Mrs. Meena S. Patil vs Asst. Commissioner Of Income Tax ... on 29 March, 2007

Mrs. Meena S. Patil vs Asst. Commissioner Of Income Tax ... on 29 March, 2007

Equivalent citations: 2008 300 ITR 317 Bang, (2008) 113 TTJ Bang 863

Bench: P Mohanarajan, N Kalra

ORDER N.L. Kalra, Accountant Member

1. The assessee has filed an appeal against order of the learned Commissioner of Income Tax (Appeals)-IV, Bangalore Dt.9.1.2006. 2. 

Before discussing the grounds of appeal, it will be relevant to state the facts in brief.

1.1 The appellant purchased an immovable property in Bangalore videRegistered Sale Deed dt.23.10.2001. A sum of Rs.25,00,000 was paid on 5.3.2001 and the balance sale consideration of Rs.75,00,000 was paid at the time of registration of sale deed i.e. on 23.10.2001. The appellant has mentioned that she was not aware of the fact that she is liable to deduct tax at source from the payments by her for the reason that the seller was a non-resident. Inadvertently, the appellant failed to deduct tax at source from such payment made. The seller paid an advance tax of Rs. 4,25,126. The seller filed a return on 18.7.2002 in which long term capital gain of Rs. 16,80,782 was disclosed in respect of property purchased by the appellant. The seller filed the revised return on 23.3.2003 vide which an income of Rs. 62,28,370 was declared. Along with the revised return, the assessee the assessee paid not only the tax but also interest under Sections 234B and 234C.

1.2 Total amount paid along with revised return was of Rs. 10,30,674. The appellant received an order under Section 201(1A) Dt. 20.7.2003 vide which liability of interest of Rs. 75,560 was imposed. The appellant filed an appeal against that order and the learned CIT(A) vide order dt. 31.3.2004 cancelled the order under Section 201(1A). The revenue has passed a fresh order under Section 201(1A) on 20.10.2004 vide which a demand of Rs.4,78,640 has been created. The learned Assessing Officer has charged interest under Section 201(1A) upto 31.10.2004. The assessee filed an appeal against order dt. 28.10.2004 and that appeal has been dismissed by the learned CIT (A) vide order dt. 9.1.2006. Against that order of learned CIT (A), the assessee is in appeal before us.

2. The first grievance of the appellant is that the Assessing Officer was not legally competent to pass an order under Section 201(1A) on 28.10.2004 when the earlier order under the same section for the same default was cancelled by the learned CIT(A) vide order dt. 31.3.2004.

2.1 Before us, learned Authorised Representative submitted that the revenue has not challenged the order of learned CIT(A) dt.31.3.2004 vide which under Section 201(1A) was cancelled. In view of such fact, the Assessing Officer become functus officio. The Assessing Officer was not legally competent to issue another notice calling upon the appellant to show cause as to why the appellant should not be held as the assessee in default. The learned Authorised Representative submitted that once an order is cancelled without any direction of redoing the same, the Assessing Officer could not have passed order under the same section and for the same default.

2.2 We have heard both parties. According to us the issue raised before us has been answered by the jurisdictional High Court in the case of Ashok and Company v. CIT 195 ITR 786. In that case, assessment order was cancelled without order of remand. The learned High court held that the Assessing Officer was competent to make an order of assessment in pursuance of the proceedings initiated by him. It will be relevant to quote the following extract at page 791.

There may be a third category of cases wherein the appellate authority may set aside the original order of assessment on the ground that the said order was void such as, when the assessing authority fails to follow the principle of natural justice or when an incompetent officer makes the assessment order; in this category of cases, a specific order of remand is unnecessary because the competent assessing authority can always make a proper order provided further proceedings are not barred by any rule of limitation.

2.3 In the instant case, learned CIT (A) vide order dt. 31.3.2004 cancelled the order as according to learned CIT (A), the principle of natural justice has not been followed. Cancellation of order under such circumstances is covered by the decision of the jurisdictional High Court wherein it has been mentioned that it is unnecessary to mention that the order may be remanded. The Delhi High Court in the case of VLN Finance Limited v. CIT 289 ITR 286, quashed the order under Section 142(2A) as notice was not given to the assessee before passing such order. After quashing of notice, it is mentioned at page 302 that the revenue can pass an order under Section 142(2A) if the revenue is permitted for passing rider as per the period of limitation. Keeping in view of the decision of jurisdictional High Court, it is held that the Assessing Officer was competent to pass a fresh order.

