Assistant Commissioner Of Income-Tax And Ors. v. Om Praksh Gattani .

Brijesh Kumar, C.J:— This Writ Appeal is preferred against the judgment and order dated 2.8.1996 passed by the learned Single Judge in Civil Rule No. 1487 of 1991. The learned Single Judge set aside the order passed by the income Tax Officer holding it to be contrary to the provisions of Section 205 of the Income Tax Act. The Revenue impugns the order by present proceedings in appeal.

2. Heard Shri K.P Sarma for the appellants and Shri D.K Misra for the respondent. The brief facts necessary for disposal of this matter are that the petitioner-respondent won two lottery prizes for a sum of Rs. 10,50,000 and the other for Rs. 18,000 during the period pertaining to the assessment year 1986–87. The payment of prize money was made by M/s Chandra Agencies. According to the petitioner-respondent, M/s Chandra Agencies deducted a sum of Rs. 2,62,500 and a sum of Rs. 4,500 at source in respect of the two amounts of prize money indicated above. M/s Chandra Agencies, it appears, did not deposit the money deducted at source in the Government treasury. Therefore, the Assessing Authority while making the assessment of the petitioner-respondent for 1986–87 did not give credit for the tax deduction at source. M/s Chandra Agencies did not intimate the date of actual payment of the money deducted at source to the Government Account as requested, but replied that the records has been forwarded to the Chairman, Vaibhavshali Bumper and hence they were not able to furnish the date of payment of taxes to the treasury. This explanation, it is stated in the order, was not acceptable and, accordingly, the credit for the said amount was not given. The order further provided, “The credit for this will be given only when evidence as to the actual payment of the same is produced”. A copy of the assessment order dated 14.8.1986 containing the note as indicated above has been filed as Annexure-3 to the writ petition.

3. After the order dated 14.8.1986 was passed by the Assessing Authority as indicated above, two notices, both dated February 20, 1991 were issued under Section 226(3) of the Income Tax Act to the Bankers of the petitioner-respondent indicating that a sum of Rs. 2,34,479 was due and realisable against the petitioner-respondent which the bankers were required to pay forthwith, failing which, usual consequences under different sections of the Income Tax Act were to follow. Being aggrieved by seizure of account by means of the notices indicated above, the petitioner-respondent filed the Civil Rule impugning the orders/notices of attachment dated February 20, 1991 and praying for issue of a writ or direction to the respondents (appellants herein) to give credit for tax deducted at source by means of Annexures-1 and 2 to the writ petition. Annsures-1 and 2 are certificates of deduction at source under Section 203 of the Income-tax Act issued by M/s. Chandra Agencies in favour of the petitioner-respondent indicating deduction of Income-tax amounting to Rs. 2,62,500 and Rs. 4,500 respectively.

4. An affidavit-in-opposition was filed by the appellants. So far the question of deduction of tax at source is concerned, it is stated that the tax deducted at source has to be credited to the Central Government so as to be treated as payment of tax on behalf of the person from whose income the deduction was made. It is further averred that M/s Chandra Agencies could not inform the date of payment of tax deducted at source to the credit of the Central Government. It is further stated that the certificates issued by the Agency about deduction of tax at source was incomplete and it did not contain all the necessary particulars as required. It is also averred in the affidavit-in-opposition that the amount deducted at source can be taken to be payment of tax only on the amount being credited to the Central Government under Section 199 of the Income-tax Act and not otherwise. On the above ground the petitioner-respondent was not given credit of deduction of tax at source and notices of attachment of bank account was issued for realisation of the tax liability. Therefore, so far the factual position is concerned, it is not the case of the appellants that in fact tax amount was not deducted at source, instead the certificates have been indicated to be incomplete and defective. On the other hand from the note to the order of assessment it transpires that M/s Chandra Agencies were requested to intimate the actual date of payment of tax deducted at source to the Central Government who in reply intimated that the records were forwarded to the Chairman, Vaibhavshali Bumper. Hence, the date of payment of tax to the Government treasury could not be furnished. It is though not clear from the note, but from the tenor of what has been written in the note, it appears that the department, namely, the may have made some enquiries from Chandra Agencies. It also does not seem to have been denied by Chandra Agencies that it had deducted the income-tax at source, rather it appears to have been replied to the appellants that the records were forwarded to the Chairman, Vaibhavshali Bumper, hence they were not able to furnish the date of payment to the Government Treasury. From all the facts and circumstances and the material on record, it appears to be a case where, in all probability, the amount was deducted at source by M/s. Chandra Agencies from the prize money payable to the petitioner-respondent, but the same does not seem to have been made over to the Government treasury for payment to the Central Government.

