The Judgment of the Court was delivered by
V.K Singhal, J.:— The validity of Section 201 of the Income-tax Act, 1961, has been assailed in this writ petition. Section 201 of the Income-tax Act, reads 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 that no penalty shall be charged under section 221 from such person, principal officer or company unless the Assessing Officer is satisfied that such person or principal officer or company, as the case may be, has without good and sufficient reasons failed to deduct and pay 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 subsection 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 fifteen per cent, 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.
(2) Where the tax has not been paid as aforesaid after it is deducted, the amount of the tax together with the amount of simple interest thereon referred to in sub-section (1A) shall be a charge upon all the assets of the person, or the company, as the case may be, referred to in sub-section (1).”
2. The petitioner has not deducted the tax which was required to be deducted under section 194C of the Income-tax Act, 1961. The submission is that, under section 201 of the Act, no process of assessment or determination of liability has been provided nor any guidelines have been given, as such, the provision is violative of articles 14 and 19 of the Constitution of India.
3. From a perusal of section 201 of the Act, it is evident that, on failure to deduct the tax or after deducting the tax, if any person fails to pay the tax, then he shall be deemed to be an assessee in default in respect of the tax. The proviso provides that, the assessing authority has to satisfy himself before levy of penalty, that such failure to deduct or to pay tax was not without good and sufficient reason.
4. This proviso contemplates an opportunity to be given to an assessee before penal action is being taken. Tax is required to be deducted under the various provisions at source and on failure to deduct the tax, penal consequences have to follow.
5. Section 201 is a penal provision to treat a person as an assessee in default if there is a failure to deduct the tax or after deducting the tax it is not paid. The proviso makes it dear, that the Assessing Officer must be satisfied that such failure was without good and sufficient reason.
6. This contemplates an adjudication by the Assessing Officer, to provide an opportunity to the person who is deemed to be an assessee in default for which an order has to be passed which is appealable under section 246 of the Act. The Assessing Officer therefore is to fix the liability and compute the amount of tax which was liable to be deducted or liable to be paid and has not been paid and thereafter has to serve a notice of demand calling upon the assessee to make such payment. Sufficient safeguards have been provided in the section itself and as such it cannot be considered that the provisions are ultra vires the Constitution.
7. The contention that under section 191 of the Act, there could be a direct payment of tax by the assessee to the Department, has no relevance for the offence which the assessee has committed in not deducting the tax under various sections of the Act, particularly, in Chapter XVII. The finding that there was a failure to deduct the tax has to be on the basis of either the assessment or other records available with the assessee and, therefore, the contention that no process or procedure has been stipulated, has no force. The Assessing Officer has to provide an opportunity and, therefore, there is sufficient guideline protecting the right of innocent assessees. The provisions of section 201, therefore, cannot be considered to be ultra vires. Whether the provisions of section 201 are applicable or not, the petitioner has a remedy to file an appeal. If the appeal is filed within four weeks from today, no objection regarding limitation would be raised.
8. The writ petitions are disposed of with the above observations.
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