Wp/17037/2014 Of M/S Remco (Bhel) House Building Co-Operative v. The Income Tax Officer (Tds)

IN THE HIGH COURT OF KARNATAKA AT BANGALOREDATED THIS THE 24 DAY OF APRIL 2014 BEFORE THE HON'BLE DR.JUSTICE JAWAD RAHIM !!WRIT PETITION NOs.1/70343/2014 (1IT) BETWEEN: M/S. REMCO (BHEL) HOUSE BUILDING ©CO-OPERATIVE SOCIETY LIMITED|A CO-OPERATIVE SOCIETY INCORPORATEDUNDER THE KARNATAKA CO-OPERATIVESOCIETY ACT HAVING ITS OFFICE AT|NO.36,5 MAIN, 2 STAGE|RPC LAYOUT, BANGALORE-40.REPRESENTED BY ITS PRESIDENT|MR.SHANKAR G. BELLERIS/O SRI.LATE GURAPPA BELLERIAGED ABOUT 57 YEARSPETITIONER (BY SRI K.R.VASUDEVAN, ADV.) AND" THE INCOME TAX OFFICER (TDS).WARD 18(1), IV FLOOR|HMT BUILDING, BELLARY ROADBANGALORE-32.~. RESPONDENT| (BY SRI K.V. ARAVIND, AGA) THESEWRIT.PETITIONSAREFILED|UNDER|ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA.WITH A PRAYER TO QUASH THE IMPUGNED ORDER|11.3.7014 ISSUED BY THE RESPONDENT PASSED UNDER.SECTION 201(1A) AND 201A OF THE ACT FOR THE,ASSESSMENT YEARS 2OO8-2009 TO 2014-15 VIDE ANN-A1-18 & B1-37 AND THE CONSEQUENTIAL DEMAND| NOTICE ISSUED BY THE RESPONDENT DATED 11.3.2014|FOR THE ASSESSMENT YEARS 2008-27009 TO 7014-15. THESE PETITIONS COMING ON FOR PRELIMINARYHEARING-'B’ GROUP THIS DAY, THE COURT MADE THE.FOLLOWING:- ORDER The petitioner, a House Building Co-operativeSociety in these writ actions has brought in question|tne order dated 11.3.2014 passed by the respondent|imposing tax liability under the provisions of Section|201(1), 201(1A) of the Income Tax Act (for short ‘the Act’) for the assessment year 2008-2009 to 2014-2015 vide Annexures-Al-A/7 and B1-B/ and also theconsequential demand notices issued on 11.3.2004 for|the said period. 2. In response to notice, Sri.K.V.Aravind learnedcounsel has entered appearance for respondent No.2.I have heard the learned counsel on both sides.|Perused the records in supplementation thereto from.which the following factual matrix manifests for a|decision: 3. The petitioner claims itself a co-operativehouse building society registered under the provisions|of Co-operative Societies Act with the object of|providing house sites to its members and Nas, in|furtherance of that object, formed several layouts andproposed to distribute the sites to its members. To.fulfill the projects undertaken by it, the petitioner has.taken the land through intermediaries and developed|the same following the Rules. The petitioner in this|regard, has entered into an agreement with certain|individuals and parties for development of the land so.acquiredand|has.undertakentheDrFOCeSSofdeveloping the land into house of sites. 4.Thnere was a survey of tne petition premises bythe Income Tax department in exercise of power|under Section 133(a) on 5.12.2013. The respondent.during the survey examined books of accounts and|other documents maintained by the petitioner and has|also recorded his observation. Later, by letter dated|24.2.2014 respondent asked the petitioner why. petitioner should not be considered as an assessee indefault Dy the notice Annexure-D. The _ petitionerclaims to have filed detailed submission on 10.3.72014explaining in detail that the petitioner is not liable fordeduction of TDS under Section 194(c)of the Act forthe payment made to the developers and thus cannotbe|describedas|an|aSS@SSCECIn|default.Theexplanation so submitted is Annexure-E.| 5. The respondent, on receipt of Annexure- E|has proceeded to pass the order on 11.3.2014determining the tax liability as indicated thereinchargeable under 201(1) and for default imposed thedefault invoking provision 201A of the Act. Noticeunder Section 156 of the Act was given to thepetitioner but allowing only seven days time to replyfor the payment of the amounts so demanded. Thegrievance of the petitioner is that even the saiddemand notice under Section 156 of the Act hascurtailed the benefit of 30 days which the petitionerhas to appeal against the said order. 6. The petitioner asserts that through a letter|dated 23.2.2014, petitioner sought stay of the|impugned order to avail benefit of preferring statutory|appeal as is permissible, as seen from Annexure-F. 5. The respondent, on receipt of Annexure- E|has proceeded to pass the order on 11.3.2014determining the tax liability as indicated thereinchargeable under 201(1) and for default imposed thedefault invoking provision 201A of the Act. Noticeunder Section 156 of the Act was given to thepetitioner but allowing only seven days time to replyfor the payment of the amounts so demanded. Thegrievance of the petitioner is that even the saiddemand notice under Section 156 of the Act hascurtailed the benefit of 30 days which the petitionerhas to appeal against the said order. 