U.L. Bhat, J.
1. At the instance of the Revenue, the Income-tax Tribunal has referred to this court under Section 256(1) of the Income-tax Act, 1961 (for short 'the Act'), the following four questions of law as arising out of the order dated March 28, 1981, passed by the Tribunal in ITA No. 483/ Coch/1977-78 :
'1. Whether, on the facts and in the circumstances of the case and in view of the decision of the Supreme Court in Aggarwal Chamber of Commerce Ltd. v. Ganpat Rai Hira Lal : [1958]33ITR245(SC) , the orderunder Section 201 of the Income-tax Act is invalid and without jurisdiction
2. Whether, on the facts and in the circumstances of the case, the employee (Mr. McLean) is entitled to exemption under Section 10(6)(i)(a) of the Income-tax Act
3. Whether, on the facts and in the circumstances of the case, the order passed under Section 201 of the Income-tax Act is barred by limitation
4. Whether, on the facts and in the circumstances of the case, and also considering the scope and purport of the judgment of the High Court in the earlier reference, Kannan Devan Hill Produce Co, Ltd. v. CIT : [1986]161ITR489(Ker) (ITR No. 239 of 1979), the Tribunal (Bench) was right, justified and with jurisdiction in going into and deciding the questions of 'exemption' and 'limitation' contrary to the view of the earlier Tribunal (Bench) ?'
2. The assessee-company (which will be referred to in this judgment as 'the company') owning tea estates had employed A. J. McLean (hereinafter referred to as 'the employee') as manager of one of the estates. The employee was paid Rs. 8, 112 during the accounting year 1970-71 relevant to the assessment year 1971-72, being passage money for the journey of his two children from the U.K. to India and back. The employee filed his return on July 7, 1971, disclosing his net salary income but without including the sum of Rs. 8, 112. However, he mentioned the receipt of this amount in the statement appended to the return. The Income-tax Officer completed the assessment on the employee on December 22, 1971, accepting the return and treating the aforesaid amount as not includible in the assessee's income for the purpose of taxation under the Act by virtue of Section 10(6)(i)(a) of the Act. The company had been deducting tax at source and remitting the same to the Department. But in doing so, the company had not included the sum of Rs. 8,112 in the total income for the purpose of computation of tax and had not deducted tax on this amount at source. On February 16, 1976, the Income-tax Officer issued a notice to the company intimating that he proposed to treat the company as a person in default under Section 201 of the Act for not deducting at source tax payable on the aforesaid amount. The company denied its responsibility to pay the tax and liability to be treated as assessee in default. The company further contended that the proceedings were barred by limitation. The Income-tax Officer overruled the contentions and passed an order on December 21, 1976, treating the company as a person in default under Section 201 of the Act and requiring it to pay tax and surchage due on the amount of Rs. 8,112.
3. Aggrieved by this order, the company filed an appeal before the Appellate Assistant Commisioner who allowed the appeal, holding that the journey of the children of the employee from the U. K. to India and back having been performed within 12 months after or before the employee's journey from the U.K. to India and back, the amount of passage money so paid was exempt from tax and the company was justified in not deducting tax at source. The Department filed an appeal before the Income-tax Tribunal which set aside the order of the Appellate Assistant Commissioner and restored the order of the Income-tax Officer on March 22, 1979. The Tribunal held that the journey of the children of the employee from the U.K. to India and back had no connection with the employee proceeding on home leave out of India as contemplated in Section 10(6)(i)(a) of the Act, that the decision in ITR No. 13 of 1973[CIT v. Shuttelworth : [1986]161ITR486(Ker) ] was not applicable to the facts, that the notification dated February 10, 1977, issued by the Government also did not apply to the facts and the proceedings of the Income-tax Officer were not barred by limitation.
4. Thereupon, at the instance of the company, two questions of law were referred to this court under Section 256(1) of the Act. The reference was disposed of in ITR No. 239 of 1979 [Kannan Devan Hill Produce Co. Ltd. v. CIT : [1986]161ITR489(Ker) ]. The questions were whether the company should have deducted tax on the amount in dispute at source and whether the order passed by the Income-tax Officer was barred by limitation. Pointing out that the statutory authorities failed to decide the jurisdictional, question, viz., whether in law, the Department was entitled to proceed against the employer under Section 201 of the Act by going behind the order of assessment and treating the sum of Rs. 8,112 paid to the employee as not exempt from taxation despite the fact that in the assessment order made against the employee the said amount was treated as not includible in the taxable income of the assessee, this court remitted the case to the Tribunal for fresh disposal in accordance with law and in the light of the observations in the judgment.
