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M/S. Chhogmal Chiranji Lal v. Commissioner Of Income Tax & Ors.
Judgment Summary — Bhagwati Prasad, J.
Factual and Procedural Background
The judgment relates to a batch of petitions raising identical questions of law and fact; the court decided them by a common judgment and used the factual matrix of the case "Chhogmal Chiranji Lal v. Commissioner of Income Tax" for background.
The petitioner had paid interest to depositors during the financial year 1998–1999, in amounts exceeding Rs. 2,500, and did not deduct tax at source because Form No. 15‑H was not received by the petitioner before 31.03.1999. A show cause notice (Annexure-2) dated 26.05.1999 deemed the petitioner to be an assessee in default under Section 201(1) of the Income Tax Act, 1961 and asked why the case should not be referred for levy of penalty.
Proceedings were initiated by the ITO (TDS) and an order under Section 212 read with Section 201 was passed (Annexure-3) requiring payment of the tax amount not deducted. The petitioner preferred a revision to the Commissioner (Income Tax), who by order dated 24.01.2001 upheld the ITO's order and sustained the demand (Annexure-5). The petitioner contended that Form 15‑H was received on 01.04.1999 and argued this should absolve liability; the petitioner challenged the departmental orders by filing writ petitions under Article 226.
Legal Issues Presented
- Whether the petitioner was properly deemed to be an assessee in default under Section 201(1) of the Income Tax Act, 1961 for failing to deduct tax at source on interest payments during the financial year 1998–1999 where Form No. 15‑H was not received before 31.03.1999.
- Whether receipt of Form No. 15‑H on 01.04.1999 (after the end of the financial year) absolves the petitioner from liability to deduct tax at source for interest credited during the prior financial year, or whether this is merely a "technical" breach insufficient to attract recovery.
- Whether the show cause notice (Annexure-2) was legally adequate to treat the petitioner as an assessee in default and whether the department acted lawfully in issuing demand orders (Annexure-3 and Annexure-5).
- Whether the ITO (TDS) had jurisdiction to pass the assessment/demand orders or whether jurisdiction lay exclusively with the Commissioner/Joint Commissioner (as argued by the petitioner with reference to Section 197).
- Whether a writ under Article 226 is maintainable where the assessee neglected to reply to a lawful departmental notice.
Arguments of the Parties
Petitioner's Arguments
- Annexure-2 (show cause notice) did not clearly record that the petitioner was an assessee in default.
- Under Section 197(2) (and Section 197A(1A) as argued), there is flexibility on timing: Form No. 15‑H may be lodged and processed so that if the petitioner received Form 15‑H on 01.04.1999, this should be treated as compliance (submission up to the 7th of the following month was relied upon), making any failure a mere technical default.
- Receiving Form 15‑H on 01.04.1999 should be deemed sufficient to excuse the petitioner because the form was received before he was required to submit it to the authorities.
- The Income Tax Officer (TDS) who issued Annexure-2 lacked jurisdiction to assess and pass Annexure-3; under Section 197 the Commissioner or Joint Commissioner alone should handle such matters (the petitioner challenged the competence of the assessing officer).
Respondents' Arguments
- Receipt of Form 15‑H on 01.04.1999 does not absolve the petitioner of liability because Section 201 contains a deeming clause: a person who does not deduct tax as required is deemed an assessee in default.
- The exception in Section 197A(1A) (no deduction where a declaration in prescribed form is furnished) cannot be invoked because the Form 15‑H was not received prior to payment/credit of interest in the financial year; the form must be received before payment to avoid deduction liability.
- Annexure-2 was a sufficient notice indicating the department's intention and the petitioner failed to reply to it; he neglected to pursue the statutory steps available to him.
- The petitioner, by not answering the lawful notice, cannot invoke extraordinary jurisdiction under Article 226 to overturn departmental action arising from a statutory deeming provision.
- The Commissioner properly considered the revision and upheld the ITO's order under Section 201 and demand under Section 156; no illegality attended the department's actions in passing Annexures-3 and -5.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Chhogmal Chiranji Lal v. Commissioner of Income Tax | Used as the factual matrix for the batch of petitions. | The court took details of that case into consideration to decide the present batch of petitions with identical facts and law. |
Court's Reasoning and Analysis
The court proceeded through the following analytical steps, closely following the materials and statutory text:
- Statutory framework: The court identified Section 201(1) of the Income Tax Act, 1961 as the pivotal provision containing a deeming clause that a person who does not deduct tax at source as required shall be deemed an assessee in default. It also referred to Section 197A(1A) as the statutory exception that prevents deduction where a prescribed declaration (Form 15‑H) is furnished in the prescribed manner.
