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TMI Blog2005 (8) TMI 574X X X X Extracts X X X X X X X X Extracts X X X X ..... d, the assessee submitted the details from time to time. One of the details so furnished was as under : "The calculation of income-tax by disallowing the conveyance allowance in respect of employees of the company amounting to Rs. 4,60,832 is as under : 817 staff members conveyance allowance Rs. 18.22 lakhs, IT Rs. 3,99,562 503 worker members -do- Rs. 2.96 lakhs, IT. Rs. 61,270 1320 total employees -do- Rs. 21.18 lakhs, IT Rs. 4,60,832 3. The Assessing Officer considered that conveyance allowance was taxable ( sic ) perquisite under section 17(2) and hence the employer was required to deduct the tax on payment of conveyance allowance. For non-deduction of tax at source on payment of conveyance, he ordered collection of deficit tax of Rs. 4,60,832 under section 201( c ). For this, he advanced following reasoning : "I have considered the submissions made by the assessee but I am unable to agree with the same. The word perquisite is defined under section 17(2) of the Act. As per clause ( iv ) thereof perquisite will include any sum paid by the employer in respect of any obligation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conveyance allowance to the salaried employees. The assessee filed an appeal before CIT(A), who agreed with the reasoning of the Assessing Officer, that conveyance allowance was taxable on perquisite, hence employer i.e. the assessee was required to deduct the tax on payment of the same. The assessee had raised the issue of inordinate delay in passing the order under section 201/201(1A). The annual return was filed on 30-5-1996, whereas the common order under these two sections was passed on 23-3-2001 i.e. beyond the period of four years. The assessee relied on the decisions : 1. Traco Cable Ltd. v. CIT [1987] 166 ITR 278 (Ker.) 2. Bal Krishna Das v. CIT [1976] 103 ITR 825 (Delhi) for the proposition that orders passed under section 201 after the lapse of 4 years is bad in law. The CIT(A), however, did not agree with the assessee on this proposition as it involved interpretation of section 231, which was withdrawn w.e.f 1-4-1989. Hence, it would not have any application to assessment year 1996-97. While dealing with quantum of deficient tax and interest, the CIT(A) considered non-deduction of tax from payment of conveyance allowance to 503 workers to whom Rs. 2.9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... details. (4)Subsequently, in January 2001, the Assessing Officer called for further details and fixed hearing in February, 2001. (5)Accordingly, the appellant submitted various details vide letters dated 28-2-2001 and 12-3-2001. (6)In the letter dated 28-2-2001 the appellant had submitted detailed notes in respect of various queries raised by the Assessing Officer. In respect of conveyance allowance it was stated that although it was termed as an allowance it was in fact a reimbursement made to the employees towards petrol/maintenance of cars and drivers salaries for cars used for official duties, subject to a fixed limit as per the norms laid down by the appellant. (7)It was further clarified that in respect of employees not provided with a car by the appellant nor having a car of their own, reimbursement towards conveyance expenses was made for commuting to and from the office and residence through the salary slip. The amount reimbursed towards conveyance expenses was fixed depending on the grade of employee. (8)It had been further clarified that the aforesaid reimbursement of conveyance expenses was not treated as perquisite under section 17 in view of the explanat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ailed to either deduct tax or after deducting failed to pay the same to the credit of Central Government, he can be subjected to recovery proceedings, which are available under the Act. In CIT v. K.K. Engg. [2001] 249 ITR 447, Hon ble Kerala High Court held that interest under section 201(1A) is mandatory and automatic. In CIT v. Dhanalakshmy Weaving Works [2000] 245 ITR 13 (Ker.), it was held that such interest is compensatory and not penal. Having said so it is to be seen as to when and under what circumstances interest under section 201(1A) can be levied. 10. Section 201(1A) reads as under : "201. Consequences of failure to deduct or pay - (1) If any such person referred to in section 200 and in the cases referred to in section 194, the principal officer and the company of which he is the principal officer does not deduct the whole or any part of the tax or after deducting fails to pay the tax as required by or under this Act, he or it shall, without prejudice to any other consequences which he or it may incur, be deemed to be an assessee in default in respect of the tax: Provided that no penalty shall be charged under section 221 from such person, principal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 201(1) provides that without prejudice to any other consequences, which the assessee may incur he will be deemed to be an assessee in default in respect of that sum (for which he has been declared as deemed to be in default). Thus, levy of penalty as per proviso is in addition to any other consequences to the assessee as provided in the Act or under any other Act, [no Act is mentioned in the sub-section (1)]. Therefore, it is quite clear that penalty under section 221 as per proviso can be levied only after the assessee is declared as deemed to be in default for the sum of tax not deducted at source or after deduction not paid to the credit of Central Government in time as provided under the Act. The interest under section 201(1A) can also be levied only after the assessee is declared as deemed to be in default. Thus, in a case where the assessee is not declared as deemed to be in default or has wrongly been declared, then neither the penalty under section 221 can be levied nor interest under section 201(1A) can be charged. 