CHANDRAVADAN DHRUV V. MUNICIPAL COMMISSIONER

WPPIL/159/2013

AI Insights

This Public Interest Litigation (PIL) filed by Chandravadan Dhruv, a journalist, against the Municipal Commissioner of Vadodara and others, alleged non-compliance with Section 194-I of the Income Tax Act, 1961, which mandates deduction of tax at source on rent payments. The petitioner argued that the Vadodara Municipal Corporation had failed to deduct TDS on substantial rent payments made to the Gujarat State Land Development Corporation Ltd. from 1998 to 2013. The Municipal Commissioner admitted the oversight but claimed no revenue loss occurred as the recipient had paid taxes on the income. The court found a clear violation of the law and directed the Income Tax Authority to take appropriate action, emphasizing the mandatory nature of tax deduction at source and the responsibility of the tax authority to enforce compliance.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 726717 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 05-09-2014
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: HIGH COURT
• Department Lawyers: MAULIK NANAVATI; H S MUNSHAW
• Assessee Lawyers: PARTY IN PERSON
• Keywords: Income Tax; Interest; Non compliance; Penalty; Public Interest Litigation; TDS
• Section: 201; 194 I; 221

Judgement Text

"C/WPPIL/159/2013 CAV JUDGMENT WPPIL1592013Cj7.doc IN THE HIGH COURT OF GUJARAT AT AHMEDABAD WRIT PETITION (PIL) NO. 159 of 2013 FOR APPROVAL AND SIGNATURE: HONOURABLE THE CHIEF JUSTICE MR. BHASKAR BHATTACHARYA Sd/- HONOURABLE MR.JUSTICE J.B.PARDIWALA Sd/- ========================================== =============== 1 Whether Reporters of Local Papers may be allowed to see the judgment ? Yes 2 T o be referred to the Reporter or not ?` Yes 3 Whether their Lordships wish to see the fair copy of the judgment ? No 4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? No 5 Whether it is to be circulated to the civil judge ? No ========================================== =============== CHANDRAVADAN DHRUV Versus MUNICIPAL COMMISSIONER & ORS. ========================================== =============== Appearance: PARTY-IN-PERSON, PERSONAL CAPACITY for the Applicant(s) No. 1 MR MAULIK G NANAVATI, ADVOCATE for the Opponent(s) No. 1 MR HS MUNSHAW, ADVOCATE for the Opponent(s) No. 2 NOTICE SERVED for the Opponent(s) No. 1 - 3 NOTICE UNSERVED for the Opponent(s) No. 4 GOVERNMENT PLEADER for the Opponent(s) No. 5 CORAM: HONOURABLE THE CHIEF JUSTICE Page 1 of 12 C/WPPIL/159/2013 CAV JUDGMENT MR. BHASKAR BHATTACHARYA and HONOURABLE MR.JUSTICE J.B.PARDIWALA Date : 05/09/2014 CAV JUDGMENT (PER : HONOURABLE THE CHIEF JUSTICE MR. BHASKAR BHATTACHARYA) By this Public Interest Litigation, the petitioner-in-person, a journalist of a Gujarati newspaper, has prayed for direction upon the Income T ax Authority to take appropriate steps, including levy of penalty and interest, upon the respondent No.1/the Municipal Commissioner, Vadodara Municipal Corporation, for non-compliance of the provisions contained in Section 194-I of the Income T ax Act, 1961 for not deducting TDS in respect of making payment of rent to the respondent No.2. 2. According to the petitioner, the Vadodara Municipal Corporation from the year 1994 has been taking bulldozer on rent from the respondent No.2/the Managing Director, Gujarat State Land Development Corporation Ltd. and under the aforesaid heading of ‘rent’, the respondent No.1 has made payment of Rs.4,87,83,300/- during the years 1998 to 2013 to the Gujarat State Land Development Corporation Ltd. but did not care to deduct tax at source, as provided in Section 194-I of the Income T ax Act, 1961. The petitioner contends that for the above violation of mandatory provision of law, the respondent No.1 has become deemed assessee in default within the meaning of Section 201 of the Income T ax Act Page 2 of 12 C/WPPIL/159/2013 CAV JUDGMENT but the Income T ax Authority did not take any step in spite of continuous violation of the mandatory provision at the instance of the respondent No.1. 3. The respondent No.1 has filed affidavit-in-reply thereby asserting that the Municipal Corporation under a bona fide but erroneous impression had not been deducting tax at source, as required under Section 194-I of the Act, at the time when it credited the amount of rent in the account of the Gujarat State Land Development Corporation Ltd. for the assessment years up to 2012- 13. The respondent No.1, however, claimed that to the best of information available with the Corporation, the payee of the amount, namely, the Gujarat State Land Development Corporation Ltd., has been paying income tax at the prescribed rate on the entire amount received by it from the Corporation and thus, there has been no loss of revenue to the Department. It is further asserted that income tax returns of the Corporation for the previous years have already been assessed by the Income T ax Authority and no notice has been served upon the Corporation for default in payment of the tax at source on payment of advance rent to the Gujarat State Land Development Corporation Ltd., presumably because of the revenue neutrality of the transaction. The further case of the respondent No.1 is that on becoming aware of the correct position of law, the Corporation has taken immediate corrective steps and is now deducting tax at source on payment of rent being made by it to the Gujarat State Land Page 3 of 12 C/WPPIL/159/2013 CAV JUDGMENT Development Corporation Ltd. The respondent No.1 has further assured this Court that the Corporation would henceforth deduct tax at source, as required under Section 194-I of the Income T ax Act on the rent paid by it for hiring of bulldozers from the Gujarat State Land Development Corporation Ltd. and would deposit the same in accordance with law. 4. The respondent No.2 has filed separate affidavit and has contended that the rent received by the respondent No.2 from the Corporation/the respondent No.1 has all been shown in the income tax returns filed by the respondent No.2 and there was also no default on the part of the respondent No.2 in paying income tax. The respondent No.2 has further stated that the respondent No.1 has started to deduct TDS from the payment made for the rent of bulldozers from 20th December 2013, although it has not deducted any TDS during the years 2001 to 2012 from payment made for the rent of bulldozers. 