5. Thereupon, the Tribunal considered the matter once again and by the judgment dated March 28, 1981, held that the Income-tax Officer had no jurisdiction to invoke Section 201 of the Act against the company since the assessment against the employee was completed and the same had become final and could not have been reopened, that the non-taxability of the disputed amount is supported by a circular of 1958 and the decision in ITR No. 13 of 1973--CIT v. Shuttelworth : [1986]161ITR486(Ker) . The Tribunal further held that the proceedings against the company were barred by limitation under Section 231 of the Act. At the instance of the Department, the four questions referred to earlier have been referred to this court under Section 256(1) of the Act.
6. The first question referred to this court is whether, on the facts and circumstances of the case and in view of the decision of the Supreme Court in Aggarwal Chamber of Commerce Ltd. v. Ganpat Rai Hira Lal [1958] 33 ITR 245, the order under Section 201 of the Act is invalid and without jurisdiction. Learned counsel representing the Revenue contended that the liability of the employer under Section 192(1) of the Act is independent of the liability of the employee to pay tax, that the company is deemed to be a defaulter when it fails to make a valid deduction at source or pay over the amount deducted to the Department, though the default is to be followed by passing a specific order which may be appealable under Section 246 of the Act and that the Income-tax Officer is entitled to proceed under Section 201 of the Act irrespective of the assessment being completed on the employee. Therefore, according to learned counsel, the action of the Income-tax Officer in this case treating the company as an assessee in default and passing an order for recovery was within his jurisdiction and did not suffer from any illegality. These contentions are rebutted by learned counsel for the company.
7. Section 15 of the Act deals with 'salaries' and Section 16 with 'deductions from salaries'. Section 17 defines the expressions 'salary', 'perquisite' and 'profits in lieu of salary'. Section 10 categorises incomes not included in the total income. Sub-section (6) of Section 10 excludes from the total income certain sums received in the case of an individual who is not a citizen of India. The provision with which we are concerned as it existed at the relevant time is Sub-section (6)(i)(a) which reads :
'(6) in the case of an individual who is not a citizen of India,--
(i) subject to such conditions as the Central Government may prescribe, passage moneys or the value of any free or concessional passage received by or due to such individual,--
(a) from his employer, for himself, his spouse and children, in connection with his proceeding on home leave out of India. '
8. Evidently, both the employee and the company proceeded on the basis that the passage money of Rs. 8,112 was paid to the employee towards passage of the employee's children from the U.K. to India and back as part of passage money received by the employee in connection with his proceeding on home leave out of India, Therefore, the employer, while deducting tax at source at the time of paying salary and perquisites to the employee, did not include this amount in the taxable income and did not deduct tax thereon.
9. Chapter II of the Act deals with 'basis of charge'. Section 4 explains charge of income-tax. Sub-section (2) of this section states that in respectof income chargeable under Sub-section (1), income-tax shall be deducted at the source or paid in advance, where it is so deductible or payable under any provision of the Act. Chapter XIV of the Act deals with 'procedure for assessment'. Section 139 requires, among other things, every person whose total income in respect of which he is assessable under the Act during the previous year, exceeded the maximum amount which is not chargeable to income-tax, to furnish a return of his income in the prescribed manner and setting forth such other particulars as may be prescribed. In the case of a person drawing salary, he has to do so before the 30th of June of the assessment year. Provisional assessment is dealt with in Section 141A of the Act. Sub-section (1) of this section contemplates refund of excess paid, which is to be dealt with by regular assessment as laid down in Sub-section (4). Assessment, as such, is dealt with in Section 143.