- Factual finding on timing: It was an admitted fact that Form 15‑H was not received by the petitioner until 01.04.1999 and that interest exceeding Rs. 2,500 was paid/credited to depositors during the financial year 1998–1999 without deduction of tax. The court emphasized that the exception in Section 197A(1A) requires receipt of Form 15‑H before payment; since it was not received until after the financial year, the petitioner could not avail the exception.
- Effect of non-receipt: Because the petitioner failed to deduct tax at source when required, the deeming provision of Section 201(1) operated to render the petitioner an assessee in default. The court rejected the characterization of the breach as merely "technical" on the ground that statutory requirements must be complied with in the manner and time provided by law; allowing otherwise would render Section 201 redundant.
- Adequacy of departmental procedure and notices: The court held Annexure-2 to be a sufficient show cause notice indicating that the petitioner was construed to be an assessee-in-default and that it properly called upon the petitioner to show cause why penalty should not follow. The petitioner did not file any reply to the notice, and the court viewed such failure as neglectful conduct.
- Jurisdiction and orders: The ITO (TDS) had initiated proceedings and passed an order under Section 212 read with Section 201 (Annexure-3). On revision, the Commissioner reviewed the facts and law and upheld the ITO's order and the resultant demand under Section 156 (Annexure-5). The court found no illegality in the actions of the ITO or the Commissioner in enforcing the tax liability.
- Remedy by writ: The court noted that an assessee who neglects to respond to a lawful notice is not entitled to seek extraordinary relief under Article 226 to avoid consequences of statutory liability, particularly where the liability arises by operation of law and departmental action was in accordance with statutory provisions.
Holding and Implications
The writ petitions are dismissed. The court also dismissed the stay applications.
Direct consequences:
- The petitioner remains an assessee in default under Section 201(1) of the Income Tax Act for the financial year 1998–1999 because Form No. 15‑H was not received before the date on which interest exceeding Rs. 2,500 was credited/paid.
- The departmental orders (Annexure-3 by the ITO under Section 212 read with Section 201, and Annexure-5 by the Commissioner upholding the demand under Section 156) stand upheld; the petitioner is liable to deposit the tax amount he was required to deduct.
- The court found no procedural illegality in issuance of Annexure-2 or in the assessment/revision process; the petitioner's failure to respond to the show cause notice was taken into account in denying relief.
The opinion does not discuss broader legal or constitutional implications beyond the direct effect on these parties; no new precedent or novel legal principle was announced by the court in this judgment.
The Judgment of the Court was delivered by
Bhagwati Prasad, J.:— The present batch of petitions involve identical questions of law and facts. In this background, they are decided by a common judgment. For factual matrix, details of the case of ‘Chhogmal Chiranji Lal v. Commissioner of Income Tax’ are taken into consideration.
2. In this case, the petitioner has challenged the action of the respondents in issuing the order Annexure-3 and Annexure-5, the orders impugned have been passed against the petitioner in the background that there were certain deposites with the petitioner and he was required to deduct income tax on the payment of interest on such deposites. Section 201(1) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) provides that as and when such tax is paid on deposits, tax is required to be deducted at source. Such deduction is waived where recepient of interest, even after receiving the interest does not become a person, who is liable to pay tax and furnishes a form No. 15-H.
3. This is the admitted position that the petitioner had paid interest to depositors. From such depositors Form 15-H was not received by him for the financial year 1998–1999 upto 31.03.1999 Section 201(1) of the Act requires that as the when interest is paid on deposits, tax is required to be deducted at source. This is permitted to be not done when the recepient furnishes form 15-H, within the financial year. Section 201(1) of the Act is reproduced herein below:
“(1) If any such persons 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 the whole or any part of the tax 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.
4. A show cause notice was issued to the petitioner on 26.05.1999 deeming him to be an assessee in default in respect of the tax which was required to be deducted by him at source for the financial year 1998–1999. In the notice Annexure-2, it was said that why the case of the petitioner be not referred to Commissioner of Income-tax for the levy of penalty.
