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Karumuthu Ramaswamy Finance (P.) Vs. First Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Madras
Decided On
Judge
Reported in(1985)11ITD141(Mad.)
AppellantKarumuthu Ramaswamy Finance (P.)
RespondentFirst Income-tax Officer
Excerpt:
.....to the account of the payee nor paid in cash/cheque, but was only credited to the interest payable account and that the method was not the same as to paying or crediting to the account of the payee.3. the ito did not accept this explanation of the assessee and thereby observed that whatever be the nomenclature, the amount was very well quantified on the particular date and was credited to the interest payable account on behalf of the particular party and it amounted to crediting to the account of the payee. therefore, in the circumstances of the case, he held that the provisions of section 201(1a) were clearly attracted and charged interest amounting to rs. 2,690 under section 194a.4. in appeal, the commissioner (appeals) confirmed the action of the ito and thereby dismissed the.....
Judgment:
1. The assessee has preferred this appeal against the order dated 9-5-1983 of Dr. H.R. Sivaswamy, Commissioner (Appeals), who dismissed the appeal against the order dated 1-2-1982 of Shri S. Nagarajan, First ITO.2. The relevant facts in brief are that the assessment year under consideration is 1979-80, for which the previous year ended on 30-9-1978. The assessee filed return of income for the assessment year under consideration. The ITO, on going through the statement filed by the assessee therein, found during the course of assessment proceedings that the assessee paid interest over Rs. 1,000 to the following parties, but no mention was made in the statement about the tax deducted under Section 194A of the Income-tax Act, 1961 ('the Act'): Thus, he issued notice on the assessee vide letter dated 3-12-1981 as to show cause, if any, for charging interest under Section 201(1A) of the Act for non-deduction and non-payment of tax to the Government account. In reply to it, it was stated that the interest was neither credited to the account of the payee nor paid in cash/cheque, but was only credited to the interest payable account and that the method was not the same as to paying or crediting to the account of the payee.

3. The ITO did not accept this explanation of the assessee and thereby observed that whatever be the nomenclature, the amount was very well quantified on the particular date and was credited to the interest payable account on behalf of the particular party and it amounted to crediting to the account of the payee. Therefore, in the circumstances of the case, he held that the provisions of Section 201(1A) were clearly attracted and charged interest amounting to Rs. 2,690 under Section 194A.4. In appeal, the Commissioner (Appeals) confirmed the action of the ITO and thereby dismissed the appeal of the assessee, observing as under: 4. Section 194A says that any person, not being an individual or a Hindu undivided family who is responsible for paying any interest other than interest on securities, should deduct income-tax at source 'at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode'.

5. In the present case, the assessee did not credit any interest income to the ledger account of any payee. Nor did it pay interest in cash. However, it is very clear from the context that the assessee resorted to this device only to circumvent the provisions of Section 194A, read with Section 201. But, in my opinion, the assessee has not succeeded in its attempt to circumvent the statutory provisions.

6. The appellant could not give any valid reason for crediting the corresponding interest amounts to an interest payable account instead of the corresponding parties' accounts. After all the assessee has quantified the exact amount of interest payable to each party. It could have easily credited the exact amount to the ledger account of each of the four creditors. In my opinion, the corresponding interest has been constructively credited to the account of each particular creditor. The appellant's nomenclature of the particular account, in which the credit is made, is not conclusive in the matter. It is not as if the assessee could not immediately ascertain to which party the interest amounts belonged.

If the interest payable to a particular credit in the whole year exceeds Rs. 1,000, the assessee must deduct tax at source and pay it to the Central Government under Section 194A. The interest payable to Pudukottai Corporation (P.) Ltd. was as high as Rs. 20,037.

Similarly, the interest payable to the Madurai Tara Traders (P.) Ltd. was Rs. 11,996. Even in respect of the remaining two creditors, the interest payable for the accounting year exceeded Rs. 1,000.

7. Moreover, when we are dealing with Section 201(1A), we are dealing with interest but not with any penalty or prosecution. Under Section 201(1A), the defaulting assessee is liable to pay simple interest of 12 per cent per annum on the amount of the tax deductible at source from the date on which such tax was deductible to the date on which such tax is actually paid.

