Commissioner Of Income Tax,Faridabad v. The Senior Post Master, Faridabad

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. --- Income Tax Appeal No. 120 of 2006Date of decision: 21.3.2011 Commissioner of Income Tax,Faridabad --- Appellant Versus The Senior Post Master, Faridabad --- Respondent CORAM:HON’BLE MR. JUSTICE ADARSH KUMAR GOELHON’BLE MR. JUSTICE AJAY KUMAR MITTAL --- Present:Ms. Urvashi Dhugga, Senior Standing Counselfor the appellant-Revenue. --- AJAY KUMAR MITTAL, J. This order will dispose of two appeals, i.e. Income Tax AppealNos. 120 of 2006 and 192 of 2008, as the same are between the sameparties and relate to the same assessment year. Facts have been takenfrom Income Tax Appeal No. 120 of 2006. 2. This appeal under Section 260A of the Income-Tax Act, 1961 (for short “the Act”) has been filed by the Revenue against the order dated14.6.2005, passed by the Income Tax Appellate Tribunal, New Delhi,Bench ‘D’ (in short “the Tribunal”) in ITA No. 932/DEL/2005, relating to theassessment year 2002-2003. 3. The appeal was admitted by this Court on 17.9.2007 for determination of the following substantial question of law: “Whether on the facts and in the circumstances of the case, the Hon’ble ITAT erred in law in confirming the order of theCIT(A) in quashing the order passed by the Assessing Officerunder Section 201 and 201(1-A) of the Act charging tax andinterest for not deducting tax at source from commission paidto the Agents?” 4.The facts, in brief, necessary for adjudication as narrated inthe appeal, are that during the course of survey carried on 29/30.9.2003under Section 133A of the Act in the office of the respondent-assessee itwas detected by the assessing officer that the assessee was not filingreturn under Section 206 of the Act in Form No. 26-I. It was stated by theSr. Post Master that commission amounting to Rs. 2,30,56,660/- was paidduring the financial year 2001-02 on which no tax was deducted underSection 194-H of the Act. In consequence upon failure of the assessee tocomply with the provisions of Rule 30 of the Income Tax Rules, 1962, taxunder Section 201 of the Act amounting to Rs. 23,51,780/- and interest ofRs. 9,14,214/- under Section 201(1A) of the Act up to the date of theorder were charged vide order dated 29.3.2004. 5.The appeal carried by respondent-assessee to theCommissioner of Income-tax (Appeals) {in short “the CIT (A)”}, wasallowed by order dated 28.12.2004 in view of a memorandum dated4.12.2002 issued by the Director (Budget), Ministry of Finance andCompany Affairs. 6. Aggrieved by the order of the CIT(A), the Revenue preferredan appeal before the Tribunal. The appeal was dismissed vide orderdated 14.6.2005. 7.We have heard learned counsel for the Revenue and haveperused the record. 8.The point for determination in this case is, whether therespondent-assessee was liable to deduct the tax at source on account ofpayment made to the agents as commission charges. 9.Learned counsel for the Revenue relied upon acommunication dated 12.12.2003 from the Government of India, Ministryof Finance, Department of Economics Affairs (Budget Division), New Delhiaddressed to all Joint National Savings Commissioners wherein it hadbeen stated that where the National Savings Organisations and the PostOffices pay commission to the Small Savings Agents/investors during theperiod from 1.6.2001 to March, 2002, the deduction of tax at source wasrequired to be made. 10. The stand of the assessee before the CIT(A) was that acommunication dated 4.12.2002 had been issued by the Ministry ofFinance and Company Affairs wherein it was provided that no tax wasrequired to be deducted in that year in respect of commission paid in theprevious year. The CIT(A) had accepted the plea of the assessee withthe following observations: 10. The stand of the assessee before the CIT(A) was that acommunication dated 4.12.2002 had been issued by the Ministry ofFinance and Company Affairs wherein it was provided that no tax wasrequired to be deducted in that year in respect of commission paid in theprevious year. The CIT(A) had accepted the plea of the assessee withthe following observations: “4. Coming to the merits, the learned counsel has invitedattention to the communication dated Office Memorandum,dated 4.12.2002 wherein it has been stated by the Director,(Budget), Ministry of Finance and Company Affairs that noTDS in the current year be deducted in respect of commission already paid in the previous year. The Ld. counsel has alsoinvited attention to the letter addressed to the AdditionalSecretary, Budget, Ministry of Finance. 4.1. The issue has been examined. For ready reference it isnecessary to quote the necessary extract of the officeMemorandum issued on 4.12.2002, vide F. No. 1/15/2000-NS- II, which reads as under: “Please refer to this office letter of even No. dated24.9.2002 on the subject cited above. Para 2 of the saidletter has been reviewed and it has been decided that inaccordance with Section 194H of the Income Tax Act,1961, TDS be deducted from the commission paid toagents in the current financial year. No TDS in thecurrent year be deducted in respect of commissionalready paid in the previous year.24.9.2002 on the subject cited above. Para 2 of the saidletter has been reviewed and it has been decided that inaccordance with Section 194H of the Income Tax Act,1961, TDS be deducted from the commission paid toagents in the current financial year. No TDS in thecurrent year be deducted in respect of commissionalready paid in the previous year. This Ministry may also be informed about the financialimplication of non-recovery of TDS for the previousyears.implication of non-recovery of TDS for the previousyears. It may also be ensured that the rate of TDS to bededucted from the commission bills is in accordancewith the provisions of Section 194H of the Income TaxAct.”deducted from the commission bills is in accordancewith the provisions of Section 194H of the Income TaxAct.” 4.2.A perusal of the above clearly shows that the AO erredin charging tax u/s 201 of the I.T. Act and interest u/s 201(1A)of the I.T. Act after holding that the Senior Post Master,General Post Office, Faridabad was in default for notdeducting tax at source from the commission paid to thein charging tax u/s 201 of the I.T. Act and interest u/s 201(1A)of the I.T. Act after holding that the Senior Post Master,General Post Office, Faridabad was in default for notdeducting tax at source from the commission paid to the agents. In view of the decision of the Government of Indiabrought to the attention of the undersigned by the appellantthe order passed under Section 201 and 201(1A) of the I.T.Act is hereby quashed and the demands raised amounting toRs. 32,65,994/- is cancelled.” 11. The Tribunal had affirmed the aforesaid order of the CIT(A). 12. We are unable to accept the contention of the counsel for theRevenue. A reading of the communication dated 4.12.2002 shows that ithas been specifically mentioned therein that no tax at source in thecurrent year is required to be deducted in respect of commission alreadypaid in the previous year. Once a communication had been issued on thebasis of which the assessee was not required to deduct the tax at source,he cannot be held liable on the basis of a subsequent communication todeduct tax at source after the expiry of the said period. The Revenuecould initiate action against the agents to whom the payment was madeas it was the income in their hands which was taxable. The details couldbe obtained by the Department from the respondent-assessee.Accordingly, the order passed by the Tribunal cannot be faulted.