5. The argument of the learned counsel for the petitioner is that notice Annexure-2 which requires him to show cause has not clearly recorded that the petitioner is an assessee in default. The relevant para of the notice Annexure-2 reads as under:
“(b) although you had paid interest exceeding Rs. 2500/- to various creditors and from whom you had not received for/s No. 15-H during the F.Yr 98-99, yet you have not deducted tax at source.”
6. Learned counsel for the petitioner submits that in terms of Section 197-A(1A) of the Act, no limitation is prescribed for submission of Form 15-H. As per Section 197(2) of the Act, the petitioner could deposit the form so received by seventh day of the month next following the month in which the declaration is furnished to him. If the petitioner has received the Form 15-H on 1.04.1999 then, it is a mere technical default and no tax can be recovered from the petitioner.
7. The petitioner's further case is that the petitioner has received the form on 1.04.1999 and thus, it should be deemed that the requirement of law has been complied because he could submit it to the department upto 7.04.1999 The petitioner had received the form before he was required to submit the same to the authorities. The petitioner has further submitted that Income Tax Officer (TDS) who had issued notice Annexure-2 had no jurisdiction to assess and pass an order Annexure-3 because under Section 197 of the Act, it is the Commissioner or Joint Commissioner who are the officers to whom the matter is to be referred and, therefore, the notice is bad for want of jurisdiction also.
8. Learned counsel for the respondents had jointed the issue and have contested that receiving Form 15-H on 1.04.1999 does not absolve the liability of the petitioner of paying tax. Section 201 of the Act provides a deeming clause that as and when the payer of the interest does not deduct the whole or any part of the tax will be deemed to be an assessee in default in respect of tax. The exception to it is provided in Section 197A (1A) of the Act which read as under:
(1A) Notwithstanding anything contained in (Section 193 or section 194A] or section 194 K, no deduction of tax shall be made under [any of] the said sections in the case of a person (not being a company or a firm), if such person furnishes to the person responsible for paying any income of the nature referred to in (section 193 or section 194A) or section 194K, as the case may be, a declaration in writing in duplicate in the prescribed form and verified in the prescribed manner to the effect that the tax on his estimated total income of the previous year in which such income is to be included in computing his total income will be nil.
9. This is the admitted part of the case that until the end of the financial year 1998–1999, form was not received by the petitioner. Until the petitioner receives the form No. 15-H, he was under obligation to deduct the tax. Since, the obligation was not discharged by the petitioner, it tentamounts to default. By deeming clause under Section 201(1) of the Act by such an act the petitioner was liable to be branded as an assessee in default.
10. The petitioner having paid the interest above Rs. 2500/- without deducting tax at source was liable to be deemed as an assessee in default. The exception provided in Section 197A (1A) of the Act cannot be invoked in the matter of petitioner as he has not received the form 15-H till the time he paid interest more than Rs. 2500/-. As per law, the form 15-H was to be received before payment of interest. In case the form is not received, the deduction of tax was a must. The liability of payment of tax is therefore automatic on the head of the petitioner. The only act subsequent thereto is an act which the petitioner himself was required to comply by depositing the T.D.S with the department. As and when there is liability of tax, the persons on whose head the liability comes, is under obligation to pay the same. Any intimation or information in that regard is only a ministerial act. The petitioner cannot contend that he was not intimated about the liability of tax. Levy of tax becomes operative with the payment of interest above Rs. 2500/- and not receiving form 15-H. The petitioner has not charged the tax on payment of interest above the amount Rs. 2500/-. He was not given form 15-H at that time.
11. The learned counsel for the respondents further submitted that the petitioner is an assessee in default by operation of law as provided in Section 201 of the Income Tax Act. Notice Annexure-2 was for the purpose of asking the petitioner to show cause as to why penalty should not be imposed on him. This notice was sufficient indication of the intention of the department that the petitioner has been construed to be an assessee-in-default. After having received Annexure-2, the petitioner has not joined issue. He has not cared to file the reply to this notice and thus, has neglected to take steps provided in law.
12. An assessee who neglects a lawful notice is not entitled to invoke extraordinary jurisdiction of this court under Article 226 of the Constitution of India. The lawful actions of the department are required to be seen with responsibility by the tax payers. If they chose to ignore the notice under the impression that the show cause was only for proposing penalty and after issuance of notice, Commissioner or Assistant Commissioner would have issued notice to the petitioner, then that tentamounts to an indifferent attitude of tax payers.
