Brief of the Case
In, the present case the Hon’ble High Court held that the deposit of tax before the initiation of penalty proceedings will not help Assessee in escaping the penalty proceedings u/s 221. Also, the point of Financial hardship, diverse locations and lack of computerization will not give any relief to the assessee.
Facts of the Case
The appellant is a manufacturer who is having office at different places in India. It employed almost 9,000 persons and also served 18 Lacs shareholders. The appellant was required to deduct tax on payments made by it of salaries, dividends and interests besides on payments made to contractors. The tax so deducted by the appellant in terms of Rule 30 of Income Tax Rules had at the relevant time to be paid into the treasury with one week of deduction. During the AY 1987-88 there was a delay. The appellant on its own paid to the revenue the tax deducted along with interest thereon on the delayed payment. This was done voluntarily by the appellant before any proceedings were initiated against it under Section 201 of the Act. Due to delay the DCIT imposed penalty u/s 221. The Assessee submitted that due to sufficient reasons there was a delay and there can’t be imposition of penalty. The Deputy Commissioner of Income Tax condoned the delay in certain cases, while imposing a penalty Rs.76.79 Lacs on the appellant under Section 221 of the Act. This was about 10% of the quantum of delayed deposit of tax deducted at source.
Held by CIT(A)
The CIT(A) held that the penalty can’t be composed as Assessee was not in default continuously. The CIT(A) in his order held that though the Explanation to Section 221(1) of the Act does attempt to cover even such cases, yet on consideration of the entire scheme of the Act, the imposition of penalty can only be justified when an assessee is in default at the commencement of penalty proceedings.
Held by Hon’ble Tribunal
The Hon’ble Tribunal while allowing the Revenue’s Appeal and relying on the judgment of CIT v Sriram Agarwal, (1976) 161 ITR 302, held that the once an assessee becomes a defaulter, penalty is imposable.
Contention of the Assessee
The ld. Counsel for the Assessee submits that an order under Section 201 of the Act has to be speaking order preceded by notice, determining the question of tax to which the assessee is a defaulter before proceedings under Section 221 of the Act can commence. It was further submitted that Section 221 of the Act is invokable only when there were arrears of TDS to be paid after a notice of demand is raised. In this case, the appellant has deposited tax deducted at source along with interest with the revenue much before any notice of demand is issued. Thus there being no “amount in arrears” to impose any penalty. In view of the proviso to Section 201(1) of the Act which provides for invocation of Section 221 of the Act it is necessary that the assessee has failed to deduct and pay tax to the revenue. Penalty is imposable only if there is failure to deduct and pay the tax to the revenue without any time limit. The explanation below Section 221(1) of the Act clarifies that a person will not be liable to pay penalty merely because he has paid the tax before imposition of penalty. It was further submitted that delay in payment of the tax deducted at source into the revenue was due to its diverse locations, lack of computerization and financial stringency. These were all good and sufficient reasons warranting non imposition of penalty; and if two interpretations are possible and one view in favour of the assessee has been adopted by the CIT(A) in his order, then even if another interpretation is possible, the same should not be disturbed in appeal. This is particularly so while interpreting a penal provision.
Contention of the Revenue
The ld. Counsel for the Revenue submits that the appellant has admitted to being a defaulter in not having deposited the tax in time. In these circumstances, issuing notice and passing a separate order under Section 201 of the Act was not necessary. Further, the issue of no penalty being imposed upon the appellant as held by the CIT(A) in view of the interpretation of Section 221 of the Act namely continuing in default was contrary to the settled position of law as declared by the Patna High Court in Shriram Agrawal (supra). There is no issue of there being two possible interpretation while interpreting Section 221 of the Act. The interpretation put on Section 221 of the Act by the Revenue stands settled in its favour in view of the explanation thereto. In the present case, the appellant has undisputedly deducted the tax and deposited the same with the revenue beyond the period provided under the Act. Thus the procedure adopted for imposition of penalty under Section 221 of the Act cannot be faulted with.
Held by Hon’ble High Court
The Hon’ble High Court held that it is an admitted position between the parties that the assessee is in default. Therefore, the written order mentioning that the assessee is in default is not required. The failure to deposit in time is an admitted position and there is no dispute about this. Therefore, the assessee was held to be in default and penalty proceedings u/s 221 were correct.
The explanation to section 221 made clear that the assessee will be liable for penalty even the tax have been paid before penalty have been levied. Therefore, the proviso under Section 201 would have no application to the facts of the present case. The time begins to run from the date of the deducting of tax as is evident also from Section 200 of the Act which provides that any person deducting any sum shall pay it within the prescribed time. It was further observed that the assessee continues to be in default in case the tax has not been deposited with revenue within the time prescribed under the Act. Tax deposited thereafter but before penalty proceedings are initiated would not cleanse the assessee from being in default. The question of financial stringency, hardly gives rise to a good and sufficient reason for not depositing tax which was an amount otherwise payable to the payee or on behalf of the payee to the revenue. Moreover, the impugned order dated 16 March 2000 records the fact that the appellant has not produced any evidence to show that it was in financial difficulty. Similarly diverse locations and lack of computerization are hardly any reasons to justify the failure to pay under the Act. Accordingly, the appeals of the assessee were dismissed.