-s. (2), any assessee aggrieved by any of the following orders of an AO (other than the Dy CIT) may appeal to the Dy. CIT(A) against such order— ……….. (i) an order under s. 201 :” (1) If any such person and in the cases referred to in s. 194, the principal officer and the company Sec. 201 deals with the consequences of failure to deduct or pay an amount due as tax and it lays down : of which he is the principal officer does not deduct 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. (1A) Without prejudice to the provisions of sub-s. (1), if any such person, principal officer or company as is referred to in that sub-section does not deduct 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 at eighteen per cent per annum 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.” While s. 201(1) is concerned with the determination of an assessee as an ‘assessee in default’, s. 201(1A) deals with the aftermath of such determination and how the ‘assessee in default’ should be dealt with for such default. In a case where the assessee challenges the very determination as wrong, the appeal would lie from the order made under s. 201(1) of the Act and not from the one made under s. 201(1A). An order made under s. 201(1) of the Act, as could be seen from the relevant provision excerpted above, is appealable under s. 246(1) of the Act and not under s. 248 as contended by the Revenue. An appeal under s. 248 is provided for a person who, having deducted tax and paid the same, denies his liability to make such deduction. That is not the case herein. The assessee, in the present case, is denying the very liability to deduct tax. Hence, we answer question No. 1 in the affirmative and against the Revenue.

5. Question Nos. 2 and 3 : Both these questions are interlinked and, therefore, are taken up together. The agreement between the assessee and its foreign collaborator was concluded on 15th Feb., 1989. It is only, thereafter at the time of credit of any income to the account of the payee or at the time of payment thereof, that the liability to deduct income-tax at source would arise on the part of the assessee. The liability under s. 195 of the Act would begin to operate only with effect from the date when the collaboration agreement was concluded and not earlier. This is so because the foreign collaborator would get a right to enforce his right to receive payment only on conclusion of the collaboration agreement. Therefore, the determination made by the Revenue under s.201(1) for the two assessment years i.e. 1987-88 and 1988-89 is wrong as, by then, the assessee had no liability under s. 195 of the Act to pay any money to its collaborator. The mere fact that the assessee was crediting a certain amount to the credit of suspense account would not alter this situation in anyway. For the asst. yr. 1989-90 the assessee had deducted 20 per cent tax at source and remitted the same to the Revenue. The Revenue contends that it ought to have been 30 per cent. But, we are not concerned with this aspect of the matter in the present appeal.

6. In the result, we answer question Nos. 2 and 3 in the affirmative and against the Revenue.

[Citation : 249 ITR 141]