8. The appellant tried to argue that out of the four creditors, the assessment on two creditors, viz., Sivakami Finance (P.) Ltd. and Pudukottai Corporation (P.) Ltd., resulted in nil demand as their ultimate total incomes were below the taxable limit according to the assessment made by the ITO on these two parties.

9. Even this argument would not apply in the case of the remaining two creditors, viz., Keyam Knitting Co. and Madurai Tara Traders (P.) Ltd. The ITO determined a total income of Rs. 29,024 and total tax of Rs. 1,286 in the case of Keyam Knitting Co. for the assessment year 1979-80. In the case of Madurai Tara Traders (P.) Ltd., the ITO determined the total income at Rs. 1,24,770 and the tax thereon as Rs. 12,497.

10. But whether the final assessment results in a total income above taxable limit or below taxable limit, the machinery provision contained in Section 194A has got to be implemented by every person responsible for paying interest to creditors. While enforcing the provisions contained in Section 194A and Section 201, the ITO is not at all concerned with the fate of the final assessments in the cases of the creditors. In some instances, a person may make interest payments to hundreds or thousands of creditors and the assessments in the cases of those numerous creditors may have their (sic) on vicissitudes in appeals, revisions and rectifications. It is impossible for the ITO to keep track on all these future events while enforcing the provisions of Section 194A and Section 201.

11. For all these reasons, I shall confirm the interest of Rs. 2,690 levied by the ITO under Section 201(1A).

5. The assessee, being dissatisfied and aggrieved with the order of the Commissioner (Appeals), has preferred this appeal. Shri V.S. Jayakumar, the learned Counsel for the assessee, contends that the orders of the authorities below are to be set aside being erroneous in law and fact, as the Tribunal in the case of Sivakami Finance (P.) Ltd. v. ITO [1983] 6 ITD 351 (Mad.) has taken a view on the issue in favour of the assessee and against the revenue. The facts and arguments in the assessee's case are the same which were there before the Tribunal in deciding the case in favour of the assessee on the issue vide its order dated 18-8-1983. Reliance is placed on the order dated 18-8-1983 in the case of Sivakami Finance (P.) Ltd. (supra). On the other hand, Shri A.B. Martin David, the learned departmental representative, contends that the order of the Tribunal (supra) should not be followed in the case of the assessee as the facts of the case decided by the Tribunal (supra) are distinguishable with that of the assessee's case. He further contends that the decision of the Tribunal requires reconsideration in view of the fact that, on the facts and in the circumstances of the case, there is no doubt left that if the claim of the assessee is to be allowed, then it is manifestly an evasion of tax and violation of mandatory provisions of the Act, Sections 194A and 201(1A), respectively. He further contends that the impugned order is to be confirmed.

6. We have heard the rival contentions and gone through the records before us.

From the record and from the order of the ITO, it is clear that the assessee paid interest over Rs. 1,000 to the following parties: This factual position has not been denied by the learned Counsel for the assessee, rather admitted it, but pleaded that in the eye of law, even the assessee cannot be made to be subjected to the provisions of Section 201(1A), read with Section 194. Reliance is placed on the decision of the Tribunal (supra). In this case the facts found by the Tribunal was that no interest was credited in the account of the creditor as there was financial crisis with the assessee-debtor. In the case under consideration, the assessee has actually paid the aforesaid amount of interest to its creditors in the previous year relevant for the assessment year under consideration and there is no plea on the part of the assessee that the assessee is victim of financial crisis.

When this is so, then the case relied upon by the learned Counsel for the assessee of the Tribunal supra is not applicable to the facts of the case. Furthermore, the onus is upon the assessee to prove that the non-deduction of income-tax at source was on account of non-payment of the interest and the same was on account of financial crisis with the assessee. In this case nowhere this situation is there, rather it has been proved beyond doubt that the interest has been actually paid to the aforesaid parties above Rs. 1,000 in each case and the assessee has nowhere pleaded that the assessee was ever victim of financial crisis.

