COMMISSIONER OF INCOME-TAX VS RATHI GUM INDUSTRIES
1997 P T D 1350
[213 I T R 98]
[Rajasthan High Court (India)]
Before V. K. Singhal and V. G. Palshikar, JJ
COMMISSIONER OF INCOME-TAX
Versus
RATHI GUM INDUSTRIES
D.B. Income-tax Reference No.24 of 1988, decided on 21/07/1994.
(a) Income-tax---
-----Deduction of tax at source---Interest---Failure to deduct tax---Levy of interest is mandatory---Payment of tax subsequently by recipient---Not relevant---Income Tax Act, 1961, Ss. 194A & 201.
Section 201 of the Income Tax Act, 1961, provides not only for collection of tax, which has not been deducted but for levy and charge of interest also. Subsection (1A) of the said section provides for liability to pay simple interest at the rate of 12 per cent per annum on the amount of tax from the date on which the tax was deductible till the date the tax was actually paid. The provisions for payment of interest are mandatory and automatic and interest has to be paid from the date on which the tax was deductible till the date on which the tax is actually - paid. If the tax has already been paid by the recipient on such income the Income-tax Department may not be justified to recover the said amount of tax, but so far as the liability of interest is concerned, that cannot be considered to be non existent on account of deposit of tax by the recipient at a subsequent or later stage.
CIT v. Kannan Devan Hill Produce Co. Ltd. (1986) 91 ITR 477 (Ker.) ref.
(b) Income-tax-----
----Depreciation---Investment allowance---Actual cost---Subsidy received from Central/ State Government is not deductible from the cost of plant and machinery, etc., for working out cost for purpose of depreciation and investment allowance---Income Tax Act, 1961, S. 43.
The amount of subsidy received from the Central/State Government is not to be deducted from the cost of plant and machinery, building, etc., for working out the cost for the purpose of depreciation, investment allowance, etc.
CIT v. Ambica Electrolytic Capacitors Pvt. Ltd. (1991) 191 ITR 494 (Raj.) fol.
D.S. Shishodia, Senior Advocate with S. Bhandawat for the Commissioner.
Vineet Kothari for the Assessee.
JUDGMENT
V.K. SINGHAL, J.---The Income-tax Appellate Tribunal has referred the following questions of law arising out of its order dated December 3, 1986, in respect of the assessment year 1980-81 under section 256(1) of the Income Tax Act, 1961:
"(1) Whether the Tribunal was right in concluding that interest under section 201 need not be levied on the assessee for non-deduction of tax at source for payment covered under section 194A on the reasoning that it would serve no useful purpose as the Revenue authorities have been fully satisfied of the taxes that would have been collected in the hands of the recipient?
(2) Whether the Tribunal was right in holding that the amount of subsidy received from the Central/State Government is not to be deducted from the cost of plant and machinery, building, etc., for working out the cost for the purpose of depreciation, investment allowance, etc.?"