13. Proviso to section 201(1) provides one exception to the main sub-section. It provides that no penalty shall be charged under section 221 from such pers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etween charge and levy used in 2nd proviso to section 221(1) is obvious. The difference between the two words has been clarified by Hon ble Bombay High Court in M.K. Kirtikar v. CIT [1955] 28 ITR 908 . Charge is the liability to be assessed under section 3 of Income-tax Act, 1961 (section 4 of Income-tax Act, 1961) and levy is the procedure laid down for the realization of the tax. Thus, the proviso to section 201(1) determines the liability to levy of penalty, which can be fastened only on the persons, who did not have good and sufficient reasons for not deducting tax and paying to the Central Government and thus could not be protected by virtue of proviso. That is only those persons will be liable to penalty under section 221 who are declared as deemed to be in default after holding that they did not have good and sufficient reasons for not deducting the tax or not paying in time to the Central Government. Thus, a person who has not committed any default in TDS, he is not at all liable to penalty. One is not required to take recourse to section 221 in their cases. And further, a person, who is not in default is also not covered by section 201(1A). Thus, before invok ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e made by the employer is incorrect, this fact alone, without anything more, would not inevitably lead to the inference that the employer has not acted honestly and fairly. Unless that inference can be reasonably raised against an employer, no fault can be found with him. It cannot be held that he has not deducted tax on the estimated income of the employee. The assessee filed annual returns of salary income in respect of its employees showing the amount of tax deductible at source under section 192 for the assessment year 1977-78. The ITO examined the returns and found after making some controversial additions that the tax was not properly deducted. The additions made by the ITO related to valuation of perquisites relating to accommodation and furniture, disallowance of claim for exemption of leave travel concession and reduction of the standard deduction to Rs. 1,000 on the ground that the employees were in receipt of conveyance allowance. The ITO demanded extra tax as well as interest under section 201(1A) from the assessee. The Tribunal held that if the salary income of the employee was not correctly estimated by the employer, the ITO (TDS) could demand additional tax from th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r any shortfall as compared to such strict computation, the employer can be declared as assessee in default i.e. it cannot be assumed that due to difference of opinion as to the taxability of an item, the employer has to be declared to be an assessee in default. Our view finds support from the decision of Hon ble Andhra Pradesh High Court in P.V. Rajagopal v. Union of India [1998] 233 ITR 678. The head notes from the above decision are : "On March 23, 1995, the Central Board of Direct Taxes informed the Chief Commissioner of Income-tax, Hyderabad, that where the employer directly bears a part of the interest burden of the employees by reimbursing a portion of the interest payable by the employee in respect of building loans, such reimbursement is taxable as income from salaries under section 17(2)( iii ) of the Income-tax Act, 1961. This was forwarded to the Deputy Commissioner of Income-tax of each zone and circulated to various companies. Orders under section 201 were passed on the companies. On writ petitions challenging the letter by the employees including a trade union: Held ( i ) that when an action is taken by the employer ostensibly for administering a statu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stage of deduction to the hands of the payee. For instance, all payments can be made to a declared bank account of the payee where 10 per cent of the balance can be frozen until the assessment is made and an amount equal to the tax determined then transferred to the Department by the bank. Such a scheme would benefit the taxpayer and the revenue as well as the employees. As far as the taxpayer is concerned, the money will be in his account earning interest until a correct adjudication is made as to the liability and he does not have to lose it and seek refund. As far as the revenue is concerned, there will be a guaranteed security for the payment of tax until adjudication takes place. The employers can also be relieved of the unpaid burden of acting as the agent of the Government for collecting tax at source." 