10. Chapter XVII of the Act deals with collection and recovery of tax. Sections 190 and 191 in Part A deal with deduction at source, advance payment and direct payment, respectively. Provisions governing deduction of tax at source are dealt with in Part B while Part C deals with advance payment of tax. Part D deals with collection and recovery. Subsection (1) of Section 192 states that 'any person responsible for paying any income chargeable under the head 'Salaries' shall, at the time of payment, deduct income-tax on the amount payable at the average rate of income-tax computed on the basis of the rates in force for the financial year in which the payment is made, on the estimated income of the assessee under this head for that financial year'. The expression 'person responsible for paying' is explained in Section 204. In the case of a salaried employee, 'the person responsible for paying' means the employer himself, or if the employer is a company, the company itself, including the principal officer thereof. Tax so deducted at source is required to be paid by the employer to the Department within the prescribed time under Section 200. Section 199 lays down in what manner credit is to be given for the tax so deducted. The section states, inter alia, that any deduction made in accordance with Section 192 and paid to the Central Government 'shall be treated as payment of tax on behalf of the Person from whose income the deduction was made' and credit shall be given to him for the amount so deducted on the production of the certificate furnished under Section 203 in the assessment (including a provisional assessment under Section 141A), if any, made for the immediately following assessment year under the Act.
11. Section 201 deals with the consequences of failure to deduct or pay. Sub-section (1) states, inter alia, that if any such person does not deduct or after deducting fails to pay the tax as required by or under the Act, he shall,without prejudice to any other consequences which he may incur, be deemed to be an assessee in default in respect of the tax. The sub-section has a proviso which is not very material for the purpose of this case. Under Sub-section (1A), the person who is deemed to be an assessee in default in respect of the tax, by virtue of Sub-section (1), 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. Section 203 requires the person so deducting and paying to issue a certificate containing necessary particulars to the person on whose account such credit is given. Section 206 requires the person paying salary to furnish the prescribed return. We may, in this connection, notice Section 276B which states, inter alia, that if a person, without reasonable cause or excuse, fails to deduct or after deducting, fails to pay the tax as required by or under the provisions of Chapter XVII-B, he shall be punishable in the manner provided in Clauses (i) and (ii).
12. Section 220 deals with 'when tax payable and when assessee deemed in default'. Sub-section (1) states, inter alia, that any amount, otherwise than by way of advance tax, specified as payable in a notice of demand under Section 156 shall be paid within 35 days of the service of the notice at the place and to the person mentioned in the notice. Section 156 states that when any tax, interest, penalty, fine or any other sum is payable in consequence of any order passed under the Act, the Income-tax Officer shall serve upon the assessee a notice of demand in the prescribed form specifying the sum so payable. Sub-section (2) of Section 220 states that if the amount specified in any notice of demand under Section 156 is not paid within the period limited under Sub-section (1), the assessee shall be liable to pay simple interest at fifteen per cent. per annum from the day commencing after the end of the period mentioned in Sub-section (1). Section 221 deals with liability on the part of the assessee in default or deemed to be in default in making payment of tax. Sections 222 - 230 deal with modes of recovery. Section 231 prescribes the period for commencing recovery proceedings against assessees and assessees deemed to be in default. Section 234 states that tax paid or deemed to have been paid under the provisions of Chapter XVII-B or Chapter XVII-C in respect of any income provisionally assessed under Section 141A shall be deemed to have been paid towards the provisional assessment.
13. Chapter XIX deals with refunds. Section 237 states that if any person satisfies the Income-tax Officer that the amount of tax paid by him or on his behalf for any assessment year exceeds the amount with which he is properly chargeable under the Act for that year, he shall be entitled to a refund of the excess.
14. The scheme and the provisions of the Act clearly indicate that the person who receives income by way of salary is primarily liable to pay the tax, though, generally speaking, the employer, that is, the person responsible for paying the salary, has a duty to collect the tax on the estimated income and pay over the same to the Revenue. Where the employer fails to do so, he is deemed to be an assessee in default with certain consequences. The amount of tax so in default is to be recovered from him. The scheme contained in Sections 192, 201 and the connected sections is only a mode of recovery of tax on the estimated income at the time of payment of salary to the employee. The obvious purpose of the scheme is to facilitate recovery of tax under the Act.
