The common grievance projected in these six appeals by the revenue is that the learned Dy. Commissioner (Appeals) is not justified in directing the assessing officer that if advance tax has been paid by the sister- concerns, no TDS ought to be made and no interest under section 201(1A) is to be levied.
During the course of proceedings before him, the learned assessing officer noted that the assessee-firm had paid interest to its sister-concerns but had failed to deduct tax at source as per the provisions of section 194A. He accordingly initiated proceedings under section 201(1A) of the Income Tax Act, 1961, and after giving an opportunity of being heard to the assessee, levied interest as per the following details The assessee appealed to the Dy. Commissioner (Appeals) and pleaded that since the payments of interest were to the sister-concems and since it was in the knowledge of the assessee that the said sister-concerns were paying advance tax on such interest income, the assessee did not find it necessary to deduct tax at source at the time of payment of interest. It was further pleaded that in terms of the ratio laid down by the Madhya Pradesh High Court in CIT v. Manager MP.State Co-operative Development Bank Ltd. (1982) 137 ITR 230 (MP) and CIT v. Divisional Manager, New India Assurance Co. Ltd. (1983) 140 ITR 818 (MP), no interest could be levied on the assessee under section 201(IA) of the Act, since the tax alleged to have been omitted to be deducted had been otherwise paid to the Government by the persons from whose income-tax was to be deducted. Reliance was also placed on the decision of Tribunal, Jaipur, in the case of Income Tax Officer v.Rathi Gum Industries.
The learned Dy. Commissioner (Appeals) found force in the arguments put before him and held that though the judgments of Madhya Pradesh High Court relied upon by the assessee "are not on all fours with the circumstances of this case, the logic of principles enunciated demands that these be extrapolated to cover interest levied under section 201(lA) also". He, accordingly, following the decision of Jaipur Bench of the Tribunal in the case of Rathi Gum Industries (supra), allowed the appeals.
Aggrieved by the orders of the learned Commissioner (Appeals), the revenue is in appeal before this Tribunal, Shri Ravi Jain, the learned departmental Representative submitted that the assessee had failed to deduct tax at source as per the provisions of section 194A on interest payments to sister-concerns and accordingly the provisions of section 201(1A) of the Act were clearly attracted. According to the learned departmental Representative charging of interest under section 201(lA) of the Act is mandatory in nature and notwithstanding the fact that the assessee had made payments of interest to sister-concerns who had paid advance tax on such interest, the assessing officer was duty bound to charge interest under section 201(IA). In support of his contention, he ralied upon the judgment of Kerala High Court in the case of CIT v.Dhanalakshmy Wvg. Works (2000) 245 ITR 13 (Ker) and the judgment of the Calcutta High Court in the case of Grindlays Bank Ltd. v. CIT (1993) 200 ITR 441 (Cal). He further submitted that the decision of Jaipur Bench of the Tribunal in the case of Rathi Gum Industries (supra) has been reversed by the Hon'ble Rajasthan High Court and the judgment has been reported as CIT v. Rathi Gum Industries (1995) 213 ITR 98 (Raj).
None attended on behalf of the assessee. Though the notice of hearing was sent to the assessee by registered post, the same has come back with the postal remark "Not found". The assessee has also not intimated its changed address to the Registry. Under the circumstances, we have no other alternative but to dispose of the revenue's appeals after hearing the learned departmental Representative.
We have considered the submissions of the learned departmental Representative and perused the facts on record. Sec. 201(1A) inserted by the Finance Act, 2001, with effect from 1-4-1962, read as under : "(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 fifteen 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. " The plain effect of the above section is that such a person who has either failed to deduct tax or to pay the same to the credit of the Central Government may be subjected to the recovery proceedings which are chargeable under the Act in respect of assessees in default. The Hon'ble Kerala High Court in CIT v. Dhanalakshmy Wvg. Mills (supra) has held as follows : "The levy of interest is a compensatory measure for withholding tax which ought to have gone to the exchequer. Sec. 201(1A) of the Income Tax Act makes it clear that the levy of interest is mandatory. It is true the use of the expression 'shall' is not always determinative of the fact whether a provision is directory or mandatory in nature, but the context in which expression "shall" is used in section 201(1A) makes it clear that the levy is mandatory. The purpose of the levy is to claim that the levy is mandatory. The purpose of the levy is to claim compensation on the amount which ought to have been deducted and deposited and has not been done." An exactly similar view has been reiterated again by the Kerala High Court by following its earlier judgment in the case of CIT v. KK Engg.
Co. (2001) 167 CTR (Ker) 209. The learned Dy. Commissioner (Appeals), while allowing the appeals, mainly followed the decision of the Jaipur Bench of the Tribunal in the case of Rathi Gum Industries (supra) which has been overruled by the Hon'ble Rajasthan High Court in CIT v. Rathi Gum Industries (supra) and the Hon'ble High Court has held as under : "Sec. 201 of the Income Tax Act, 1961, provides not only for collection of tax which has not been deducted but for levy and charge of interest also. Sub-section (1A) of the said section provides for liability to pay simple interest at the rate of 12 per cent per annum on the amount of tax from the date on which the tax was deductible till the date the tax was actually paid. The provisions for payment of interest are mandatory and automatic and interest has to be paid from the date on which the tax was deductible till the date on which the tax is actually paid. If the tax has already been paid by the recipient on such income the IT department may not be justified to recover the said amount of tax, but so far as the liability of interest is concerned, that cannot be considered to be non-existent on account of deposit of tax by the recipient at a subsequent or later stage. " Further, the reliance placed by the Commissioner (Appeals) on the judgment of Madhya Pradesh High Court in the case of CIT v. Kanan Devan Hill Produce Co. Ltd. (1987) 161 ITR 477 (Ker) is misplaced because in that case the decision was concerned with section 201 and not with section 201(1A) of the Act. While section 201 pertains to non-deduction of tax, the other relates to levy of interest. As held by the Hon'ble Kerala High Court and Hon'ble Calcutta High Court in the cases referred to supra, the provisions of section 201(1A) make it clear that the levy of interest is mandatory.
In the light of above discussion, we do not find any merit in the orders of the Dy. Commissioner (Appeals) and reverse the same and restore those of the learned assessing officer.