N.V. Balasubramanian, J.
1. The writ petition has been filed to quash the order of the first respondent dated March 4, 1996, and to direct the first respondent to permit the petitioner to rectify the defects pointed out in the letter of the first respondent dated December 21, 1995, found in the declaration in Form No. 15H filed by the petitioner along with the annual return in Form No. 27A, dated May 24, 1995, under Section 194A of the Income-tax Act, 1961, for the assessment year 1994-95.
2. The facts leading to the filing of the writ petition are, the first respondent by his order passed under Sections 201(1) and 201(1A) of the Income-tax Act, 1961 (hereinafter to be referred to as 'the Act'), dated March 4, 1996, treated the writ petitioner as an 'assessee in default' in respect of a sum of Rs. 29,029 being the tax that ought to have been deducted at source under Section 194A of the Act on the interest paid by the petitioner to various other persons who have made certain amount of fixed deposits with the petitioner. The case of the petitioner is that the petitioner did not deduct the tax on the ground that the persons on whose behalf the deduction ought to have been made had filed declarations in Form No. 15H requesting that no tax need be deducted on the interest paid to them. However, the first respondent found that declarations were defective in various respects and consequently held that the declarations were not valid in law and in this view of the matter, the first respondent besides imposing the tax also levied a penalty of Rs. 3,991 by way of interest under Section 201(1A) of the Act and the total amount payable by the petitioner came to Rs. 33,020.
3. The writ petition has been filed on the ground that the defects found in the declarations in Form No. 15H are very minor in nature and can be easily rectified. The case of the petitioner is that an opportunity should have been granted to the petitioner to rectify the defects and the first respondent had failed to inform the petitioner for nearly six months the defects in Form No. 15H. According to the petitioner, when the petitioner made the request to rectify the defects, the first respondent ought to have allowed the petitioner to rectify the defects and there is no prohibition to rectify the defects under the Act. Another ground raised in the writ petition is that no opportunity was given to the petitioner to offer his explanation before the first respondent directing the petitioner to ignore the declarations furnished by the depositors and pay tax under Section 194A of the Act. According to the petitioner, as already stated, the defects were of minor nature and the petitioner has acted honestly and fairly and there is no warrant to treat the petitioner as 'assessee in default' and direct him to pay the tax and interest on the tax to be deducted.
4. In the counter affidavit it has been stated that the petitioner had admitted that the depositors handed over blank declarations in Form No. 15H to the petitioner along with the details and instructed the petitioner to fill up the details, but the details were not filled up by the staff of the petitioner before they were filed on May 24, 1995, to the Department along with 'nil' return that was filed in Form No. 27A under Rule 37AA of the Income-tax Rules, 1962. The case of the respondents is that it is for the depositors to fill up the details as they signed the declarations after verification and the responsibility of filling up of the details squarely falls on the depositors. It is stated that it is the duty of the petitioner to verify whether the declarations filed were not defective but complete in all respects and in case the declarations were found to be defective, the petitioner should have asked the depositors to rectify the defects before the declarations were filed, but after the same were filed along with the annual return of the petitioner, it is not open to the petitioner to seek an opportunity to rectify the defects. It is stated that merely because the defects are of minor nature, that is not a ground to treat the defective declarations as valid ones and when there are no valid grounds for non-deduction of tax on the payments made, and the petitioner is liable to pay the tax and interest on the tax also. The respondents have also raised several grounds in the counter affidavit filed, but the main case of the respondents is that the petitioner has contravened the provisions of Section 197A(1A) of the Act without any reasonable cause as the petitioner had admitted the defective nature of the declarations and there was no explanation at all as to why before making payment of interest to various depositors; the petitioner has not verified the declarations in Form No. 15H filed by the depositors and deducted the tax on that basis. It is also stated that the acceptance of the claim of the petitioner that the defective declarations should be returned to the petitioner for rectification would result in the action under Section 201 not being applicable to any case and, hence, the said section would become otiose and a dead letter as every assessee would claim that the defective forms filed by it should be returned for rectification.