15. Nevertheless, income-tax is a tax on the income derived by the employee. It is a charge on the income. The liability of the person who derives income subsists in spite of the liability cast on the employer to deduct tax at source and pay over the same to the Revenue. What is to be deducted at source and paid over to the Revenue is tax computed on the estimated income. Income estimated may or may not, ultimately, in the assessment to be made in regard to the employee, be found to be correct. It is for the employee to submit an annual return showing his total income for the purpose of taxation and the Department has a duty to complete the assessment, with statutory rights provided in the Act to the employee. The regular assessment may be preceded by a provisional assessment. In either event, the tax deducted at the source and paid over to the Revenue is to be given credit to in the tax liability fixed on the employee for the assessment year. If the tax deducted at source and paid over to the Revenue is found to be in excess, that has to be refunded to the person on whose behalf it was deducted, viz., the employee. If any excess is found due, the liability is on the employee to pay the same.
16. At the same time, we notice that the failure to make deduction or pay over the same to the Department is also visited with certain consequences.
17. As we have pointed out, the provisions regarding deduction of tax at source and payment of tax so deducted to the Revenue lay down only a mode of recovering tax due from the employee. In other words, the duty on the employer is not an end in itself. It is only a means to an end, viz., recovery of tax payable by the employee. Tax paid over to the Revenue after deduction by the employer is for and on behalf of the employee. This is subject to the ultimate assessment to be made on the employee and the tax so deducted and paid is to go in adjustment of the employee's liability. In other words, the liability of the employer to make deduction at sourceand pay over the tax to the Revenue is not independent of the liability of the employee to pay tax. It is dependent entirely on the liability of the employee to pay tax. If, on the estimated income of the employee, no tax is due, the employer has no liability to deduct tax at the source. The liability of the employer and the employee is interconnected and not independent of each other. Where the assessment in relation to an employee has been completed and has become final and no further tax is found due from the employee, that puts an end to the liability of the employer. Thereafter, it cannot be said that the liability of the employer survives. We are here dealing with a case where the assessment on the employee has become final. It is admitted that it cannot be reopened under any of the provisions of the Act. The present discussion is confined to such cases.
18. Any other view would lead to absurdity. If the view is taken that irrespective of the finality (followed by non-reopenability) attached to the assessment completed with reference to the employee, the employer can be deemed to be an assessee in default, it would follow that the employer is liable to pay the deficit to the Department and that too with simple interest at 15 per cent. per annum from the date on which tax was deductible. Had the liability of the employee to pay the alleged deficit been alive, he would be liable to pay the deficit with simple interest at 15 per cent. per annum not from the date on which the tax was deductible but only from the day commencing after the end of the period mentioned in Sub-section (1)of Section 220, that is, the expiry of 35 days of the service of demand notice under Section 156, which notice could be served only after completing the assessment. This would lead to absurd results.
19. If the view is taken that the employer is deemed to be an assessee in default even though the assessment on the employee has become final, it would naturally follow that the employer would be under a duty to pay over the deficit to the Department, failing which the Department would be entitled to recover the same in the manner provided in the Act. Assuming that the deficit tax is so collected from the employer by the Revenue, the amount so collected would go to the credit of the employee. But the assessment made on the employee showing that no further tax was due from him having become final, the employee has no liability in regard to any further amount. Naturally, the alleged deficit amount collected from the employer must be refunded to the employee. We do not think that the provisions of the Act could be interpreted in such a manner as to lead to such patently absurd consequences.
20. We, therefore, hold that the employer cannot be deemed to be an assessee in default once the assessment on the employee is complete andcannot be reopened in accordance with any of the provisions of the Act. Therefore, the act of the Income-tax Officer in the instant case treating the employer as an assessee in default is invalid and without jurisdiction.
21. Learned counsel for the Revenue placed reliance on the decision of the Supreme Court in Aggavwal Chamber of Commerce Ltd. v. Ganpat Rai Hira Lal : [1958]33ITR245(SC) . We do not think that either the ratio of, or the observations in, the judgment have any impact on the question we have considered in this case. We answer question No. 1 in the affimative, in favour of the company and against the Revenue.
22. In this view, it is a futile exercise and, therefore, unnecessary to answer questions Nos. 2 to 4. We decline to answer those questions.
23. The company will have its costs from the Revenue including counsel's fee.
24. A copy of this judgment under the seal of the High Court and the signature of the Registrar will be sent to the Appellate Tribunal as required by Sub-section (1) of Section 260 of the Income-tax Act, 1961.