Judgment:
These two appeals filed by the department are against to separate orders of Commissioner (Appeals) dated 24-8-2000 deleting the penalty imposed under section 221 for not depositing in time the taxes deducted at source under sections 193 and 194A respectively for the financial year 1996-97.
The issues involved in these two appeals are common and as such, the appeals were heard together and a common order is being passed for the sake of convenience.
The ground taken by the department in these two appeals is that the Commissioner (Appeals) erred in cancelling the penalty under section 221 of the Act on the ground that interest was paid by the assessee.
Briefly stated, the facts of the case are that the assessee deducted a same of Rs. 38,79,749 on payments made by way of interest on securities under section 193 of the Act and a sum of Rs. 98,94,225 from the amount paid by way of interest other than interest on securities under section 194A for the period ending on 31-3-1997. The assessee actually deposited the said sum to the credit of the Central Government on 27-6-1997 and as such, there was a delay of 27 days in depositing the amount to the Central Government Account. For failure on the part of the assessee to pay the amount of tax deducted at source under sections 193 and 194A within the time allowed under the statute, the assessing officer had initiated on 18-5-1999 penalty proceedings under section 221 of the Act asking the assessee as to why penalty should not be levied fixing the case on 28-5-1999.
In the course of hearing of the aforesaid penalty proceedings, the assessee had shown the following reasons for the delay in depositing the amount of tax deducted under sections 193 and 194A : (a) that the assessee was passing through financial crisis for last few years as a result of losses suffered by the assessee; (b) that the assessee had paid the entire amount of tax deducted at source without any notice or remainder from the Income Tax Department; (c) that the assessee had also paid interest of its own under section 201(1A) of the Act for the delay in depositing the amount of tax deducted at source; and (d) that the liability for tax deduction at source had arisen in the case of the assessee as the assessee was required to follow the mercantile system of accounting under which the assessee had to provide interest on the debentures and loans by crediting the accounts of the payees on 31-3-1997. The due date for making the payment of tax deducted was 31-5-1997 and the assessee paid the same on 27-6-1997 resulting into delay of 27 days only.
Considering the submissions of the assessee, the assessing officer imposed penalty of Rs. 75,000 in respect of the delay in making the payment of tax of Rs. 38,79,749 deducted under section 193 and Rs. 1 lakhs in respect of delay in making the payment of tax of Rs. 98,94,225 deducted under section 194A.Being aggrieved, the assessee preferred appeals before the Commissioner (Appeals) who deleted the penalty by observing that the delay was for only 27 days which was not at all significant and moreover assessee on its own paid the interest under section 201(1A) and thus this is not a fit case for invoking the provision of section 221.
Being aggrieved by the orders of Commissioner (Appeals), the department is in appeal before us. We have heard the rival submissions of both the parties and perused the orders of authorities below. We have also gone through the decisions cited by both the parties at the time of hearing.
Admittedly, in the instant case, the assessee deducted income-tax at source amounting to Rs. 38,79,749 and Rs. 98,94,225 on the amount of the income paid by way of interest on securities and interest other than interest on securities as required under the provisions of sections 193 and 194A of the Income Tax Act, 1961 respectively. It is also apparent that the assessee was required to pay the aforesaid deducted amount to the credit of the Central Government in the manner prescribed under section 200 of the Act which enacts that any person making any deduction of tax at source is to pay the amount so deducted to the credit of the Central Government in the manner and time prescribed under rule 30 of the Income Tax Rules, 1962 (hereinafter referred to as the Rules). The assessee had paid the amount by way of interest on securities referred to in section 193 and the amount by any of interest other than interest on securities referred to in section 194A by crediting such amount to the accounts of the payees in the month of March, 1997 and, as such, the assessee was under obligation to pay the amount so deducted to the credit of the Central Government within 31-5-1997 as envisaged under the provision of rule 30 of the Rules read with section 200 of the Act but the assessee had failed to deposit the same within the stipulated time as the assessee had paid the amount so deducted on 27-6-1997.
Failure to make payment of the deducted amount of tax amounts to contumacious conduct on the part of the person liable to pay the deducted tax and penal consequences as enumerated in section 201 of the Act would follow for such default. Section 201 of the Act enacts a threefold punishment for defaulting in making the payment of the sum deducted at source to the credit of the Central Government in the manner as prescribed in section 200 of the Act/Rule 30 of the Rules.
