1988 (6) TMI 63 - AT - Income Tax

Deduction Of Tax At Source, Failure To Deduct Or Pay, Recovery Proceedings, Limitation Period

Summary

Issues Involved:
1. Charging of interest under section 201(1A) of the Income-tax Act, 1961.
2. Whether the proceedings were barred by limitation under section 231 of the Act.

Detailed Analysis:

1. Charging of Interest under Section 201(1A):

The appeals were directed against the charging of interest under section 201(1A) of the Income-tax Act, 1961. The assessee-company had deducted taxes on various dates during the assessment years 1979-80 to 1983-84 but failed to pay these amounts to the credit of the Central Government until 1-2-1985. Consequently, the Income-tax Officer (ITO) passed orders under section 201(1A) and charged interest at 12% from 30-9-1984 and thereafter at 15% till 31-1-1985 for the respective years.

The assessee contended before the Commissioner of Income-tax (Appeals) [CIT(A)] that the amounts payable had been shown in the liability side of the balance sheet and that the ITO should have informed the assessee of its obligation to remit the sums. It was also argued that the ITO failed to adjust refunds against the deductions withheld by the assessee. The CIT(A) rejected these contentions, stating that the statute imposes a duty on the assessee to pay taxes deducted at source within the prescribed time, and the default in retaining money due to the Government for years is almost criminal.

The CIT(A) further observed that the decisions cited by the assessee, which related to the initiation of recovery proceedings against an employer for failure to deduct taxes at source, did not apply to the assessee's case as no recovery proceedings were involved in the impugned orders. The CIT(A) held that section 201 should be viewed in isolation from the provisions contained in section 231, and the time limit in section 231 does not apply to the default contemplated in section 201.

2. Whether the Proceedings were Barred by Limitation under Section 231:

The assessee argued before the Tribunal that the proceedings were barred by limitation under section 231, as the limitation for the years under consideration expired on 31-3-1980, 31-3-1981, 31-3-1982, 31-3-1983, and 31-3-1984, respectively. The interest under section 201(1A) was levied on 1-5-1985, and therefore, the recovery proceedings were barred by limitation. The departmental representative, however, supported the order of the CIT(A).

The Tribunal noted that the orders passed by the ITO under section 201 charged interest on the amount of tax deducted at source by the assessee, which it failed to deposit to the credit of the Central Government. The Tribunal observed that sections 192 to 195 cast an obligation upon the assessee to deduct and pay the amount so deducted to the credit of the Central Government without requiring any reminder from the ITO. The argument that the amount could be adjusted against refunds due was also rejected as refunds are created under specific orders of the ITO, and no such order was available on record.

The Tribunal further clarified that the distinction between the recovery of the amount payable under sections 192 to 195 and the amount payable by way of penalty and interest was not made clear by the assessee. The amounts deducted under sections 192 to 195 become payable according to statutory provisions, and recovery proceedings start if there is any default. However, the obligation for payment of penalty and/or interest starts when the ITO passes an order and issues a demand notice to the assessee.

The Tribunal also reviewed several decisions cited by the assessee and found that none of them related to the recovery of the levy of interest under section 201(1A). The Tribunal noted that the case of Kedia Textiles (P.) Ltd. was related to the recovery of tax deducted within the meaning of sections 192 to 195 and also the levy of interest, but the Tribunal in that case did not distinguish between the recovery of interest charged by the ITO and the amount which remained unpaid as tax deducted at source.

The Tribunal concluded that the proceedings initiated by the ITO could not be considered barred by limitation, as the interest charged by the ITO was in accordance with the provisions of section 201(1A). The Tribunal maintained the consolidated order of the CIT(A) and dismissed the appeals.

Conclusion:

The appeals were dismissed, and the interest charged by the ITO under section 201(1A) for the respective years was upheld. The Tribunal found that the proceedings were not barred by limitation under section 231, and the orders passed by the ITO were in accordance with the statutory provisions.