Travancore Titanium Products Ltd., Trivandrum V. Assistant Commissioner of Income Tax, Trivandrum

ITA 134/COCH/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 52210 (ITAT-COCHIN)
• Duration Of Justice: 2 year(s) 5 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-08-2011
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 09-08-2011
• Assessment Year: 2000-2001
• Appeal Filed On: 13-03-2009
• Court: TRIBUNAL
• Department Lawyers: S VIJAYAPRABHA
• Assessee Lawyers: V DEVARAJAN CAAR
• Keywords: Recovery proceedings; Double taxation relief; Non-deduction of tax
• Section: 143(3); 234B

Judgement Text

IN THE INCOME TAX APPELLAT E TRIBUNAL COCHIN BEN CH, COCHIN BEFORE S/SHRI N.VIJAYAKUMARAN, JM AND SANJAY AR ORA, AM I.T.A. NOS. 134 & 135/COCH/2009 ASSESSMENT YEARS:2000-01& 2002-03 TRAVANCORE TITANIUM PRODUCTS LTD., KOCHUVELI, TRIVANDRUM-695 021 [PAN: AAACT 8543J] VS. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-1(1), TRIVANDRUM. (ASSESSEE-APPELLANT) (REVENUE- RESPONDENT) ASSESSEE BY SHRI V.DEVARAJAN, CA-AR REVENUE BY MS. S. VIJAYAPRABHA, DR DATE OF HEARING 09/08/2011 DATE OF PRONOUNCEMENT 17/08/2011 O R D E R PER SANJAY ARORA, AM: THESE ARE A SET OF TWO APPEALS BY THE ASSESSEE ARI SING OUT OF THE SEPARATE ORDERS BY THE COMMISSIONER OF INCOME-TAX (APPEALS)-I, TRIV ANDRUM (CIT(A) FOR SHORT) OF EVEN DATE, I.E., 26.12.2008, FOR TWO ASSESSMENT YEA RS, I.E., AY 2000-01 AY AND 2002-03. THE SAME, RAISING A COMMON ISSUE, WERE HEARD TOGETH ER, AND ARE BEING DISPOSED OF BY A COMMON, CONSOLIDATED ORDER. 2. THE ONLY ISSUE PER THE INSTANT APPEALS IS THE VA LIDITY OF THE LEVY OF INTEREST U/S. 234C OF THE INCOME-TAX ACT, 1961 ('THE ACT' HEREINA FTER) BY THE ASSESSING OFFICER (AO), ON THE PROCESSING OF THE ASSESSEES RETURN U/S. 143 (1) OF THE ACT. HERE IT MAY BE RELEVANT TO ADD THAT THE RETURN FOR A.Y.2002-03 WAS SUBSEQUE NTLY SUBJECT TO THE VERIFICATION PROCEDURE U/S. 143(3) OF THE ACT, RETAINING THE INT EREST U/S. 234C AS COMPUTED EARLIER ON PROCESSING, SO THAT THE SAID LEVY WOULD QUALIFY FOR BEING CONSIDERED AS ARISING CONSEQUENT I. T.A. NOS. 134 & 135/COCH/2009 (FOR ASSTT. YRS. 2000-01 & 2002-03) 2 TO THE SAID ORDER. THE ASSESSEE IS A GOVERNMENT OF KERALA UNDERTAKING, ENGAGED IN THE MANUFACTURE OF TITANIUM DIOXIDE. IT RETURNED HEAVY AMOUNTS AS INCOME BY WAY OF INTEREST ON LOANS TO BANKS AND OTHERS. HOWEVER, NO TAX STOOD DEDUCTED AT SOURCE THERE- FROM BY THE LOANEES, SO THAT THE ASSESSEES ACCOUNT STOOD CREDITED IN THEIR ACCOUNTS AND/OR IT PAID AT