Furthermore, the Tribunal in deciding the issue has taken the shelter of the Board's circular to supplement their aforesaid factual finding and whereby held that when the assessee did not pay the interest and the financial crisis were there, then the view of the Board's circular applicable to the assessment year is to be applied and not the circular issued thereafter on 22-12-1980 vide which the Board has taken away the concession given to the assessee in such situation, further holding therein that the Board's circulars are binding on the income-tax authorities and it cannot be said otherwise if concessional circular of the Board is taken away by the Board thereafter and, therefore, the latest circular is to be followed for the previous year relevant for the assessment year to which the old circular of the Board was applicable. As in this case, we have already held that on the facts of this case, the income-tax deducted at source is to be taken and to be paid to the Government in view of the fact that interest was actually paid to the creditors, the aforesaid parties, and in each case it is more than Rs. 1,000, then to have the look to the circular nowhere arises. Furthermore, the circular has been taken away by the latest Circular No. 288 [F. No. 275/46/79-IT(B)], dated 22-12-1980, by the Board itself and moreover, the Hon'ble Madras High Court in the case of CIT v. O.M.S.S. Sankaralinga Nadar & Co. [tax Case No. 1263 of 1979, dated 7-12-1982] [Since Reported in [1984] 147 ITR 332] held that their Lordships are not, therefore, inclined even to take a look into the circular referred to them, that if the circular has expressed a view which the department has not followed in that case, the remedy is not to ask the Court to render an opinion in accordance with the circular; the relief has to be sought elsewhere. Thus, from the aforesaid finding of the Hon'ble Madras High Court on the issue whether Board's circulars are binding on the income-tax authorities, we are of the opinion that their Lordships of the Madras High Court has taken a contrary view to that of the Tribunal in the aforesaid case. Therefore, the Benches of the Tribunal at Madras are bound to follow the decision of the Hon'ble Madras High Court on the issue than to that of its own decision being settled law. The settled law says that the decision of the High Court is binding on the Benches of the Tribunal and as such the decision of the Tribunal or that of its Special Bench in such situation cannot be followed by its Benches.

7. Apart from it, the system of accounting of the assessee is mercantile. The creditors are identified, the interest is quantified, the financial position is not poor so much so that the interest is actually paid. Thus, the non-deduction of the income-tax at source by the assessee is wilful violation of the provisions of sections 194A and 201(1A); hence, the authorities below are justified in arriving at the respective conclusion, holding therein that the assessee has knowingly and intentionally failed to deduct income-tax at source and as such has violated the provisions of Section 194A, read with Section 201(1A), which is based upon sound reasons and material on record to substantiate these; hence, we agree with these and also adopt in our order.

8. There is no force in the contention of the learned Counsel for the assessee that the Board's circular on law allows the assessee not to deduct tax on the facts of the case and the assessee is within its rights to show it in the suspense account as he showed it or he is not bound to account in the accounts of the creditors supra. Since in the case of the assessee the creditors are identifiable and the interest is quantified and is actually paid in the previous year relevant for the assessment year under consideration, being admitted position and proved from the facts on record, thus, if the plea of the assessee is to be accepted on the ground of method of accounting or keeping of books, in the manner these are kept, then it will lead to misuse of method of accountancy or established procedure to keep the books of account resulting in evasion of tax, hence, leading to great injustice in accepting the plea of the assessee as stated above. Accordingly, we reject it and thereby repeat that the authorities below are justified in charging the interest for default of provisions of Sections 194A and 201(1A), on the totality of the facts of the case.

1. I have read the order of my brother, the learned Judicial Member, but find myself, with great respect, unable to agree.

2. In the instant case, the admitted position, as found by the ITO and the Commissioner (Appeals) [vide para 5 of the Commissioner (Appeals)'s order], is that the assessee did not credit any interest income to the ledger account of the payee nor did it pay interest in cash but the interest was credited to a general account called 'Interest payable account'.

