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Bennett, Coleman & Co. Ltd. v. Mrs. V.P Damle, 3Rd I.T.O.T.D.S Circle, Bombay
Factual and Procedural Background
The Income-tax Officer, T.D.S Circle, issued orders dated July 23, 1979, under section 201(1A) of the Income-tax Act for the Assessment Years 1971-1972 to 1978-1979, stating that the petitioners had deducted tax under section 192(1) of the Income-tax Act, 1961, from salaries paid to employees but failed to deposit the tax with the Reserve Bank within the prescribed period under rule 30(1)(b) of the Income-tax Rules. Consequently, the petitioners were deemed assessees in default and liable to pay simple interest at 12% per annum on the amount of tax for the periods of default.
The petitioners filed revision petitions under section 264 to the Commissioner of Income-tax, who, in a common order dated February 24, 1981, acknowledged minor delays beyond the seven-day limit. The petitioners requested a full waiver of interest, citing their status as major taxpayers and the unintentional nature of delays, and alternatively argued that rule 119A, effective January 1, 1975, should apply to all pending interest calculations. The Commissioner rejected these submissions, holding the levy of interest mandatory and inapplicable to be waived or reduced. This petition challenges the orders of both the Income-tax Officer and the Commissioner.
Legal Issues Presented
- Whether the interest under section 201(1A) of the Income-tax Act can be waived or reduced where the default in remitting deducted tax is unintentional.
- Whether rule 119A, introduced effective January 1, 1975, applies retrospectively to interest calculations for defaults occurring before that date.
Arguments of the Parties
Petitioners' Arguments
- Rule 119A is procedural and should apply to all interest calculations in proceedings arising after January 1, 1975, including defaults before that date.
- The interest under section 201(1A) is penal and should be waived where the default was not intentional.
- The Commissioner erred in not considering the unintentional nature of the default as a ground for waiver of interest.
Commissioner's Position
- The petitioners conceded there were defaults in remitting deducted tax.
- The levy of interest under section 201(1A) is mandatory and no authority has power to waive or reduce it.
- Administrative instructions specify that interest for periods up to December 1, 1974, must be calculated as if rule 119A did not exist.
Table of Precedents Cited
No precedents were cited in the provided opinion.
Court's Reasoning and Analysis
The court examined the statutory provisions governing tax deduction at source and the consequent liability for interest under sections 192, 200, and 201 of the Income-tax Act. It noted that section 201(1) deems a person an assessee in default if tax deducted at source is not remitted within the prescribed time, and section 201(1A) mandates payment of simple interest at 12% per annum on such defaulted amounts.
The court clarified that rule 119A, introduced effective January 1, 1975, which provides for rounding off periods and amounts in interest calculations, is procedural and cannot be applied retrospectively to defaults before its introduction. Administrative instructions support this interpretation.
Furthermore, the court held that the interest under section 201(1A) is not penal but a mandatory charge; therefore, no waiver or reduction is permissible even if the default was unintentional. Rule 40, which allows waiver or reduction of interest, does not extend to interest payable under section 201(1).
Accordingly, the court found no merit in the petitioners' submissions and upheld the orders of the Income-tax Officer and the Commissioner.
Holding and Implications
The petition is dismissed with costs.
The direct effect of this decision is that the petitioners remain liable to pay the interest at 12% per annum for their defaults in remitting tax deducted at source within the prescribed time. The court confirmed that rule 119A does not apply retrospectively and that interest under section 201(1A) cannot be waived on grounds of unintentional default. No new precedent was established beyond affirming the mandatory nature of the statutory interest provisions.
Bharucha, J.:— The Income-tax Officer, T.D.S Circle, served upon the petitioners orders dated July 23, 1979 under s. 201(1A) of the Income-tax Act for each of the Assessment Years 1971-1972 to 1978-1979. The orders stated that the petitioners had deducted tax under s. 192(1) of the Income-tax Act, 1961, from the salary paid to their employees for the periods stated therein but had failed to deposit the same with the Reserve Bank within the period prescribed under r. 30(1)(b) of the Income-tax Rules The petitioners had, therefore, become assessees in default in terms of s. 201(1A) and had become liable to pay simple interest at the rate of 12% per annum on the amount of such tax for the periods of the defaults.