6. The petitioner asserts that through a letter|dated 23.2.2014, petitioner sought stay of the|impugned order to avail benefit of preferring statutory|appeal as is permissible, as seen from Annexure-F. 7. The respondent declined to consider the relief.so sought through Annexure-F and has proceeded,further rejecting the application vide Annexure-G Dy.order dated 21.3.2014. Besides, it is alleged that the|respondent has initiated coercive recovery action by.attaching bank account of the petitioner without giving the petitioner a reasonable opportunity and without|furnishing in detail the finding of the survey conducted under Section 138A of the Act. Thus, aggrieved by |the order passed under Section under Section 201(1)|and 201(1A) and the consequent demand made, the|petitioner is in writ action seeking quashing of the.proceedings. 8. In support of the relief so sought, the.petitioner asserts that the order passed by the. respondent are without jurisdiction. They are inviolation of principles of natural justice. They are inutter regard to the mandatory provisions of the Actitself particularly, the proviso to Section 201 of theAct. Alternatively, it is urged that the orders havebeen passed without proper verification of thematerial documents and information furnished by thepetitioner proving payment of taxes for the receipt ofthe amount by the recipient which absolves thepetitioner of the liability of deducting TDS. Thoughseveral grounds are urged in the petition, thecounsel’s contention is the orders passed are withoutjurisdiction and are against principles of natural justiceand are therefore, to be quashed. 9. To sustain this writ action without availing the|benefit of statutory remedy of appeal, the petitionerhas placed reliance on the decision of the apex courtin the case ofVodafone [India Ltd. Vs. Union of Indiareported in [2013] 40 Taxmann.com545 (Bombay),where the Apex Court has allowed the writ action despite availability of alternative remedy of appeal.accepting the ground that there was breach ofprinciples of natural justice in exercise of powerpurported to be under the I.T.Act by the authorityconsidered. — 10. Reliance is also placed on decision in the|case ofCalcutta Discount Co. Ltd. v. I[ncome-taxOfficerreported in [1961] 41 ITR 191 (SC) Calcutta to contend that alternate remedy of appeal under theprovisions of the Income Tax Act is not always a barfor entertaining writ action when manifest legality isnoticed in exercise of power by assessing officer anddenial of opportunity to contest which is prerequisitemeet the ends ofjustice. 11. Besides the above grounds, the petitioner|has described the steps taken by the authority asharsh and unjustified in freezing the bank account ofthe petitioner paralyzing its day today functions resulting in incompensatable hardship to the workersof the company who could not be paid salary. 12. On _ behalf of revenue, Sri.K.V.Aravind 10. Reliance is also placed on decision in the|case ofCalcutta Discount Co. Ltd. v. I[ncome-taxOfficerreported in [1961] 41 ITR 191 (SC) Calcutta to contend that alternate remedy of appeal under theprovisions of the Income Tax Act is not always a barfor entertaining writ action when manifest legality isnoticed in exercise of power by assessing officer anddenial of opportunity to contest which is prerequisitemeet the ends ofjustice. 11. Besides the above grounds, the petitioner|has described the steps taken by the authority asharsh and unjustified in freezing the bank account ofthe petitioner paralyzing its day today functions resulting in incompensatable hardship to the workersof the company who could not be paid salary. 