5. In spite of service of notice, curiously, the Income T ax Authority has not entered appearance and submitted its version for not taking any step against the respondent No.1 in spite of violation of the provisions contained in Section 194-I of the Income T ax Act. 6. The petitioner-in-person, therefore, prays that there being admitted non-compliance of the provisions contained in Section 194-I Page 4 of 12 C/WPPIL/159/2013 CAV JUDGMENT of the Act, we should pass direction upon the Income T ax Authority for taking appropriate step in accordance with law against the respondent No.1. 7. Mr Nanavati, the learned advocate appearing on behalf of the respondent No.1 has, however, opposed the aforesaid contention of the petitioner-in-person and has contended that the initiation of proceedings for the default committed earlier except last few years have already become time-barred even by virtue of the provisions of the Income T ax Act (‘Act”) and thus, this Court should not pass any direction for reviving the barred liability of his client. Mr Nanavati further contends that it is true that his client committed mistake through ignorance of law but the moment it has obtained notice of this application, immediately it has rectified its mistake and thereafter, started deducting TDS. According to Mr Nanavati, the prayer made by the petitioner cannot be said to be in public interest inasmuch as for the inaction on the part of his client, the nation has not has suffered any revenue loss. Mr Nanavati, therefore, prays for dismissal of this application. 8. Before considering the respective submissions of the learned counsel for the parties, it would be appropriate to refer to the provisions contained in Sections 194-I, 201 and 221 of the Act as it stands, which are quoted below :- “Rent. Page 5 of 12 C/WPPIL/159/2013 CAV JUDGMENT 194-I. Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any income by way of rent, shall, 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 the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of – (a) two per cent for the use of any machinery of plant or equipment; and (b) ten per cent for the use of any land or building (including factory building) or land appurtenant to a building (including factory building) or furniture or fittings: Provided that no deduction shall be made under this section where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year by the aforesaid person to the account of, or to, the payee, does not exceed one hundred and eighty thousand rupees : Provided further that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such income by way of rent is credited or paid, shall be liable to deduct income-tax under this section. Explanation – For the purposes of this section, - (i) “rent” means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of (either separately or together) any, - Page 6 of 12 C/WPPIL/159/2013 CAV JUDGMENT (a) land; or (b) building (including factory building); or (c) land appurtenant to a building (including factory building); or (d) machinery; or (e) plant; or (f) equipment; or (g) furniture; or (h) fittings, whether or not any or all of the above are owned by the payee; (ii) where any income is credited to any account, whether called “Suspense account” or by any other name in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.” Consequences of failure to deduct or pay. 201. (1) Where any person, including the principal officer of a company, - (a) who is required to deduct any sum in accordance with the provisions of this Act; or (b) referred to in sub-section (1A) of section 192, being an employer, does not deduct, or does not pay, or after so deducting fails to pay, the whole or any part of the tax, as required by or under this Act, then, such person, shall, without prejudice to any other consequences which he may incur, be deemed to be an assessee in default in respect of such tax: Provided that any person, including the principal officer of a company, who fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the Page 7 of 12 C/WPPIL/159/2013 CAV JUDGMENT sum paid to a resident or on the sum credited to the account of a resident shall not be deemed to be an assessee in default in respect of such tax if such resident – (i) has furnished his return of income under section 139; (ii) has taken into account such sum for computing income in such return of income; and (iii) has paid the tax due on the income declared by him in such return of income, and the person furnishes a certificate to this effect from an accountant in such form as may be prescribed. Provided further that no penalty shall be charged under section 221 from such person, unless the Assessing Officer is satisfied that such person, without good and sufficient reasons, has failed to deduct and pay such 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 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 be liable to pay simple interest, - (i) at one per cent for every month or part of a month on the amount of such tax