Reliance Industries Ltd v. Commissioner Of Income Tax, Mumbaiand Ors

IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX REFERENCE NO. 13 OF 2000WITHINCOME TAX APPEAL NO. 1021 OF 2000WITHINCOME TAX APPEAL NO. 1022 OF 2000 Reliance Industries Ltd. ..Applicant/Appellant Vs. Commissioner of Income Tax, Mumbaiand Ors. ..Respondents .... Mr. J. D. Mistri, Senior Advocate a/w Nitesh Joshi and P.C. Tripathii/b Raj Darak, Advocates for Applicant/Appellant.Mr. Suresh Kumar, Advocate for Respondents. .... CORAM : M.S. SANKLECHA & N.M. JAMDAR, JJ. RESERVED ON : 29 JUNE 2015 PRONOUNCED ON : 20 JULY 2015 JUDGMENT (PER: M.S. SANKLECHA) : This Court by an order dated 22 January 2002 haddirected the above reference at the instance of applicant and twoappeals at the instance of the appellant be heard together.Accordingly, all the three matters were heard together for finaldisposal and are being disposed of by this common order. S.S.DESHPANDE 1 / 34 2.The Reference Application under Section 256(1) of theIncome Tax Act, 1961 (the 'Act') arises out of two orders dated 14September 2014 of the Income Tax Appellate Tribunal (the'Tribunal') for the Assessment Year 1985-86 and 1987-88 seekingour opinion on the following question of law: “Whether on the facts and circumstances of the case,the Tribunal was right in law in upholding the levy ofpenalty u/s. 221 of the I.T. Act, 1961, for failure to paytax deducted at source within the prescribed time?” 3.The two appeals under Section 260A of the Act arise fromcommon order dated 16 March 2000 of the Tribunal for theAssessment Years 1987-88 and 1988-89. Both appeals wereadmitted on 22 January 2002 on the following substantial questionsof law: “1.Whether the interpretation placed by theTribunal upon Sections 221 and 201 of the Income Taxis correct? 2.Whether the Tribunal, in any event actedunreasonably and perversely in confirming the levy ofpenalty upon the appellant to the extent of 5% of theTDS?” 2 / 34 4.It is agreed position between the Counsel that the issue inall the three matters is with regard to imposition of penalty underSection 221 of the Act for failure to deposit tax deducted at sourcein accordance with Section 201 of the Act. It is further stated thatthe question of law as admitted arise from facts which aresubstantially similar. 5.In the above view, for the purposes of considering thequestion arising for our consideration, we will refer to the facts asset out in Income Tax Appeal No. 1021/2000 for the AssessmentYear 1987-88. 6.At all times relevant, the applicant/appellant (appellant)had Manufacturing facilities and offices situated at different/diverseplaces in India. It employed almost 9,000 persons and also served18 Lacs shareholders, debenture holders and fixed deposit holdersspread all over India. Besides having several contractors whoexecuted work for the appellant at various places in India. In termsof Chapter XVII of the Act, the appellant is required to deduct tax onpayments made by it of salaries, dividends and interests besides onS.S.DESHPANDE3 / 34 payments made to contractors. The tax so deducted by theappellant in terms of Rule 30 of Income Tax Rules had at therelevant time to be paid into the treasury with one week ofdeduction. 6.At all times relevant, the applicant/appellant (appellant)had Manufacturing facilities and offices situated at different/diverseplaces in India. It employed almost 9,000 persons and also served18 Lacs shareholders, debenture holders and fixed deposit holdersspread all over India. Besides having several contractors whoexecuted work for the appellant at various places in India. In termsof Chapter XVII of the Act, the appellant is required to deduct tax onpayments made by it of salaries, dividends and interests besides onS.S.DESHPANDE3 / 34 payments made to contractors. The tax so deducted by theappellant in terms of Rule 30 of Income Tax Rules had at therelevant time to be paid into the treasury with one week ofdeduction. 7.During the financial year ending 31 December 1986 i.e.previous year relevant to Assessment Year 1987-88, the appellantwhile making payment to its shareholders, debenture holders,contractors and employees did deduct the tax out of amountspayable to them. However there was a delay on the part of theappellant in paying over the deducted tax in accordance with theAct to the revenue. Although there was a delay, the appellant on itsown paid to the revenue the tax deducted alongwith interestthereon on the delayed payment. This was done voluntarily by theappellant before any proceedings were initiated against it underSection 201 of the Act to declare the appellant in default or demandany interest on the delayed payment. 8.On 24 July 1990, the Deputy Commissioner of IncomeTax issued a show cause notice for Assessment Year 1987-88 to theS.S.DESHPANDE4 / 34 appellant calling upon it to show cause why penalty under Section221 of the Act should not be imposed. The basis of the notice wasthat though tax at source had been deducted on payment ofsalaries, dividend, interest, etc. the same was not deposited with therevenue in the prescribed time. Consequently the appellant wasliable for penalty under Section 221 of the Act. 9.By letter dated 27 August 1990, the appellant respondedto the show cause notice. The appellant pointed out that the delayin depositing the tax was essentially on account of financialdifficulties and also in view of the sheer volume, size and spread ofits operations. This was as the requisite information from officessituated all over India had to be collected before depositing theamounts