3. The Judicial Member has stated in para 6 of his order that the assessee has actually paid the interest amount to its creditors in the previous year. I do not agree with this finding, which is not supported by any material on record. On the other hand, both the ITO and the Commissioner (Appeals) have proceeded on the basis of the assessee's statement that interest was not paid in cash, but credited to interest payable account.

4. The assessee did not deduct tax under Section 194A on the interest amount on the ground that the provisions of Section 194A were not attracted unless the interest was paid to the creditor or credited to his account. The ITO, however, rejected this plea and levied interest on Rs. 2,690 under section 201QA). The Commissioner (Appeals) for the reasons given by him has upheld the ITO's order. The assessee's submissions in its appeal before the Tribunal are that its case is covered by the Board's circular, dated 8-11-1978, and that its case is fully supported by the order of the Bench 'C' of this Tribunal in the case of Sivakami Finance (P.) Ltd. (supra) for the assessment years 1976-77 to 1980-81, etc. The Tribunal in this order has elaborately dealt with the same issue, also referring, inter alia, to the Board's circulars and held for the various reasons given by it that when the interest was credited to the interest payable account, it did not amount to crediting the interest to the account of the payees and, consequently, no liability for deducting the tax on the interest amount was incurred. On the point regarding the binding nature of the Board's circulars granting administrative relief to the assessee, the Supreme Court's decision in K.P. Varghese v. ITO [1981] 131 ITR 597 may be seen. Following the ratio of the above order, I would hold that the assessee was not liable to deduct tax from the interest payable in question under Section 194A. Consequently, the levy of interest of Rs. 2,690 by the ITO under Section 201(1A) is not justified. I would, hence, allow the assessee's appeal.

Order under Section 255(4) of the income-tax act, 1961 - Whereas we are unable to agree on the point set out below for the assessment year 1979-80, we refer the following point of difference of opinion to the President for reference to Third Member under Section 255(4) of the Act: Whether, on the facts and in the circumstances of the case, there was no liability on the assessee to deduct tax from the 'Interest payable' under Section 194A and, consequently, the Income-tax Officer was not justified in levying interest of Rs. 2,690 under Section 201 on the assessee 1. There being difference of opinion between the learned Judicial Member and the learned Accountant Member, the following question has been referred to me for decision, as Third Member: Whether, on the facts and in the circumstances of the case, there was no liability on the assessee to deduct tax from the 'Interest payable' under Section 194A and, consequently, the Income-tax Officer was not justified in levying interest of Rs. 2,690 under Section 201 on the assessee 2. In the course of the assessment proceedings for the assessment year 1979-80, the ITO found that the assessee had borrowed certain loans from (i) Pudukottai Corporation (P.) Ltd., (ii) Keyam Knitting Co., Tirupur, (in) Sivakami Finance (P.) Ltd., and (iv) Madurai Tara Traders (P.) Ltd., but the interest amounting to more than Rs. 1,000 payable to each of them had been credited by the assessee to the 'Interest payable account' and not to the 'Payee's account'. The ITO further found that the assessee had not deducted the tax from the amount of interest payable to the creditors as required under Section 194A. He, therefore, charged interest amounting to Rs. 2,690-under Section 201(1A).

3. On appeal, the Commissioner (Appeals) observed that the assessee had not credited any interest income to the ledger account of any of the payees nor did the assessee pay interest to them in cash. According to him, the creditors were known and the amounts of interest were ascertainable and as such, the assessee had resorted to the device of crediting the interest to the 'Interest payable account' only to circumvent the provisions of Section 194A. He, therefore, upheld the order of the ITO, charging interest of Rs. 2,690 under Section 201(1A).

Aggrieved by the order of the Commissioner (Appeals), the assessee went in appeal to the Tribunal.

4. After hearing the parties, the learned Judicial Member observed as under: (i) that the assessee had paid interest exceeding Rs. 1,000 to the parties concerned; (ii) that the creditors were identified and the interest was quantified and so, the ITO was justified in charging interest under Section 201(1A) for violation of the provisions of Section 194A, despite the Board's Circular letter No. 276/72/77/IT(B), dated 25-1-1979, which had been replaced by the Board's Circular No. 288, dated 22-12-1980; and (iii) that the decision of the Tribunal in the case of Sivakami Finance (P.) Ltd. (supra), which was relied upon by the assessee in support of its case, was distinguishable inasmuch as the assessee was not prevented by any financial difficulties from paying the interest to the parties concerned.