12. On _ behalf of revenue, Sri.K.V.Aravind learned|standingcounselhasraisedobjection|regarding maintainability of this Writ Petition on theground that the petitioner has an alternative andefficacious remedy of appeal as provided underprovision of Section 246 of the Income Tax Act. Hedrew my attention to the provision which undoubtedlyenvisagesthat|any|aSS@SSCECOT|any|deductoraggrieved by any of the following orders (whethermade before or after the appointed day) may appealto the Commissioner (Appeals). He would then refer toprovision under Section 251 of the Act to show thatthe appeal remedy is not only efficacious but alsoalternate remedy. However, the grievance of thepetitioner is that Section 251 of the Act confers on theCommissioner (Appeals) the power to consider anddecide any matter arising out of the proceedings inwhich the order appealed against was’ passed, notwithstanding that such issue was not raised beforethe Commissioner (Appeals) by the appellant andwhile doing so he shall not enhance an assessment ora penalty or reduce the amount of refund unless theappellant has had a reasonable opportunity of showingcause against such enhancement or reduction andpass orders as envisaged in clause (C) that is in anyother case, he may pass such orders in the appeal ashe thinks fit. Thus he submits that in appeal action thegrounds urged in this writ and such other groundswhich the petitioner may feel in his support may beurged and that will receives a judicial consideration ofthe statutory authority which in writ action this Courtmay not be in a possible to consider as this Court willnot be appreciating the facts. 13. In support of his contentions, the learned|counsel for the revenue relies upon the decision in thecase OfCommissioner of [Income Tax Vs. Chhabi/ DassAgarwalreported in [2013] 36 taxmann.com 36 (SC).where the Apex Court referring to the High Courts entertaining writ action against assessment orderobserved thus: "14. in the instant case, the only.question which arises for our consideration|and decision is whether the High Court was|justified in interfering with the order|passed by the assessing authority under.Section 148 of the Act in exercise of its|jurisdiction under article 226 when anequally efficacious alternate remedy was|available to the assessee under the Act”| 14. In the instant case, the only question whicharises for consideration and decision is, ” whether high court was justified in |interfering with the order passed by theassessing authority under Section 148 ofthe Act in exercise of its jurisdiction underArticle 226 of the Constitution of Indiawhen equal efficacious alternative remedywas available to the assessee under theAct?”| 15. In para 16, Apex Court observes that, "16. xxxx Though Article 226 confers.a very wide powers in the matter of issuingwrits on the High Court, the remedy of writis absolutely discretionary in character. IftheHighCourtISsatisfiedthat|theaggrieved party can have an adequate orsuitable relief elsewhere, it can refuse toexercise its jurisdiction. The court inextraordinary circumstance may exercisethe power if it comes to the conclusion thatthere has been a breach of principles ofnatural justice or procedure required fordecision has not been adopted.” 15. In para 16, Apex Court observes that, "16. xxxx Though Article 226 confers.a very wide powers in the matter of issuingwrits on the High Court, the remedy of writis absolutely discretionary in character. IftheHighCourtISsatisfiedthat|theaggrieved party can have an adequate orsuitable relief elsewhere, it can refuse toexercise its jurisdiction. The court inextraordinary circumstance may exercisethe power if it comes to the conclusion thatthere has been a breach of principles ofnatural justice or procedure required fordecision has not been adopted.” 16. The learned counsel would again refer to the|decision of the Apex Court in the case ofMSs,HindustanCocoColaBevaragePvt.Ltd. Vs.Commissioner of [Income Ta, where the Apex Courtdealing with action under Sections 201 and 201(1A) of the Act observes referring to the defence against|order under Section 201 thus, “Be that as it may, the circular No.2/5/201/95- IT(B) dated 29.1.1997 issued| by the Central Board of Direct Taxes, in ourconsidered opinion, should put an end tothe controversy. The circular declares “nodemand visualized under Section 201 (1) ofthe Income- tax Act should be enforcedafter the tax deductor has satisfied theofficer-in-charge of TDS, that taxes duehave been paid by the deductee-assessee.However, this will not alter the liability tocharge interest under Section 201 (1A) ofthe Act till the date of payment of taxes bythe deductee-assessee or the liability forpenalty under Section 2/71C of the Incometax Act.” 17. He would also refer to the decision of this|court in W.P.NO.29238/2013 dated 24.7.2013 relied.on by the petitioner’s counsel to distinguish the facts.The decision has been relied on to contend that|though the learned Single Judge of this court opined,since the survey report was not furnished to the|assessee the assessee was unable to answer to the|grounds and therefore, the assessment order based. on such report was against the principles of naturaljustice, the facts in the instant case are different. 