2019 (10) TMI 42 - HC - VAT and Sales Tax

Deletion of penalties u/s 8-D(6) of the U.P. Trade Tax Act, 1948 - deduction of tax at source - Whether penalty under Section 8-D (6) could have been imposed on the assessee though it was not obliged to make deduction of tax at source under N/N. 2401 dated 27.4.1987? HELD THAT - The applicability of Section 8-D (1) and therefore, requirement to make deduction of tax at source, had been created specifically with respect to payments made under contracts awarded by specified persons, namely, the Central Government, State Government, local authorities, a corporation or undertaking established under a Central or State Act or a company or a co-operative society, or club or firm or other association of person, whether incorporated or not. In the modern sense of the term, departed from it's origin, it is difficult to treat universities such as the assessee as a corporation or undertaking, especially in the context of the aforesaid taxing notification, that apparently seeks to identify different categories of persons, made liable to deduct tax at source. Used in that sense, the words corporation and undertaking clearly refer to status of the person as a corporation or an undertaking only, while university is primarily seen and understood as an educational institution and not a corporation or undertaking. Being a provision creating liability under a taxing status, it has to be strictly read and no other rule of interpretation is required to be invoked. Inasmuch as, the assessee being a university does not naturally or freely fall within the description of any of the persons specified under Clause (a) (e) of the Notification No. 2401 dated 27.4.1987. No attempt is to be made to force it to fit into description of any person made liable under the notification. Hence, the assessee was never required to make deduction of tax at source on payment made to its contractors. Therefore, no penalty was leviable on that count. Revision allowed - decided in favor of revisionist-assessee and against the respondent-revenue.

Summary

Issues:
Penalty imposition under Section 8-D(6) of the U.P. Trade Tax Act, 1948 on the university for not making tax deductions at source under Notification No.2401 dated 27.4.1987.

Analysis:
The judgment involves the revisions filed by the university against the Tribunal's order allowing the revenue's appeals and reversing the first appeal authority's decision to delete penalties under Section 8-D(6) of the U.P. Trade Tax Act for the assessment years 2001-02, 2002-03, and 2003-04. The penalties were imposed due to the university's failure to deduct tax at source while making payments to contractors for construction projects. The main issue raised was the university's contention that it was not obligated to make tax deductions and thus did not violate the law, a stance initially supported by the first appeal authority but overturned by the Tribunal.

The notification in question, No.2401 dated 27.4.1987, exempted certain persons from the requirement to make tax deductions at source under Section 8-D(1) of the Act. These included entities like the Central Government, State Government, local authorities, corporations, cooperatives, and other specified associations. The university, being established under a separate state enactment, was not explicitly mentioned in the notification, indicating that it was not mandated to make tax deductions. The notification's specific categorization of persons excluded those not explicitly listed, such as the university in this case.

The judgment emphasized that the university, despite its unique status as an educational institution, did not fall under the categories specified in the notification for mandatory tax deductions. The court highlighted the distinct nature of universities as centers for higher learning, separate from typical corporate entities, and referenced legal definitions and characteristics of universities to support this distinction. The strict interpretation of tax statutes was underscored, citing precedent that emphasized adherence to the literal provisions of the law without delving into legislative intent or substance.

Consequently, the court ruled in favor of the university, stating that it was not required to make tax deductions as per the notification's specific provisions, and therefore, no penalty could be imposed on the university for its failure to deduct tax at source. The question of law was answered affirmatively in favor of the university, allowing the revision and rejecting the penalties imposed by the revenue authorities.