THE FULL/GROSS AMOUNT OF INTEREST. THE A SSESSEE COMPUTED ITS LIABILITY TOWARD INTEREST U/S. 234C UNDER THE ACT FOR THE RELEVANT Y EARS WITHOUT INCLUDING THE SAID SHORTFALL IN THE AMOUNT OF TDS, I.E., THE TAX NOT DEDUCTED AT SOURCE ON THE SAID INTEREST. THIS WAS AS THE TAX DUE ON THE RETURNED INCOME, IN RESPECT OF T HE SHORTFALL IN WHICH (I.E., WITH REFERENCE TO THE PER CENT RATES PRESCRIBED U/S. 234 C), THE LIABILITY TO INTEREST THERE-UNDER IS TO BE WORKED OUT, PROVIDES FOR RECKONING THE SAME B Y EXCLUDING THE TAX DEDUCTIBLE OR COLLECTIBLE ON THE RETURNED INCOME. THAT IS, `THE T AX DUE ON THE RETURNED INCOME PER THE EXPLANATION TO THE PROVISION IS DEFINED AS THE TAX CHARGEABLE ON THE TOTAL INCOME DECLARED IN THE RETURN FURNISHED AS REDUCED BY, AMONG OTHERS , THE TAX DEDUCTIBLE OR COLLECTIBLE AT SOURCE IN ACCORDANCE WITH THE PROVISIONS OF CHAPTER XVII ON ANY INCOME WHICH IS SUBJECT TO SUCH DEDUCTION OR COLLECTION AND WHICH IS TAKEN INTO ACCOUNT IN COMPUTATION OF SUCH TOTAL INCOME. A NOTE APPENDED TO THE COMPUTATION OF TOTAL INCOME, FORMING PART OF THE RETURN, EXPLAINED THE SAME, I.E., THE MANNER OF COM PUTATION OF INTEREST U/S. 234C BY IT. THE AO, HOWEVER, DID NOT FIND THE SAME AS ACCEPTABL E AS THE INTEREST ON SUCH LOANS HAD BEEN REGULARLY RETURNED BY THE ASSESSEE IN THE PAST , AND ON WHICH NO TAX AT SOURCE WAS BEING DEDUCTED. THE ASSESSEE WAS AS SUCH ONLY WELL AWARE THAT NO TAX IS BEING DEDUCTED OR STANDS DEDUCTED FOR THE CURRENT YEAR/S AS WELL A ND, ACCORDINGLY, OUGHT TO HAVE INCLUDED THE SAME IN THE WORKING OF THE ADVANCE-TAX ON THE R ETURNED INCOME, FOR THE SHORTFALL - WITH REFERENCE TO ITS DEFINED RATIOS, I.E., AT STIP ULATED INTERVALS OF TIME ON THE PROGRESSION OF THE PREVIOUS YEAR - IN WHICH, THE LEVY OF INTERE ST U/S. 234C IS TOWARD. THE SAME WAS CONFIRMED BY THE FIRST APPELLATE AUTHORITY FOR THE SAME REASON, I.E., .THAT THE APPELLANT WAS FULLY AWARE OF THE FACT THAT NO TDS FROM INTEREST W AS BEING DEDUCTED, SO THAT THE SAME OUGHT TO HAVE BEEN TAKEN INTO ACCOUNT WHILE ASSESSI NG THE ADVANCE-TAX PAYABLE BY IT DURING THE YEAR. I. T.A. NOS. 134 & 135/COCH/2009 (FOR ASSTT. YRS. 2000-01 & 2002-03) 3 3. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATERIAL ON RECORD. WHILE THE ASSESSEE RELIES ON THE LANGUAGE OF THE PROVISION, THE REVENU ES CASE IS THAT THE SAME WOULD NOT APPLY IN THE FACTS AND CIRCUMSTANCES OF THE CASE; T HE NON-DEDUCTION OF TAX ON THE IMPUGNED INCOME BEING A REGULAR/CONSTANT FEATURE OR A PART OF THE ACCEPTED PRACTICE BETWEEN THE ASSESSEE AND THE LOANEES, CONTINUING FO R THE CURRENT YEAR/S AS WELL, SO THAT THE ASSESSEE WAS IN THE KNOW THAT IT WOULD HAVE TO PAY THE SAME, BY WAY OF ADVANCE-TAX, AND CONSEQUENTLY, COULD NOT BE ALLOWED TO REDUCE THE SA ME FOR THE PURPOSE OF COMPUTATION OF INTEREST U/S. 234C,I.E., FOR THE DEFERMENT IN THE P AYMENT OF ADVANCE-TAX. 3.1 WE ARE UNABLE TO BE IN AGREEMENT WITH THE R EVENUES STAND. THIS IS FOR THE SIMPLE REASON THAT S. 234C IS A COMPLETE CODE IN ITSELF, P ROVIDING FOR THE BASIS OF THE CHARGE ON A DEFAULT DEFINED THEREBY, I.E., THE DEFERMENT OF ADV ANCE-TAX (DURING THE RELEVANT PREVIOUS YEAR), AS WELL THE MANNER OF ITS COMPUTATION. FIRST LY, SEC. 234C BEING THEREFORE A CHARGING SECTION AS WELL, HAS TO BE STRICTLY CONSTRUED. THE LIABILITY THERE-UNDER IS STRICTLY ON THE BASIS OF THE RETURNED INCOME, I.E., THE TAX DUE THE REON, ALLOWING DUE CREDIT FOR THE TAX DEDUCTIBLE OR COLLECTIBLE AT SOURCE OR IN RESPECT OF WHICH CREDIT IS DUE TO IT ON ACCO UNT OF DOUBLE TAX RELIEF OR UNDER S. 115JAA. THE SAME ALL OWS NO SCOPE FOR ANY ESTIMATION OR ANTICIPATION, EVEN AS IN FACT ARGUED BY THE LD. DR BEFORE US. AS SUCH, WHERE AN INCOME STANDS RETURNED, WHICH IS SUBJECT TO TAX DEDUCTION OR COLLECTION UNDER CHAPTER XVII, THE ASSESSEE HAS TO TREAT THE SAME AS HAVING BEEN DEDUC TED AND PAID, AND CALCULATE THE TAX DUE ON THE RETURNED INCOME ACCORDINGLY. IT MAY BE NOTED THAT THE SAID INTEREST IS ONLY TOWA RD THE DEFERMENT IN THE ADVANCE TAX LIABILITY ARISING DURING (THE CURRENCY OF) THE PREVIOUS YEAR . THE ACTUAL SHORTFALL (IN THE ADVANCE TAX) IS DETE RMINED ONLY ON THE COMPLETION OF THE YEAR, I.E., THE FIRST DAY OF THE ASSESSMENT YEAR, A ND FROM WHICH DATE ONWARDS, THE SAME, I.E., THE SAID SHORTFALL, IS SUBJECT TO INTEREST U/ S. 234B OF THE ACT, AND THE SHORTFALL THEREIN, AGAIN, IN TERMS OF THE EXPLANATION (PER EXPLANATION 1 ) THERE-TO, IS TO BE COMPUTED BY REDUCING THE TAX (ACTUALLY) DEDUCTED OR COLLECTED AT SOURCE . THERE IS AS SUCH NO AMBIGUITY, AND THE PROVISIONS ARE CLEAR. I. T.A. NOS. 134 & 135/COCH/2009 (FOR ASSTT. YRS. 2000-01 & 2002-03) 4 3.2 CONTINUING FURTHER, THE REASON FOR THE APPA RENT DIFFERENCE, I.E., IN THE BASE AMOUNT ON WHICH THE INTEREST U/SS. 234B AND 234C IS TO BE COMPUTED, REFERRED TO THEREIN AS `THE ASSESSED TAX AND `THE TAX DUE ON THE RETURNED INCO ME RESPECTIVELY, HAS A SOUND RATIONALE TO IT. ANY DEFAULT OR DIFFERENCE IN THE PAYMENT OF TDS OR TCS WOULD LEAD TO AN INTEREST LIABILITY IN THE HANDS OF THE PERSON RESPONSIBLE FO R