Thomas John Muthoot, Kozhencherry V. DCIT, Kottayam

ITA 393/COCH/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64855 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 4 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-10-2012
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 18-05-2011
• Court: TRIBUNAL
• Department Lawyers: SREENIVASU KOLLIPAKA
• Section: 244A; 234B; 201(1); 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND B.R.BASKAR AN, AM I.T.A. NOS. 383,384 & 386 /COCH/2011 ASSESSMENT YEARS: 2007-08, 2006-07 & 2005-06 MR.THOMAS MUTHOOT, MUTHOOT HOUSE, KOZHENCHERRY. [PAN:AEAPM 0424L] VS. THE DEPUTY COMMISSIONER OF INCOME TAX, TDS, KOTTAYAM. (ASSESSEE -APPELLANT) (REVENUE-R ESPONDENT) I.T.A. NOS. 390,392,393 & 394/COCH/2011 ASSESSMENT YEARS: 2005-06-2008-09 MR.THOMAS JOHN MUTHOOT, MUTHOOT HOUSE, KOZHENCHERRY. [PAN:ABNPT 4694B] VS. THE DEPUTY COMMISSIONER OF INCOME TAX, TDS, KOTTAYAM. (ASSESSEE -APPELLANT) (REVENUE-R ESPONDENT) I.T.A. NOS. 387-389/COCH/2011 ASSESSMENT YEARS: 2005-06 -2007-08 MR.THOMAS GEORGE MUTHOOT, MUTHOOT HOUSE, KOZHENCHERRY. [PAN:ABNPT 4693G] VS. THE DEPUTY COMMISSIONER OF INCOME TAX, TDS, KOTTAYAM. (ASSESSEE -APPELLANT) (REVENUE-R ESPONDENT) ASSESSEE BY SHRI R.SREENIVASAN, FCA REVENUE BY SHRI SREENIVASU KOLLIPAKA, JR. DR DATE OF HEARING 10/09/2012 DATE OF PRONOUNCEMENT 12/10/2012 I.T.A. NOS.383 ETC./COCH/2011 THOMAS MUTHOOT 2 O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: IN ALL THESE APPEALS FILED BY THE RESPECTIVE A SSESSEES, IDENTICAL ISSUES ARE URGED, VIZ., WHETHER THE LD CIT(A) IS JUSTIFIED IN UPHOLDI NG THE PENALTY AND INTEREST LEVIED U/S 201(1) AND 201(1A) OF THE ACT RESPECTIVELY. HENCE THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER, FOR THE SAKE OF CONVENIENCE. 2. THE FACTS SURROUNDING THE SAID ISSUES ARE AL SO IDENTICAL IN NATURE IN ALL THE APPEALS. THESE ASSESSEES ARE ASSESSED TO TAX IN THE STATUS O F INDIVIDUAL. THEY ARE ALSO PARTNERS IN VARIOUS PARTNERSHIP FIRMS. THE GROSS RECEIPTS I N THE HANDS OF EACH OF THE ASSESSEES HAVE EXCEEDED THE MONETARY LIMITS PRESCRIBED U/S 44 AB OF THE ACT AND HENCE THEIR ACCOUNT BOOKS HAVE BEEN SUBJECTED TO TAX AUDIT AS P ER THAT PROVISION. HENCE THE PROVISIONS OF SEC. 194A RELATING TO TAX DEDUCTION A T SOURCE ON THE INTEREST PAYMENTS ARE APPLICABLE TO THEM, I.E., THEY ARE LIABLE TO DEDUCT TAX AT SOURCE ON INTEREST PAYMENTS MADE BY THEM AS PER THE PROVISIONS OF SEC. 194A OF THE ACT DURING THE YEARS UNDER CONSIDERATION. THERE IS NO DISPUTE WITH REGARD TO THIS FACTUAL POSITION. 3. THESE ASSESSEES BORROWED MONEY FROM THE PART NERSHIP FIRMS IN WHICH THEY ARE PARTNERS AND ALSO PAID INTEREST TO THE SAID FIRMS. THE DEPUTY COMMISSIONER OF INCOME TAX (TDS) NOTICED THAT THE ASSESSEE DID NOT DEDUCT TAX AT SOURCE, AS PER THE PROVISIONS OF SEC. 194A OF THE ACT, ON THE INTEREST SO PAID TO THE PARTNERSHIP FIRMS. AFTER HEARING THE ASSESSEES, THE DCIT (TDS) LEVIED PENALTY U/S 20 1(1) OF THE ACT EQUIVALENT TO THE AMOUNT OF TDS LIABILITY AND ALSO LEVIED INTEREST U/ S 201(1A) OF THE ACT FOR THE PERIOD FROM THE CLOSING OF THE RELEVANT FINANCIAL YEAR TO 31.5.2009 FOR ALL THE YEARS. IN SUPPORT OF HIS DECISION TO LEVY PENALTY U/S 201(1) OF THE A CT, THE DCIT(TDS) PLACED RELIANCE ON THE DECISION OF HONBLE MADRAS HIGH COURT IN THE CA SE OF CIT VS. RAMESH ENTERPRISES (250 ITR 464). I.T.A. NOS.383 ETC./COCH/2011 THOMAS MUTHOOT 3 4. ALL THESE ASSESSEES CHALLENGED THE SAID ORDER S PASSED BY THE DCIT(TDS) IN ALL THE YEARS BY FILING APPEALS BEFORE LD CIT(A), WHO CONFI RMED THE PENALTIES LEVIED IN ALL THE CASES BY PLACING RELIANCE ON THE DECISION OF HONBL E MADRAS HIGH COURT, REFERRED SUPRA. THE OBSERVATIONS MADE BY LD CIT(A) IN THE CASE OF S HRI THOMAS MUTHOOT IS EXTRACTED BELOW:- I, THEREFORE, HOLD THE VIEW THAT THE OBLIGATION TO DEDUCT TAX IS IMPOSED WITH A VIEW TO ENSURE THAT ON AN INTEREST PAYMENT MADE IN RESPECT OF WHICH TAX IS REQUIRED TO BE DEDUCTED AT SOURCE, THE STATE PROMPT LY RECEIVES THE AMOUNT SO REQUIRED TO BE DEDUCTED AND THEREFORE THE APPELLANT S CONTENTION THAT THE FIRM HAS SHOWN INCOME AND PAID TAX ON SUCH INCOME DOES N OT ABSOLVE THE APPELLANT FROM THE RESPONSIBILITY OF DEDUCTING AND DEPOSITING THE TAX IMMEDIATELY TO THE GOVERNMENT ACCOUNT. IN THIS CASE THE APPELLANT FAI LED TO DISCHARGE THE OBLIGATION CAST UPON HIM BY THE INCOME TAX ACT. THE LD CIT(A) CONFIRMED THE INTEREST LEVIED U/S 201 (1A) OF THE ACT BY PLACING RELIANCE ON THE FOLLOWING CASE LAW:- (A) HINDUSTAN COCA-COLA BEVERAGE VS CIT (SC) (293 ITR 2 26) (B) CIT VS. DHANALAKSHMY WEAVING WORKS (KER) (245 ITR 1 3) (C) CIT VS. PREMNATH MOTORS (DEL) (253 ITR 705) (D) PENTAGON ENGG. (P) LTD VS. CIT (MUM) (212 ITR 92) (E) JUBILEE INVESTMENTS & INDUSTRIES LTD VS. ACIT (KOL )(238 ITR 648). AGGRIEVED BY THE ORDERS PASSED BY LD CIT(A), ALL TH ESE ASSESSEES ARE IN APPEAL BEFORE US FOR THE YEARS MENTIONED IN THE CAPTION, SUPRA. 