deducted as tax at source. In any case, it was submittedthat no penalty can be imposed under Section 221 of the Act, whenfailure to deduct and deposit is for good and sufficient reasons. Inthis case, it was submitted by the appellant that there were goodand sufficient reasons for delay in depositing the tax with therevenue. Thus it was submitted that no penalty under Section 221of the Act be imposed.S.S.DESHPANDE5 / 34 5 / 34 10.The Deputy Commissioner of Income Tax by an orderdated 31 August 1990, tittled as an order under Section 221 readwith Section 201 of the Act disposed of the show cause notice dated24 July 1990. By the above order the Deputy Commissioner ofIncome Tax condoned the delay in certain cases, while imposing apenalty Rs.76.79 Lacs on the appellant under Section 221 of theAct. This was about 10% of the quantum of delayed deposit of taxdeducted at source. The aforesaid order was a common orderpassed under Section 221 r/w 201 of the Act. 5 / 34 10.The Deputy Commissioner of Income Tax by an orderdated 31 August 1990, tittled as an order under Section 221 readwith Section 201 of the Act disposed of the show cause notice dated24 July 1990. By the above order the Deputy Commissioner ofIncome Tax condoned the delay in certain cases, while imposing apenalty Rs.76.79 Lacs on the appellant under Section 221 of theAct. This was about 10% of the quantum of delayed deposit of taxdeducted at source. The aforesaid order was a common orderpassed under Section 221 r/w 201 of the Act. 11.Being aggrieved by the order dated 31 August 1990, theappellant preferred an appeal before the Commissioner of IncomeTax (Appeals) (the 'CIT (A)'). The appellant's appeal was allowedby an order dated 17 December 1991 of the CIT(A) by following hisorder passed in appeal for the Assessment Years 1985-86 and 1986-87 wherein on identical fact situation, on interpretation of Section221 of the Act, it was held that no penalty is imposable. The CIT(A)held that for imposition of penalty, it is necessary that an assesseeshould be continuously in default i.e. even on the date theproceedings for imposition of penalty is commenced/initiated. ThisS.S.DESHPANDE6 / 34 ITR.13.00.odt on the basis of the opening words in Section 221 of the Act viz.“when an assessee isin default or isdeemed to be in default”. TheCIT(A) in his order held that though the Explanation to Section221(1) of the Act does attempt to cover even such cases, yet onconsideration of the entire scheme of the Act, the imposition ofpenalty can only be justified when an assessee is in default at thecommencement of penalty proceedings. 12.Being aggrieved by the order dated 17 December 1991 ofthe CIT(A), the revenue preferred an appeal to the Tribunal. By acommon order dated 16 March 2000, the Tribunal allowed therevenue's appeal. The Tribunal held that once an assessee becomesa defaulter, penalty is imposable by placing reliance upon thedecision of the Patana High Court in CIT Vs. Sriram Agarwal[1].Thus negating the stand of the CIT(A) that one has to be defaulterat the time of initiation of penalty proceeding. It also records thatfor the earlier two Assessment Years also the appellant was adefaulter but lenient view was taken and nominal penalty wasimposed. Thus keeping in mind the repeat breach, the penalty1. (1976) 161 ITR 302 imposed by the Assessing Officer of Rs.76.79 lacs i.e. 10% of the taxamount involved was reduced to 5% thereof i.e. to Rs.38.38 lacs. Itmay be relevant to note the quantum of penalty levied by theAssessing Officer as well as the penalty payable after the impugnedorder of the Tribunal for the two years under reference and twoyears under appeals are as under: 13.Mr. Mistry, the learned Senior Counsel for the appellantin the reference and in two appeals in support submits as under: (a)Impugned order and proceedings leading topenalty under Section 221 of the Act are without jurisdiction as thecondition precedent for the exercise of the same is that an assesseeis in default or is deemed to be in default in making a payment oftax is not satisfied. This being in default or being deemed to be indefault can only arise when an appealable order is passed underSection 201(1) of the Act prior to initiation of penalty proceedings. S.S.DESHPANDE 8 / 34 ITR.13.00.odt This admittedly is not done in all the three cases underconsideration; (b)An order under Section 201 of the Act has to bespeaking order preceded by notice, determining the question of taxto which the assessee is a defaulter before proceedings underSection 221 of the Act can commence. This requisite of a speakingorder under Section 201 of the Act is evident from the fact that it isan appellable order under Section 246 of the Act. Further relianceis placed upon the decision of the Madras High Court in MetturChemicals Vs. IAC[2]. Consolidated order under Sections 201 and221 of the Act as is this case is bad in law; S.S.DESHPANDE 8 / 34 ITR.13.00.odt This admittedly is not done in all the three cases underconsideration; (b)An order under Section 201 of the Act has to bespeaking order preceded by notice, determining the question of taxto which the assessee is a defaulter before proceedings underSection 221 of the Act can commence. This requisite of a speakingorder under Section 201 of the Act is evident from the fact that it isan appellable order under Section 246 of the Act. Further relianceis placed upon the decision of the Madras High Court in MetturChemicals Vs. IAC[2]. Consolidated order under Sections 201 and221 of the Act as is this case is bad in law; (c)Section 221 of the Act is invokable only whenthere were arrears of tax deducted at source to be paid after anotice of demand is raised. This is evident from the use of thewords “in addition to the amount of the arrears” in Section 221 ofthe Act. In this case, the appellant has deposited tax deducted atsource alongwith interest with the revenue much before any noticeof demand is issued. Thus there being no “amount in arrears”reason to impose any penalty cannot arise; 2. 