PAYING THE CORRESPONDING INCOME. IT MAY ALSO BE RELEVANT TO STATE THAT S. 194A, PER SUB -SECTION (4) THEREOF, ALLOWS SUCH A PERSON TO ADJUST THE DEDUCTION AND, CONSEQUENTLY, T HE PAYMENT OF TAX DEDUCTED AT SOURCE, ON ACCOUNT OF ANY SHORT OR EXCESS DEDUCTION MADE DU RING THE YEAR. AS SUCH, THE DEDUCTEE IS NOT IN A POSITION TO KNOW TILL THE LAST DAY OF T HE RELEVANT PREVIOUS YEAR IF THE TAX DEDUCTIBLE (OR COLLECTIBLE) WOULD BE RECOUPED AND R EMITTED BY THE DEDUCTOR TO THE CENTRAL GOVERNMENT. TAKE, FOR EXAMPLE, A CASE WHERE THE ENT IRE TDS IS DEDUCED AND DEPOSITED AFTER THE FIRST THREE INSTALMENTS OF ADVANCE-TAX HA VE EXPIRED. THE ASSESSE, GOING BY THE REVENUES STAND, WOULD BE LIABLE TO INTEREST U/S. 2 34C ON THE SAID FIRST THREE INSTALMENTS OF ADVANCE-TAX, WHILE IT IS ONLY THE FOURTH WHEREAT THE TAX DUE ON THE RETURNED INCOME WOULD STAND TO BE REVISED, WHICH IS CLEARLY AN INCONGRUITY INASMUCH AS THE TAX DUE ON THE RETURNED INCOME HAS NECESSARILY TO BE A CONSTANT FI GURE FOR A PARTICULAR YEAR . WHY, IN A PARTICULAR CASE, THE TDS MAY STAND TO BE DEPOSITED (BY THE DEDUCTOR/LOANEE) EVEN AFTER THE LAST INSTALMENT OF ADVANCE-TAX, I.E., THE 15 TH OF MARCH OF THE RELEVANT PREVIOUS YEAR, HAS EXPIRED. EVEN IF, FOR THE SAKE OF ARGUMENT, IT IS PRESUMED THAT THE ASSESSEE HAS BEEN PAID THE ENTIRE INTEREST FOR THE YEAR BEFORE THE SA ID DATE WITHOUT DEDUCTION, SO THAT IT IS KNOWN TO IT THAT THERE HAS BEEN ACTUALLY NO DEDUCTI ON OF TAX AT SOURCE, THE SAME WOULD NOT OPERATE TO ABATE THE LIABILITY TO INTEREST ON THE S HORT (OR NON) DEDUCTION OF TAX AT SOURCE BY THE DEDUCTOR ON SUCH PAYMENT. AGAIN, IT MAY WELL BE , AND PRECISELY FOR THAT REASON, THAT THE DEDUCTOR REMITS THE TDS OUT OF HIS FUNDS, DEBIT ING THE ASSESSEES ACCOUNT WITH IT FOR THE SAME, SO THAT THE SAME WOULD STAND TO BE RECOVE RED SUBSEQUENTLY THERE-FROM. GOING BY THE REVENUES STAND THERE WOULD BE TWO LIABILITI ES TO INTEREST, ONE IN THE HANDS OF THE DEDUCTOR AND THE OTHER IN THE HANDS OF THE DEDUCTEE , OPERATING SIMULTANEOUSLY, I.E., ON THE AMOUNT OF TDS SHORT DEDUCTED DURING THE RELEVANT PR EVIOUS YEAR AN INCONGRUITY AGAIN. TAKE ANOTHER EXAMPLE, TO ILLUSTRATE THE ANOMALY THA T VISITS THE REVENUES CONSTRUCTION. THE ENTIRE INTEREST FOR THE YEAR IS CREDITED TO THE LOANERS ACCOUNT ON THE LAST DAY OF THE I. T.A. NOS. 134 & 135/COCH/2009 (FOR ASSTT. YRS. 2000-01 & 2002-03) 5 PREVIOUS YEAR. THE BORROWER/LOANEE DOES NOT DEDUCT TAX AT SOURCE. THE ASSESSEE, IF THE SAID TDS AMOUNT IS NOT DEDUCTED IN COMPUTING THE BA SE (PRINCIPAL) AMOUNT SUBJECT TO INTEREST U/S. 234C, WOULD BECOME LIABLE THERETO DUR ING THE PREVIOUS YEAR ITSELF, WHILE THE LIABILITY TO PAY THE TDS WOULD ITSELF ARISE ONLY TI LL AFTER THE CLOSE OF THE PREVIOUS YEAR. BESIDES, HOW COULD THE ASSESSEE ANTICIPATE THAT THE BORROWER WOULD NOT DEDUCT OR DEPOSIT THE TDS AMOUNT ? THE MORE FUNDAMENTAL QUESTION THAT ARISES IS: HOW COULD THE LIABILITY OF ONE BE TRANSFERRED TO ANOTHER ? WE ASK SO AS THE SHIFTING OF THE BURDEN OF INTERE ST ON THE SHORTFALL IN THE TDS/TCS CAN ONLY BE ON THE PRE MISE THAT THE LIABILITY IN ITS RESPECT IS OF THE PERSON FROM WHOM THE INTEREST, WHICH ONLY SE EKS TO COMPENSATE FOR THE DELAY IN DISCHARGING THE LIABILITY (W.R.T. THE STATUTORILY D EFINED TIME/S), IS BEING SOUGHT TO BE RECOVERED. THE LIABILITY TO INTEREST, THUS, ON THE AMOUNT OF TDS/TCS DURING THE RELEVANT PREVIOUS YEAR, HAS NECESSARILY TO BE OF THE PERSON ON WHOM THE LAW PLACES THE OBLIGATION TO PAY IT, AND THE KNOWLEDGE OF THE `DEDUCTEE OF NON-DEDUCTIO N IS OF NO SIGNIFICANCE OR RELEVANCE IN DETERMINING THE LIABILITY TOWARD THE S AID TAX AND, CONSEQUENTLY, FOR THE COMPENSATORY INTEREST ON THE DELAYED PAYMENT THEREO F (ALSO REFER PARA # 4 ). 3.3 THE POSITION, HOWEVER, AFTER THE END OF THE R ELEVANT YEAR, IS DIFFERENT. IT WOULD BECOME CLEAR ON THE COMPLETION OF THE YEAR, NOT ON THE BASIS OF ANY PRESUMPTION OR ANTICIPATION, BUT AS A MATTER OF FACT, THAT THE TDS HAS OR HAS NOT BEEN DEDUCTED BY THE PERSON RESPONSIBLE FOR PAYING THE INCOME, SO THAT T HE ASSESSEES LIABILITY TO TAX WOULD HAVE TO BE DETERMINED OR RECKONED BY FACTORING IN T HE SAME. THE LIABILITY TO INTEREST ON THE SHORTFALL, IF ANY, WITH REFERENCE TO THE DEFINE D RATIO (FOR THE WHOLE YEAR), BEGINNING THE FIRST DAY OF THE ASSESSMENT YEAR, WHICH IS U/S. 234B, IS ACCORDINGLY RECKONED ON THE BASIS OF THE TAX (ACTUALLY) DEDUCTED OR COLLECTED DURING THE RELEVANT PREVIOUS YEAR . THIS IS ALSO THE REASON WHY THE HIGHER COURTS OF LAW HAVE SAID T HAT WHERE THE `DEDUCTEE PAYS THE TAX WHICH OUGHT TO HAVE BEEN ACTUALLY DEDUCTED AND PAID BY THE `DEDUCTOR, THE LATTERS LIABILITY TO INTEREST ON THE SAME (SHORT DEDUCTION) COULD EXTEND ONLY UP TO THE DATE UP TO WHICH THE SAID TAX HAS BEEN PAID BY THE DEDUCTEE, W HICH WOULD ALSO OPERATE TO ABATE HIS (DEDUCTORS ) LIABILITY TO TDS/TCS, SO THAT HE COUL D THEREFORE NO LONGER BE CONSIDERED AS AN ASSESSEE IN DEFAULT FOR THE SAID AMOUNT THE LA W ENVISAGING NO DOUBLE RECOVERY OF TAX; I. T.A. NOS. 134 & 135/COCH/2009 (FOR ASSTT. YRS. 2000-01 & 2002-03) 6 TDS/TCS BEING ONLY A MANNER OF RECOVERY OF TAX AND, FURTHER, WHICH IS WITHOUT PREJUDICE TO THE OTHER MODES OF ITS RECOVERY. 