5. THE LD. COUNSEL FOR THE ASSESSEE SHRI R.SREE NIVASAN, CHARTERED ACCOUNTANT SUBMITTED THAT THESE ASSESSEES HAVE BORROWED ONLY F ROM THE PARTNERSHIP FIRMS IN WHICH THEY ARE PARTNERS, BY WAY OF MAKING OVER DRAWINGS F ROM THEIR RESPECTIVE CAPITAL ACCOUNTS. HENCE, THESE ASSESSEES HAVE PAID INTERES T ON THE DEBIT BALANCE OF THEIR RESPECTIVE CAPITAL. HE FURTHER SUBMITTED THAT THE PARTNERS AND THE FIRM ARE ONE AND SAME PERSON UNDER THE PARTNERSHIP ACT, I.E., UNDE R THE SAID ACT, THE FIRM IS DESCRIBED AS COMPENDIUM OF PARTNERS. THEY ARE INDIVIDUALLY K NOWN AS PARTNER AND COLLECTIVELY KNOWN AS FIRM. HENCE THE TRANSACTION BETWEEN THE PARTNERSHIP FIRM AND THE PARTNERS SHOULD BE CONSIDERED AS TRANSACTION WITH SELF. UND ER THE INCOME TAX ACT, A PARTNERSHIP FIRM IS CONSIDERED AS A SEPARATE ENTITY FOR THE LIM ITED PURPOSES OF COLLECTION OF TAX. THE I.T.A. NOS.383 ETC./COCH/2011 THOMAS MUTHOOT 4 PROVISIONS OF INCOME TAX ACT CANNOT ALTER THE LEGAL RELATIONSHIP BETWEEN THE PARTNERS AND FIRM AS PRESCRIBED IN THE PARTNERSHIP ACT. 6. THE LD A.R FURTHER SUBMITTED THAT THE INCOME TAX ACT WAS AMENDED BY THE FINANCE ACT, 1992 BY BRINGING DRASTIC CHANGE IN THE METHOD OF TAXATION OF PARTNERSHIP FIRMS, WHICH ENABLED A FIRM TO CLAIM THE INTEREST P AID TO ITS PARTNERS AS EXPENDITURE. PRIOR TO THE SAID AMENDMENT, THE INTEREST PAYABLE B Y A PARTNERSHIP FIRM TO THE PARTNERS IS NOT AN ALLOWABLE EXPENDITURE IN THE HANDS OF THE FIRM. THOUGH, UNDER THE CURRENT PROVISIONS OF THE ACT, THE INTEREST PAYABLE BY A FI RM TO ITS PARTNERS IS ALLOWABLE AS EXPENDITURE; YET THE PARTNERSHIP FIRM IS NOT LIABLE TO DEDUCT TAX AT SOURCE U/S 194A OF THE ACT ON SUCH INTEREST PAYMENT, IN VIEW OF THE EX EMPTION PROVIDED IN CLAUSE (IV) OF SUB SECTION (3) OF SECTION 194A OF THE ACT. THE LE GISLATURE HAS PROVIDED THE SAID EXEMPTION BY CONSIDERING THE LEGAL RELATIONSHIP BET WEEN THE PARTNERSHIP FIRM AND THE PARTNERS, I.E., THEY ARE ONE AND THE SAME. THE LD A.R CONTENDED THAT THE SAID LEGAL RELATIONSHIP DOES NOT UNDERGO ANY CHANGE IF A PARTN ER PAYS INTEREST TO HIS PARTNERSHIP FIRM. HENCE, BY CONSIDERING THE LEGAL RELATIONSHI P BETWEEN A PARTNER AND PARTNERSHIP FIRM, IT IS QUITE LOGICAL TO HOLD THAT THE PROVISIO NS OF SEC. 194A SHALL NOT BE ATTRACTED TO THE INTEREST PAID BY A PARTNER TO HIS PARTNERSHIP F IRM ALSO. ACCORDINGLY HE CONTENDED THAT THE ASSESSEES ARE NOT LIABLE TO DEDUCT TAX AT SOURCE U/S 194A OF THE ACT ON THE INTEREST PAID BY THEM TO THE PARTNERSHIP FIRMS IN W HICH THEY ARE PARTNERS. 7. THE LD A.R FURTHER SUBMITTED THAT ALL THE PA RTNERSHIP FIRMS TO WHOM THE INTEREST WERE PAID BY THESE ASSESSEES HAVE DULY ACCOUNTED FO R THE INTEREST RECEIPTS IN THEIR INCOME STATEMENT AND ALL THE PARTNERSHIP FIRMS HAVE ALSO FILED THEIR RESPECTIVE RETURNS OF INCOME FOR THE YEARS UNDER CONSIDERATION. THE LD A.R SUBMITTED THAT THE PENALTY U/S 201(1) IS NOT LEVIEBLE, IF THE PAYEE HAS ACCOUNTED FOR INTEREST RECEIPTS AND PAID TAX THEREON. IN THIS REGARD, HE PLACED RELIANCE ON THE INSTRUCTION NO.275/201/95-IT(B) DATED 29-01-1997 ISSUED BY CBDT, WHERE IN IT IS STA TED THAT NO DEMAND VISUALIZED UNDER SECTION 201(1) OF THE INCOME TAX ACT SHOULD B E ENFORCED AFTER THE TAX DEDUCTOR HAS SATISFIED THE OFFICER IN CHARGE OF TDS THAT TAX ES DUE HAVE BEEN PAID BY THE DEDUCTEE-ASSESSEE. THE LD A.R FURTHER SUBMITTED TH AT THE PARTNERSHIP FIRMS HAVE I.T.A. NOS.383 ETC./COCH/2011 THOMAS MUTHOOT 5 INCURRED LOSSES IN SOME OF THE YEARS EVEN AFTER INC LUDING THE INTEREST PAID BY THE PARTNERS AND HENCE THERE WAS NO TAX LIABILITY ON AC COUNT OF LOSSES. HOWEVER, BY CONSIDERING THE FACT THAT THE INTEREST PAID BY THE PARTNERS HAS ALREADY BEEN INCLUDED IN THEIR INCOME, IT SHOULD BE DEEMED THAT THE TAXES DU E ON THE SAID INTEREST RECEIPTS HAVE BEEN PAID. THE LD A.R FURTHER SUBMITTED THAT THE A BOVE SAID CIRCULAR ISSUED BY THE CBDT WAS CONSIDERED BY THE HONBLE SUPREME COURT IN THE CASE OF HINDUSTAN COCA-COLA BEVERAGES (P) LTD (293 ITR 226) AND THE HONBLE APE X COURT HAS APPROVED THE SAID CIRCULAR. ACCORDINGLY THE LD A.R SUBMITTED THAT TH E PENALTIES LEVIED BY THE AO U/S 201(1) OF THE ACT IN ALL THESE CASES ARE LIABLE TO BE DELETED. 