150 ITR 341 (d)In view of the proviso to Section 201(1) of theAct which provides for invocation of Section 221 of the Act onlywhere the assessee has failed to deduct and pay tax to the revenuewithout being qualified by the words “in accordance with the Act”as found in Section 201(1) and (1A) of the Act is with a purpose.This distinction was deliberately made by parliament to provide thatin case of the class of assessees who are obliged to deduct tax onbehalf of others, penalty is imposable only if there failure to deductand pay the tax to the revenue without any time limit. Thereforeonce paid even beyond the prescribed time provided under the Act,no penalty under Section 221 of the Act is imposable. Any otherinterpretation would render the words “in accordance with the Act”in Section 201(1) and (1A) of the Act, superfluous; (e)The explanation below Section 221(1) of theAct which clarifies that a person will not be liable to pay penaltymerely because he has paid the tax before imposition of penaltywould have no application in the present case. This for the reasonthat by virtue of proviso under Section 201(1) of the Act, theAssessing Officer has no authority to initiate proceedings under Section 221 of the Act where the amount of tax deducted hasalready been paid to the revenue. In the alternative, it is submittedthat the explanation below Section 221(1) of the Act would applyonly in cases where demand is raised for payment of tax remainingunpaid at the time of initiation of penalty proceedings. In thepresent case, the applicant/appellant has paid the tax alongwithinterest thereon much before notice to impose penalty underSection 221 of the Act was issued; (f)Section 201(1) of the Act was amended byFinance Act, 2002 with retrospective effect from 1 April 1962 tocover cases where there has been a failure to deduct whole or anypart of the tax. At the relevant time, when these proceedingscommenced and orders passed, no penalty was imposable in casethere was part payment of the tax deducted at source to therevenue; (g)In any case, no penalty ought to have beenlevied upon the appellant in view of proviso to Section 221 of theAct which provides in case of default for good and sufficientreasons, no penalty can be imposed. It is the appellant's submission ITR.13.00.odt that delay in payment of the tax deducted at source into therevenue was due to its diverse locations, lack of computerizationand financial stringency. These were all good and sufficient reasonswarranting non imposition of penalty; and (h)If two interpretations are possible and one viewin favour of the assessee has been adopted by the CIT(A) in hisorder, then even if another interpretation is possible, the sameshould not be distrubed in appeal. This is particularly so whileinterpreting a penal provision. (g)In any case, no penalty ought to have beenlevied upon the appellant in view of proviso to Section 221 of theAct which provides in case of default for good and sufficientreasons, no penalty can be imposed. It is the appellant's submission ITR.13.00.odt that delay in payment of the tax deducted at source into therevenue was due to its diverse locations, lack of computerizationand financial stringency. These were all good and sufficient reasonswarranting non imposition of penalty; and (h)If two interpretations are possible and one viewin favour of the assessee has been adopted by the CIT(A) in hisorder, then even if another interpretation is possible, the sameshould not be distrubed in appeal. This is particularly so whileinterpreting a penal provision. 14.As against the above, Mr. Suresh Kumar, the learnedCounsel in support of the impugned order for the revenue submitsthat- (a)Question of issuing a notice and declaring theappellant a defaulter and/or a deemed defaulter under Section 201of the Act does not arise in the facts of the present case. Theappellant has admitted to being a defaulter in not having depositedthe tax in time. In these circumstances, issuing notice and passing aseparate order under Section 201 of the Act was not necessary. Infact the common order passed under Section 201 and 221 of the ActS.S.DESHPANDE12 / 34 ITR.13.00.odt serves the purpose as the order under Section 201 of the Actproceeded on an admitted position and was merely a formality. Sofar as the right to file an appeal under Section 246 of the Act isconcerned, it was always open to the Assessee to file appeals fromthis order under both sections viz. 201 and 221 of the Act; (b)The issue of no penalty being imposed upon theappellant as held by the CIT(A) in view of the interpretation ofSection 221 of the Act namely continuing in default was contrary tothe settled position of law as declared by the Patana High Court inShriram Agrawal (supra). Thus the interpretation put on Section221 of the Act by the CIT(A) is an erroneous interpretation. Thereis no issue of there being two possible interpretation whileinterpreting Section 221 of the Act. The interpretation put onSection 221 of the Act by the Revenue also stands settled in itsfavour in view of the explanation thereto; (c)The proviso to Section 201(1) of the Act has noapplication in the present facts. This is so as the proviso appliesonly in case of a person who has failed to deduct and pay tax i.e.both the conditions must be satisfied. In the present case, the ITR.13.00.odt appellant has undisputedly deducted the tax and deposited thesame with the revenue beyond the period provided under the Act.Thus the procedure adopted for imposition of penalty under Section221 of the Act cannot be faulted with; (d)It is submitted that above view stands fortifiedby the fact that under Section 205 of the Act, where tax has beendeducted and not deposited, the revenue cannot proceed against theperson from whose income, tax has been deducted. Thus theproviso to Section 201(1) of the Act has no application where tax isdeducted but not deposited; (e)The penalty for the Assessment Years 1985-86,1986-87, 1987-88 and 1988-89 is reasonable. For the first twoyears it was Rs.1 lakh and 1.50 lakh while for subsequent two yearsit was higher bearing in mind that appellant is a persistent defaulterhaving defaulted in Assessment Years 1985-86 and 1986-87; and (f)The various contentions raised by theapplicant/appellant before this Court should not be considered sthey had not filed any cross objection from the order of CIT(A) tothe Tribunal. 14 / 34 15.Before considering the rival submissions, it would beuseful to reproduce Sections 2(7), 201 and 221 of the Act asexisting at the time when penalty was imposed upon the appellant by the Assessing Officer which are as under: (e)The penalty for the Assessment Years 1985-86,1986-87, 1987-88 and 1988-89 is reasonable. For the first twoyears it was Rs.1 lakh and 1.50 lakh while for subsequent two yearsit was higher bearing in mind that appellant is a persistent defaulterhaving defaulted in Assessment Years 1985-86 and 1986-87; and (f)The various contentions raised by theapplicant/appellant before this Court should not be considered sthey had not filed any cross objection from the order of CIT(A) tothe Tribunal. 14 / 34 15.Before considering the rival submissions, it would beuseful to reproduce Sections 2(7), 201 and 221 of the Act asexisting at the time when penalty was imposed upon the appellant by the Assessing Officer which are as under: “2(7)“assessee” means a person by whom [any tax]or any other sum of money is payable under this Act, andincludes- (a)every person in respect of whom anyproceeding under this Act has been taken for theassessment of his income [or assessment of fringebenefits] or of the income of any other person in respectof which he is assessable, or of the loss sustained by himor by such other person, or of the amount of refund dueto him or to such other person; (b)every person who is deemed to be an assesseeunder any provision of this Act; (c)every person who is deemed to be an assesseein default under any provision of this Act;” “Consequences of failure to deduct or pay. 201. (1)If any such person and in the cases referred toin section 194, the principal officer and the company ofwhich he is the principal officer does not deduct or afterdeducting fails to pay the tax as required by or under thisAct he or it shall, without prejudice to any otherconsequences which he or it may incur, be deemed to bean assessee in default in respect of the tax: Provided that no penalty shall be charged under section221 from such person, principal officer or companyunless the [Assissing] Officer is satisfied that such personor principal officer or company, as the case may be, has[without good and sufficient reasons] failed to deductand pay the tax. [(1A) Without prejudice to the provisions of sub-section(1), if any such person, principal officer or company as isreferred to in that sub-section dose not deduct or afterdeducting fails to pay the tax as required by or under thisAct, he or it shall be liable to pay simple interest at[fifteen] per cent per annum on the amount of such taxfrom the date on which such tax was deductible to thedate on which such tax is actually paid.](2)Where the tax has not been paid as aforesaidafter it is deducted, [the amount of the tax together withthe amount of simple interest thereon referred to in sub-section (1A)] shall be a charge upon all the assets of theperson, or the company, as the case may be, referred to insub-section (1).]” “Penalty payable when tax in default. 221.[(1) When an assessee is in default or isdeemed to be in default in making a payment of tax, heshall, in addition to the amount of the arrears and theamount of interest payable under sub-section (2) ofsection 220, be liable, by way of penalty, to pay suchamount as the [Assessing] Officer may direct, and in thecase of a continuing default, such further amount oramounts as the [Assessing] Officer may, from time totime, direct, so, however, that the total amount ofpenalty does not exceed the amount of tax in arrears:Provided that before levying any such penalty, theassessee shall be given a reasonable opportunity of beingheard: [Provided further that where the assessee proves to thesatisfaction of the [Assessing] Officer that the defaultwas for good and sufficient reasons, no penalty shall belevied under this section. [Explanation: For the removal of doubt, it is herebydeclared that an assessee shall not cease to be liable toany penalty under this sub-section merely by reason ofthe fact that before the levy of such penalty he has paidthe tax.] [Provided further that where the assessee proves to thesatisfaction of the [Assessing] Officer that the defaultwas for good and sufficient reasons, no penalty shall belevied under this section. [Explanation: For the removal of doubt, it is herebydeclared that an assessee shall not cease to be liable toany penalty under this sub-section merely by reason ofthe fact that before the levy of such penalty he has paidthe tax.] (2)Where as a result of any final order theamount of tax, with respect to the default in thepayment of which the penalty was levied, has beenwholly reduced, the penalty levied shall be cancelled andthe amount of penalty paid shall be refunded.” 