1992 (5) TMI 45 - AT - Income Tax

Summary

Issues:
1. Whether interest charged under section 201(1A) of the Income-tax Act, 1961 is justified.
2. Whether the CIT (Appeals) erred in deleting the interest charged by the Assessing Officer.
3. Whether the financial crisis faced by the assessee company justifies the non-payment of tax deducted at source and interest charged under section 201(1A).
4. Whether the limitation under section 231 of the Income-tax Act bars the recovery of interest under section 201(1A).

Analysis:
1. The appeals were filed by the ITO against the order of the CIT (Appeals) canceling the interest charged under section 201(1A) of the Income-tax Act, 1961. The assessee company had failed to pay tax deducted at source to the Central Government, citing financial problems. The ITO charged interest amounting to Rs. 9,00,253 under section 201(1A). The CIT (Appeals) deleted the interest, stating that since recovery proceedings were barred by limitation, interest was not leviable. The departmental representative argued that interest is compensatory and can be charged even if recovery proceedings are barred. The assessee's counsel contended that the financial crisis justified the failure to pay and no interest should be charged. The Tribunal held that interest under section 201(1A) was justified, as penalty and interest operate differently, and financial crisis does not absolve the assessee from interest payment.

2. The CIT (Appeals) erred in deleting the interest charged by the Assessing Officer under section 201(1A). The Tribunal held that penalty and interest serve different purposes, with penalty being quasi-criminal and interest compensatory. The Tribunal rejected the argument that reasonable cause for non-payment justifies the deletion of interest, as interest is charged irrespective of mens rea. The Tribunal emphasized that the assessee being in default under section 201(1) makes them liable for interest, even if recovery proceedings are barred by limitation under section 231.

3. The financial crisis faced by the assessee company was considered, but it did not absolve them from paying interest under section 201(1A). The Tribunal noted that the Assessing Officer had not imposed a penalty, possibly due to the financial crisis, but being in default still warranted interest payment. The Tribunal held that reasonable cause for non-payment does not exempt the assessee from interest liability under the Income-tax Act. The argument that financial crisis justifies non-payment of interest was rejected by the Tribunal.

4. The limitation under section 231 of the Income-tax Act does not bar the recovery of interest under section 201(1A). The Tribunal held that the Government can file a suit for recovery of outstanding tax, even if recovery proceedings are barred by limitation. The Tribunal cited the judgment of the Calcutta High Court in Grindlays Bank Ltd. v. CIT, stating that the limitation under section 231 does not save the assessee from interest payment under section 201(1A). The Tribunal upheld the order of the Assessing Officer and reversed the decision of the CIT (Appeals), allowing the departmental appeals.