18. Lastly he would oppose the grounds urged|in the Writ Petition that the petitioner has no statutoryliability to deduct TDS on the amount paid to thebuilder. 19. On merit, learned counsel for the petitioner|Nas used the proviso to Section 201 of the Act toabsolve the petitioner of TDS which envisages|“whereany person, including the principal officer of aCompany, who fails to deduct the whole or any part ofthe tax In accordance with the provisions of thisChapter on the sum paid to a resident or on the sumcredited to the account of a resident shall not bedeemed to be an assessee in default in respect of suchtax if such resident —- (I)has furnished his return of [ncome under|Section 139; (iI)has taken [Into account such sum forcomputing income in such return. ofincome; andcomputing income in such return. ofincome; and (11)has paid the tax due on the income|declared by him in_ such return ofincome,declared by him in_ such return ofincome, and the person furnishes a certificate to this effectfrom an accountant in such form as may be|prescribed. 20. Basing on the proviso, it was urged that as.the recipient of the money paid by the petitioner has|filed his returns for the relevant period under the|provisions of Section 139 of the Act, liability of the.petitioner seizes under Section 201 of the Act. The.returns filed by the recipient became the basis and if.the assessee had declared no tax liability, there is no question of invoking the penal provision under Section 201(1)(a) of the Act. 21. To support this plea, learned counsel refers.to the reply submitted by the petitioner at the earliestpoint of time to the respondent-Officer vide Annexure| and the person furnishes a certificate to this effectfrom an accountant in such form as may be|prescribed. 20. Basing on the proviso, it was urged that as.the recipient of the money paid by the petitioner has|filed his returns for the relevant period under the|provisions of Section 139 of the Act, liability of the.petitioner seizes under Section 201 of the Act. The.returns filed by the recipient became the basis and if.the assessee had declared no tax liability, there is no question of invoking the penal provision under Section 201(1)(a) of the Act. 21. To support this plea, learned counsel refers.to the reply submitted by the petitioner at the earliestpoint of time to the respondent-Officer vide Annexure| ‘E", informing the Officer that the recipient of theamount has already submitted his returns and the|income so received for the relevant period and that.Should be taken Into consideration to hold that no TDSwas liable to be deducted by the petitioner. This is the|major ground on which jurisdiction of the respondent.is questioned. In other words, learned counsel,submits, the Officers invoked jurisdiction to pass order|under Section 201(c) of the Act without determining.whether the petitioner is liable to pay TDS under|Section 201 of the Act. He has no jurisdiction to pass.any consequential order like the order of assessment|or attachment.| D2)In|negationofthesegrounds,Sri.K.V.Aravind, learned Standing counsel submits the|proviso would make it clear that the petitioner can.avail the benefit of proviso only if the petitioner|produces the certificate from the Accountant of the.recipient before the Assessing Officer that the.recipient of the amount paid by the petitioner has filed his returns and paid tax on the ground of tax liabilityso determined. He submits the petitioner has notproduced such documents. Therefore, the submissionof returns by the resident named in the Statute who isthe recipient does not give immunity to the petitioneras provided by the proviso to Section 201 of the Act.Thus, he contends petitioner is liable to deduct TDSunder Section 201 of the Act which it failed and thusthe petitioner is liable for further action for imposingliability under Section 201(1)(a) of the Act. 273. He would submit in terms of the decision ofthe Apex Court in the case of Hindustan Coca ColaBeverages Pvt. Ltd., Vs. CIT, the liability underSection 201(c) of the Act also rests and interest isliable to be paid by the petitioner. 