8. WITH REGARD TO THE INTEREST LEVIED U/S 201(1 A) OF THE ACT, THE LD A.R SUBMITTED THAT THE SAME IS NOT CHARGEABLE IF THE RELATIONSHIP BETWEEN THE PARTNERS AND THE PARTNERSHIP FIRMS UNDER THE PARTNERSHIP ACT IS TAKE N INTO ACCOUNT. HE FURTHER SUBMITTED THAT THE DCIT (TDS) HAS CHARGED INTEREST FOR A PERI OD BEGINNING FROM THE CLOSURE OF THE RELEVANT FINANCIAL YEAR TO 31.5.2009 IN ALL THE CAS ES, WHICH GOES AGAINST THE RATIO OF THE DECISION RENDERED BY THE HONBLE SUPREME COURT IN T HE CASE OF HINDUSTAN COCA-COLA BEVERAGES (P) LTD, REFERRED SUPRA. IN THAT CASE, T HE HONBLE SUPREME COURT HAS HELD THAT THE INTEREST U/S 201(1A) OF THE ACT IS CHARGEA BLE TILL THE DATE OF PAYMENT OF TAXES BY THE DEDUCTEE-ASSESSEE. WITHOUT PREJUDICE TO HIS SUBSEQUENT CONTENTIONS, HE SUBMITTED THAT THE INTEREST U/S 201(1A), IF AT ALL CHARGEABLE, SHOULD BE CHARGED ONLY UP TO THE DATE OF FILING RETURN OF INCOME FOR RESPECTI VE YEARS BY THE RESPECTIVE PARTNERSHIP FIRMS. 9. THE LD A.R CONTENDED THAT THE ASSESSEES HERE IN ARE NOT LIABLE TO PAY INTEREST U/S 201(1A) OF THE ACT IN THE CASES WHERE THE CONCERNED PARTNERSHIP FIRMS HAVE INCURRED LOSSES AND IN SUPPORT OF THE SAID CONTENTION, THE L D A.R ADVANCED FOLLOWING ARGUMENTS. INTEREST CHARGEABLE U/S 201(1A) IS COMPENSATORY IN NATURE, I.E., THE GOVERNMENT IS ENTITLED TO INTEREST FOR THE PERIOD D URING WHICH THE TAX, WHICH IS THE MONEY BELONGING TO THE GOVERNMENT, WAS WITHHELD BY THE ASSESSEE. THIS LOGIC/RATIO IS TRUE IF THE DEDUCTEE-ASSESSEE IS LIA BLE TO PAY INCOME TAX. HOWEVER, IN THE INSTANT CASES, THE PARTNERSHIP FIRMS HAVE IN CURRED LOSSES AND HENCE THERE I.T.A. NOS.383 ETC./COCH/2011 THOMAS MUTHOOT 6 IS NO LIABILITY TO PAY TAX TO THE GOVERNMENT, IN WH ICH CASE, IT CANNOT BE SAID THAT THE TAXES DUE TO THE GOVERNMENT WAS WITHHELD BY THE SE ASSESSEES. EVEN IF TAX HAD BEEN DEDUCTED FROM THE IMPUGNED INTEREST PAYMEN TS, THE GOVERNMENT HAS TO REFUND THE ENTIRE AMOUNT OF TDS ALONG WITH INTER EST TO THE PARTNERSHIP FIRMS, SINCE THEY HAVE INCURRED LOSSES. HENCE, IN THIS KIN D OF SITUATIONS, THE QUESTION OF COMPENSATION SHALL NOT ARISE AND IN THAT CASE, THE QUESTION OF PAYMENT OF INTEREST U/S 201(1A) SHALL ALSO NOT ARISE. 10. IN THE ALTERNATIVE, THE LD A.R SUBMITTED TH AT IT IS A SETTLED PRINCIPLE THAT TAX CANNOT BE LEVIED IF THE COMPUTATION PROVISION FAILS . IN THE CASE OF MUNAK INVESTMENT (PVT) LTD (55 ITD 429 (CHD.)) IT WAS HELD THAT THE INTEREST U/S 201(1A) IS NOT LEVIABLE, SINCE IT IS INCAPABLE OF COMPUTATION IN THE ABSENCE OF THE DATE OF PAYMENT OF TDS. THE SAID DECISION WAS FOLLOWED IN THE CASE OF K.V.S CAT ERERS (ITA NO.7514 & 7515/M/2004) BY THE MUMBAI BENCH OF ITAT. THE INTEREST U/S 201( 1A) IS CHARGEABLE FOR THE PERIOD FROM THE DATE ON WHICH SUCH TAX WAS DEDUCTIBLE TO T HE DATE ON WHICH SUCH TAX IS ACTUALLY PAID. THE LD A.R SUBMITTED THAT THE DATE OF DEDUCTION/PAYMENT OF TDS IS NOT KNOWN IN THE INSTANT CASES, AS THE ASSESSEES HAVE F AILED TO DEDUCT TDS ASSESSEES AND HENCE THE COMPUTATION PROVISION FAILS. 11. ON THE OTHER HAND, THE LD JR. D.R SHRI SREEN IVASU KOLLIPAKA STRONGLY DEFENDED THE ORDERS PASSED BY LD CIT(A). HE SUBMITTED THE D EDUCTION OF TAX AT SOURCE IS ONE OF THE MODES OF RECOVERIES UNDER THE INCOME TAX ACT AN D HENCE THE TDS PROVISIONS CANNOT BE CONSIDERED AS LEADING TO DOUBLE TAXATION. HE SU BMITTED THAT THE INCOME TAX ACT PROVIDES EXEMPTION FROM TDS PROVISIONS ONLY IN RESP ECT OF INTEREST PAID OR CREDITED BY FIRM TO ITS PARTNERS. HOWEVER, SUCH AN EXEMPTION I S NOT GIVEN TO THE INTEREST PAID/CREDITED BY A PARTNER TO HIS FIRM. HE SUBMITT ED THAT THE INCOME TAX ACT, BEING A TAXING STATUTE, SHOULD BE SUBJECTED TO STRICT INTER PRETATION AND HENCE ONE CANNOT ASSUME OR SUPPLY SOME THING WHICH WAS NOT PROVIDED IN THE ACT. HE FURTHER SUBMITTED THAT THE INCOME TAX ACT RECOGNIZES A PARTNERSHIP FI RM AS A SEPARATE ENTITY AND FURTHER, THE ACT CONSIDERS A PARTNER AND A FIRM AS A DIFFERE NT PERSON, BY DISREGARDING THE NATURE OF RELATIONSHIP BETWEEN THEM UNDER THE PARTNERSHIP ACT. SINCE THE NATURE OF I.T.A. NOS.383 ETC./COCH/2011 THOMAS MUTHOOT 7 RELATIONSHIP HAS BEEN DISREGARDED UNDER THE INCOME TAX ACT, IT WOULD NOT BE CORRECT TO APPLY IT IN PART THAT TOO ONLY FOR TDS PROVISIONS, TO SUIT THE CONVENIENCE OF TAX PAYER AND TO DISREGARD THE SAME FOR OTHER PROVISIONS OF T HE ACT. HE FURTHER SUBMITTED THAT THE ASSESSEES HEREIN HAVE FAILED TO DEDUCT TAX AT S OURCE ON THE INTEREST PAID BY THEM TO THE PARTNERSHIP FIRMS AND HENCE THEY ARE LIABLE TO PAY PENALTY U/S 201(1) OF THE ACT AS WELL AS THE INTEREST U/S 201(1A) OF THE ACT. HE FU RTHER SUBMITTED THAT THE DECISION OF HONBLE MADRAS HIGH COURT APTLY APPLIES TO THE FACT S OF THE INSTANT CASES, SINCE THE PARTNERSHIP FIRMS HAVE NOT PAID TAXES. WITH REGARD TO THE PERIOD FOR WHICH THE INTEREST IS TO BE CHARGED, THE LD D.R SUBMITTED THE TAX AUTH ORITIES ARE CORRECT IN COMPUTING INTEREST UP TO 31.5.2009 AS THE DEFAULT WAS NOTICED ONLY BY THAT DATE AND THE ASSESSEES HAVE ALSO NOT DEDUCTED TAX AT SOURCE BY THAT TIME. 12. WE HAVE HEARD THE RIVAL CONTENTIONS AND CAR EFULLY PERUSED THE RECORD. THE LD A.R HAS CONTENDED THAT THE POSITION OF LEGAL RELATI ONSHIP BETWEEN THE PARTNERS AND THE PARTNERSHIP FIRMS AS PREVAILING UNDER THE PARTNERSH IP ACT SHOULD BE APPLIED FOR THE PURPOSES OF SEC. 194A OF THE ACT ALSO. HOWEVER, W E ARE CONVINCED WITH THE CONTENTIONS PUT FORTH BY LD D.R. THAT THE INCOME TA X ACT, BEING TAXING STATUTE, SHOULD BE SUBJECTED TO STRICT INTERPRETATION. THERE CANNO T BE ANY DISPUTE THAT THE INCOME TAX ACT RECOGNIZES A PARTNER AND A PARTNERSHIP FIRM AS DIFFERENT PERSON, DESPITE THE LEGAL POSITION OF RELATIONSHIP BETWEEN THEM AS PREVAILING UNDER THE PARTNERSHIP ACT. FURTHER SEC. 194A PROVIDES EXEMPTION FROM THE OBLIGATION I MPOSED UNDER THAT SECTION ONLY IN RESPECT OF INTEREST PAID/CREDITED BY A FIRM TO ITS PARTNER. THE ACT DOES NOT PROVIDE SUCH EXEMPTION TO THE INTEREST PAID/CREDITED BY A PARTNE R TO HIS FIRM. IN THE ABSENCE OF ANY PROVISION TO PROVIDE FOR SUCH EXEMPTION AND FURTHER BY CONSIDERING THE FACT THAT THE ACT TREATS A PARTNER AND A FIRM AS DIFFERENT PERSON, WE ARE OF THE VIEW THAT THE POSITION OF LEGAL RELATIONSHIP BETWEEN A PARTNER AND HIS FIRM L OOSES ITS IMPORTANCE/SIGNIFICANCE UNDER THE INCOME TAX ACT. ACCORDINGLY, WE ARE OF T HE VIEW THAT THE SAID POSITION OF LEGAL RELATIONSHIP AS PREVAILING UNDER THE PARTNERS HIP ACT SHOULD NOT BE APPLIED IN ABSTRACT, ONLY TO THE PROVISIONS OF SEC. 194A OF TH E ACT. ACCORDINGLY, WE REJECT ALL THE CONTENTIONS RAISED BY THE ASSESSEE IN THIS REGARD. I.T.A. NOS.383 ETC./COCH/2011 THOMAS MUTHOOT 8 13. NOW WE SHALL TAKE UP THE ISSUE RELATING TO THE LEVY OF PENALTY U/S 201(1) OF THE ACT. THE TAX AUTHORITIES HAVE PLACED RELIANCE ON T HE DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF RAMESH ENTERPRISES, REFERRED SU PRA, IN IMPOSING PENALTY U/S 201(1) OF THE ACT. IN THE INSTANT CASES, THE PARTNERSHIP FIRMS HAVE FILED LOSS RETURN IN SOME OF THE YEARS. THE TAX AUTHORITIES HAVE TAKEN SUPPORT OF THE ABOVE SAID DECISION FOR THE REASON THAT THE HONBLE HIGH COURT HELD THAT EVEN I F RECIPIENT FILED LOSS RETURN, THE SAME CANNOT BE TAKEN AS A REASONABLE CONSIDERATION FOR N ON-DEDUCTION OF TDS AS PER APPLICABLE SECTION. 14. HOWEVER, THE QUESTION OF LEVYING PENALTY U/S 2 01(1) OF THE ACT WAS CONSIDERED BY HONBLE SUPREME COURT IN THE CASE OF HINDUSTAN COCA -COLA BEVERAGES (P) LTD, SUPRA, WHEREIN THE HONBLE APEX COURT HAS OBSERVED AS UND ER:- BE THAT AS IT MAY, CIRCULAR NO.275/201/95 IT(B) DA TED JANUARY 29, 1997 ISSUED BY THE CENTRAL BOARD OF DIRECT TAXES, IN OUR CONSID ERED OPINION, SHOULD PUT AN END TO THE CONTROVERSY. THE CIRCULAR DECLARES NO DEMAND VISUALIZED U/S 201(1) OF THE INCOME TAX ACT SHOULD BE ENFORCED AFTER THE TAX DEDUCTOR HAS SATISFIED THE OFFICER IN CHARGE OF TDS, THAT THE TAXES DUE HAVE BEEN PAID BY THE DEDUCTEE- ASSESSE. HOWEVER, THIS WILL NOT ALTER THE LIABILIT Y TO CHARGE INTEREST U/S 201(1A) OF THE ACT TILL THE DATE OF PAYMENT OF TAXES BY THE DEDUCTEE ASSESSEE OR THE LIABILITY FOR PENALTY UNDER SECTION 271C OF THE INC OME TAX ACT. 15. IN THE INSTANT CASES, IT IS SUBMITTED BY LD A.R THAT ALL THE PARTNERSHIP FIRMS, WHICH RECEIVED INTEREST FROM THE ASSESSEES HEREIN, HAVE I NCLUDED THOSE INTEREST RECEIPTS IN THEIR RESPECTIVE INCOME STATEMENT. HOWEVER, SINCE T HEY HAVE DECLARED LOSSES AND ACCORDINGLY FILED THE RETURNS OF INCOME, THERE WAS NO LIABILITY TO PAY TAXES. THERE CANNOT BE ANY DISPUTE THAT AN ASSESSEE WHO IS HAVIN G LOSSES CANNOT BE COMPELLED TO PAY THE INCOME-TAX, AS THE INCOME TAX ACT DOES NOT PROVIDE FOR SUCH A SITUATION, EXCEPTION BEING THE MAT PROVISIONS IN THE CASE OF C OMPANIES. WHAT IS REQUIRED TO BE SEEN AS PER THE CIRCULAR ISSUED BY CBDT AND WHICH W AS APPROVED BY HONBLE SUPREME COURT IS THAT TAXES DUE HAVE BEEN PAID BY THE DED UCTEE-ASSESSEE. THEREFORE, THE QUESTION OF PAYMENT OF TAX DOES NOT ARISE, IF THERE IS NO TAX LIABILITY AT ALL. ACCORDINGLY, I.T.A. NOS.383 ETC./COCH/2011 THOMAS MUTHOOT 9 IN THE INSTANT CASES, THE QUESTION OF LIABILITY FOR TAX OR TAX DUE IN THE HANDS OF PARTNERSHIP FIRMS DOES NOT ARISE, IF THEY HAD DECLA RED LOSSES IN THE RETURNS OF INCOME. UNDER THESE PECULIAR CIRCUMSTANCES, IN OUR VIEW, IT WOULD BE SUFFICIENT COMPLIANCE WITH THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF HINDUSTAN COCA COLA BEVERAGES LTD, SUPRA, IF THE