4. IN VIEW OF THE FOREGOING, WE, THEREFORE, FI ND NO INFIRMITY IN THE ASSESSEES STAND. THE LAW IS EXPRESSED IN CLEAR, EXPLICIT TERMS, WHIC H HAS TO BE STRICTLY CONSTRUED. AS SUCH, NO LIABILITY FOR INTEREST U/S. 234C, I.E., TOWARD D EFERMENT OF THE ADVANCE TAX LIABILITY, IS ATTRACTED ON THE ASSSESSEE ON THE SHORT DEDUCTION O F TAX AT SOURCE, NOTWITHSTANDING THE FACT THAT IT (ASSESSEE) MAY BE AWARE THAT THE TAX HAS NO T BEEN OR EVEN WOULD NOT BE DEDUCTED AT SOURCE BY THE BORROWER, ON WHOM THE LAW, PER THE TD S PROVISIONS, CASTS THE OBLIGATION FOR DEDUCTION OF TAX AT SOURCE AND ITS CONCOMITANT DEPOSIT. IS THE DEFAULT FOR NON- DEDUCTION OF TAX AT SOURCE, ON WHICH THERE IS NO DI SPUTE, IN ANY MANNER DILUTED OR MITIGATED BY THE SIMILAR NON-DEDUCTION IN THE PAST, I.E., IN VIEW OF IT REPRESENTING A CONTINUING DEFAULT FROM THE PRECEDING YEARS ? CERTAINLY NOT. IF ANYTHING, IT WOULD ONLY GO AGAINST THE `DEDUCTOR WHEREVER A DISCRETION FOR RE LIEF BY INFERRING A BONA FIDE CONDUCT IS APPLICABLE UNDER THE ACT. HOW COULD THEN, IT MAY BE ASKED, THE SAME IN ANY MA NNER OPERATE TO EXPAND THE SCOPE OF SEC. 234C ? THE ASSESSEE-RECIPIENT IS, ACCORDINGLY, ENTITLED TO PRESUME THAT THE ENTIRE TAX DEDUCTIBLE OR COLLEC TIBLE WOULD STAND TO BE SO, AND ESTIMATE HIS LIABILITY TO ADVANCE TAX FOR THE YEAR ON THAT B ASIS. A PRESUMPTION OF A CONDUCT IN CONTRADICTION TO THE MANDATE OF LAW CAN EVEN OTHERW ISE NOT HOLD IN LAW, AND NEITHER DOES THE PROVISION ALLOW ANY SCOPE FOR THE ADMISSION OF SUCH A PRESUMPTION OR EVEN A KNOWLEDGE/INFORMATION AS TO A CONTRARY CONDUCT, WHI CH IS OF NO RELEVANCE OR CONSEQUENCE IN VIEW OF THE CLEAR PROVISIONS OF LAW AND THE SCHE ME OF THE ACT. THE REVENUES CASE IS WITHOUT MERIT, AND THE DECISION PER THE IMPUGNED OR DER/S IS REVERSED. WE DECIDE ACCORDINGLY. I. T.A. NOS. 134 & 135/COCH/2009 (FOR ASSTT. YRS. 2000-01 & 2002-03) 7 5. IN THE RESULT, THE ASSESSEES APPEALS ARE ALLOWE D. SD/- SD/ - (N.VIJAYAKUMARAN) (SANJAY ARORA) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: ERNAKULAM DATED: 17TH AUGUST, 2011 GJ COPY TO: 1. TRAVANCORE TITANIUM PRODUCTS LTD., KOCHUVELI, TR IVANDRUM - 695 021 2. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE -1(1), TRIVANDRUM. 3. THE COMMISSIONER OF INCOME-TAX (APPEALS)-I, TRIV ANDRUM. 4. THE COMMISSIONER OF INCOME-TAX, TRIVANDRUM. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE .