Judgment:
Commissioner's order can be challenged if he decided the case on a different ground from the one proposed by him though assessee had not given any other specific reason for challenging the said order.
The question of challenge of jurisdiction of Commissioner to decide on a different ground from the one proposed by him could be challenged during the course of arguments, though, no ground has been specifically taken by the assessee. The assessee could raise the point of jurisdiction before the Tribunal, which has not taken up before the lower authorities.
1. The assessee, a company incorporated outside India, having certain business connection in India, with Steel Authority of India (SAIL), has filed this appeal. It is primarily aggrieved by the order of the CIT made under Section 263 of the Act, by which he had set aside the order of the Assessing Officer, and withdrew the credit of the tax deducted at source by SAIL.
2. The assessee was under contract with SAIL for Supervision, Erection and Commissioning of bokaro Power Plant. SAIL made certain payments under the contract to the assessee and while doing so, retained part of the amount towards the income-tax, from out of the payments credited or paid to the appellant company. SAIL, therefore, issued a certificate of deduction of tax under Section 203 of the Act to the assessee. The amount that was deducted towards Income-tax was Rs. 3,41,896. The assessee filed its return of income at nil, but, in part II of the form of the Return of Income, it indicated the fact of deduction of tax by SAIL and that, it was claiming the credit for the same in its assessment. The Assessing Officer completed the assessment of the assessee at nil, and allowed credit of the tax deducted at source.
3. CIT issued a notice under Section 263 of the Income-tax Act, to the assessee dated Oct. 7,1985 stating therein, that, the Assessing Officer had wrongly allowed credit of tax Rs. 3.41,896, when there was no assessable income at all. CIT in his order observed that. SAIL had deposited the tax of Rs. 3,41,896 into the Treasury only on May 14.1982. Since, the tax that was deducted was deposited into the Treasury in the financial year relevant to the assessment year 1983-84, he concluded that, credit for tax deducted at source could not be given in the assessment year 1982-83 but, could be only given in the asst.
year 1983-84.
4. Shri O.P. Gupta, appearing for the assessee company, raised the preliminary objection challenging the jurisdiction of CIT. He pleaded that, the CIT issued the notice with the remark that, the assessed income being nil, credit for tax deducted at source could not have been given. He submitted that, he had jurisdiction to pass an order in accordance with that notice only. He pleaded that, the present order having been passed on a totally different basis, the said order lacks sanction of the law. On merits, he submitted that, Section 199 of the Act, only requires the claimant to provide the certificate of tax deduction at source, as was issued to it in accordance with Section 203 of the Act. He pleaded that, the CIT has no dispute to the fact that, assessee had submitted a valid certificate of tax deduction, but, his objection in the order is that, the credit has to be allowed in the assessment year following the year of deposit. He contended that, the word 'paid' appearing in Section 199, is only to emphasize that, the employer must pay the tax into the Treasury. He submitted that, in Section 203 of the Act, there is nothing to indicate that the certificate of tax deduction has to be issued only when, the tax has-been deposited into the Treasury. He submitted that, Section 203 postulates that, as soon as the amount due is either paid or credited to the account of the payee, the employer is duty bound to deduct the tax and within a reasonable time thereafter, issue the certificate of tax deduction. He submitted that, the Act, has prescribed measures to check the default committed by the employer in not depositing the tax claimed to have been deducted at source. Therefore, on account of the employer delaying the depositing the amount of tax deducted at source, the assessee, could not be deprived of being allowed credit of the tax so deducted.
5. Smt. Bhattacharya, the senior departmental representative, strongly objected to the preliminary objection put up by the counsel Shri Gupta.
She contended that, Shri Gupta could only argue on such grounds as have been raised in the grounds of appeal. She contended that, since, the assessee has not challenged the jurisdiction of CIT specifically, it could not be allowed to raise it during arguments. She contended that, giving credit for tax deducted at source, is always related to the income and in the assessment year under appeal, assessee had no assessable income and therefore, credit could not have been given. She also contended that, the word 'paid' appearing in Section 199 is not without purpose. She contended that, the word 'paid' indicates that, the employer must have paid the tax into the Treasury, and it is only then, it would carry the character of tax deduction. She contended that, the certificate could be so issued only when it is paid and it is only after that, credit could be given. She pleaded that, without the tax having been deposited, the issuing of the certificate of tax deduction would be improper, for, it results in credit being allowed of tax, that, has not been paid into the Treasury. She pleaded that in the instant case, the tax having been paid into the Treasury on May 14, 1982, the credit for tax could only be given in the assessment year following the year of payment. She drew our attention to the provisions of Sections 199, 198 and 203 of the Act.
6. We have given our very careful consideration to the rival submissions. The crux of the issue is the intent in the Section 199 of the Act, according to which, the assessee who, submits the certificate of tax deduction, is allowed credit on the assessment of his income.
The Legislature had provided in the Act, various modes of voluntary compliance of payment of tax, and one of them, is the deduction of tax while making payment to a contractee by the contractor. The employer/contractor have been provided the onerous duty of retaining a portion of the amount payable to employee/contractee towards tax and paying the same into the Treasury of the Government. The rate at which they could retain the amount towards tax has also been defined. The failure on the part of the employer to comply with the provisions of tax deduction, its payment, resulting in levy of penalty, interest, etc., have also been defined.