IMPUGNED INTEREST RECE IPTS BY THE FIRMS ARE DULY INCLUDED IN THEIR RESPECTIVE RETURN OF INCOME. ACCORDINGLY, IN OUR VIEW, THE RATIO OF DECISION IN THE CASE OF M/S HINDUSTAN COCA-COLA BEVERAGES (P) LTD, SUPRA, CAN BE APPLIED TO THE FACTS OF THE INSTANT CASES ALSO. HOWEVER, SUBJECT TO VER IFICATION OF THE FACT OF FILING RETURN OF INCOME BY THE PARTNERSHIP FIRMS BY DULY INCLUDING T HE INTEREST PAID BY THE ASSESSES HEREIN, IN OUR VIEW, THE PENALTY LEVIED U/S 201(1) OF THE ACT IN THEIR HANDS IS LIABLE TO BE DELETED. SINCE THE ABOVE SAID FACTS REQUIRE VERIFI CATION, WE SET ASIDE THE ORDERS OF LD CIT(A) ON THIS ISSUE AND RESTORE THE SAME IN ALL TH E CASES TO THE FILE OF DCIT(TDS) WITH THE DIRECTION TO VERIFY THE CLAIM OF THE ASSESSEE A ND DELETE THE PENALTY LEVIED U/S 201(1) OF THE ACT IN ALL THE CASES AFTER SATISFYING HIMSEL F THAT THE CONCERNED PARTNERSHIP FIRMS HAVE FILED THEIR RESPECTIVE RETURNS OF INCOME BY DU LY INCLUDING THE IMPUGNED INTEREST PAYMENTS AND THE TAX DUE, IF ANY, HAS BEEN PAID. IF THE ASSESSED INCOME IN THE HANDS OF THE CONCERNED PARTNERSHIP FIRMS IS LOSS, THEN THE DATE OF FILING OF RETURN IS TO BE CONSIDERED AS THE DATE OF DEEMED PAYMENT OF TAX DUE . 16. WITH REGARD TO THE INTEREST CHARGED U/S 201 (1A) OF THE ACT, THE ASSESSEE HAS ARGUED AGAINST THAT LEVY ON TWO DIFFERENT POINTS VI Z., (A) SINCE THE DATE OF DEDUCTION/PAYMENT OF TDS IS NOT KNOWN, THE COMPUTATION PROVISION FAILS AND HENCE INTEREST COULD NOT BE CHA RGED. (B) SINCE THE DEDUCTEE-ASSESSEES (PARTNERSHIP FIRM S) HAVE DECLARED LOSSES, THERE IS NO TAX LIABILITY, IN WHICH CASE IT CANNOT BE HEL D THAT THE ASSESSEES HAVE WITH HELD THE TAX DUE TO THE GOVERNMENT. SINCE INTEREST IS A COMPENSATORY PAYMENT FOR WITHHOLDING THE TAX DUE TO THE GOVERNMENT, THER E IS NO NECESSITY TO COMPENSATE THE GOVERNMENT IN THE CASES WHERE NO TAX IS PAYABLE. WITH REGARD TO THE FIRST POINT, WE FIND IT TO BE CO NTRADICTORY TO THE STAND TAKEN ON THE ISSUE RELATING TO LEVY OF PENALTY U/S 201(1) OF THE ACT. AS PER THE PROVISIONS OF SEC. 201(1A) OF THE ACT, AN ASSESSEE IS LIABLE TO PAY SI MPLE INTEREST AT THE PRESCRIBED RATE ON I.T.A. NOS.383 ETC./COCH/2011 THOMAS MUTHOOT 10 THE AMOUNT OF SUCH TAX (TDS AMOUNT) FROM THE DATE O N WHICH SUCH TAX WAS DEDUCTIBLE TO THE DATE ON WHICH SUCH TAX IS ACTUALLY PAID. TH E DATE ON WHICH SUCH TAX IS DEDUCTIBLE IS KNOWN IN EVERY CASE IN EVERY YEAR. THE HONBLE SUPREME COURT HAS HELD IN THE CASE OF HINDUSTAN COCA COLA (P) LTD, SUPRA, THAT THE INTEREST U/S 201(1A) IS PAYABLE TILL THE DATE OF PAYMENT OF TAXES BY THE DE DUCTEE-ASSESSEE. WE HAVE ALREADY HELD THAT THE DATE OF FILING RETURN OF INCOME IS TO BE TAKEN AS THE DATE OF PAYMENT OF TAX IN THE FACTS AND CIRCUMSTANCES OF THE INSTANT CASE. HENCE THE DATE OF PAYMENT IS ALSO KNOWN. HENCE, IN OUR VIEW, IT CANNOT BE SAID THAT THE COMPUTATION PROVISION FAILS, SINCE BOTH THE BEGINNING DATE AND ENDING DATE FOR THE PUR POSE OF COMPUTATION OF INTEREST U/S 201(1A) IS ASCERTAINABLE. 17. SINCE THE DATE OF FILING OF RETURN OF INCOM E IS CONSIDERED AS THE DATE OF DEEMED PAYMENT IN THE INSTANT CASES, IF ASSESSED INCOME HA S RESULTED IN LOSS, THE DCIT(TDS) SHOULD HAVE CALCULATED INTEREST LIABILITY U/S. 201( 1A) FROM THE END OF THE RELEVANT FINANCIAL YEAR TO THE DATE OF FILING OF RETURN OF I NCOME OF THAT YEAR, INSTEAD OF CHARGING INTEREST UP TO 31/05/2009, IF THE INTEREST UNDER TH AT SECTION IS OTHERWISE LIABLE TO BE CHARGED. 18. HOWEVER, WE FIND FORCE IN THE SECOND POINT. THE QUESTION THAT REQUIRES CONSIDERATION IS ABOUT THE NATURE OF INTEREST CHARG ED UNDER THE INCOME TAX ACT, I.E., WHETHER INTEREST IS PENAL OR COMPENSATORY IN NATURE ?. THIS QUESTION CAME TO THE CONSIDERATION OF HONBLE SUPREME COURT IN THE CONTE XT OF INTEREST CHARGEABLE UNDER SEC. 215/139(8) THAT WERE IN FORCE AT THE RELEVANT POINT OF TIME IN THE ACT, WHICH ARE AKIN TO INTEREST CHARGEABLE U/S 234B/234A UNDER THE PRESENT PROVISIONS. THE HONBLE SUPREME COURT CONSIDERED THE NATURE OF LEVY OF INTEREST U/S 215/139(8) IN THE CASE OF CENTRAL PROVINCES MANGANESE ORE CO. LTD V. CIT: [1986] 160 ITR 961 AND OBSERVED AS UNDER:- 'IT IS NOT CORRECT TO REFER TO THE LEVY OF SUCH INT EREST AS A PENALTY. THE EXPRESSION 'PENAL INTEREST' HAS ACQUIRED USAGE, BUT IS, IN FAC T, AN INACCURATE DESCRIPTION OF THE LEVY. HAVING REGARD TO THE REASON FOR THE LEVY AND THE CIRCUMSTANCES IN WHICH IT IS IMPOSED, IT IS CLEAR THAT INTEREST IS LEVIED BY WAY OF COMPENSATION AND NOT BY WAY OF PENALTY . THE INCOME-TAX ACT MAKES A CLEAR DISTINCTION BETWEEN THE LEVY OF A PENALTY AND OTHER LEVIES UNDER THAT STATUTE. I.T.A. NOS.383 ETC./COCH/2011 