3. The second grievance of the appellant is that learned CIT(A) should have held that the appellant is not liable to deduct tax under Section 195 as the seller was a non-resident HUF, 3.1 Before us, the learned Authorised Representative argued that the property, which was purchased, is situated in India. The payment was made in India at the time of registration. The appellant could not have been aware of the fact that the sellers are non-residents. On the other hand, the learned Departmental Representative supported the order of learned CIT(A).

3.2 It is seen from the order of learned CIT(A) that the seller has filed the returns in the status of non-resident and has also been assessed as non-resident. As per the agreement of sale of property, it was clear that the seller was non-resident as address mentioned in the agreement showed that they were residing abroad. There is no iota of evidence to suggest that the appellant entertained belief that the sellers were residents. Hence the learned CIT(A) has rightly held that the appellant was liable to deduct tax under Section 195 of the IT. Act.

4. The third grievance of the appellant is that the learned Assessing Officer has wrongly charged interested under Section 201(1A) up to 31.10.2004. Learned Authorised Representative relied on the judgment of Delhi High Court in the case of CIT v. Adidas Marketing Pvt. Ltd. 288 ITR 379 in which it has been held that interest under Section 201 cannot be levied after payment of tax. It was submitted that the seller has filed the revised return on 23.3.2003 and paid the entire tax along with interest. Hence there is no liability of interest under Section 201(1A) beyond 23.3.2003.

4.1 Learned Departmental Representative argued that the interest under Section 201(1A) is chargeable upto the date of order. The Assessing Officer has passed order on 27.10.2004 and therefore learned CIT(A) has rightly charged interest upto 31.10.2004.

4.2 We have heard the parties. Deduction of tax at source is one of the modes of recovery of tax. The deductor pays the tax on behalf of the deductee. As per Section 191 of the IT. Act, if the deductor fails to make the requisite deduction of tax at source, the deductee would be liable to pay income tax on the amount received by him as income. The Delhi High Court held that there is no justification for the revenue to seek to levy interest for any period after the date which the tax is actually paid. Here there is no dispute that tax of the seller has been paid along with interest while following revised return on 23.3.2003. No tax was payable after that date once the interest under Section 201(1A) charged upto the date when tax is paid either by the deductor or by the deductee. In the following cases, it has been held that interest under Section 201(1A) can be charged only upto the date of payment of tax by payee.

1) ITO v. Alread Allen Advertising (2006) 8 SOT 312 (Delhi)

2) Singapore Airlines Limited v. ITO (2006) 7 SOT 84 (Chennai)

5. The next grievance of the appellant is that learned CIT(A) has erred in holding that interest under Section 201 (1A) is chargeable on the amount which was required to be deducted irrespective of the fact that the tax actually paid by the non-resident was less.

5.1 Before dealing with this ground of appeal, it will be relevant to reproduce Section 201(1A) as follows:

201(1)...

[(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 at [twelve] per cent per annum on the amount of such tax from the date on which such tax was deductible to the date on which such tax is actually paid [and such interest shall be paid before furnishing the quarterly statement for each quarter in accordance with the provisions of Sub-section (3) of Section 200].

As per the above section, interest is chargeable on the amount of such tax from the date of which such tax was deductible to the date on which such tax was actually paid. In the instant case, the tax has actually been paid not by the deductor but by the deductee. Total tax payable as per the assessment order of seller is Rs. 12,74,629. A sum of Rs. 4,25,126 was paid in advance. Hence the tax which was payable by the seller in respect of capital gains accruing on the sale of property after adjustment of advance tax only Rs.8,49,503. On this amount, the seller has paid interest under Sections 234B & 234C from 1.4.2002 till the date of order i.e. 9.5.2003. As per the Assessing Officer, the total tax deductible at the rates in force was Rs. 19,38,000. The Assessing Officer himself has given credit of advance tax. The Assessing Officer has calculated interest under Section 201(1A) on the sum of Rs. 19,38,000 - Rs. 4,25,126 (advance tax) = Rs. 15,12,874. On this sum, the Assessing Officer has charged interest under Section 201(1A). Deductee has not been given credit of the tax so deductible. The tax payable by the deductee is only Rs.8,49,503. When the revenue is not paying any interest to the deductee on the amounts so deductible by charging interest from the deductor then it is not justifiable to charge interest from the deductor of such amount. Interest is chargeable on the amount of tax actually paid. The wording in Section 201(1A) is that interest is to be charged on such tax which was not paid. Accordingly it is held that the interest under Section 201(1A) will be chargeable on the sum of Rs. 8,49,503 from the date on which the tax was deductible.

In the result the appeal is partly allowed.