13. Apart from issuance of notice Annexure-2, proceedings were also initiated by the ITO T.D.S and an order was passed under Section 212 read with Section 201 of the Act. By this order, the petitioner was required to pay a specific sum as amount of tax which he was required to deduct as T.D.S Such order has been filed by the petitioner as Annexure-3. A revision was preferred by the petitioner against such order in the office of the Commissioner (Income Tax). This revision was decided by the Commissioner (Income Tax) by the order dated 24.1.01 The argument of the learned counsel for the petitioner was considered and the Commissioner came to the conclusion and held that as per Section 194A of the Act while paying the interest, the assessee was required to deduct the tax at source. The petitioner has not received form 15-H claiming exemption from payment of tax. Such form 15-H appears to have been received by the petitioner on 1.4.99 It has been concluded by the Commissioner (Income Tax) that the day when the interest was credited by the assessee firm, it had not received the Form No. 15-H. Under the law, the assessee was required to deduct the tax at source. The admitted position has been noticed by the Commissioner that the Form 15-H was received after the date of the credit of interest to the various persons. Thus, the Commissioner has upheld the order passed by the ITO T.D.S Hanumangarh under Section 201(1) of the Act and has upheld the demand under Section 156 of the Act. In this background, the application of the petitioner under Section 264 of the Act was rejected.
14. I have considered the rival submissions and have perused the record. What is not denied is that the Form 15-H was received by the petitioner on 1.04.1999 The interest was paid to various depositors for amount more than Rs. 2,500/- during the financial year 1998–1999. No tax was deducted at source until 31.03.1999 Thus, in the financial year 1998–1999 though the petitioner firm credited interest to various persons above Rs. 2500/- yet it has not deducted tax at source. The petitioner has not received the Form 15-H until the conclusion of financial year 1998–1999. In this background, if the argument of the learned counsel for the petitioner is accepted that the form was received on 1.04.1999 and it is only a technical breach then, what would follow is that the deeming clause in Section 201 of the Act will become redundant. The provision of law can never be considered to be redundant. Section 201 of the Act is required to be operated against the petitioner. Having not received Form 15-H within the financial year 1998–1999, he will be deemed to be an assessee in default. Therefore, on this count, no illegality is seen in the action of the respondent officers of the Income Tax Department.
15. Once, it is held that the petitioner has been rightly assessed to be an assessee in default, then the liability of tax stands incurred by the petitioner. For an incurred tax liability, the assesses are required to pay the tax. In case, the department has not issued any notice before passing an order raising demand, then no illegality can been seen in the action of the respondent department. No such notice is provided under the Act. Section 201 of the Act clearly states that the petitioner is an assessee in default then, he was required to deposit the tax which he was required to deduct at source. Having not deducted the same, he is required to deposit the amount with the department. Passing such an order is only enforcement of an incurred liability by the petitioner. The Commissioner also has committed no illegality in enforcing the demand incurred by the petitioner in passing order Annexure-5.
16. The argument of the learned counsel for the petitioner that having received the form on 1.04.1999, it is only a technical default and, therefore, no order could have been passed against the petitioner shows the casual attitude of the petitioner. The argument cannot be sustained for the simple reason that if law provides for doing a thing in an particular manner, then it has to be done in that manner alone. The petitioner could have deducted the tax at source in the manner provided by the Act. Having violated the law, he has incurred the liability under the Act. Therefore, the argument is not sustainable that the fault was only technical. Further, the argument of the learned counsel for the petitioner is that it is the Commissioner who alone could have done it is also not sustainable because the Commissioner or Assistant Commissioner will handle the case of penalty which may be imposed on the petitioner pursuant to Annexure-2. As far as the liability of the petitioner is concerned under Annexure-3 & Annexure-5, no illegality is seen. Further, the petitioner after receiving Annexure-2 has not done what was expected of him. As and when a notice is issued, the same is required to be answered. He has neglected his part and thus, he is a neglectful taxpayer. On this count also, no interference is called for in the writ petition filed by the petitioner.
17. There is no force in the writ petitions. The writ petitions are hereby dismissed. The stay applications are also dismissed.
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