from the date on which such tax was deductible to the date on which such tax is deducted; and (ii) at one and one-half per cent for every month or part of a month on the amount of such tax from the date on which such tax was deducted to the date on which such tax is actually paid, and such interest shall be paid before furnishing the statement in accordance with the provisions of sub-section (3) of section 200: Page 8 of 12 C/WPPIL/159/2013 CAV JUDGMENT Provided that in case any person, including the principal officer of a company fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid to a resident or on the sum credited to the account of a resident but is not deemed to be an assessee in default under the first proviso to sub-section (1), the interest under clause (i) shall be payable from the date on which such tax was deductible to the date of furnishing of return of income by such resident.” “Penalty payable when tax in default. 221. (1) When an assessee is in default or is deemed to be in default in making a payment of tax, he shall, in addition to the amount of the arrears and the amount of interest payable under sub-section (2) of section 220, be liable, by way of penalty, to pay such amount as the Assessing Officer may direct, and in the case of a continuing default, such further amount or amounts as the Assessing Officer may, from time to time, direct, so, however, that the total amount of penalty does not exceed the amount of tax in arrears : Provided that before levying any such penalty, the assessee shall be given a reasonable opportunity of being heard : Provided further that where the assessee proves to the satisfaction of the Assessing Officer that the default was for good and sufficient reasons, no penalty shall be levied under this section. Explanation. – For the removal of doubt, it is hereby declared that an assessee shall not cease to be liable to any penalty under this sub-section merely by reason of the fact that before the levy of such penalty he has paid the tax. Page 9 of 12 C/WPPIL/159/2013 CAV JUDGMENT (2) Where as a result of any final order the amount of tax, with respect to the default in the payment of which the penalty was levied, has been wholly reduced, the penalty levied shall be cancelled and the amount of penalty paid shall be refunded.” 9. After hearing the learned counsel for the parties and after going through the materials on record, we find that admittedly there has been violation of the provisions contained in Section 194-I of the Act and as a consequence for not deducting tax at source, the respondent No.1 should not only be deemed to be an assessee in default in respect of such tax which has not been deducted but, at the same time, has also made itself liable to pay interest as provided in Section 201(1A) of the Act. 10. It is true that so far as the penalty under Section 221 of the Act is concerned, it is for the appropriate authority to decide whether there was good and sufficient reason for not deducting tax at source. 11. We are surprised to find that the Income T ax Authority in spite of service of notice has not come forward to disclose why it has not taken any step whatsoever against the respondent No.1. We find substance in the contention of the petitioner-in-person that having regard to the mandatory nature of the language used in Section 201 Page 10 of 12 C/WPPIL/159/2013 CAV JUDGMENT of the Act, it was the duty of the Income T ax Authority to take step against the respondent No.1 notwithstanding the fact that the respondent No.2 has paid appropriate amount of tax in due course. 12. We, however, do not find substance in the contention of the petitioner-in-person that in this Public Interest Litigation, we should pass direct order upon the Income T ax Authority to impose penalty inasmuch as the question of issue of penalty depends upon the finding of the Assessing Officer as to want of good faith or other sufficient cause but the fact remains that in this case, the Income T ax Authority has refused to exercise jurisdiction vested in it by law by taking no action against the Corporation/the respondent No.1 in spite of knowledge that there has not been deduction of the tax at source as provided in Section 194 I of the Act. In view of such fact, we direct the Income T ax Authority to take immediate step against the respondent No.1 as for inaction on the part of the Corporation it has brought itself to the position of a deemed assessee in default. It has also appeared that no interest as provided in Section 201(1A) of the Act has yet been paid by the respondent No.1. Therefore, there has been definite loss of revenue for the inaction on the part of the Municipal Authority as well as the Income T ax Authority. 13. We, therefore, dispose of this application by directing the Income T ax Authority to take note of the aforesaid default brought to our notice by the petitioner-in-person and to proceed in accordance Page 11 of 12 C/WPPIL/159/2013 CAV JUDGMENT with law. We make it clear that we have otherwise not gone into the question whether as to what extent the initiation of proceeding is barred by law of limitation or as to whether in this case the penal provision should be invoked against the respondent No.1 and it is for the Income T ax Authority to take appropriate decision in accordance with law. It is also needless to mention that the respondent No.1 will have all the defences in such proceeding which are available under law. The Income T ax Authority is directed to initiate appropriate step within a fortnight from the date of communication of this order in accordance with law. No order as to costs. sd/- (BHASKAR BHATTACHARYA, CJ.) sd/- (J.B.PARDIWALA, J.) mathew Page 12 of 12 "