1999 (4) TMI 65 - HC - Income Tax

Tax Deducted At Source, Opportunity For Rectification, Minor Defects, Natural Justice, Adverse Consequences, Assessee In Default

Summary

Issues Involved:
1. Validity of the declarations in Form No. 15H.
2. Opportunity to rectify defects in Form No. 15H.
3. Imposition of tax liability and interest under sections 201(1) and 201(1A) of the Income-tax Act, 1961.
4. Principles of natural justice.

Detailed Analysis:

1. Validity of the Declarations in Form No. 15H:
The petitioner was treated as an "assessee in default" for not deducting tax at source on interest payments, based on defective declarations in Form No. 15H. The defects identified by the Income-tax Officer included incomplete details regarding occupation, financial year, assessment year, improper verification, lack of signatures, and missing dates of verification. The petitioner argued that these defects were minor and could be rectified.

2. Opportunity to Rectify Defects in Form No. 15H:
The petitioner contended that an opportunity should have been granted to rectify the defects in the declarations. The Income-tax Officer, however, rejected this request, asserting that the responsibility to ensure the completeness of the declarations rested with the petitioner. The court held that while section 194A does not explicitly provide for rectification, a reasonable construction of the section would warrant granting an opportunity to rectify minor defects. The court emphasized that the ultimate tax liability should not fall on the person paying interest due to minor, rectifiable defects in the declarations.

3. Imposition of Tax Liability and Interest under Sections 201(1) and 201(1A) of the Income-tax Act, 1961:
The Income-tax Officer imposed a tax liability of Rs. 29,029 and an interest penalty of Rs. 3,991 on the petitioner. The court noted that the object of section 194A is to ensure the collection of tax on interest income. The court opined that imposing tax liability on the petitioner for minor defects in the declarations would be harsh and unreasonable. The court held that the section should be interpreted in a manner that allows for rectification of defects to avoid unjustly penalizing the person paying interest.

4. Principles of Natural Justice:
The court underscored the importance of the principles of natural justice, stating that unless explicitly excluded by statute, these principles should be read into the provisions of the Act. The court cited the Supreme Court's decision in C. B. Gautam v. Union of India, which emphasized the need for a reasonable opportunity of being heard before making an order with adverse civil consequences. The court concluded that the Income-tax Officer should have given the petitioner an opportunity to rectify the defects in the declarations, as rejecting them without such an opportunity would have adverse civil consequences.

Conclusion:
The court quashed the impugned order and remitted the matter to the Income-tax Officer to grant an opportunity to the petitioner to rectify the defects in the declarations in Form No. 15H. The court allowed the writ petition but did not award any costs.