Commissioner Of Income-Tax v. Sri Ram Memorial Education Promotion Society

1. Heard learned counsel for the appellant Sri D.D Chopra and perused the record.

2. This appeal under section 260A of the Income-tax Act, 1961 has been preferred by the Department on the following substantial questions of law:

“1. Whether, on the facts and in the circumstances of the case, the hon'ble Income-tax Appellate Tribunal, Lucknow, was correct in holding that provisions of section 206 of the Income-tax Act, 1961 will be attracted only if the tax has been deducted?

2. Whether, on the facts and in circumstances of the case, the hon'ble Income-tax Appellate Tribunal was correct in holding that since the tax has not been deducted, there is no violation of the provisions of section 206 of the Income-tax Act, 1961 and, therefore, penalty is not leviable without appreciating the fact that sections 192 and 206 read with rule 36 of the Income-tax Rules, 1962 are interlinked?”

3. Sri D.D Chopra, learned counsel for the appellant, has vehemently urged that non-deduction of tax at source, for which penalty has already been imposed under section 271C of the Income-tax Act, would not absolve the assessee of the penalty imposable under section 272A(2)(g) and 272A(2)(c). His submission is that the violation of the provisions of sections 203 and 206 in itself makes out a case for levying the penalty, irrespective of the fact that the penalty has been imposed upon the assessee under section 271C of the Act. The brief facts necessary for the purpose are that the assessee did not deduct the tax at source in respect of the salary paid to the principal of the school. It is the admitted case of the parties that the principal was regularly assessed to tax and was paying tax under section 140A of the Act. The tax, thus, stood paid in full.

4. Since the assessee had not complied with the terms of the provisions of section 206, i.e, he failed to file Form No. 24 by May 31, 1994, for the financial year 1993–94 and filed it on January 20, 1997, a notice was issued to him as to why penalty under section 272A(2)(c) of the Act be not imposed for filing Form No. 24 late.

5. After considering the defence of the assessee, the Assessing Officer held that the assessee has committed default and imposed a penalty of Rs. 93,500 under section 272A(2)(c) of the Act. Under the same circumstances, penalty of Rs. 75,100 was also imposed under the aforesaid provision for the financial year 1994–95.

6. Another show-cause notice was issued to the assessee for non-compliance with the provisions of section 203 of the Act, read with rule 31 of the Income-tax Rules, wherein the assessee was required to issue Form No. 16 within 30 days from the close of the financial year. Since the assessee had issued the certificate of tax deducted at source late, a notice was issued to show cause as to why penalty be not imposed under section 272A(2)(g). Against this notice also, the assessee's reply was not found satisfactory and, therefore, a penalty of Rs. 99,600 and Rs. 63,100 for the financial years 1993–94 and 1994–95, respectively, was imposed.

7. In appeals preferred against the aforesaid penalties, the Commissioner of Income-tax (Appeals) cancelled the penalties and allowed the appeal. Aggrieved by the aforesaid order of the Commissioner of Income-tax (Appeals), the Revenue preferred an appeal before the Income-tax Appellate Tribunal, which has also been dismissed.

8. Section 203, which requires issuance of certificate by the person deducting tax in accordance with the provisions, reads as under:

“203. Certificate for tax deducted.— (1) Every person deducting tax in accordance with the provisions of sections 192 to 194, section 194A, section 194B, section 194BB, section 194C, section 194D, section 194E, section 194EE, section 194F, section 194G, section 194H, section 194-1, section 194J, section 194K, section 194L, section 195, section 196A, section 196B, section 196C and section 196D shall, within such period as may be prescribed from the time of credit or payment of the sum, or, as the case may be, from the time of issue of a cheque or warrant for payment of any dividend to a shareholder, furnish to the person to whose account such credit is given or to whom such payment is made or the cheque or warrant is issued, a certificate to the effect that tax has been deducted, and specifying the amount so deducted, the rate at which the tax has been deducted, and such other particulars as may be prescribed.

(2) Every person, being an employer, referred to in sub-section (1A) of section 192 shall, within such period, as may be prescribed, furnish to the person in respect of whose income such payment of tax has been made, a certificate to the effect that tax has been paid to the Central Government, and specify the amount so paid, the rate at which the tax has been paid and such other particulars as may be prescribed.”