THOMAS MUTHOOT 11 INTEREST IS LEVIED UNDER SUB SECTION (8) OF SECTION 139 AND UNDER SECTION 215 BECAUSE, BY REASON OF THE OMISSION OR DEFAULT MENTI ONED IN THE RELEVANT PROVISION, THE REVENUE IS DEPRIVED OF THE BENEFIT OF THE TAX F OR THE PERIOD DURING WHICH IT HAS REMAINED UNPAID.' SIMILAR VIEW WAS EXPRESSED BY HONBLE SUPREME COURT IN THE CASE OF GANESH DAS VS. INCOME TAX OFFICER (169 ITR 221). THE SAID VIEW WA S AGAIN REITERATED BY THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. ELI LILLY AND C O. (INDIA) P LTD (2009) (312 ITR 225) AT PAGE 251 IN THE CONTEXT OF INTEREST CHARGEA BLE U/S 201(1A) OF THE ACT. THE HONBLE SUPREME COURT FURTHER CLARIFIED THAT INTERE ST U/S 201(1A) IS MANDATORY EVEN IF THERE IS NO TAX LIABILITY U/S 201(1) OF THE ACT, I. E., THE VIEW EXPRESSED IN THE CASE OF HINDUSTAN CO-COLA BEVERAGES, SUPRA, BY THE APEX COU RT IS AGAIN REITERATED HERE. 19. THE HONBLE HIGH COURT OF DELHI ALSO CONSID ERED AN IDENTICAL QUESTION IN THE CASE OF CIT VS. ANAND PRAKASH (316 ITR 141) AND THE RELE VANT OBSERVATIONS MADE BY THE HONBLE DELHI HIGH COURT ARE EXTRACTED BELOW:- 11. WE HAVE EXAMINED THE DECISIONS CITED BY THE CO UNSEL ON BOTH SIDES AND AFTER CONSIDERING THE SUBMISSIONS MADE BY THEM, WE AGREE WITH THE LEARNED COUNSEL FOR THE REVENUE THAT THE LEVY UNDER SECTION 234B OF THE SAID ACT IS COMPENSATORY IN NATURE AND IS NOT IN THE NAT URE OF PENALTY . WE MAY ALSO NOTE THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF CIT V. KOTAK MAHENDRA FINANCE LTD: 265 ITR 119 (BOM), WHEREIN TH E BOMBAY HIGH COURT OBSERVED THAT IT WAS WELL SETTLED THAT INTEREST UND ER SECTION 234B WAS COMPENSATORY IN CHARACTER AND THAT IT WAS NOT PENAL IN NATURE . ANOTHER DECISION WHICH WOULD BE RELEVANT IS OF A DIVISION B ENCH OF THIS COURT IN THE CASE OF DR PRANNOV ROY V. COMMISSIONER OF INCOME-TAX AND ANOTHER : 254 ITR 755 (DEL.). IN THAT CASE, THE PROVISIONS OF SECTION 234 A WERE IN ISSUE. THE QUESTION BEFORE THE COURT WAS WHETHER INTEREST COULD BE CHAR GED UNDER SECTION 234A WHEN, THOUGH THE RETURN HAD NOT BEEN FILED IN TIME, THE TAX HAD BEEN PAID. THE ARGUMENT RAISED ON BEHALF OF THE REVENUE THAT SUCH PAYMENT OF TAX DID NOT STRICTLY COMPLY WITH THE MEANING OF ADVANCE TAX AND WOULD THEREFORE, HAVE TO BE DISREGARDED FOR THE PURPOSES OF CHARGING INTEREST U NDER SECTION 234A, WAS REJECTED. THE COURT ALSO HELD THAT INTEREST UNDER SECTION 234 A WAS COMPENSATORY IN NATURE AND UNLESS ANY LOSS WAS CAUS ED TO THE REVENUE, THE SAME COULD NOT BE CHARGED FROM THE ASS ESSEE. IT MAY BE RELEVANT TO POINT OUT THAT THE MATTER WAS TAKEN UP IN APPEAL BEFORE THE SUPREME COURT AND BY ITS DECISION DATED 17.09.2008 IN CIT V. PRANNOV ROY /CIVIL 'APPEAL NO. 448/2003L THE SUPREME COURT NOTED THAT**: I.T.A. NOS.383 ETC./COCH/2011 THOMAS MUTHOOT 12 'THE HIGH COURT, WHILE ACCEPTING THE WRIT PETITION AND SETTING ASIDE THE INTEREST CHARGED UNDER SECTION 234A OF THE ACT, HAS COME TO THE CONCLUSION THAT INTEREST IS NOT A PENALTY AND THAT THE INTEREST IS LEVIED BY WAY OF COMPENSATION TO COMPENSATE THE REVENUE IN OR DER TO AVOID IT FROM BEING DEPRIVED OF THE PAYMENT OF TAX ON THE DUE DAT E. HAVING HEARD COUNSEL ON BOTH THE SIDES WE ENTIRELY AGREE WITH TH E FINDING RECORDED BY THE HIGH COURT AS ALSO THE INTERPRETATI ON OF SECTION 234A OF THE ACT AS IT STOOD AT THE RELEVANT TIME. (** REPORTED IN 309 ITR 231) '12. COMING BACK TO THE PRESENT APPEALS, WE ARE OF THE VIEW THAT SECTION 234A, SECTION 234B AND SECTION 234C ARE OF THE SAME CLASS . ON GOING THROUGH THESE PROVISIONS, IT IS CLEAR THAT INTEREST' IS SOUGHT TO BE CHARGED ON ACCOUNT OF THE FACT THAT THE GOVERNMENT IS DEPRIVED OF ITS REV ENUE . UNDER SECTION 234A, INTEREST IS CHARGED IF TAX WHICHEVER TO BE PA ID AT THE TIME OF FILING OF THE RETURN IS NOT PAID AT THAT POINT OF TIME, SECTION 2 34B PROVIDES FOR LEVY OF INTEREST FOR DEFAULT IN PAYMENT OF ADVANCE TAX AND SECTION 2 34C STIPULATES THE CHARGING OF INTEREST FOR DEFAULT IN THE PAYMENTS OF ADVANCE TAX ON THE APPOINTED DATES OF PAYMENT. IT IS CLEAR THAT UNDER THE SAID ACT TAX IS PAYABLE AT DIFFERENT DATES AND, THROUGH DIFFERENT MODES. WHERE SPECIFIC DATES OF PA YMENT OF TAX ARE NOT ADHERED TO, IT CAN BE SAID THAT THE GOVERNMENT IS DEPRIVED OF TAX ON THOSE DATES. INTEREST IS CHARGEABLE UNDER THE PROVISIONS OF THE ACT SUCH A SECTIONS 234A, 234B AND 234C IN ORDER TO COMPENSATE THE GOVERNMENT FOR SUCH DEPRIVATION. IT IS CLEAR FROM THE SCHEME OF THE ACT AND THE NATURE OF THESE PROVISIONS THAT THEY ARE COMPENSATORY AND NOT PENAL. WE, THEREFORE, CONCLUDE THAT THE LEVY OF INTEREST UNDER SECTION 234B OF THE INCOME TAX ACT IS COMPENS ATORY IN NATURE. THE TRIBUNAL, HAVING TAKEN A CONTRARY VIEW HAS CLEARLY ERRED. 