16.We have considered the rival submissions. The undisputed position between the parties for all the assessment yearsunder consideration are as under: (a)The appellant has deducted the tax at the timeof making the payment of salaries, dividend, interest as also onpayment made to contractors. (b)The appellant has delayed in depositing theamounts of tax deducted in (a) above with the revenue. (c)There is no dispute about the quantum of taxdeducted which has been deposited late with the revenue; and (d)The quantum of tax deducted has beendeposited with the revenue alongwith the interest by the appellanton its own before any notice determining the amount or declaringthe assessee to be in default was made by the revenue. We also find that in terms of Section 2(7) of the Act, the appellant would be an assessee for the purposes of this Act as it was liable topay tax/sum of money under the Act. 17.The primary submission on behalf of the appellant is thatthe proceedings for penalty under Section 221 of the Act for all theassessment years under consideration are without jurisdiction. It iscontended that before any notice can be issued under Section 221of the Act for imposition of penalty, the condition precedent is thatthe assessee should be in default or deemed to be in default. Beingin default or being deemed to be in default, can only take placewhen the assessee has been so declared under Section 201 of theAct. It is contended that a declaration under Section 201 of the Acthas to be by way of a speaking order and in support thereof placedreliance upon the decision of the Madras High Court in MetturChemicals (supra) and Section 246 of the Act which provides forfiling of appeal separately from orders under Section 201 and 221of the Act. 18.As against the above, it is contended by the revenue thatin the present facts, the requirement of either a notice or a speakingS.S.DESHPANDE18 / 34 order under Section 201 of the Act would not arise. Therefore anorder passed under Section 221 of the Act would not be bad in law.The entire exercise of issuing a notice and passing an order, firstunder Section 201 and thereafter by a separate order under Section221 of the Act would only be academic in these facts. This is so as itis an admitted position that the Assessing Officer has passed anorder which is tittled as an order under Section 201 and 221 of theAct. The impugned order imposing penalty is after having acceptedthe assessee to be in default. In normal cases, where there is somedispute with regard to the amount of tax deducted and amount oftax deposited and/or delay in deposit and/or the interest payablethereon then the passing of an order under Section 201 of the Actbefore initiating penalty proceedings may be necessary. This isbecause there is a dispute on the factual determination whether ornot the assessee is in default or deemed to be in default and theextent of default. 19.The appellant before us is not disputing the position thatthey were late in depositing the tax deducted at source with the ITR.13.00.odt 19.The appellant before us is not disputing the position thatthey were late in depositing the tax deducted at source with the ITR.13.00.odt revenue. Therefore they were assessess in default. In these facts,giving of a notice and/or passing an order for determining that theassessee is in default or deemed to be in default would not arise.The fact that an appeal is provided under Section 246(i) of the Actfrom an order passed under Section 201 of the Act would not byitself require the passing of separate order under Section 201 of theAct prior to passing of an order under Section 221 of the Act. Thereis no bar in passing an order under Section 201 read with 221 of theAct simultaneously. The appellant's right of appeal is not affectedby reason of the Assessing Officer passing a common order underSection 201 read with Section 221 of the Act. The appellant is stillentitled to file appeal from orders passed under Sections 201 and221 of the Act under Section 246(i) and (l) of the Act respectively.The grievance of the petitioner is that in view of there being acommon order under Section 201 and 221 of the Act, anopportunity to raise fresh plea in penalty proceedings which maynot be raised during quantum proceedings is lost. In supportreliance is placed upon the decision of Allahabad High Court inJaidayal Pyarelal Vs. CIT[3]. We are unable to understand how the3. 1973 Tax LR 880 aforesaid decision assist the petitioners in view of the fact thatadmittedly the petitioners were given a hearing before imposing ofpenalty where all contentions could be raised. 