1. The Income-tax Officer, T.D.S. Circle, served upon the petitioners orders dated July 23, 1979, under section 202(1A) of the Income-tax Act, 1961, for each of the assessment years 1971-72 to 1978-79. The orders stated that the petitioners had deducted tax under section 192(1) of the said Act 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 rule 30(1)(b) of the Income-tax Rules, 1962. The petitioners had, therefore, become assessees in default in terms of section 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 period of the defaults.
2. The petitioners preferred revision petitions against these orders to the Commissioner of Income-tax under section 264 of the Income-tax Act, 1961. 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 taxpayers, the interest charges under section 201(1A) of the Income-tax Act, 1961, should be fully waived. It was also submitted that the delays were not intentional and were due to oversight. The alternate submission was that for the levy of interest, rule 119A of the Income-tax Rules, 1962, introduced with effect from January 1, 1975, should be followed, that is, defaults of less than one month 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 submissions. The petitioners 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 rule 119A, the Commissioner referred to administrative instructions that for the period up to December 31, 1974, interest had to be calculated as if the rule was not in existence.
3. This petition is directed against the orders of the Income-tax Officer and the Commissioner.
4. It was submitted by Mr. Dwarkadas, learned counsel for the petitioners, that rule 119A of the Income-tax Rules, 1962, 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 section 201(1A) of the Income-tax Act, 1961, was penal and ought to be waived where the default was not intentional. Mr. Dwarkadas urged that the Commissioner ought to have considered the submission that the default was unintentional and that, therefore, interest should be waived; and, since he had not done so, his order was bad.
5. Section 192 of the Income-tax Act, 1961, provides that any person responsible for paying income chargeable under the head '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 of the Income-tax Act, 1961, 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 rule 30 of the Income-tax Rules, 1962, is seven days. Sub-sections (1) and (1A) of section 201 of the Income-tax Act, 1961, 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 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.'
6. Rule 119A of the Income-tax Rules, 1962, 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 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 the 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.'
7. It may be mentioned that rule 40 of the Income-tax Rules, 1962, 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 section 201(1) of the Income-tax Act, 1961.
8. Section 201(1) of the Income-tax Act, 1961, 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-section (1A), if that person, after deduction such tax, fails to remit it as required under the Act, he is made liable to pay interest at the rate of 12% per annum.
9. 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 section 201(1) of the Income-tax Act, 1961, 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 of the Income-tax Rules, 1962, was not introduced till long after. Rule 119A can have, therefore, no bearing on the computation of such interest.
10. Section 201(1A) of the Income-tax Act, 1961, makes the payment of simple interest mandatory. The payment of interest thereunder 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.
11. The petition is dismissed with costs.