20. IN THE CASE OF DR. PRONNOY ROY, REFERRED TO BY HONBLE DELHI HIGH COURT, THE ASSESSEE THEREIN PAID THE TAX DUE ON HIS INCOME FOR THE ASSESSMENT YEAR 1995-96 BEFORE THE DUE DATE FOR FILING RETURN OF INCOME, I. E., BEFORE 31-10-1995, BUT AFTER 31.3.1995. HOWEVER, HE FILED HIS RETURN OF INCOME BELATEDLY, I.E., THERE WAS A DELAY OF 11 MONTHS. THE QUESTION THAT AROSE BEFORE THE HON BLE DELHI COURT WAS WHETHER INTEREST U/S 234A IS LEVIABLE OR NOT IN THE SAID FA CTS. UNDER SECTION 234A, INTEREST IS CHARGEABLE IF THE RETURN IS NOT FILED WITHIN THE PR ESCRIBED DUE DATE. THE HONBLE DELHI HIGH COURT HELD THAT INTEREST IS NOT LEVIABLE IN TH E FACTS AND CIRCUMSTANCES OF THAT CASE, MAINLY ON THE REASON THAT INTEREST IS COMPENSATORY IN NATURE AND UNLESS ANY LOSS IS CAUSED TO REVENUE, THE SAME COULD NOT BE CHARGED FR OM THE ASSESSEE. THE SAID VIEW WAS ALSO ACCEPTED BY THE HONBLE SUPREME COURT (REP ORTED IN 309 ITR 231), WHICH WAS I.T.A. NOS.383 ETC./COCH/2011 THOMAS MUTHOOT 13 REFERRED TO BY THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. ANAND PRAKASH, SUPRA. HENCE, IT IS WELL ESTABLISHED PRINCIPLE NOW THAT THE IF ANY INTEREST IS LIABLE TO BE CHARGED UNDER THE ACT, THE SAME CAN BE CHARGED ONLY IF THE GOVERNMENT IS DEPRIVED OF ITS FUNDS OR ANY LOSS IS CAUSED TO THE GOVERNMENT, SINCE INTEREST IS COMPENSATORY IN NATURE. IT IS PERTINENT TO NOTE THAT THE RATIO OF THE DECISION RENDERED IN THE CASE OF DR. PRONNOY ROY WAS FOLLOWED BY THE MUMBAI J BENCH OF T HE TRIBUNAL IN THE CASE OF MRS. SHEELA JAISINGH VS. ACIT (2007)(13 SOT 617) AND THE VISAKHAPATNAM BENCH OF THE TRIBUNAL IN THE CASE OF SUDHA AGRO OIL & CHEMICAL I NDUSTRIES LTD VS. ACIT (ITA NO.288/VIZAG/2007). 21. NOW WE SHALL TURN TO THE FACTS OF THE INSTA NT CASES BEFORE US, WHEREIN INTEREST U/S 201(1A) WAS LEVIED UPON THE ASSESSEES. IT MAY BE NOTED THAT INTEREST U/S 201(1A) IS LEVIED IF THERE IS ANY FAILURE ON THE PART OF AN Y ASSESSEE TO DEDUCT TAX AT SOURCE (TDS)/REMIT THE SAME AT THE RIGHT POINT OF TIME ON THE INCOME PAID BY HIM. THE TDS AMOUNT TO BE SO DEDUCTED/REMITTED BELONGS TO THE RE VENUE/GOVERNMENT. HENCE, INTEREST U/S 201(1A) IS CHARGED; SINCE THE ASSESSEE IS CONSIDERED TO BE ENJOYING THE TDS AMOUNT, WHICH BELONGS TO THE GOVERNMENT, TILL T HE TIME HE DEDUCTS AND REMITS THE SAME TO THE ACCOUNT OF THE GOVERNMENT. IT IS PERTI NENT TO NOTE THAT THE TAX SO DEDUCTED AT SOURCE IS GIVEN CREDIT IN THE ACCOUNT O F DEDUCTEE- ASSESSEE. IF THE ASSESSMENT OF THE DEDUCTEE ASSESSEE RESULTS IN REFU ND OF TDS AMOUNT, THE GOVERNMENT SHALL REFUND THE AMOUNT ALONG WITH INTEREST U/S 244 A OF THE ACT. THE REASON FOR PAYING INTEREST U/S 244A IS THAT THE GOVERNMENT IS CONSIDE RED TO HAVE ENJOYED THE AMOUNT, WHICH IT IS NOT ENTITLED TO. THUS THE INTEREST IS CHARGED/PAID AS COMPENSATION FOR WITHHOLDING/ENJOYING FUNDS NOT BELONGING TO THE ASS ESSEE/REVENUE. 22. LET US CONSIDER ABOUT EXIGIBILITY OF INTER EST U/S 201(1A) OF THE ACT UNDER THE PECULIAR CONDITIONS PREVAILING IN THE INSTANT CASES , WHEREIN THE RECIPIENT OF INTEREST VIZ., THE PARTNERSHIP FIRMS HAVE DECLARED LOSSES EVEN AFT ER ACCOUNTING FOR THE INTEREST PAID BY THE ASSESSEES HEREIN. EVEN IF THE ASSESSEES HEREIN DEDUCT AND REMIT THE TDS AMOUNT ON THE INTEREST PAID TO THE PARTNERSHIP FIRMS, THE SAME IS LIABLE TO BE REFUNDED TO THE SAID PARTNERSHIP FIRMS, AS THERE IS NO TAX LIABILIT Y IN THEIR RESPECTIVE HANDS. UNDER THIS I.T.A. NOS.383 ETC./COCH/2011 THOMAS MUTHOOT 14 SITUATION, CAN IT BE SAID THAT THE GOVERNMENT IS DE PRIVED OF THE FUNDS DUE TO IT OR ANY LOSS IS CAUSED TO THE GOVERNMENT. 23. WE SHALL NOW EXAMINE THE SAID QUESTION WITH AN EXAMPLE. LET US ASSUME THAT MR. A PAYS AN INTEREST OF RS.1.00 LAKH TO MR. B ON 31.3.2007. MR. A IS LIABLE TO DEDUCT TAX AT SOURCE ON THE SAID PAYMENT U/S 194A OF THE A CT. MR. B INCLUDES THE SAID INTEREST RECEIPT IN HIS INCOME STATEMENT, BUT HIS TOTAL INCO ME TURNS INTO LOSS. HENCE MR. B IS NOT LIABLE TO PAY INCOME TAX, AS HE HAS DECLARED LOSS I N HIS RETURN OF INCOME. LET US ANALYSE THE ABOVE SAID FACTS UNDER TWO SITUATIONS, VIZ., (A ) IF TDS WAS DEDUCTED BY MR. A AND (B) IF TDS WAS NOT DEDUCTED. (A) IF TDS WAS DEDUCTED:- (A) IN THIS SITUATION, IF MR. A HAS DEDUCTED AND RE MITTED THE TDS WITHIN THE PRESCRIBED TIME, THE PROVISIONS OF SEC. 201 OF THE ACT SHALL NOT APPLY TO HIM. HOWEVER, IF THERE IS BELATED DEDUCTION/PAYMENT, MR. A WOULD BE CHARGED WITH INTEREST U/S 201(1A) OF THE ACT, SINCE HE IS CONSID ERED TO HAVE WITHHELD/ENJOYED THE TAX AMOUNT, WHICH OTHERWISE