1994 (11) TMI 32 - HC - Income Tax

Summary

Issues Involved:
1. Contempt of Court
2. Deduction of Income Tax at Source under Section 194-I of the Income-tax Act
3. Applicability of Section 194-I to arrears paid post-enforcement
4. Liability of the petitioners for non-deduction of tax

Issue-wise Detailed Analysis:

1. Contempt of Court:
The appellants in Contempt Appeal No. 5 of 1994 were found guilty of contempt of court for willfully disobeying court orders. Initially, a fine of Rs. 1,500 was imposed, with a default penalty of simple imprisonment for 30 days. Upon appeal, the punishment was modified to two months of civil imprisonment, with the fine upheld. The enforcement of the sentence was postponed following the appellants' undertaking to pay Rs. 10 lakhs by August 1, 1994, and subsequent monthly payments of Rs. 3 lakhs.

2. Deduction of Income Tax at Source under Section 194-I:
The appellants sought permission to deduct 20% from the payments made to the respondents, as per Section 194-I of the Income-tax Act, which mandates tax deduction at source for rent payments exceeding Rs. 1,20,000 per annum. The court examined whether this provision applied to the case at hand.

3. Applicability of Section 194-I to Arrears Paid Post-enforcement:
The court considered whether arrears of rent for periods before April 1, 1994, but paid after June 1, 1994, were subject to Section 194-I. The court concluded that the section applies to all payments made after June 1, 1994, regardless of the period to which the arrears relate. Thus, 20% tax must be deducted from these arrears, although this deduction would not be treated as tax payable by the landlords for the financial year 1994-95.

4. Liability of the Petitioners for Non-deduction of Tax:
The court addressed whether the petitioners should be held liable for not deducting tax on payments made under court orders. Given that the petitioners were compelled to make payments under the threat of contempt punishment, the court held that they could not be treated as defaulters under the proviso to Section 201 of the Income-tax Act. The Income-tax Department, represented by senior standing counsel, agreed that the petitioners fell within the proviso to Section 201(1) and should not be treated as defaulters.

Conclusion:
The court disposed of the civil miscellaneous petition with the following terms:
1. The petitioners are not liable for failing to deduct 20% from the Rs. 16 lakhs already paid.
2. For future payments, the petitioners must deduct 20% and account for it as per Section 194-I.
3. The respondents' liability to pay income tax remains, despite the non-deduction by the petitioners.
4. The petitioners must issue certificates as per Section 203 and provide payment particulars to the respondents.

The judgment ensures compliance with tax laws while acknowledging the petitioners' constrained position due to court orders.