9. Whereas, section 206 casts a duty upon the person deducting tax to furnish prescribed returns to the prescribed income-tax authority in such form and verified in such manner, as may be prescribed, and setting forth aforesaid particulars. The relevant extract of section 206 is being quoted below:

“206. Persons deducting tax to furnish prescribed returns.—(1) The prescribed person in the case of every office of Government, the principal officer in the case of every company, the prescribed person in the case of every local authority or other public body or association, every private employer and every other person responsible for deducting tax under the foregoing provisions of this Chapter shall within the prescribed time after the end of each financial year prepare and deliver or cause to be delivered to the prescribed income-tax authority, such returns in such form and verified in such manner and setting forth such particulars as may be prescribed.”

10. Section 203 prescribes for issuance of a certificate of tax within a prescribed time to the person from whose income such payment of tax has been made to the effect that tax has been deducted, specifying the amount so deducted and giving other particulars, as have been given therein.

11. Similarly section 206 provides that a person responsible for deducting the tax at source shall, within a prescribed period, furnish returns in such form verified in such manner and setting forth such particulars as may be prescribed to the prescribed income-tax authority.

12. Failure to comply with the aforesaid provisions would attract the provisions of imposition of penalty as aforesaid. The Commissioner of Income-tax (Appeals) as well as the Tribunal have taken a view that sections 203 and 206 would only be attracted if the assessee has deducted the tax at source but in case the assessee has not deducted the tax at source, there can be no violation of the provisions of sections 203 and 206 of the Act.

13. A bare perusal of the aforesaid provisions would reveal that the said sections, namely, sections 203 and 206 would come into operation when the tax is deducted at source by the persons, who are responsible for deducting the tax at source. The very opening words of section 203, viz., “Every person deducting tax in accordance with the provisions of sections 192 to 194….” make it abundantly clear, that the provisions contained therein, would only be attracted, if the tax has been deducted at source. In case the tax is deducted at source, the responsibility lies upon the person deducting the tax in accordance with the provisions of the Act to issue a certificate to the effect that tax has been paid in the manner prescribed in section 203 and if there is a violation on the part of the said person in issuing the certificate to the effect that tax has been deducted within the given period or for violation of any other specific conditions prescribed therein, he would render himself open for imposition of penalty for non-compliance with the aforesaid provisions of section 203.

14. Likewise under section 206, if the tax is deducted at source, the prescribed person who is responsible for deducting the tax, has to furnish the prescribed returns to the prescribed income-tax authority within the prescribed time and failure in doing so or non-compliance with any other conditions of the provisions of section 206 would attract the penal provisions of imposition of penalty.

15. Section 206 has the heading “Persons deducting tax to furnish prescribed returns”, which means that the provisions contained therein are applicable to the persons making deduction of the tax. The person responsible for deducting tax would consequently mean the person who has actually deducted the tax. The said provision, therefore, cannot be made applicable in a case where the tax has not been deducted at source.

16. The aforesaid two provisions thus, would become applicable only if the tax is deducted at source by the person concerned and he commits default in complying with any of the provisions of section 203 or section 206 but in case no tax is deducted at source, the aforesaid provisions would not be attracted.

17. For failure of the assessee in deducting the tax at source, penalty can be imposed upon him under section 271C of the Act.

18. Section 271C, which reads as under, prescribes a penalty equal to the amount of tax, which the person concerned failed to deduct or pay:

“271C. Penalty for failure to deduct tax at source.—(1) If any person fails to—

(a) deduct the whole or any part of the tax as required by or under the provisions of Chapter XVII-B; or

(b) pay the whole or any part of the tax as required by or under,—

(i) sub-section (2) of section 115-0; or

(ii) the second proviso to section 194B;

then, such person shall be liable to pay, by way of penalty, a sum equal to the amount of tax which such person failed to deduct or pay as aforesaid.

(2) Any penalty imposable under sub-section (1) shall be imposed by the Joint Commissioner.”

19. Once a person prescribed or concerned or the assessee has been subjected to a penalty under section 271C, for not deducting the tax at source, there would not arise any occasion for levying a penalty under section 272A(2)(c) and 272A(2)(g) for non-compliance with the provisions of sections 203 and 206. In other words, in case the tax has not been deducted at source, the question of issuing the certificate of tax under section 203 or that of filing of return under section 206 would not arise at all. That being so, the question of imposing penalty for violation of the aforesaid provisions, would also not arise. The view expressed by the Commissioner of Income-tax (Appeals) and confirmed by the Income-tax Appellate Tribunal, does not call for any interference nor raises any substantial question of law to be decided in appeal under section 260A of the Act.

20. The appeal is dismissed.