The Commissioner Of Income Tax, Patiala v. M/S Punjab State Electricity Board, The Mall, Patiala

ITA No. 31 of 2003 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 31 of 2003 Date of Decision: 30.3.2016 The Commissioner of Income Tax, Patiala ....Appellant. Versus M/s Punjab State Electricity Board, The Mall, Patiala ...Respondent. 1.Whether the Reporters of the local papers may be allowed to see the judgment?the judgment? 2.To be referred to the Reporters or not? YES3.Whether the judgment should be reported in the Digest?3.Whether the judgment should be reported in the Digest? CORAM:-HON'BLE MR. JUSTICE AJAY KUMAR MITTAL.HON'BLE MRS. JUSTICE RAJ RAHUL GARG. PRESENT: Mr. Z.S. Klar, Advocate for the appellant. AJAY KUMAR MITTAL, J. 1.The revenue has claimed the following substantial questionof law in this appeal filed under Section 260A of the Income Tax Act,1961 (in short “the Act”) against the order dated 28.8.2002 (Annexure A-2) passed by the Income Tax Appellate Tribunal, Chandigarh Bench “B”,Chandigarh (hereinafter referred to as “the Tribunal”) in ITA Nos. 1276,1277 and 1278/Chandi/1995 for the assessment years 1988-89, 1989-90and 1990-91:- (i)Whether on the facts and in the circumstances of the case, the ITAT was right in law indirecting the AO to charge interest u/s 201(1A)of the Income Tax Act, 1961 from the due datedirecting the AO to charge interest u/s 201(1A)of the Income Tax Act, 1961 from the due date to the date of actual payment of tax/surchargeeither by the person responsible to deduct taxor by the recipient of income, whichever isearlier? (ii)Whether on the facts and in the circumstancesof the case, the ITAT is right in law in directingthe AO that the tax paid by the recipient duringthe previous year, if any, on such income betreated as payment of tax/surcharge underSection 193 of the Income Tax Act, 1961 forcalculating interest under Section 201(1A) ofthe Act.of the case, the ITAT is right in law in directingthe AO that the tax paid by the recipient duringthe previous year, if any, on such income betreated as payment of tax/surcharge underSection 193 of the Income Tax Act, 1961 forcalculating interest under Section 201(1A) ofthe Act. (iii)Whether on the facts and in the circumstancesof the case, the ITAT is right in law in issuingdirections as per question No.2 which arecontrary to the provisions of Section 209(1)(d)of the Income Tax, 1961, the amount of tax/surcharge deductible u/s 193 of the Income TaxAct, is required to be excluded from the amountof advance tax calculated under Section 209and the same is not payable as Advance Tax?of the case, the ITAT is right in law in issuingdirections as per question No.2 which arecontrary to the provisions of Section 209(1)(d)of the Income Tax, 1961, the amount of tax/surcharge deductible u/s 193 of the Income TaxAct, is required to be excluded from the amountof advance tax calculated under Section 209and the same is not payable as Advance Tax? 2.Briefly stated, the facts necessary for disposal of the presentappeal are that the assessee issued 'securities' as interest bearingbonds on which the interest was to be paid half yearly and was liable todeduct the tax at source on interest payable under Section 193 of theAct. The said bonds were subscribed by the Financial Institutions,Government Corporations and Public Sector Banks etc. The assessee ITA No. 31 of 2003 deducted the tax at source on the amount of interest paid under Section193 of the Act but failed to deduct surcharge on the amount of incometax. The Assessing Officer vide order dated 30.11.1994 (Annexure A)created demand of surcharge and also charged interest under Section201(1A) of the Act as under:- 2.Briefly stated, the facts necessary for disposal of the presentappeal are that the assessee issued 'securities' as interest bearingbonds on which the interest was to be paid half yearly and was liable todeduct the tax at source on interest payable under Section 193 of theAct. The said bonds were subscribed by the Financial Institutions,Government Corporations and Public Sector Banks etc. The assessee ITA No. 31 of 2003 deducted the tax at source on the amount of interest paid under Section193 of the Act but failed to deduct surcharge on the amount of incometax. The Assessing Officer vide order dated 30.11.1994 (Annexure A)created demand of surcharge and also charged interest under Section201(1A) of the Act as under:- 3.Feeling aggrieved by the order, Annexure A, the assesseefiled three appeals before the Commissioner of Income Tax (Appeals)[for brevity, “the CIT(A)”]. The CIT(A) vide a common order dated3.8.1995 (Annexure A-1) following its order for the assessment years1990-91 to 1992-93 in appeal Nos. 180 to 182/IT/93-94 allowed theappeals and directed the Assessing Officer to recalculate the interestcharged under Section 201(1A) of the Act upto the end of the respectivefinancial years after necessary verification from the payees regardingpayment of tax due on such interest, i.e., interest on bonds issued by theassessee. Being dissatisfied with the order, Annexure A-1, the revenuefiled appeals before the Tribunal who vide order dated 28.8.2002(Annexure A-2) modified the order of the CIT(A) on the question ofinterest payable under Section 201(1A) of the Act holding that theAssessing Officer should allow benefit of payment onproportionate/rational basis having regard to the fact that the entireliability was cleared in the financial year. The Assessing Officer wasdirected to revise his orders accordingly. Hence, the present appeal by ITA No. 31 of 2003 the revenue. 