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TMI Blog2007 (8) TMI 395X X X X Extracts X X X X X X X X Extracts X X X X ..... In this case, as per law, the assessee was required to deduct tax at source and to pay the same to the Government upto 31st March, 1996. The recipient company did not either obtain or file the requisite certificates with the assessee. To be very straight this assessee was required to deduct tax at source at the time of payments in question, may be, by making actual payment or by passing an entry or by allowing credits, as the case may be. The assessee has clearly and admittedly not deducted the TDS in this case while making payments to all the three companies. The High Court in the case of CIT v. Rajasthan Rajya Vidyut Prasaran Nigam Ltd.[ 2005 (8) TMI 83 - RAJASTHAN HIGH COURT] has held that the levy of interest is mandatory, which can be charged from the relevant date of deduction till the same is subsequently paid by the payee. We are in total agreement with the above proposition. But, when the recipient did not pay such a tax as they had nothing to pay, would it mean that it would be charged infinitely. No, this cannot be the intention of the legislature. The charging of interest is only compensatory in nature and when no tax is payable, no interest can be charged. This ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that all of these payees were running into losses. The assessee company also produced the computation of their total incomes for the asst. yr. 1996-97 along with the acknowledge of returns filed by these payee companies. It was also contended by this assessee company before the learned AO that the payees had brought this fact to its knowledge and protested deduction of TDS by not agreeing. All the payees also assured the assessee company that they would file non-deduction certificate after obtaining from their assessing authorities. The assessee had debited the accounts of the payees by passing accounting entries but did not deduct TDS. So, according to the assessee company there was no loss of revenue to the Department and as such charging of interest under s. 201(1A) was not justified. Nevertheless, the learned AO levied interest under s. 201(1A) @ 15 per cent on the total amount of TDS of Rs. 6,37,907 from the date when the payments were made (when the TDS was to be deducted) till the date it was actually paid. The learned CIT(A) confirmed the charging portion of the order of the learned AO but the extent to which the interest is to be charged was restricted to the dates of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... become inoperative. The forceful contention of the learned Authorised Representative is that the law makers in their wisdom thought it proper not to answer such a situation because in such cases the provisions of this Chapter XVII are not attracted. According to him the charging provisions are mandatory but compensatory, as has been held by various Courts, Tribunals and even the Hon'ble jurisdictional High Court. On the other hand, after admitting that the Act is silent on such situations but the date of framing of assessment in the hands of payee on which date it is crystalised that no taxes are payable is the relevant date and upto that date (date of assessment order) interest under s. 201(1A) has to be charged as per the provisions of the Act. There is no dispute with regard to the settled position of the law that charging of interest under s. 201(1A) is mandatory. The first date from which interest is to be charged is 31st March, 1996 on which date payments were made/credited to the recipients in this case. But, when the assessments of all these recipients were completed no payment of tax was due and they were entitled to refund from the IT Department. This fact is not in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 31st March, 1997 determining refund of Rs. 42,805 and loss of Rs. 8,01,600, respectively. In the case of M/s Mewar Plytex the assessment under s. 143(3) was completed on 29th Dec, 1998 determining loss of Rs. 32,09,840. It is also a fact that non- deduction of tax at source from the payments made to the above three companies has not resulted in any loss of revenue to the Government. 9. Having stated the relevant facts, we now turn towards the legal position in such like cases. The interest to be charged under s. 201(1A) is not a penalty but a compensation of revenue loss for the delay in the payments of tax. Chapter XVII of the IT Act, 1961, lays down the manner in which tax has to be deducted at source from various payments and then deposited in the Government account. Sees. 192 to 196D deal with various payments on which TDS has to be deducted. Sees. 197 and 197A provide certain exceptions to the above mandatory provisions by allowing the payees/recipients to obtain certificate from the AO for non-deduction of tax or for deductions at lower rate(s) as per s. 199. All TDS deducted as above, shall be treated, as a payment of tax by the recipients and credit of the same shall be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r cannot be deemed to be an assessee in default. The Hon'ble High Court has held thus : The provisions of sections 192 and 201 and connected sections of IT Act, 1961, regarding deduction of tax at source and payment of tax so deducted to the Revenue lay down only a mode of recovering tax due from the employee. The duty on the employer is not an end in itself. It is only a means to an end viz., recovery of tax payable by the employee. Tax paid over to the Revenue after deduction by the employer is for and on behalf of the employee. This is subject to the ultimate assessment to be made on the employee and the tax so deducted and paid is to go in adjustment of the employee's liability. The liability of the employer to make deduction at source and pay over the tax to the Revenue is not independent of the liability of the employee to pay tax. It is dependent entirely on the liability of the employee to pay tax. If, on the estimated income of the employee, no tax is due, the employer has no liability to deduct tax at the source. The liability of the employer and the employee is interconnected and not independent of each other. Where the assessment in relation to an employee h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... net Coleman Co. Ltd. v. Mrs. V.P. Damle, ITO [1985] 47 CTR (Bom) 342 : [1986] 157 ITR 812 (Bom); (3) Grindlays Bank Ltd. v. CIT [1991] 94 CTR (Cal) 46 : [1992] 193 ITR 457 (Cal); (4) British Airways v. CIT [1991] 92 CTR (Cal) 227 : [1992] 193 ITR 439 (Cal); (5) CIT v. Kumudam Publications (P.) Ltd. [1991] 188 ITR 84 (Mad); (6) Pentagon Engineering (P.) Ltd. v. CIT [1996] 131 CTR (Bom) 78 : [1995] 212 ITR 92 (Bom). The decision of the Hon'ble Karnataka High Court in the case of Vikrant Tyres Ltd. v. ITO [1993] 115 CTR (Kar) 210 : [1993] 202 ITR 454 (Kar), would make it clear that the charging of interest is mandatory and consequential also. The Hon'ble High Court has held thus : An initial order of assessment gets effaced by the appellate or revisional order and the only effective order is the ultimate order of the superior authority. This ultimate order of the appellate authority relates back to the date of the original order, as otherwise, the very concept of having a hierarchy of appellate and revisional forums will be defeated. Interest is payable as compensation towards deprivation of the benefit of money which lawfully belongs (to) a person or a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idation of Recovery Proceedings) Act, 1964 the original demand notices were revived by operation of law and due effect had to be given to such revival. The assessee contended that the operation of the Validation Act had to be confined to the purpose of recovery of the assessed tax and its provisions could not be extended to treat an assessee as a defaulter and to pass an order to the effect that the assessee was liable to pay interest; that sub-s. (2) of s. 3 of the Taxation Laws (Continuation and Validity of Recovery Proceedings) Act, 1964 kept alive the earlier demand notice and treated the same demand notice as having been kept alive all along if ultimately the assessment order was upheld by the higher forum. Having regard to the nature and quality of interest leviable under s. 220(2), the law of interest was valid. 16. The Hon'ble jurisdictional High Court in the case of CIT v. Rathi Gum Industries, has held thus : Sec. 201 of the IT Act, 1961, provides not only for collection of tax which has not been deducted but for levy and charge of interest also. Sub-s. (1A) of the said section provides for liability to pay simple interest @ 12 per cent per annum on the amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax was not payable at all, then in that case how an interest can be charged. The word 'compensatory' clearly suggests this conclusion. In case the tax is not payable at all, where is the question of any loss to the Revenue and for that matter why and what for the compensation is required. In wider perception, the end-point or benchmark may be either : (i) upto the assessment order of the deductor (i.e., assessee in default) or (ii) upto the assessment order of the recipient (payee), or (iii) upto the end of the financial year in which it was to be deducted. But in this case, the tax was not deductible, which fact stands established on record. Therefore, cls. (i) and (ii) as above, cannot apply in this case. Let us see whether cl. (iii) will apply or not. Now, the question arises that when the tax is not deducted and thereafter it has never been deducted or paid then, upto what date the interest is to be levied. Certainly it cannot be levied for infinite period. Interest is always compensatory in nature and should be levied for a period for which there is loss of tax to the Revenue. If it is examined that for how much period there is loss of tax to the Revenue o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent assessee. Mr. Akil Qureshi, the learned advocate, appearing for the Revenue, has submitted that as per the provisions of s. 194C of the Act, the assessee was duty-bound to deduct income-tax from the amount which the assessee had paid to Ravi Builder. As income-tax had not been deducted by the assessee society under the provisions of s. 194C of the Act, the society had committed a default and as a result thereof, the amount of tax, which ought to have been paid to the Revenue was not paid and, therefore, the AO had rightly levied the interest as per the provisions of s. 201(1A) of the Act upon the assessee. Mr. Qureshi, in support of his submissions, has relied upon a judgment delivered in the case of CIT v. Darshan Trading Finance (P.) Ltd. [1995] Tax LR 1203, by this Court. In the said case, no amount of tax was deducted under the provisions of s. 194B of the Act and this Court held in the said case that the assessee was liable to pay interest under s. 201(1A) of the Act. Upon a perusal of the facts of the said case, we are of the opinion that the facts of the said case and the case, which is on hand, are absolutely different. In the case of CIT v. Darshan Trading Fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by deduction at source. The said amount is to be deducted by way of tax by the person who has to make payment to the concerned person and as per the provisions of s. 199 of the Act, whenever any person who deducts tax before making payment to another person pays the same to the Central Government, he pays the tax which is payable by the payee of the said amount. Thus, the assessee was to pay an amount of tax on behalf of Ravi Builder by deducting the same from the amount payable to it under the provisions of s. 194C of the Act. If one looks at the fact whether Ravi Builder had in fact paid the amount of tax payable by it on the amount, which was paid to it by the assessee, one finds that Ravi Builder had paid the tax. In fact for both the years, it had paid more advance tax than what was payable by it. Thus, the entire amount of tax which was payable by it had been duly paid. Had Ravi Builder not paid tax on the amount, which it had received from the assessee, the Revenue could surely saddle the assessee with the liability of payment of interest under the provisions of s. 201(1A) of the Act. But in the instant case, as Ravi Builder had already paid the tax on the income, in ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld not be proper on the part of the Revenue to levy any interest under s. 201(1A) of the Act especially when Ravi Builder had paid more amount of tax by way of advance tax than what was payable by it. As the amount of tax payable by the contractor had already been paid by it and that too in excess of the amount which was payable by way of advance tax, in our opinion, the Tribunal was absolutely right in holding that the tax paid by the contractor in its own case, by way of advance tax and self-assessment tax, should be deducted from the gross tax that the assessee should have deducted under s. 194C of the Act while computing interest chargeable under s. 201(1A) of the Act. If the Revenue is permitted to levy interest under the provisions of s. 201(1A) of the Act, even in a case where the person liable to pay the tax has paid the tax on the date due for the payment of the tax, the Revenue would derive undue benefit or advantage by getting interest on the amount of tax which had already been paid on the due date. Such a position, in our opinion, cannot be permitted. In view of the aforesaid reasons, we answer the question in the affirmative, i.e., in favour of the assessee and aga ..... X X X X Extracts X X X X X X X X Extracts X X X X
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