2011 (12) TMI 142 - HC - Income Tax

Imposition of interest u/s 201(1A) Imposition of penalty u/s 221 - Assessee in default - assessee under a bona-fide belief not deducted/not paid the tax at source in respect of the reimbursements for expenses to its employees Held that - The payment of interest under Section 201(1A) is not penal. Even though default was unintentional, still assessee would be deemed as assessee in default. There is, therefore, no question of waiver of such interest on the basis that the default was not intentional or on any other basis. The question of good and sufficient reasons only arises on consideration of proviso to Section 201(1) which negate the possibility of imposition of penalty under Section 221 if the Assessing Officer is satisfied that the person liable had good and sufficient reasons to not deduct and pay the tax in question. Thus, in view of proviso to Section 201(1) no penalty can be imposed on the assessee under Section 221 . The matter is remanded to to the assessing officer for the limited purpose of computing the exact quantum of default and the interest payable under Section 201(1A) of the said Act. - Decided partly in favor of Revenue.

Summary

Issues:
Three appeals filed by the Revenue involving common issues regarding short deduction and short payment of taxes, reimbursement of various expenses, liability to pay interest, and application of Sections 201 and 201(1A) of the Income Tax Act, 1961 for the financial year 1992-93.

Analysis:

Issue 1: Short Deduction of Taxes
The Income Tax Appellate Tribunal held that the assessee had not deducted/paid tax at source on certain reimbursements due to a bona fide belief that it was not required. The Tribunal concluded that the assessee was not an 'assessee in default' under Section 201 of the Act. However, the High Court disagreed, stating that the proviso to Section 201(1) only applies to the question of penalty, not absolving the assessee from being considered in default. Therefore, the Tribunal's finding was set aside, deciding in favor of the Revenue.

Issue 2: Liability to Pay Interest
Regarding interest under Section 201(1A), the High Court referred to a previous Division Bench ruling that deemed the payment of simple interest mandatory, not as a penalty. Consequently, the Court ruled in favor of the Revenue, stating that no waiver of interest is possible based on the cause of default. The Court emphasized that no penalty could be imposed on the assessee due to the bona fide belief, but the exact quantum of default and interest payable needed to be computed by the assessing officer. The matter was remanded for this purpose, clarifying that if employees had paid taxes individually, the assessee would only be liable for interest under Section 201(1A) for the relevant period.

In conclusion, the High Court decided in favor of the Revenue on both issues, emphasizing the mandatory nature of interest under Section 201(1A) and the distinction between penalty and being considered an 'assessee in default.' The Court highlighted the need for the assessing officer to compute the exact default amount and interest payable while considering the employees' tax payments.