5. In the light of the above facts, we may examine different provisions of the Income-tax Act having bearing in the matter. The deduction of income-tax at source in cases where one wins a lottery prize is provided under Section 194B of the Income-tax Act which reads as follows:

“194B. The person responsible for paying to any person any income by way of winning from any lottery or crossword puzzle in an amount exceeding five thousand rupees shall, at the time of payment thereof, deduct income-tax thereon at the rate in force:

Provided………

Provided further……”

6. According to the above provision, responsibility has been fastened upon the person responsible to make the payment of prize money from lottery to deduct income tax at source.

7. Credit of such deduction is provided under Section 199 of the Income-tax Act which reads as follows:

“199. Any deduction made in accordance with the provisions of sections 192 to 194, section 194A, section 194B……and paid to the Central Government shall be treated as a payment of tax on behalf of the person from whose income the deduction was made, or of the owner of the security, or depositor or owner of property or of unit-holder of the shareholder, as the case may be, and credit shall be given to him for the amount so deducted on the production of the certificate furnished under section 203 in the assessment made under this Act for the assessment year for which such income is assessable:

Provided that—

(i)………

(ii)………”

8. The person deducting the same at source is required to deposit the amount to the credit of the Central Government within the time prescribed as provided under Section 200 of the Act.

9. The consequences of failure to deduct or omission to deposit after the deduction are provided under Section 201 of the Act which read as under:

“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:

Provided … … … … (1A) … … … … (2) … … … …”

10. A certificate of deduction is to be provided by the person deducting the tax as provided under Section 203 of the Act which reads as under:

“203. Every person deducting tax in accordance with the provisions of sections 192 to 194, section 194A, section 194B………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.”

11. There is a bar against direct demand on assessee where the tax is deducted at source as provided under section 205 of the Act which reads as under:

“205. Where tax is deductible at the source under sections 192 to 194, section 194A, section 194B………, the assessee shall not be called upon to pay the tax himself to the extent to which tax has been deducted from that income.”

12. From a perusal of the provisions quoted above relating to the deduction of tax at source in the matters relating to prize money of lotteries, it is evident that the person responsible to make the payment to the assessee is under statutory obligation to deduct the amount at source. After deduction of the amount he is required to deposit the same to the credit of the Central Government and to issue a certificate of deduction. So far the credit of the amount deducted is concerned, it is to be given on the deposit being made to the credit of the Central Government on production of a certificate furnished under Section 203 of the Income-tax Act. On payment of the amount to the credit of the Central Government, it would be treated as payment of tax.

13. So far the assessee is concerned, he is not supposed to do anything in the whole transaction except that he is to accept the payment of reduced amount which is deducted as Income-tax at source. The responsibility to deposit the amount deducted at source as tax is that of the person who is responsible to deduct the tax at source. On the amount being deducted, the assessee only gets a certificate to that effect by the person responsible to deduct the tax. In a case where the amount has been deducted by the person responsible to deduct the amount under statutory provisions, the assessee has no control over the matter. In case of default in making over the amount to the account of the Central Government, it is obviously the person responsible to deduct or the person who has made the deduction is held responsible for the same. The responsibility of such person is to the extent that he has to be deemed to be an assessee in default in respect of the tax. He may be deemed to be an assessee in default not only in cases where after deduction he does not make over the amount to the Central Government but also in cases where there is failure on his part to deduct the amount at source. This responsibility has been fastened upon him under Section 201 of the Income-tax Act. It is, of course, without prejudice to any other consequences which he or it may incur. Presently we are not concerned with the case where the person responsible to make the deductions has not deducted the amount at all. It may or may not fall in a different category from one where the amount has been deducted and not made over to the Central Government. We are concerned with the latter category of cases. As indicated earlier, on facts it is nobody's case that the amount was actually not deducted at source by Chandra Agencies. What seems to be in dispute is the deposit of the said amount in the account of the Central Government. The Income-tax Department seems to have made enquiries about the exact date of payment to the Central Government which M/s. Chandra Agencies could not furnish on the ground that the papers were forwarded to the Chairman of Vaibhavshali Bumper. In such category of cases we feel that the amount of tax can be recovered by the Income-tax Department treating the person responsible to deduct tax at source as an assessee in default in respect of the tax. It would not be possible to proceed to recover the amount of tax from the assessee. The assessee cannot be doubly saddled with the tax liability. Deduction of tax at source is only one of the modes of recovery of tax. Once this mode is adopted and by virtue of the statutory provisions the person responsible to deduct the tax at source deducts the amount, only that mode should be pursued for the purpose of recovery of tax liability and the assessee should not be subjected to other modes of recovery of tax by recovering the amount once again to satisfy the tax liability. It is, therefore, provided under Section 201 of the Income-tax Act that person responsible to deduct the tax at source would be deemed to be an assessee in default in case he deducts the amount and fails to deposit it in the Government treasury. As observed earlier, the assessee has no control over such person who is responsible to deduct the Income-tax at source, but fails to deposit the same in the Government treasury. In this light of the matter, in our view, the notices issued under Section 226(3) of the Income-tax Act to the Bankers of the petitioner-respondent to satisfy the tax liability form the bank account of the petitioner-respondent is illegal. It is not that the Income-tax Department was helpless in the matter. The person responsible to deduct the tax at source would move into the shoes of the assessee and he would be deemed to be an assessee in default. Whatever process or coercive measures as permissible under the law would only be taken against such person and not the assessee.

