2003 (6) TMI 11 - HC - Income Tax

Imposition of interest under section 201(1A) non deduction of tax at source on payments made to employees - Assessing Officer took the view that the assessee had paid bonus which forms part of the salary and therefore there was statutory obligation cast on the assessee to deduct tax from such payment - Orders were passed under section 201 declaring the assessee-in-default - orders of the assessing authority passed under sections 201(1) and 201(1A) of the Act are legal and valid since there was no period of limitation in view of the omission of section 231 from April 1,1989, prior to the expiry of the period of limitation provided in the said section Thus, imposition of interest was liable to be sustained

Summary

Issues:
1. Appeals against orders of the Income-tax Appellate Tribunal regarding assessment years 1986-87, 1987-88, and 1988-89 under sections 201(1) and 201(1A) of the Income-tax Act, 1961.
2. Default in deduction of tax on bonus payments by a co-operative bank.
3. Liability to pay interest on defaulted tax.
4. Interpretation of section 231 of the Income-tax Act.

Analysis:
1. The appeals were filed by the Commissioner of Income-tax against the orders of the Income-tax Appellate Tribunal for the assessment years 1986-87, 1987-88, and 1988-89. The respondent, a co-operative bank, had paid bonuses to employees without deducting tax as required by section 192 of the Income-tax Act. The Assessing Officer declared the bank as defaulting under section 201(1) of the Act and imposed interest under section 201(1A). The first appellate authority and the Tribunal upheld the default and interest imposition but differed on the application of the limitation period under section 231 of the Act.

2. The respondent's failure to deduct tax on bonus payments led to the default declaration under section 201(1) of the Act. The first appellate authority and the Tribunal confirmed this default, establishing the bank's liability for not deducting tax as required by law. However, the recovery of the defaulted tax was deemed barred under section 231 of the Act, affecting the subsequent interest imposition.

3. The Assessing Officer levied interest on the defaulted tax under section 201(1A) of the Act. The first appellate authority found the bank liable for this interest. Still, due to the interpretation of section 231, the recovery of interest was considered barred. The Tribunal relied on previous court decisions to support this view, leading to a dispute over the application of the limitation period.

4. The central issue revolved around the interpretation of section 231 of the Income-tax Act. The appellant argued that the omission of this section in 1987 affected the limitation period differently for the assessment years in question. The court agreed that for the assessment year 1986-87, the limitation period had expired before the omission of section 231. However, for the subsequent assessment years, the omission of section 231 before the expiration of the limitation period meant that the recovery of tax and interest was not time-barred. Consequently, the Tribunal's orders for the assessment years 1987-88 and 1988-89 were set aside, upholding the validity of the Assessing Officer's orders under sections 201(1) and 201(1A) of the Act.

This judgment clarifies the application of the limitation period under the Income-tax Act concerning default in tax deduction and interest imposition, emphasizing the impact of statutory changes on the interpretation of relevant provisions.