5. The learned Accountant Member, on the other hand, observed that no interest was actually paid to the creditors, as stated by the learned Judicial Member. He was of the view that the Tribunal had clearly held in the case of Sivakami Finance (P.) Ltd. (supra), after discussing the circulars in question, that when the interest was credited to the 'interest payable account, and not to the 'payee's account', there was no obligation on the part of the assessee to deduct the tax under Section 194A. He also observed that the circular letter, dated 25-1-1979, was binding on the revenue authorities in view of the decision of the Supreme Court in the case of K.P. Varghese (supra).

According to him, since the interest amount had not, in fact, been credited to the payee's account, the assessee was not legally bound to deduct the tax under Section 194A and so the levy of interest of Rs. 2,690 by the ITO under Section 201(1A) was not justified.

6. It is in these circumstances that the matter has been referred to me for resolving the dispute as a Third Member.

7. I have gone through the record and heard the learned representatives of the parties. It is common ground that the facts of the present case are identical to the facts of the case of Arundathi Investments Ltd. v.ITO [IT Appeal No. 467 (Mad.) of 1983]. [Since Reported in [1984] 10 ITD 754 (Mad.) (TM)]. In that case, there was difference of opinion between the learned Judicial Member and the learned Accountant Member and the very point at issue was referred to the Third Member. The Third Member, relying upon the decision of the Tribunal in the case of Sivakami Finance (P.) Ltd. (supra), held that the circular letter, dated 25-1-1979, applied to the assessment years prior to 1980-81, that the subsequent circular dated 22-12-1980, was not retrospective in character and so, the same could not withdraw the concession conferred on the assessee by the first circular and impose a new burden. The Third Member also examined the provisions of Section 194A and held that if the assessee did not pay or credit the interest to the account of the payee, whatever may be the reason, the provisions of Section 194A would not apply and so the levy of interest under Section 201 will not be justified. It has been held by the Madras High Court in CIT v. S.Devaraj [1969] 73 ITR 1 and CIT v. L.G. Ramamurthi [1977] 110 ITR 453 that when the Tribunal takes a particular view on a particular issue, it should not contradict itself and, subsequently, come to a diametrically opposite view on the same issue. In view of these authorities, I would follow the majority decision of the Tribunal in the case of Arundathi Investments Ltd. (supra).

8. It may not be out of place to refer to certain observations made by the learned Judicial Member in his order. It is stated by him that the assessee had actually paid interest to the creditors concerned. This observation is not correct. Before me, it is stated by the learned representative of the assessee at the Bar that no interest has been paid to the parties concerned during the relevant accounting period or even thereafter. This statement is acceptable in view of the observation of the Commissioner (Appeals) in paragraph 5 of his order to the effect that 'the assessee did not credit any interest income to the ledger account of any payee; nor did it pay interest in cash'. That apart, if the assessee had actually paid interest in cash or otherwise to the creditors concerned, the present dispute would not have arisen at all. In fact, both the ITO and the Commissioner (Appeals) had proceeded on the premises that since the interest had been credited to the 'interest payable account' and not to the 'payee's account' or not paid by cash or cheque, the assessee was liable to pay interest under Section 201(1A) for infringing the provisions of Section 194A. In these circumstances, I accept the statement of the learned Counsel for the assessee that no interest was actually paid by the assessee to the creditors.

9. In view of the above discussion, I agree with the learned Accountant Member that in view of the Board's circular letter, dated 25-1-1979, the assessee was not liable to deduct tax from the interest payable to the parties concerned under Section 194A and, consequently, the order of the ITO levying interest of Rs. 2,690 on the assessee under Section 201(1A) is not sustainable. The assessee, therefore, deserves to succeed.

10. The case will now go to the Bench concerned for disposal in accordance with the opinion of the majority.


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