BELONGS TO THE GOVE RNMENT. (B) IN THE HANDS OF MR. B, THE REVENUE IS LIABLE T O REFUND THE TDS AMOUNT OF RS.10,000/- TO HIM, AS HE IS NOT LIABLE TO PAY ANY TAX, IN VIEW OF THE LOSS RETURN. SINCE THE GOVERNMENT HAS WITHHELD/ENJOYED THE FUNDS BELONGING TO MR. B, WHICH IT IS NOT ENTITLED TO, THE REVENUE IS LIABLE TO PAY INTEREST U/S 244A OF THE ACT TO MR. B. (B) IF TDS WAS NOT DEDUCTED:- IF TDS WAS NOT DEDUCTED BY MR. A ON THE INTEREST PA YMENT MADE TO MR. B, THEN MR. B WOULD NOT CLAIM ANY REFUND FROM THE REVENUE. IN THAT CASE, THE QUESTION OF PAYMENT OF INTEREST U/S 244A BY THE REVENUE TO M R. B DOES NOT ARISE. SINCE MR. B HAS DECLARED LOSS IN HIS RETURN OF INCOME, HE IS ALSO NOT LIABLE TO PAY ANY TAX. IN THIS SITUATION, CAN IT BE SAID THAT MR. A HAS WITHHELD/ENJOYED THE TAX AMOUNT BELONGING TO THE GOVERNMENT? THE ANSWER WOU LD BE YES, ONLY IF MR. B IS LIABLE TO PAY TAX. IN THIS EXAMPLE, MR. B IS NOT L IABLE TO PAY ANY TAX AND HENCE I.T.A. NOS.383 ETC./COCH/2011 THOMAS MUTHOOT 15 QUESTION OF WITHHOLDING ANY TAX MONEY BELONGING T O REVENUE DOES NOT ARISE. ACCORDINGLY, IT CANNOT BE SAID THAT MR. A HAS WITHH ELD/ENJOYED THE TAX AMOUNT BELONGING TO THE GOVERNMENT. EVEN IF HE IS COMPELLE D TO DEDUCT TDS, ULTIMATELY, THE SAME IS LIABLE TO REFUNDED TO MR. B. HENCE, UN DER THIS KIND OF SITUATION, IT CANNOT BE SAID THAT THE GOVERNMENT IS DEPRIVED OF I TS FUND OR ANY LOSS WAS CAUSED TO THE GOVERNMENT. 24. THE FACTS ANALYSED IN SITUATION B IS APPLIC ABLE TO THE FACTS PREVAILING IN THE INSTANT CASES. ON THE BASIS OF ANALYSIS MADE IN SI TUATION B, WE ARE OF THE VIEW THAT THE ASSESSEES HEREIN ARE NOT LIABLE TO PAY INTEREST U/S 201(1A) OF THE ACT, IF THE RECIPIENT OF INTEREST, VIZ., THE PARTNERSHIP FIRMS, ARE NOT LIAB LE TO PAY TAX ON THE IMPUGNED INTEREST INCOME. HOWEVER, IN THE PAPER BOOK FILED BEFORE US , ONLY COPIES OF THE RETURNS OF INCOME FILED BY THE PARTNERSHIP FIRMS HAVE BEEN FUR NISHED. IT IS NOT KNOWN WHETHER THE SAID RETURNS OF INCOME WERE ACCEPTED AS IT IS BY TH E REVENUE OR NOT, SINCE COPIES OF THE ASSESSMENT ORDERS FOR RELEVANT YEARS, IF ANY, WERE NOT FILED BEFORE US. HENCE, WE ARE UNABLE TO EXAMINE, WHETHER THE SAID PARTNERSHIP FIR MS WERE LIABLE TO PAY TAX ON THE IMPUGNED INTEREST INCOME OR NOT, IN THE ABSENCE OF THE ASSESSMENT ORDERS. HENCE THESE FACTS REQUIRE VERIFICATION AT THE END OF THE DCIT (TDS). IF THEY ARE NOT LIABLE TO PAY TAX ON THE IMPUGNED INTEREST INCOME, THEN AS PE R THE DISCUSSIONS MADE IN THE FOREGOING PARAGRAPHS, THESE ASSESSEES ARE NOT LIABL E TO PAY INTEREST U/S 201(1A) OF THE ACT. 25. IT MAY BE NOTED THAT THE PREVAILING RATE OF IN TEREST CHARGEABLE/ PAYABLE U/S 201(1A)/244A ARE DIFFERENT, I.E., THE RATE OF INTER EST PAYABLE U/S 244A IS LESSER THAN THE INTEREST CHARGEABLE U/S 201(1A) OF THE ACT. DUE TO THIS DISPARITY, A QUESTION MAY ARISE AS TO THE CORRECTNESS OF THE VIEW TAKEN BY US IN TH E PRECEDING PARAGRAPHS. IN OUR VIEW, THE RATE OF INTEREST IS PRESCRIBED BY THE GOVERNMEN T ON THE BASIS OF VARIOUS FACTORS. THE MAIN PRINCIPLE CONSIDERED BY US IS THAT PRONOUNCED BY THE HONBLE COURTS, VIZ., THAT, INTEREST IS COMPENSATORY IN NATURE FOR DEPRIVING FU NDS BELONGING TO THE REVENUE/ASSESSEE. HENCE THE DISPARITY IN THE RATE OF INTEREST SHALL NOT HAVE ANY EFFECT ON THE SAID PRINCIPLE. I.T.A. NOS.383 ETC./COCH/2011 THOMAS MUTHOOT 16 26. IN VIEW OF THE FOREGOING DISCUSSIONS, WE SE T ASIDE THE ORDERS PASSED BY LD CIT(A) ON THE ISSUE OF LEVY OF INTEREST U/S 201(1A) IN ALL CASES BEFORE US AND RESTORE THE SAME TO THE FILE OF THE DCIT (TDS) WITH THE DIRECTI ON TO VERIFY WHETHER OR NOT THE RECIPIENTS OF THE INTEREST INCOME, VIZ., THE PARTNE RSHIP FIRMS WERE LIABLE TO PAY TAX ON THAT INCOME AND THEN TAKE APPROPRIATE DECISION ABOU T THE CHARGEABILITY OF INTEREST U/S 201(1A) OF THE ACT IN THE HANDS OF THE ASSESSEES HE REIN IN ACCORDANCE WITH THE PRINCIPLES DISCUSSED BY US IN THE PRECEDING PARAGRA PHS. 27. IN THE RESULT, ALL THE APPEALS OF THE ASSES SEES ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED ACCORDINGL Y ON 12-10-2012 SD/- SD/- (N.R.S.GANESAN) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 12TH OCTOBER, 2012 GJ COPY TO: 1. MR.THOMAS MUTHOOT, MUTHOOT HOUSE, KOZHENCHERRY. 2. MR.THOMAS JOHN MUTHOOT, MUTHOOT HOUSE, KOZHENCHE RRY. 3. MR.THOMAS GEORGE MUTHOOT, MUTHOOT HOUSE, KOZHENC HERRY. 4.THE DEPUTY COMMISSIONER OF INCOME-TAX, TDS, KOTTA YAM. 5.THE COMMISSIONER OF INCOME-TAX(APPEALS)-I. 6.THE COMMISSIONER OF INCOME-TAX, KOTTAYAM. 7. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 8. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T, COCHIN