4.After hearing learned counsel for the revenue, we do notfind any merit in the appeal. The Tribunal while deciding the appeals ofthe revenue had followed its earlier order dated 25.10.2001 and thedirections given therein were made applicable in these assessmentyears also which are as under:- “25.As regards the levy of interest u/s 201(1A) ofthe Income Tax Act, we are of the view that statutoryprovisions in this regard are very clear. We refer tothe provisions of sub-section (1A) of Section 201providing for payment of interest. The interest is to bepaid by the defaulter on the amount of tax notdeducted from the date on which such tax wasdeductible to the date on which such tax is actuallypaid. Therefore, the period is prescribed by thestatute and the provision is mandatory. It can neitherbe extended nor shrunk at the discretion of therevenue authorities. Mandate of sub-section (1A) is tobe given effect to. The interest is to be chargedstrictly in accordance with the statutory provisions tilltax is “actually paid”. 26.The revenue with reference to the words “suchtax is actually paid” in the provision referred to abovecontended that words “such tax is actually paid” tomean that it is paid by the persons who are liable todeduct tax (surcharge) i.e. the assessee. The sectiondeals with consequences of failure to deduct or to pay tax. The learned Department Representative insupport of the above contention, placed great relianceon the decision of the Hon'ble Rajasthan High Courtin the case of CIT Vs. Rathi Gum Inds. 231 ITR 98.But as pointed out by ITAT in 116 Taxman 128, tax inthat case was paid by the recipients after due dateand, therefore, interest was directed to be charged.Shri Jain has also rightly distinguished the aforesaidcase and his arguments have been noted above indetail. In this connection, we again invite attention tothe provisions of section 191 of the Income Tax Act.The said section casts an obligation to the assesseeto directly make payment of tax on income in thefollowing two situations:- tax. The learned Department Representative insupport of the above contention, placed great relianceon the decision of the Hon'ble Rajasthan High Courtin the case of CIT Vs. Rathi Gum Inds. 231 ITR 98.But as pointed out by ITAT in 116 Taxman 128, tax inthat case was paid by the recipients after due dateand, therefore, interest was directed to be charged.Shri Jain has also rightly distinguished the aforesaidcase and his arguments have been noted above indetail. In this connection, we again invite attention tothe provisions of section 191 of the Income Tax Act.The said section casts an obligation to the assesseeto directly make payment of tax on income in thefollowing two situations:- i)in case of income in respect of which provisionis not made under this Chapter for deductingtax at source; and is not made under this Chapter for deductingtax at source; and ii) in any case where tax has not been deducted inaccordance with this Chapter.accordance with this Chapter. 27.It is, therefore, more than clear that where tax atsource is not deducted, in spite of the provisions todeduct under Chapter XVI, the assessee (recipient ofincome) has an obligation to make payment of taxdirectly. Therefore, the moment there is a failure onthe part of the person liable to deduct tax at source,liability of the person receiving income to pay tax onsuch income directly arises. The recipient has to discharge the said liability. Once payment of tax (orsurcharge) is actually made, the liability is fullydischarged. It is, therefore, not possible to accept thatfor purposes of sub section (1A) of section 201,payment directly made by the recipient is not coveredby the words “such tax is actually paid.” This schemeof the statutory provisions is more than clear when allthe relevant provisions are read together and in anharmonious manner. Thus, for easy, early andconvenient recovery of tax, provisions under ChapterXVI for the tax deduction at source have been made.But in case no deduction is made, the holder of theincome is obliged to pay the tax directly and in thatcase, interest u/s 201(1A) can be charged only till thedate of amount is “actually paid”. 