17. Similar view is expressed by ITAT in Mahindra Mahindra Ltd. v. ITO [1996] 55 TTJ (Bom.) 174 that section 201 cannot be applied in a case where tax is short deducted without any mala fide . Further, another important question arises in this case is that whether a written order is necessary for treating an assessee in default. It is held in Mettur Chemicals In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to be an assessee deemed to be in default under the facts and circumstances of the case, we take note of certain facts and arguments as found from the orders of the Assessing Officer and CIT(A) and submissions made by the assessee-employer before the Assessing Officer, CIT(A) and before us. They are : ( i )Staff of canteen were paid conveyance allowance (in short CA) @ Rs. 25, 50 100 P.M. during different periods of the year. ( ii )Employees in the management cadre were paid CA ranging from Rs. 415 to 915 P.M. ( iii )The work place was at a distance of 2 to 4 km. from railway station and the employees needed to engage auto rickshaw or other public conveyance to reach work place. ( iv )The CA was paid thus, to commute from place of residence to work place and back. ( v )Reliance was placed by the assessee on circular No. 196, dated 31-3-1976 which provided that if disbursing office is satisfied that CA is covered under section 10(4) as incurred wholly and exclusively for the purposes of business employment then deduction to tax thereon may not arise. ( vi )As per employer-assessee, Explanation to section 17(2) stated that use of vehicle from office to residence and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the employees. Whatever deficient demand is, it can only be raised against the employee and it has to be paid by them. Suppose, the assessments of the employees are completed as in this present case we presume at the time of passing of the order under section 201(1) and the Assessing Officer also raise the demand against the employer-assessee as in the present case has been done, then effect of additional tax due to default can be collected from the employer on behalf of the Govt. but adjustment in the hands of the employees cannot be given as their assessments are already stand completed. Section 199 provides that credit for any tax deducted as per sections 192 to 196D shall be given to the person on whose behalf tax has been deducted. The mechanism to give credit of deficient tax as per section 201(1) collected after the completion of assessment of the concerned employees will fail as no such credit could be given. This will create an unjust enrichment of the revenue, which is not permissible. From this, it follows that raising of demand for collection of deficit tax, if any, as per section 201(1) can be done only before the completion of assessment of the concerned employee. Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penalty under section 221 and also for interest under section 201(1A) for short deduction of tax at source. The Appellate Tribunal held that the amounts so paid to the employees were fully exempt and in any case the excess not satisfactorily explained by the employee had been actually taxed in his hands and the tax had been recovered. The Tribunal having rejected the application for a reference, the Department applied to the High Court under section 256(2) : Held , rejecting the application for a reference, ( i ) on the facts, that section 10(14) was applicable : reimbursement was granted for use of one vehicle owned and possessed by the employee for expenses incurred in undertaking official journeys and payment was made on the employee issuing a certificate that he incurred more expenses than the amount reimbursed. That the amount was reimbursed only up to a limit did not detract from the fact that expenses were being paid towards actual expenses incurred by the employee. ( ii ) That the fact that the employee, during the course of his assessment to tax, was found not entitled to full benefit under section 10(14) did not in any way reflect on the estimate made by the employer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithstanding, our view is that for deduction of tax, an assessee cannot be declared as assessee deemed to be in default as discussed above. Where deficient tax has not been paid, there will not be an outer limit of time for computation of interest. The interest as per section 201(1A) is chargeable for the period from the date on which such tax (deficient tax) was deductible ending on the date on which such tax was actually paid. Thus, where deficient tax has not been paid interest cannot run in perpetuity. The working becomes an impossibility. Hence, no interest under section 201(1A) can be charged in such case. Other view is also supported by the decision of ITAT in Salwan Construction Co. v. Asstt. CIT [IT Appeal No. 2915 (Delhi) of 1993] for assessment year 1987-88, relied upon by the learned counsel for the assessee. In the present case also the alleged deficient tax has not been paid. Hence, interest under section 201(1A) cannot be charged from the employer-assessee. 24. In view of foregoing discussion, we hold that : 1.A written order has to be passed specifically declaring an assessee as deemed to be in default. If such specific order is not passed, interest under ..... X X X X Extracts X X X X X X X X Extracts X X X X
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