Firstly, without prejudice to any other consequences which the assessee may incur, the assessee shall be deemed to be an assessee in default in respect of the tax deducted; secondly, any such assessee is liable to pay interest at the specified rate on the amount of such deducted tax from the date on which such tax was deducted to the date when such tax is actually paid; thirdly, in case the assessee making deduction but failing to make payment of the deducted amount in the manner prescribed in section 200 of the Act/Rule 30 of the Rules, section 201(2) creates a statutory charge upon all the assets of the defaulter for the amount of tax deducted and not paid plus the amount of interest leviable under section 201 (1A). The aforesaid first and second consequences are without prejudice to each other and both will operate simultaneously as it is clear from the language of section 201(1) of the Act.
Now we come to the consequence flowing from treating the assessee in default within the meaning of section 201(1) of the Act in respect of the tax deducted but not paid within specified time. One of such consequences is that an assessee in default and deemed to be in default is liable to a penalty under section 221. Section 221 of the Act provides that when an assessee is in default or is deemed to be in default in making the payment of tax deducted at source, he shall, in addition to the amount of the arrears and interest payable, be liable by way of penalty, to pay such amount as the assessing officer may direct unless he has had good and sufficient reason for his failure.
If we read carefully the provisions of section 221 and 201 of the Act, whether the assessee has paid the interest or not is immaterial as, inasmuch as, to treat the assessee in default under section 201(1) of the Act is without prejudice to any other consequences which an assessee may incur, and further to make him liable to pay specified interest under section 201(1A) is also without prejudice to the provisions of sub-section (1) of section 201. Therefore, these two consequences provided in sections 201(1) and 201(1A) operate simultaneously without prejudice to one another.
In view of the above legal position, let us consider the issue before us in the light of the facts of the case. There is no dispute that the assessee has not paid the sum deducted at source to the credit of the Central Government within the time prescribed. Consequently, the assessee was treated to be an assessee in default in respect of the amount deducted at source under sections 193 and 194A and had, therefore, made itself liable to penalty under section 221 of the Act unless good and sufficient reasons for delay in depositing the tax deducted by it was shown by the assessee.
As regards the existence of good and sufficient reasons for delay in depositing the tax deducted by the assessee, it was contended by learned counsel for the assessee that the assessee, on its own, paid the interest leviable under section 201(1A). In our considered opinion, this submission of the assessee is of no assistance to the assessee as it is clear whether the assessee had paid the interest or not is immaterial in view of the language of sections 201(1) and 201(1A) which are very categorical to state that payment of interest under section 201(1A) is without prejudice to the provisions of sub-section (1) of section 201. The Hon'ble Calcutta High Court in the case of Jubilee Investments & Industries Ltd. v. Assistant CIT (1999) 238 ITR 648 (Cal) has laid down that whether the assessee has paid interest or not was immaterial and when assessee was found in default in depositing the amount of TDS within the time limit prescribed, the assessee was liable to pay the interest as well as the penalty. In this view of the matter, considering the facts of the present case and following the aforesaid decision of the Hon'ble Calcutta High Court, we do not find any force in this submission put forward by the leaned counsel of the assessee.
We further hold that the Commissioner (Appeals) was, therefore, wrong and unjustified in taking into consideration the fact of payment of interest under section 201(1A) while deleting the penalty imposed by the assessing officer under section 221 of the Act.
The next argument of learned counsel for the assessee that the assessee had paid the entire amount of TDS without any notice or reminder from the Income Tax Department has also no force in view of the provision of section 200 of the Act which enjoins a duty on the person making any deduction of tax at source to pay the same within the time as prescribed in rule 30 of the Rules. The responsibility to pay, in time, is solely upon the person so deducting. Any excuse on the ground that no demand was made by the department is of no assistance. Our above view is fortified by the decision of the Hon'ble Gauhati High Court in the case of CIT v. Shyam Sundar Tea Co. (P) Ltd. (1978) 114 ITR 116 (Gauhati) wherein, at page 118, it was held as under : "The above excuse is thoroughly unconvincing and unacceptable. Section 200 of the Income Tax Act, 1961, casts responsibility on any person deducting tax at source to pay within the prescribed time, the sum so deducted to the credit of the Central Government. Rule 30(3) of the Income Tax Rules, 1962, prescribed seven days from the date of deduction for payment. The responsibility to pay in time, in this case, is therefore, solely on the principal officer, and the excuse that no demand is made from the Income Tax Department is irrelevant." Moreover in this connection we may also refer to Explanation to section 221 of the Act which provides that for the removal of doubt, it is hereby declared that an assessee shall not cease to be liable to any penalty under this sub-section merely by reason of the fact that before the levy of such penalty he has paid the tax. That makes it clear that payment of tax deducted by the assessee does not make any difference, once he failed to deposit the TDS amount in time, and as such