2017 (8) TMI 242 - HC - Income Tax

Scope of Sections 201(1) & (IA) - sufficient cause for determining assessee in default - Tribunal held that Sections 201(1) & (IA) were penal in nature and that sufficient cause was a relevant consideration while holding the assessee as an assessee in default - Held that - Revenue has drawn the attention of this Court to the decision of the Supreme Court in Commissioner of Income Tax v. M/s Eli Lilly & Company (India)(2009 (3) TMI 33 - SUPREME COURT) in which it was held that interest under Section 201 (1A) is a compensatory measure for withholding the tax which ought to have gone to the exchequer. It has further been observed that the object underlying Section 201(1) of the Act is to recover the tax. In the case of short deduction, the object is to recover the shortfall. The impugned order of the ITAT which holds that Section 201 (1) and 201 (1A) of the Act are penal in nature is plainly contrary to the above decision of the Supreme Court. Accordingly, Question (1) above is answered in negative i.e. in favour of Revenue and against the Assessee.

Summary

Issues:
Interpretation of Sections 201(1) & (1A) of the Income Tax Act, 1961 - Whether penal in nature and relevance of sufficient cause in determining assessee in default. Retrospective amendment by Finance Act, 2001 to Section 201 for determining default status.

Analysis:

Interpretation of Sections 201(1) & (1A) - Penal Nature and Sufficient Cause:
The High Court examined the substantial questions of law framed regarding the nature of Sections 201(1) & (1A) of the Income Tax Act, 1961. The Court referred to a Supreme Court decision establishing that interest under Section 201(1A) is a compensatory measure for withholding tax due to the exchequer, emphasizing the objective of recovering tax. The Court noted that the ITAT's view categorizing Sections 201(1) and 201(1A) as 'penal' was contrary to the Supreme Court decision. Consequently, the Court ruled in favor of the Revenue, rejecting the characterization of the sections as penal and holding the assessee as an assessee in default.

Retrospective Amendment by Finance Act, 2001:
As the first question was answered in the negative, the Court did not delve into the consideration of the retrospective amendment by the Finance Act, 2001 to Section 201 of the Income Tax Act. Therefore, the second question, which related to the impact of the retrospective amendment on determining default status, did not require further examination. The Court allowed the appeals and set aside the impugned order of the ITAT based on the resolution of the first question.

In conclusion, the High Court clarified the nature of Sections 201(1) & (1A) of the Income Tax Act, 1961, rejecting the characterization of these sections as penal and emphasizing the objective of recovering tax. The Court's decision favored the Revenue, setting aside the ITAT's order and ruling against the Assessee. The judgment did not address the second question concerning the retrospective amendment due to the resolution of the first question in favor of the Revenue.