2. The petitioners preferred revision petitions against these orders to the Commissioner of Income-tax under s. 264. In his common order dated February 24, 1981 the Commissioner noted that it was conceded that there had been delays in the remittances to the Reserve Bank of a few days over and above the seven days allowed. It was submitted by the petitioners before him that the average tax deducted by them at source amounted to nearly Rs. 12 lakhs per annum and, considering this and the fact that they were one of the major tax-payers, the interest charges under s. 201(1A) should be fully waived. It was also submitted that the delays were not intentional and were due to oversight. The alternate sub-mission was that for the levy of interest r. 119A, introduced with effect from January 1, 1975, should be followed, i.e, defaults of less than one month should be ignored and the amounts on which interest was to be calculated should be rounded off to the nearest Rs. 100/-. It was contended that the rule was a procedural one and should apply to all pending calculations, even if the periods of default fell before January 1, 1975. The Commissioner was unable to agree with the sub-missions. The petititioners had conceded that there had been defaults in remittances of taxes deducted at source. Levy of interest in these circumstances was mandatory and no power had been given to any authority to waive or reduce the same. As regards the contention about r. 119A, the Commissioner referred to administrative instructions that for the period upto December 1, 1974 interest had to be calculated as if the rule was not in existence. This petition is directed against the orders of the I.T.O and the Commissioner.
3. It was submitted by Mr. Dwarkadas, learned counsel for the petitioners, that r. 119A was procedural and applied to all calculations of interest in proceedings that had arisen subsequent to January 1, 1975. Alternatively, it was submitted that the levy of interest under s. 201(1A) was penal and ought to be waived where the default was not intentional. Mr. Dwarkadas urged that the Commissioner ought to have considered the sub-mission that the default was unintentional and that, therefore, interest should be waived; and, since he had not done so, his order was bad.
4. Section 192 provides that any person responsible for paying any income chargeable under the head of “Salaries” shall, at the time of payment, deduct income-tax on the amount payable at the average rate of income-tax computed on the basis of the rates in force for the financial year in which the payment is made on the estimated income of the assessee under this head for that financial year. Section 200 requires any person deducting any sum in accordance with the provisions of the aforesaid section to pay it within the prescribed time to the credit of the Central Government. The time prescribed under r. 30 of the Income-tax Rules is seven days. Sub-sections (1) and (1A) of s. 201 read thus:
“201.(1) If any such person and in the cases referred to in section 194, the principal officer and the company of which he is the principal officer does not deduct or after deducting fails to pay the tax as required by or under this Act, he or it shall, without prejudice to any other consequences which he or it may incur, be deemed to be an assessee in default in respect of the tax:
(1A) Without prejudice to the provisions of sub-section (1), if any such person, principal officer or company as is referred to in that sub-section does not deduct or after deducting fails to pay the tax as required by or under this Act, he or it shall be liable to pay simple interest at twelve per cent per annum on the amount of such tax from the date on which such tax was deductible to the date on which such tax is actually paid.”
5. Rule 119A which was introduced with effect from January 1, 1975 reads thus:
“119A. In calculating the interest payable by the assessee or the interest payable by the Central Government to the assessee under any provision of the Act,—
(a) the period for which such interest is to be calculated shall be rounded off to a whole month or months and for this purpose any fraction of a month shall be ignored; and the period so rounded off shall be deemed to be the period in respect of which the interest is to be calculated;
(b) the amount of tax, penalty or other sum in respect of which such interest is to be calculated shall be rounded off to a nearest multiple of one hundred rupees and for this purpose any fraction of one hundred rupees shall be ignored; and the amount so rounded off shall be deemed to be the amount in respect of which the interest is to be calculated.”
6. It may be mentioned that r. 40 deals with the circumstances in which an income-tax officer may reduce or waive interest, but it does not contemplate the waiver of interest payable under s. 201(1).
7. Section 201(1) deems a person to be an assessee in default in respect of tax if, after deducting tax deductible at source, he fails to remit it as required under the Act. Under sub-s. (1A) if that person, after deducting such tax, fails to remit it as required under the Act, he is made liable to pay interest at the rate of 12% p.a
8. It is an admitted position that the petitioners failed to remit within the prescribed time the tax deducted at source from the salaries of their employees. They, therefore, became assessees in default under s. 201(1) and they became liable to pay interest at the rate of 12% per annum. Such liability arose immediately upon each default and can be computed only with reference to the law as it then stood. Rule 119A was not introduced till long after. Rule 119A can have, therefore, no bearing on the computation of interest.
9. Section 201(1A) makes the payment of simple interest mandatory. The payment of interest there-under is not a penal provision. There is, therefore, no question of the waiver of such payment on the basis that the default was not intentional or on any other basis. The petition is dismissed with costs.
10. Petition dismissed.
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