he is liable to pay the penalty under section 221 of the Act. This is so held by the Hon'ble Calcutta High Court in the case of Jubilee Investments & Industries Ltd. (supra). In this case it was held as under : "The Assistant Commissioner has rightly pointed out that once the TDS is deducted from the income of somebody, the assessee is merely a custodian of the TDS amount. He cannot touch the amount. That amount is to be deposited within the time prescribed in the Central Government Account and any loss or profit in the business of the assessee has nothing to do with deposit of the TDS amount." The third argument of learned counsel of the assessee that the assessee was passing through financial crisis for last few years as are suit of loss suffered by the assessee is also to be rejected following the decision of the jurisdictional High Court in the case of Jubilee Investments & Industries Ltd. (supra) wherein it is held that any loss or profit in business of the assessee has nothing to do with the deposit of the TDS amount. In support of his contention, the assessee's counsel has drawn our attention to the decision of the Tribunal, Jodhpur Bench in the case of CIT v. Jugalkishore Ganeshilal (2000) 109 Taxman 284 (Jodh) wherein it was held as under : "The assessing officer had not properly considered elaborate submissions made on behalf of the assessee while imposing the said penalty. The Deputy Commissioner (Appeals) had given convincing reasons in support of the cancellation of the said penalty. The facts explained on behalf of the assessee had not been disputed by the department. The assessee had suffered losses in the assessment years 1987-88 to 1989-90. This fact also supported the assessee's contention relating to financial stringency. The Deputy Commissioner (Appeals), after taking into consideration, the entire relevant facts had arrived at the conclusion that the assessee was prevented by reasonable and sufficient cause to pay the amount of TDS within time. The assessee had voluntarily paid the amount of TDS without any show cause notice or reminder by the assessing officer. The assessee had also paid the amount of interest under section 201(1A) and had not contested the levy of such interest. Therefore, it was to be held that the Deputy Commissioner (Appeals) had rightly cancelled the aforesaid penalties levied under section 221 in both the years under consideration." But we feel that the decision of the jurisdictional High Court in the case of Jubilee Investments & Industries Ltd. (supra) should hold the field in preference to the aforesaid order of the Tribunal relied upon by the assessee. Hence, there is no merit in this ground.
The last argument raised by the assessee's learned counsel was that the assessee had paid the amount by way of interest on securities as referred to in section 193 and interest other than interest on securities as referred to in section 194A by crediting the amount to the accounts of the payees on 31-3-1997 by following the mercantile system of accounting. In this respect, reference is made to rule 30 of Income Tax Rules wherein time limit for making the payment of TDS amount within two months is prescribed i.e., from the end of month in which the tax is deducted from the amount by way of interest on securities referred to in section 193 or the amount by way of interest other than interest on securities referred to in section 194A when the amount was credited to the account of the payee though, in case, when the amount referred to in section 193 or 194A is paid in cash or by issue of cheque or draft or by way of other mode, the time limit for making the payment of TDS amount is only one week from the last date of the month in which the deduction is made. That makes it clear that the person making the payment of the amount referred to in sections 193 and 194A by crediting such amount to the account of the payee gets more time of two months from the end of the month in which such credit is made for making the payment of TDS amount to the account of the Central Government in comparison to the person making the payment of above referred amount in cash or by cheque or draft or any other mode where the time allowed for making payment of the sum deducted at source is only one week from the end of the month in which the deduction is made.
It, therefore, implied that the legislature had already taken care of these contingencies of making payment of amount by crediting the same to the account of the payee by providing larger period of 2 months for making the payment of sum deducted at source to the Central Government.
Account in comparison to other cases. Thus, the assessee has been given larger period of two months for making the payment of TDS amount because of mode of payment by crediting the same to the account of the payee and as such, the mode of payment by crediting the amount to the account of the payee cannot be considered to be sufficient and reasonable cause for not making the payment within the time of two months as prescribed under section 200 of the Act/Rule 30 of the Rules.
However, as regards the reasonability of amount of penalty imposed under section 221 of the Act we are of the view that the penalty imposed by the assessing officer at Rs. 75,000 and Rs. 1,00,000 for the default in making the payment of the sum deducted under sections 193 and 194A respectively is on the higher side. Admittedly, no minimum amount of penalty is prescribed under the statute though the total amount of penalty under section 221 should not exceed the amount of tax in arrears. In view of the fact that the assessee has voluntarily paid the tax deducted at source together with the due interest thereon and considering the delay of 27 days only, we find that it would be just and proper if the penalty imposed under section 221 for default in not making within due time the payment of tax deducted at source under sections 193 and 194A respectively is reduced to Rs. 25,000 and Rs. 30,000 respectively. We order accordingly.