COMMISSIONER OF INCOME TAX HYD V. M/S SHREE SHAKTIRESORTS AND HOTELS LTD

ITTA/4/2001

AI Insights

The case involves the Commissioner of Income Tax, Visakhapatnam, as the appellant, and M/s. Manchanganga Seas Foods Limited, as the respondent. The core issue was the deletion of interest by the Tribunal on the grounds that the respondent's failure to deduct tax at source was not deliberate or willful. The respondent had paid amounts towards technical know-how and consultancy to non-residents without deducting tax at source, claiming exemption based on a no objection certificate from the Assessing Officer and an Agreement for Avoidance of Double Taxation. The Assessing Officer and the Income Tax Commissioner (Appeals) upheld the tax demand, but the Tribunal deleted the interest due to the absence of willfulness in the default. The High Court, however, found that the imposition of interest under Section 201(1A) is mandatory and automatic upon failure to pay the deducted tax, regardless of the intent.

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 719124 (HC-ANDHRA_PRADESH)
• Appeal Type: Others
• Pronouncement Date: 27-06-2013
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Keywords: Consultancy; Double Taxation Avoidance Agreement; Income Tax; Interest on default; No objection certificate; Penalty; Tax deduction at source; Technical know-how
• Section: 90; 6; 260A; 5; 4; 201(1A)

Judgement Text

"IN THE HIGH COURT OF JUDICATURE, ANDHRA PRADESH AT HYDERABAD THURSDAY, THE TWENTY SEVENTH DAY OF JUNE TWO THOUSAND AND THIRTEEN PRESENT THE HON’BLE THE CHIEF JUSTICE SRI KALYAN JYOTI SEN GUPTA AND THE HON'BLE MS. JUSTICE G.ROHINI I.T.T.A. Nos. 13 & 15 OF 2001 Between: The Commissioner of Income Tax, Visakhapatnam ..... Appellant in both the appeals AND M/s. Manchanganga Seas Foods Limited, Kasturibaipet, Vijayawada .....Respondent in both the appeals The Court made the following : JUDGMENT: (per the Hon’ble the Chief Justice Sri K.J. Sengupta) It appears that by an order dated 31.01.2001, the appeal was admitted without formulating substantial question of law in this case. Section 260A of the Income Tax Act, 1961 obliges the court to hear the appeal on only substantial question of law. Therefore, after hearing the learned counsel for the appellant and reading the impugned judgment and order, as none appeared for the respondent, we are inclined to hear the appeal on the following substantial question of law: Whether on facts and in the circumstances of the case, the learned Tribunal is correct in law in deleting the amount of interest? This appeal has been preferred against the judgment and order of the learned Tribunal dated 23.05.2000 in relation to the assessment year 1994-95. None appeared for the respondent – assessee despite call. The fact of the case is that the respondent – assessee during the years 1992-1993 and 1993-1994 paid an amount of Rs.13,17,441/- towards technical know- how and consultancy to the non-residents, but did not deduct tax at source. The reason assigned by the assessee for not deducting is that the assessee had obtained no objection certificate from the concerned Assessing Officer for the remittance of the said amounts without deduction of the tax at source. At the time of assessment, copy of the certificate issued by the Income Tax Officer was produced, but the Assessing Officer did not accept the contention that the respondent – assessee is exempted from deduction of tax at source, in view of the said no objection certificate as well as the provisions of the Act. The assessee is also not obliged to deduct tax from the non-residents in view of the Agreement, for Avoidance of Double Taxation. It was held by the Assessing Officer that the provisions of Sec. 4, 5 and 6 of the Income Tax Act override the provisions of Sec.90 of the Act. Moreover, the provision of double taxation agreement does lend support to the assessee’s contention and, therefore, it was held that the assessee was in default and it was asked to pay the necessary amount of tax and imposed penalty as well. The respondent – assessee had taken this matter in appeal to the Income Tax Commissioner (Appeals), who dismissed the appeal and upheld the order of assessment. Thereafter, the appeal was taken by the respondent - assessee to the Tribunal, which confirmed the order of both the authorities. As regards the imposition of interest on the amount because of the default in deducting the tax at source, the learned Tribunal had deleted the amount of interest, for the reason that the failure to deduct tax was not deliberate or willful, as the assessee was engaged in exchange of correspondence whether to deduct the tax at source or not. Against this portion of the deletion of interest of that amount, the appeal has been preferred by the revenue. Learned counsel for the appellant contends that the provision of Sec.201(1A) of the Act clearly mentions the moment the tax is deducted and if it is not paid, penalty is liable to be imposed. In this case, the tax is not paid and, therefore, the interest at the rate mentioned herein, will automatically follow. He further contends that the Sub- Section leaves no discretion as regards the rate or levy of interest or to waive the interest either fully or partly. We have gone through the impugned judgment and order to the extent for the appeal is preferred. Having heard the learned counsel for the appellant, we find that there is strong force in the arguments of the learned counsel for the Department and we are of the view that the provision of Sec.201(1A) in clear terms and without any ambiguity envisages that once the tax is payable and the same is not paid after deduction, interest has to be levied automatically at the rate mentioned therein. We appropriately set out Sec. 201(1A) of the Income Tax Act hereunder: “…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) one per cent per 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 half percent 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 shll be paid before furnishing the statement in accordance with the provisions of sub-Section (3) of Section 2000 The word shall employed under Sec.201(1A)A clearly denotes to hold that the same is mandatory in character and there is no question of any discretion. We have read the entire Sub-section (1) and we find there is no scope for any waiver or remission of interest. According to us, when the factum of failure is established, whether deliberate or indeliberate, interest has to be levied and it becomes part of, so to say, part of tax. We, therefore, hold that the learned Tribunal is totally wrong in deleting the interest levied under Sec.201(1A) of the Income Tax Act. Accordingly, we set aside this portion of the judgment and order and we allow the appeal. Consequently, we direct the Assessing Officer to demand the amount of interest, in accordance with law. No order as to costs. _______________________ Kalyan Jyoti Sengupta, CJ. __________ G.Rohini, J. June 27, 2013 MAS "