20.Similarly, the requirement of a written order treating aperson to be an assessee in default may not be necessary when it isadmitted position between the parties that the assessee is in default.The decision in Muttur Chemicals (supra) was on a different factualbackground in as much as appellant therein was disputingadjustment of refund due to it against payment by its variouscollaborators on account of the statement made by them i.e.collaborators. In the present case there is no dispute that theassessee is in default. Moreover in terms of Section 221 of the Act,the only condition precedent to impose of penalty upon the assesseeis that it should be in default or deemed to be in default. In thepresent facts this position is not disputed. Dehors, the above, onemore feature to be noticed is that Section 201(1) of the Act itselfprovides that where there is failure of an assessee to deduct tax andpay to the revenue, such an assessee is deemed to be in default.The failure to deposit in time is accepted/admitted position. ThereS.S.DESHPANDE21 / 34 is no dispute about the questions. Thus the appellant is deemed tobe in default. Therefore, it cannot be said that the penaltyproceedings are without jurisdiction under Section 221 of the Act.In view of the above, the decisions of Delhi High Court in ModiCement Vs. UOI[4] and of Rajasthan High Court in Rajasthan StateElectricity Board Vs. DCIT[5] relied upon by the petitioner can haveno application. Both the above decision were rendered in thecontext of Section 143(1A) of the Act. 21.It was next submitted on behalf of the appellant thatpenalty under Section 221 of the Act would be payable only whenthe same is in addition to the arrears of payment of tax deducted.This according to them is the plain reading of the words. We do notfind so. The Parliament has specifically provided for the words “inaddition to the amount of arrears alongwith the amount of interestpayable be liable for penalty” only with a view of qualifying thatpayment of the amount of arrears and the interest payable would byitself not wipe away the liability to penalty under Section 221 of theAct. The aforesaid submission on behalf of the appellant also stands4. 193 ITR 915. 200 ITR 434 21.It was next submitted on behalf of the appellant thatpenalty under Section 221 of the Act would be payable only whenthe same is in addition to the arrears of payment of tax deducted.This according to them is the plain reading of the words. We do notfind so. The Parliament has specifically provided for the words “inaddition to the amount of arrears alongwith the amount of interestpayable be liable for penalty” only with a view of qualifying thatpayment of the amount of arrears and the interest payable would byitself not wipe away the liability to penalty under Section 221 of theAct. The aforesaid submission on behalf of the appellant also stands4. 193 ITR 915. 200 ITR 434 negatived by the Explanation added to Section 221(1) of the Act.This Explanation clarifies that an assessee shall continue to be liableto penalty even if the tax has been paid before levy of penalty. 22.It was next contended that in view of the proviso toSection 201(1) of the Act, invocation of Section 221 of the Act isbarred where the Assessing Officer is satisfied that failure to deductand pay taxwas without good and sufficient reasons. The words“failed to deduct and pay tax” of the proviso is contrasted with thewords “fails to pay the tax as required by or under this Act” found inSection 201(1) as well as 201(1A) of the Act. In view of thisdifference in language, it is submitted that the proviso would haveno application where an assessee has paid the tax even if the sameis paid beyond the period provided under the Act. This is contestedby the revenue on the ground that the proviso applies only in caseof a person who has failed to satisfy both the condition therein i.e.fails to deduct and also fails to pay the tax. This interpretation isalso supported by the words found in sub-section (1) of Section 201of the Act which provides “.... principal officer of the company doesnot deduct orafter deducting fails to pay the tax as required by orS.S.DESHPANDE23 / 34 under this Act”. In this case, the tax has been deducted but there isa failure in depositing the tax with the revenue. The Parliamenttreats a person who has deducted the tax and fails to pay it torevenue as a class different from a person who has not deducted thetax and also not deposited the tax with revenue. This is for thereason that in the first class of cases the assessee concerned afterdeducting the tax, keep the money so deducted which belongs toanother person for its own use. In the second class of cases, theassessee concerned does not take any advantage as he pays theentire amount to the payee without deducting any tax and does notenrich itself at the cost of the government. Therefore, althoughpenalty is also imposable in the second class of cases, yet in view ofthe proviso to Section 201(1) of the Act, it is open to such assesseeto satisfy the Assessing Officer that as they have good and sufficientreasons no penalty is imposable. It is in the above view that in thefirst class of assessees the Parliament has provided for prosecutionunder Section 276B of the Act for failing the pay the tax deducted atsource. Therefore the first class of assessee to which the appellantbelongs would be liable for prosecution. Thus the proviso would only apply in respect of the second class of assessee i.e. such class ofassessee who have not deducted the tax and consequently failed topay the tax. 23.Therefore in our view, the proviso under Section 201would have no application to the facts of the present case. Thelegislature did not provide for the words “by or under this Act” inthe proviso as in the absence of deducting tax, the occasion todeposit it within time as provided in the Rules would not apply.This is so as the time begins to run from the date of the deducting oftax as is evident also from Section 200 of the Act which providesthat any person deducting any sum shall pay it within theprescribed time, the sum so deducted to the Central Government. only apply in respect of the second class of assessee i.e. such class ofassessee who have not deducted the tax and consequently failed topay the tax. 23.Therefore in our view, the proviso under Section 201would have no application to the facts of the present case. Thelegislature did not provide for the words “by or under this Act” inthe proviso as in the absence of deducting tax, the occasion todeposit it within time as provided in the Rules would not apply.This is so as the time begins to run from the date of the deducting oftax as is evident also from Section 200 of the Act which providesthat any person deducting any sum shall pay it within theprescribed time, the sum so deducted to the Central Government. 