14. However, the position as indicated above would not mean that on mere deduction of the tax amount at source would amount to total discharge of the tax liability so long the amount deducted is not deposited inn the coffer of the Central Government. It is for this reason Section 199 of the Income-tax Act makes it clear that credit for tax deducted would be given when the amount is deducted and paid to the Central Government and a certificate of deduction is produced as furnished under Section 203 of the Income-tax Act. It is obvious that unless the amount is paid to the Central Government, the tax liability is not discharged nor it can be said that the assessee has made the payment of the tax amount payable to the Government. We find no force in the submission made on behalf of the petitioner-respondent that on mere deduction of the amount at source, credit for tax deducted must be given and it cannot be withheld even though the person responsible to deduct the tax at source has not made it over to the Central Government. In our view, if that contention is accepted that is credit for tax deducted has to be given on mere deduction of the amount at source, in that event, perhaps, there would be no legal justification to treat the person responsible to deduct the amount at source as an assessee in default in respect of the tax. Once credit on account of payment of tax is given, the tax liability will stand discharged. Any step to recover the amount of tax can be taken only in case the tax liability is not discharged and it still subsists. In this view of the matter, Shri K.P Sarma, learned counsel appearing for the Revenue has rightly defined the note appended by the Assessing Officer in the order of assessment making it clear that credit of the amount deducted was not being given and that will be given only when evidence as to actual payment of amount to the Central Government is furnished. But this position would not legally justify initiation of recovery proceedings against the assessee from whose income-tax has been deducted at source, but the person responsible to deduct the tax fails to deposit the same in the Government treasury. The statutory scheme evolved to employ this mode of recovery of tax at source also points to the same position and in our view rightly. Otherwise a tax payer from whose income tax is liable to be deducted at source would be exposed to a great vulnerable position, if some unscrupulous persons responsible to deduct the tax at source, after deducting the amount do not deposit the amount in Government treasury, such persons should be saddled with the tax liability. Therefore, under Section 201 of the Income-tax Act it has been aptly provided that person responsible to deduct the tax would be deemed to be an assessee in default so that he can be proceeded against for recovery of the amount instead of the assessee who has already parted with the amount, but due to some commission or omission on the part of the person responsible to deduct the amount at source over whose activity he has no control, may not be subjected to double payment of tax and burnt of arduous recovery proceeding. The provisions as contained in Section 201 of the Act provides a kind of protection to the assessee where tax liability as standing against him is not yet discharged and credit of the amount deducted cannot be given in terms of Section 199 of the Income-tax Act.

15. A perusal of section 205 of the Income-tax Act clarifies the position where it provides that where tax is deductible at source, the assessee shall not be called upon to pay the tax himself to the extent to which tax has been deducted from that income. What is noticeable in this provision is that its applicability is not dependent upon the credit for tax deducted being given under Section 199 of the Income-tax Act. What is necessary for applicability of this provision is that the amount has been deducted form the income. In case where the amount has been deducted but not paid to the Central Government that eventuality is taken care of by Section 201 of the Income-tax Act. Learned counsel for the appellant could not show that under the law it may be permissible to proceed against the assessee even after deduction of the tax at source, nor the learned counsel for the petitioner-respondent could persuade us to hold that merely by deduction of tax at source, credit for deduction of tax at source has to be given even though the amount may not have been made over to the Government treasury. The reason for this has already been explained by us in the discussions held in the earlier part of this judgment as the mere deduction of tax at source would not close the chapter of tax liability unless it is deposited in the Government treasury. In the result, the appeal succeeds only in part that is the note made by the Assessing Officer in the order of assessment not giving credit on account of deduction of tax is maintained and the order of the learned Single Judge to the extent indicated above is set aside; whereas it is maintained in so far quashing of the notices Annexures-10 and 11 dated February 20, 1991 issued under Section 226(3) of the Income-tax Act is concerned.

Costs easy.