24. From the contentions urged by both sides,what clearly emerges is respondent has inspected thepremises of the petitioner, seized the books ofaccounts, other documents and formed an opinion that the petitioner has been making payments to thedevelopers and therefore was liable to deduct tax atsource for the payments so made. Therefore, thebooks of accounts and ledgers maintained by thepetitioner is a basis for further action in the matter. ©The respondent has collected such information in aSurvey conducted under Section 133(a) of the Act andhas intimated the petitioner through a letter dated24.7 7014 vide Annexure ‘D’. | 25. It is material to note that the petitioner has.sent a detailed reply to it vide Annexure ‘E’, making itclear that payments made by the petitioner to thepersons/concerns named in the ledgers does not comewithin the mischief of Section 194(c) of the Act, asthere was no. bilateral transaction of service orcontract between the parties. The petitioner claimsthat it is a Housing Co-operative Society and hasentered the joint venture with the developers for theformation of layouts. Money is paid by the members ofthe Society which it in turn passed on to the developers who had incurred the expenditure for thedevelopment. Thus, payment is not in relation to anycontract between the parties inter alia to attract theprovisions of Section 194(c) of the Act. Besides, thepetitioner has also disclosed in the letter that therecipient of the amount has filed returns and thereforebased on the returns, the tax liability of the recipienthas to be determined. developers who had incurred the expenditure for thedevelopment. Thus, payment is not in relation to anycontract between the parties inter alia to attract theprovisions of Section 194(c) of the Act. Besides, thepetitioner has also disclosed in the letter that therecipient of the amount has filed returns and thereforebased on the returns, the tax liability of the recipienthas to be determined. 26. The impugned order at Annexures A-1 to A-7shows, for different financial assessment years, actionhas been initiated only under Section 201 of the Actand as could be seen from the preamble of the orderitself, the assessing officer has referred to calling forinformation under Section 133(6) of the Act forverificationofthepaymentsmadetOthedeveloper/contractor. Therefore, it is not in disputethat the petitioner claims payment is made to thedevelopers engaged in the project with the petitionerfor and on behalf of its members. There Is anobservation that the petitioner has not furnished the reply as on 21.2.2014 necessitating issuance of showcause notice on 24.2.2014. The filing of detailedSubmission by the assessee on /7.3.2014 is clearlydocumented in the assessment order. Necessarily, theofficer had to take into account the grounds so urgedwhile.proceedingTO.declare,thepetitioneras|“assessee in default’. 2/7. At this juncture, I am satisfied that thoughthe petitioner had submitted a submission note, theSame Nas not been considered by the respondent withreference to the survey conducted under Section 133of the Act nor he has referred to the documentsproduced by the petitioner. There is no dispute, thepetitioner has produced information about the filing ofreturns by the recipient of the amount from theSociety and thus, petitioner rightly opposed action. 28. In this context the proviso gains importance.Section 201 of the Act no doubt requires,where anyperson, including the principal officer of a company,-— (a).who is reguired to deduct any sum inaccordance with the provisions of this Act; or (Db)referred to in sub-section (1A) of Section1927, being an employer, does not deduct, or does notpay, or after so deducting fails to pay, the whole or.any part of the tax, as required by or under this Act,then, such person, shall, without prejudice to any|other consequences which he may incur, be deemedto be an assessee in default in respect of such tax. 29. But meaningful proviso is added that any person, including the principal officer of a Company, who fails to deduct the whole or any part of the tax in)accordance with the provisions of this Chapter on the|sum paid to a resident or on the sum credited to the|account of a resident shall not be deemed to be ansassessee in default in respect of such tax if such|resident —- (iv)has furnished his return of [ncome under|Section 139; (Vvhas taken [Into account such sum forcomputing income in such return of|income; andcomputing