24.It was next submitted on behalf of the appellant that theExplanation below Section 221 of the Act which clarifies thatpenalty will continue to be imposable even if the assessee has paidthe tax before the levy of penalty would not apply to the presentfacts. This for the reason it is submitted the penalty would beimposable under Section 221 of the Act only if the assessee is inS.S.DESHPANDE25 / 34 ITR.13.00.odt default at the time of initiation of penalty proceedings. In thepresent case it is submitted that the amounts deducted have beendeposited long before the notice for penalty under Section 221 ofthe Act was issued. This stand was also taken by the CIT(A) whileallowing the appellant's appeal. The construction sought to be puton Section 221(1) of the Act commencing with the words “where anassessee is in default or is deemed to be in default” cannot stand inthe face of the explanation which clarifies that merely because thetax has been paid/deposited before the levy of penalty, would alsotake in all acts, from the imposition of the charge upto/till the entireprocess of raising demand and collecting the same. Theconstruction sought to be put on the explanation does not allow fullamplitude to the words 'levy'. Besides purposive interpretation alsosupports the above view as otherwise the construction as suggestedby the appellant would enable an assessee to deduct tax at sourcefrom the payment being made and not deposit it with the revenuewithin time prescribed. Therefore utilize the amount in effect tillsuch time just before the notice under Section 221 of the Act isissued. 25.It must be borne in mind that the assessee continues to bein default in case the tax has not been deposited with revenuewithin the time prescribed under the Act. Tax deposited thereafterbut before penalty proceedings are initiated would not cleanse theassessee from being in default. The penalty is imposed upon theassesee under Section 221 of the Act for the default in not havingpaid the tax deducted at source within the time provided under theAct. This default is not wiped away by the assessee depositing thetax after the prescribed time. It is in the above circumstances, thatthe reliance of the petitioners upon the decision of the Apex Courtin Sri Hohan Wahi Vs. CIT[6] seems inappropriate. In the presentfacts we are concerned with imposition of penalty and the abovedecision of the Apex Court in Sri Hohan Wahi (supra) dealt withrecovery of tax for failure to issue a mandatory notice under Section156 of the Act. Reliance placed upon the decision of the GauhatiHigh Court in Pranavi Ram Bahuva Vs. Asst. Controller of EstateDuty[7] rendered under the Estate Duty Act. The notice of demand,in the above case to the accountable person being bad and so held,penalty proceedings were also set aside. This decision also does not6. 248 ITR 7997. 102 ITR 580 in our view support the petitioner's contention. Thus we find nomerit in the appellant's above submission that no penalty can beimposed as there was no default at the time when penaltyproceedings were initiated. in our view support the petitioner's contention. Thus we find nomerit in the appellant's above submission that no penalty can beimposed as there was no default at the time when penaltyproceedings were initiated. 26.It was next urged on behalf of the appellant that Section201(1) of the Act was amended by the Finance Act, 2002 with theretrospective effect from 1962. This amendment was brought in toinclude an assessee to be in default, on failure to deduct or failureto pay the whole or any part of the tax as required by or under thisAct. Prior to the amendment, the words “the whole or any part ofthe tax” were not there. The consequences of failure to pay wereattached/attracted only where the tax was not deducted and paid inwhole. It was submitted that prior to amendment, if a part of thetax was deducted and paid to the revenue, then Section 201 of theAct would not be triggered. We do not find any merit in thissubmission. The amendment by the Finance Act, 2002 with theretrospective effect was clarificatory in nature. The words “does notdeduct or after deducting fails to pay tax” in the preamended Section 201 of the Act would in its plain reading also cover a failureto part deducting and/or failure to make a part payment of thealready deducted tax to the revenue. The amendment being onlyclarificatory in nature does not for the first time extends/enlargesthe scope of the Section. Thus the above submission on behalf of theappellant is also not accepted. Therefore even where the assesseecontends that he has paid part the tax after deducting the samefrom the payee, the provisions of Section 201(1) of the Act wouldcontinue to apply. In any event, the retrospective amendment witheffect from 1 April 1962 besides being clarificatory would also takeinto account a partial deposit with revenue of the tax deducted atsource within the ambit of Section 201(1) of the Act. The CalcuttaHigh Court's decision in CIT Vs. S.K. Tekriwal[8] being relied upon bythe petitioner does not in our view assist the petitioner as it holdsthat although an assessee would be defaulter for nonpayment of taxdeducted at source, yet payments made cannot be disallowed underSection 40(a)(1a) of the Act. This is where partial payment of taxdeducted has been made to the revenue. 