7. The duty of the employer to issue the certificate of the amount retained by him towards tax from out of payments to his employee/contractee has been provided in Section 203 of the Act. As per this Section 203 of the Act, the employer is to deduct the amount of tax at the rate specified, when the amount is either credited or paid to the account of the employee/ contractee. He is then called upon to issue the certificate, giving particulars of the gross amount, the rate of tax, and the amount of tax deducted. The certificate only conveys the fact that, tax has been paid for and on behalf of the holder of the certificate. It is this certificate, that the contractee, is required to provide based on which, he becomes entitled to credit of tax. The contractee, normally is not concerned with the contractor's compliance with his obligations under the Act and in fact, he is not expected to ensure that, the contractor, does comply with the requirements under the Act. The Act has not provided for recovery of the tax wrongly deducted by the contractor or employer, but, the only way that is open to the contractee is to claim credit for the tax deducted, in his assessment. It can therefore be appreciated that, the Contractee can only ask for issuance of a certificate of tax deduction, for obtaining credit for the same in his assessment. The said Section 199 is only intended to allow credit for the tax deducted in the hands of the person, from whose income, the Contractor had deducted the tax.
8. Section 199 of the Act has two limbs. The first limb provides that, any deduction of tax made under Sections 192 to 194,194Ato 194E.195,196A and paid to the Central Government shall be treated as a payment of tax on behalf of the person from whose income the deduction was made. The second limb provides that, credit shall be given to the person for the amount so deducted on the production of the certificate furnished under Section 203 in the assessment made for the immediately following assessment year under this Act. The CIT had proceeded on the basis that, the amount of Rs. 3,41,896 having been deposited only on May 14, 1982, credit for tax, could be allowed in assessment year 1983-84, since, it follows the year of payment of tax by SAIL. The contention of the appellant on the other hand is that, it having been furnished the certificate in the financial year ending March 1982, it is entitled to the credit in assessment year 1982-83.
9. The first limb of Section 199, as brought out above is an amplification of the amount that is to be allowed credit for. As per this part, the amount deducted by the employer, from out of payments that are due, towards tax, and paid to the Central Government, would be equivalent to payment of tax by that person, from whose income, the said amount was deducted as tax. This part of the section is silent as to the date within which, the payment should have been made by the employer. In the absence of the words "paid in the financial year of deduction", we could not import the meaning that, credit could be given only when it is so paid, in the year of assessment following the year of payment. This brings out the intention of the Legislature, that the actual date of payment is unnecessary, but, the condition still remains that, it should have been paid to the Central Government. This part in our view, is only intended to ensure that, the credit for tax stated to have been deducted is in fact paid into the Treasury. Since tax deducted amount of Rs. 3,41,896 has been paid to the Central Government, it has to be taken to mean that there is satisfaction of the first limb of Section 199 of the Act. We are therefore, of the opinion that, CIT was not justified to hold that, credit could be given only in the assessment year following the year of actual deposit of the tax with the Central Government.
10. As far as the giving credit for the tax deducted at source is concerned, it has to be related to date of giving of credit or payment to the assessee, by the employer. The words used in Section 199 are "credit shall be given for the amount so deducted on the production of the certificate furnished under Section 203 in the assessment made for the immediately following assessment year under this Act". This would mean that, tax so deducted in a financial year, credit for the same shall have to be allowed in the assessment year following the year of deduction. In the instant case, the deduction of tax out of payments was made in the financial year ending March 1982 and the assessment year that follows the year of deduction is assessment year 1982-83.
Therefore, the assessing officer was not in error in allowing the credit for the tax in the assessment year 1982-83.
11. The reading of Section 199 as it existed for the assessment year under appeal, does not indicate that, the credit should be given only in the year of assessment in which the income was assessable. The section was amended with effect from June 1, 1987, to the effect that, credit could be given for the assessment year for which such income was assessable, in the absence of the requirement of existence of some positive income assessable for the assessment year 1982-83, before tax could be allowed credit for, the contention of the departmental representative Smt. Bhattacharya in this regard, has no merit.
12. We are therefore, of the opinion that, the order of the CIT passed under Section 263 of the Act, is not justified, in the circumstances of the case and deserves only to be quashed. We accordingly, set aside his order.
13. The question of challenge of jurisdiction of CIT to decide on a different ground from the one proposed by him, in our view could be challenged during the course of arguments, though, no ground has been so specifically taken by the assessee. In CWT, v. N.A.Narielwalla[1980] 126 ITR 344, the Bombay High Court had held that the assessee could raise the point of jurisdiction before the Tribunal, which was not taken up before the lower authorities. We therefore, give our conclusions on the point of jurisdiction.
14. The reading of the notice of the CIT clearly indicates that, his objection for allowing of the credit for the tax deducted at source, is that, the assessment has been completed at NIL. The amounts of tax that have been deducted at source are treated as income by virtue of Section 198 of the Act and following it is Section 199, which. allows credit for the tax deducted at source. The two sections complete the cycle of treating the amount tax deducted as income and then, giving credit for the tax so deducted. But, there is nothing in Section 199 indicating that, the credit has to be allowed only when the assessment has been completed at a positive figure. Therefore, the very basis of the proposed action of the CIT has no sanction under the Act.
15. However, he had concluded that, credit has to be allowed in the assessment year, following the year of payment, which basis is different from the one he had proposed in his notice to the assessee.
As per Section 263 of the Act, the Commissioner is empowered to call for and examine the records, and if he considers that, the order so passed by the assessing officer is erroneous resulting in prejudice being caused to the revenue, he may, after giving the assessee, the opportunity of being heard pass such orders thereon as the circumstances may justify. Since, the CIT is required to provide the assessee an opportunity of being heard before passing his order thereon, it is implied that, the Commissioner is only empowered to pass an order on the basis of his initiation. Since, in the instant case, the CIT having initiated the proceedings on a particular basis and concluded not on that basis, but on a totally different ground, his order suffers from the fundamental infirmity and lack of sanction of the Act, and has necessarily needs to be quashed. We accordingly set aside his order even from the point of view of jurisdiction.