income in such return of|income; and (vi)has paid the tax due on the income|declared by him.declared by him. 30. Therefore, it is clear from the phraseology ofthe proviso that if returns has been filed by the|recipient and he has computed tax liability and/or has.paid the tax, the payer referred to under Section 201.of the Act is not liable for payment of tax or to deduct|TDS. These are all factual Issues and there is no}reason why the respondent-Officer should hesitate or.shy from enquiring into this issue. When the Statute.creates liability, there has to be a fact finding on the|issue. Though the petitioner has not produced the.certificate from the accountant with respect to the|income of the recipient, it is hard to accept that.benefit of the provision will not be available to the.petitioner. — 31. In this view, it is to be held there has to be a.realistic assessment of the fact situation and itn thatany material information regarding filing of returns/| payment of tax by recipient furnished by the petitionerShould receive consideration. 31. In this view, it is to be held there has to be a.realistic assessment of the fact situation and itn thatany material information regarding filing of returns/| payment of tax by recipient furnished by the petitionerShould receive consideration. 32. The grievance of the petitioner is on receipt|of show cause notice, the petitioner has not only sentreply but has sought to support its contention.—Despitesuch|request.from.thepetitioner,theassessing officer has failed to consider its requestpragmatically and appears to have pre-judged theissue. The manner in which he has conducted theproceedings would show the officer gave no credenceto the show cause statement nor examined thedocuments filed by the petitioner. Even if theassessing officer was of the opinion, the petitioner isliable to deduct TDS on the amount paid to thecontractors. The officer should have examined thetruth or otherwise of the statement made by thepetitioner that the recipient of the amount had filed itsreturns for tax assessment. Had the petitioner beengiven an opportunity of personal hearing as soughtfor, a realistic assessment could have been done. The object of the Act could have been achieved if therespondenthadgiven.dueopportunityTO.thepetitioner to substantiate its defense. The impugnedorder of assessment has no reference to theinformation furnished by the petitioner regarding filingof returns by the recipient of the amount nor does it.contend any opinion as to why such statement of thepetitioner was not considered. — 33. I am_ satisfied, the grievance of thepetitioner is justified. The order passed by theauthority is an order without granting due opportunityto the petitioner which has resulted in treating thepetitioner as assessee in default. Consequent to suchopinion of the Officer, the petitioner has been saddledwith not only the tax liability but even penalty. Theofficer has also proceeded in haste to resort tocoercive steps to freeze the bank account to paralyzeits function. The manner in which proceedings areinitiated and culminated by the impugned order and demand notice, speaks of arbitrariness and nojudicious approach. 34. From the reasons discussed above, I am.Satisfied, non suiting the petitioner from this writaction to resort to appeal remedy as provided underthe provisions of Section 246(1) of the Act will beunjust. As the main ground is, impugned order ispassedwithoutgiving.any|opportunityTO.thepetitioner, the order is seriously impacted. The caselaws cited by the petitioner’s counsel referred to in theparas supra aid the petitioner in sustaining writ actionin. this Court even though, alternate, efficaciousremedy of appeal is provided. 35. Consequently, the impugned order, atAnnexures A-1 to A-7 dated 11.3.2014 are quashed.The assessing officer is directed to commence freshproceedings after giving due opportunity to thepetitioner by way of show cause against the proposedaction and if the petitioner files show cause statement and seeks opportunity to produce documents and personal hearing, the officer shall grant the petitioner full opportunity and then proceed to pass appropriate orders as permissible in law. | In view of this order, the attachment order issued by the respondent vide Annexure ‘C’ freezingthe bank account of the petitioner is also quashed. Rule is made absolute. In the circumstances, no orderas to costs. RS*/nas. Sd/-| JUDGE|