The relevant facts so far as the aforesaid questions are concerned, are that the Income-tax Appellate Tribunal came to the conclusion that proceedings for interest under section 201 need not be initiated in the hands of the assessee specially when there is no loss of revenue to the Department as the recipients of these interest amounts have duly paid their taxes on such income received from the firm. The assessee entered into contracts with several suppliers whereby they were to provide the raw material at the proper time and at the rates agreed to see that the assessee is not put to loss either due to non-availability of raw material or due to fluctuations in the prices. The assessee did not deduct any interest from the payments -made to the various parties on the plea that it was in the nature of commission and the quantum relating to finance not being sever-able from the contract. The fact of the recipient having shown the income received by the assessee and having paid due tax thereon was brought to the notice of the Income-tax Officer. It was contended that if the assessee has deducted any amount by way of tax, it would have resulted in a refund in the hands of the recipient. Alternatively, it was argued before the Income-tax Officer that the, intention of the Legislature was to recover the legitimate taxes from various assessees and since this intention has been fulfilled in the shape of the recipients having paid their due taxes, the proceedings are of mere academic interest with no purpose and therefore be dropped. Reliance was also placed on the decision of the Kerala High Court in the case of CIT v. Kannan Devan Hill Produce Co. Ltd. (1986) 161 ITR 477, where on account of failure to deduct the tax by an employer by not including certain amount in total income, when the proceedings for reopening of assessment were initiated, it was held that the employer could not be deemed to be an assessee in default within the meaning of section 201 of the income Tax Act, 1961, for not deducting at source tax payable on the amount. The provisions of section 201 require deduction of tax at source in respect of the matters referred to therein and failure to deduct the tax makes the person responsible by treating him as the assessee in default. Subsection (1A) of the said section fastens the liability to pay simple interest at the rate of 12 per cent per annum on the amount of tax from the date on which the tax was deductible till the date the tax was actually paid. The Finance Act of 1966 has made certain amendments by which the words "without good and sufficient reasons" were substituted for "wilfully". Persons responsible for paying the salary, etc., are required to deduct the tax at source from the amount of such payment. The tax so deducted has to be deposited with the Central Government. Rule 30 of the Income-tax Rules prescribes the time for such deposit. The object of this rule is not only to ensure the payment to the Central Government but also to deduct the tax at source and to credit it in time. By a deeming fiction a person who is a defaulter is considered even an assessee in default in respect of the tax and, therefore, even the proceedings for realisation of such amount of tax can be initiated against him. The amount has to be credited to the account of the Central Government within the time specified under the rules. The submission of the return and payment of tax by the recipient is at a subsequent and later stage. Payment of tax at the specified time under the Act cannot be waived by the taxing authorities. The interest is to compensate the Revenue for the loss, which it has suffered on account of late receipt of the tax. It has not been stated in the present case that the recipient has deposited the tax received within the time at which the assessee was required to deduct and deposit the tax. The Tribunal has ignored the fact that the provisions of interest are mandatory and automatic and interest has to be paid from the date on which the tax was deductible till the date on which the tax is actually paid. In the present case, the assessee who has entered into agreements with different persons, it cannot be possible nor it has been discussed or found as a fact by the Tribunal that the tax amount was deposited in time. The view which has been taken by the Tribunal following the decision of the Kerala High Court referred to above is not applicable to the facts of the present case as that was case where the assessment was already completed and the tax was paid and thereafter proceedings under section 201 were initiated to demand further tax/interest from the employer. Looking to this interpretation of section 201 which we have taken, we are of the view that the Tribunal was no, justified in concluding that interest under section 201 need not be levied tan the assessee for non-deduction of tax at source for payments covered under section 194-A on the reasoning that it would serve no useful purpose as the Revenue authorities have been fully satisfied of the taxes that would have been collected in the hands of the recipients. The provision of section 201 provides not only for collection of tax which has not been deducted but for levy and charge of interest also. If the tax has already been paid by the recipient on such income it may not be justified to recover the said amount of tax, but so far as the liability of interest is concerned, that cannot be considered to be non-existent on account of deposit of tax by the recipient at a subsequent or later stage.
So far as question No.2 is concerned, the matter has already been considered by this Court in the case of CIT v. Ambica Electrolytic Capacitors Pvt. Ltd. (1991) 191 ITR 494, wherein it was held by this Court that the subsidy given by the Government for development of industries in backwara areas cannot be deducted from the actual cost for the purposes of depreciation and investment allowance. Following the aforesaid decision, we are of the view that the Tribunal was right in holding that the amount of subsidy received from the Central/State Government is not to be deducted from the cost of plant and machinery, building, etc., for working out the cost for the purpose of depreciation, investment allowance, etc.
Consequently, question No.1 is answered in favour of the Revenue and against the assessee and question No.2 is answered in favour of the assessee and against the Revenue. No order as to costs.
M. B. A./1150/FCOrder accordingly.