1997 (8) TMI 28 - HC - Income Tax

Summary

Issues Involved:
1. Validity of the order passed by the Income-tax Officer under section 192 of the Income-tax Act, 1961.
2. Validity of the orders passed by the Commissioner of Income-tax under sections 264 and 154 of the Act.
3. Entitlement of the petitioner-bank to a refund of the tax and interest collected.

Issue-wise Detailed Analysis:

1. Validity of the order passed by the Income-tax Officer under section 192 of the Income-tax Act, 1961:

The petitioner-bank was required to deduct income-tax from the salaries paid to its employees and filed the annual return for the financial year 1992-93. The Income-tax Officer issued a notice to the bank to prove the source of investment in savings made by two employees. The bank explained the source of investments, but the Income-tax Officer found it unsatisfactory and created a demand of Rs. 11,650, including interest under section 201(1A).

The court noted that the employer's obligation under section 192 is to deduct income-tax at the average rate on the estimated income of the employee. The employer is not authorized to verify the source of the employee's investments. The court found that the bank had no reason or authority to question the employees' source of investment or its genuineness. The employer's duty was to estimate the income under the head "Salaries" and deduct tax accordingly. The court concluded that the order passed by the Income-tax Officer was unjustified, arbitrary, and untenable in law.

2. Validity of the orders passed by the Commissioner of Income-tax under sections 264 and 154 of the Act:

The petitioner-bank filed an application under section 264 against the order of the Income-tax Officer, which was rejected by the Commissioner. Another application under section 154 seeking rectification of the order was also rejected.

The court observed that the Commissioner did not accept the petitioner's plea despite the investments and the source of money being duly explained. The court held that the exercise of power by the Commissioner was arbitrary, unwarranted, and in excess of jurisdiction. The orders of the Commissioner dated October 26, 1995, and June 25, 1996, were quashed.

3. Entitlement of the petitioner-bank to a refund of the tax and interest collected:

The petitioner-bank demanded a refund of the amount of tax and interest collected from it. The court directed the respondents (Commissioner of Income-tax, Patiala, and the Income-tax Officer, Ward No. 5, Patiala) to refund the amount paid by the petitioner-bank within two months from the date of the order, with interest at 12 per cent. per annum from the date of payment to the date of refund. The costs were determined at Rs. 5,000 payable by the respondents to the petitioner.

Conclusion:

The writ petition was allowed, and the orders passed by the Income-tax Officer and the Commissioner of Income-tax were quashed. The respondents were directed to refund the amount paid by the petitioner-bank with interest and bear the costs determined by the court.