27.It was next submitted that in the facts of the case, nopenalty ought to have been imposed upon the appellant as therewas good and sufficient reasons viz. financial hardship, diverselocations and lack of computerization. The obligation to deduct andpay tax upon the assessee is unconditional under the Act. It is theresponsibility of the assessee to deduct taxes and to pay to therevenue within the period provided under the Act. Financialstringency would not justify deducting tax from the amount paid tothe payee and not paying it to the revenue. Otherwise it wouldamount to using somebody else's money for the purposes of one'sbusiness. In such circumstances, the question of financialstringency, to our mind, hardly gives rise to a good and sufficientreason for not depositing tax which was an amount otherwisepayable to the payee or on behalf of the payee to the revenue.Moreover, the impugned order dated 16 March 2000 records thefact that the appellant has not produced any evidence to show thatit was in financial difficulty. Similarly diverse locations and lack ofcomputerization are hardly any reasons to justify the failure to payunder the Act. The assessee is entitled to do business in as many locations as it desires but that would not by itself justify not payingtaxes which are due to the revenue. The obligation to pay taxes isabsolute. The reliance was placed by the appellant on the decisionof this Court in Commissioner of Wealth Tax Vs. S.L. Hendra[9]where penalty was set aside under the Wealth Tax Act on paymentof self assessment tax due to final stringency caused by theacquisition of property. This was found by the Tribunal to be areasonable cause and on this fact the Court refused to interfere. Inthe present facts also the Tribunal has rendered a finding of factthat the reason set out by the appellant for failure to deposit the taxwithin time is not a good and sufficient cause. At the hearing, theappellant had not been able to show that the above finding of theTribunal is in any manner perverse and/or arbitrary. 28.It was lastly submitted by the appellant that no penaltyought to have been imposed upon it in all the assessment yearsunder consideration, in view of the fact that the CIT(A) had heldwhile interpreting Section 221 of the Act that no penalty isimposable. It was submitted that the interpretation by CIT(A) is a9. 191 ITR 565S.S.DESHPANDE31 / 34 plausible one. In such circumstances, there is no justification toimpose any penalty upon the appellant. On the other hand it wascontended by the revenue that the interpretation put by the CIT(A)on Section 221 of the Act is in face of the explanation whichprovides that penalty would be imposable even if the tax has beenpaid before the levy of penalty. The explanation was ignored on theground that it is confusing. The CIT(A) further construed the word“is” present in Section 221 of the Act which provides that whenassessee is in default or deemed to be in default would only meanthat the default should be continuous and also continuing when thepenalty proceedings are initiated. It ignores the explanationcompletely and ignores a binding a decision of the Patana HighCourt in the matter of Shriram Agrawal (supra) which covered anissue of non payment of advance tax in the context of theexplanation found in Section 221 of the Act. In the above case itwas held that the explanation to Section 221 of the Act puts itbeyond doubt that even where an assessee pays the tax beforeproceedings for penalty are initiated, yet penalty is imposable. 29.Consequently the above submission canvased by theappellant is not acceptable as it is not a case where there were twopossible views of interpreting Section 221 of the Act. This isparticularly so in view of explanation provided thereto. Accordingly,the imposition of penalty and setting aside the order of CIT(A) bythe impugned order, cannot be found fault with. For all the reasonsindicated above, we shall now answer the questions framed for ouropinion. 30.The question framed for our opinion under Section256(1) of the Act reads as under: Question: “Whether on the facts and circumstances of the case,the Tribunal was right in law in upholding the levy ofpenalty u/s. 221 of the I.T. Act, 1961, for failure topay tax deducted at source within the prescribedtime?”the Tribunal was right in law in upholding the levy ofpenalty u/s. 221 of the I.T. Act, 1961, for failure topay tax deducted at source within the prescribedtime?” Answer:In the affirmative i.e. against the appellant-assessee andin favour of the respondent-revenue.in favour of the respondent-revenue. 31.So far as appeals arising from order dated 16 March 2000are concerned, the appeals were admitted on the followingquestions:are concerned, the appeals were admitted on the followingquestions: Question: “Whether the interpretation placed by the Tribunalupon Sections 221 and 201 of the Income Tax iscorrect?”upon Sections 221 and 201 of the Income Tax iscorrect?” Answer:In the affirmative i.e. against the appellant-assesseeand in favour of the respondent-revenue.an