28.The Assessing Officer in the assessment orderhas recorded that on verification, the contention of theassessee that recipients paid surcharge on interestreceived by them was correct. The Commissioner ofIncome Tax (Appeals) on the basis of materialavailable has held that surcharge must have beenpaid before 31[st] of March of the financial years 1991-92 and 1992-93 and, therefore, directed that interestcould be charged only upto 31[st] of the respectivefinancial year. Similar recommendation was made inthe period relevant to the assessment year 1990-91.The aforesaid inference from the facts collected by 28.The Assessing Officer in the assessment orderhas recorded that on verification, the contention of theassessee that recipients paid surcharge on interestreceived by them was correct. The Commissioner ofIncome Tax (Appeals) on the basis of materialavailable has held that surcharge must have beenpaid before 31[st] of March of the financial years 1991-92 and 1992-93 and, therefore, directed that interestcould be charged only upto 31[st] of the respectivefinancial year. Similar recommendation was made inthe period relevant to the assessment year 1990-91.The aforesaid inference from the facts collected by the Assessing Officer is possible. But the parties areaggrieved from the aforesaid finding. In principle, ithas to be accepted that interest could be charged onlyupto the date the surcharge due was actually paid tothe credit of the Government. Now what is the actualdate of payment, is a question of fact. Each paymentwill have to be examined in case the interest is to becorrectly computed. We see no reason why correctamount should not be determined. After all, interestpayable is compensatory in nature and has to berecovered for the period for which the State wasdeprived of the amount due to it. None of the partieshas furnished calculation or details of date of actualpayment. But then as per mandate of sub-section(1A) of section 201 read with Article 265 of theConstitution of India, interest can be recovered only tillthe amount was actually paid. The date of actualpayment has to be determined and interest computedfrom the date of default to the aforesaid date asenvisaged under sub-section (1A) of section 201 ofthe Income Tax Act. The Assessing Officer hascollected material from various recipients regardingsurcharge paid by them. Therefore, he should havetaken date of actual payment into account. It ispossible that the recipients paid tax and surcharge onthis income (Interest on Bonds) along with otherincome and bifurcated figures are not available. In that case, the Assessing Officer should allow benefitof payment on proportionate/rational basis havingregard to the fact that the entire liability was cleared inthe financial year. We direct accordingly and modifythe directions of the Commissioner of Income-Tax(Appeals) on the question of interest payable u/s 201(1A) of the Income Tax Act.” 5.The Tribunal had recorded that the Assessing Officer hadcollected material from various recipients regarding surcharge paid bythem and, therefore, he should have taken date of actual payment intoaccount. It was possible that the recipients paid tax and surcharge onthe income from interest on bonds along with other income and since thebifurcated figures were not available, the Assessing Officer should haveallowed benefit of payment on proportionate/rational basis having regardto the fact that the entire liability was cleared in the financial year. Theapproach of the Tribunal is in conformity with the law enunciated by theApex Court in Hindustan Coca-Cola Beverages (P) Ltd. v.Commissioner of Income Tax (2007) 293 ITR 226 (SC), KarnatakaHigh Court in Children's Education Society v. Deputy Commissionerof Income Tax (TDS) (2009) 319 ITR 409 (Kar), Uttrakhand High Courtin Director of Income Tax and another v. Maersk Company Ltd.(2011) 334 ITR 79 (UKHC) and this Court in Commissioner of IncomeTax v. The Chief Electoral Officer, Chandigarh, ITR No. 183 of 1999decided on 23.11.2010. For ready reference, relevant observations ofthe Supreme Court in Hindustan Coca-Cola Beverages (P) Ltd's case(supra) are quoted as under:- -9- -9- “Be that as it may, the circular No. 275/201/95-IT(B)dated 29.1.1997 issued by the Central Board of DirectTaxes, in our considered opinion, should put an end tothe controversy. The circular declares “no demandvisualized under Section 201(1) of the Income-tax Actshould be enforced after the tax deductor hassatisfied the officer-in-charge of TDS, that taxes duehave been paid by the deductee-assessee. However,this will not alter the liability to charge interest underSection 201(1A) of the Act till the date of payment oftaxes by the deductee-assessee or the liability forpenalty under Section 271C of the Income-tax Act.” 6.In view of the above, there is no error in the approach of theTribunal which may warrant interference by this Court. The questions oflaw as claimed are answered accordingly. Consequently, finding nomerit in this appeal, the same is hereby dismissed. (AJAY KUMAR MITTAL) JUDGE March 30, 2016gbs (RAJ RAHUL GARG) JUDGE