5. Learned counsel for the parties reiterated the submissions made in the affidavit as well as in the counter affidavit.
6. I have carefully considered the submissions of learned counsel for the petitioner and learned senior counsel for the respondents. The assessment year involved is 1994-95. It is now necessary to notice the relevant provisions of the Act and the Income-tax Rules. Section 194A provides for deduction of tax on interest other than interest on securities, and it enjoins deduction of tax at source on interest other than income by way of interest on securities. There is an obligation during the material time to deduct tax at source and the obligation applies to all persons who pay interest other than an individual or a Hindu undivided family and there are certain exceptions to the obligation to deduct tax on payment of interest under Section 194A of the Act. Section 197A(1A) of the Act provides that no deduction of tax shall be made under either Section 194A or Section 194K in case a person (not being a company or a firm), furnishes to the person responsible for paying any income of the nature referred to in Section 194A or Section 194K, as the case may be, a declaration in writing in duplicate in the prescribed form and verified in the prescribed manner to the effect that the tax on his estimated total income of the previous year in which such income is to be included in computing his total income will be nil. Rule 29C of the Income-tax Rules prescribes that that declaration referred to in Section 197A(1A) of the Act shall be in Form No. 15H. Form No. 15H requires the declarant to furnish various particulars of his income, occupation, etc., and the declarant is also required to state that the tax on the estimated total income is nil during the relevant assessment year. The declarant is also required to verify the contents of the declaration. Under Section 206A of the Act, the person responsible for paying interest referred to in Section 194A of the Act shall prepare and file within 30 days from March 31, of each year in Form No. 27A a return showing the name and address of the person and the amount of interest credited in every financial year and the time when the credit was made, etc. Rule 37AA provides that in the case of interest paid to residents without deduction of tax, the return shall be prepared in Form No. 27A. There is nodispute that the Income-tax Officer who scrutinised the return in Form No. 27A found certain discrepancies in the declarations in Form No. 15H filed by the writ petitioner. In the letter dated December 21, 1995, the Income-tax Officer noticed various defects which are as under :
1. The details regarding occupation of the depositors, the financial year and the assessment year for which the declarations are furnished are not filled in.
2. The verification part has not been properly filled in and signed by the depositors.
3. The date of verification is not available.
4. The columns that should be filled in by the person responsible for paying interest are not filled up.
5. The person responsible for paying interest has not signed the declarations.
The Income-tax Officer in the said letter also requested the petitioner to ignore the declarations in Form No. 15H under Section 197A(1A) furnished by the depositors and deduct the tax under Section 194A of the Act. Then, the petitioner sent a letter stating that due to oversight, some details were not filled up by the staff of the petitioner. The petitioner, therefore, requested the Income-tax Officer to give an opportunity to fill up the details in Form No. 15H declarations. However, the said request of the petitioner was turned down by the Income-tax Officer and the petitioner was treated as 'assessee in default' and the petitioner was directed to pay income-tax of Rs. 29,029 and interest of Rs. 3,991 under Section 201(1A) of the Act.
7. In my view, though the Income-tax Officer may be correct in his view that Section 194A of the Act does not provide for any opportunity to be given to the petitioner to rectify the defects found in the declarations (Form No. 15H) filed by the person responsible for paying interest, a reasonable construction of Section 194A of the Act would warrant, in my opinion, an opportunity to be granted to the person responsible for paying interest to rectify the defects found in the declarations. It may be true, that some of the declarations were not signed by the payee, but in cases where there are certain minor defects crept in the declaration unnoticed either by the payee or by the person paying interest and if the declarations are rejected on account of such defects, the ultimate income-tax liability would fall on the person paying interest. If an opportunity is granted to the person paying interest to rectify the defects, then it will enable the person to get the declarations rectified by the declarants. It is essential to notice that Section 194A of the Act imposes an obligation on the person paying interest and for his failure to deduct tax at source, he would be liable to pay the tax of the payee. In my view, if the section is so construed in the manner that the declarations once filed cannot be allowed to berectified, whatever may be the nature of the defects, either minor or insignificant one, the operation of the section would work in a harsh manner against the person paying interest income to the payee. The object of Section 194A of the Act is that tax on the interest income to the payee is realised and collected and if that is the object, the mere defective nature of the declaration should not fasten the liability of the payee on the person paying interest income. In other words, the liability should not be imposed on technical grounds or for minor violation of not filling up of the declarations as required and if defects are found and if the defects can be rectified, in my view, the Assessing Officer should give an opportunity to the person responsible for paying interest to rectify the defects which would facilitate the person paying interest to get the defects rectified by the declarant. The tax liability is not intended to be imposed for defective nature of the declaration in Form No. 15H, but it is intended to be imposed for the failure to deduct tax on the interest income to the payee. In my view, the section should be interpreted in a reasonable and fair manner so that the liability of tax is not imposed on the person paying interest for filing defective declarations. I also hold that it is well-settled that unless the provisions of the statute warrant or there is a necessary implication on reading of the section that the principles of natural justice are excluded, the provisions of the section should be construed in a manner incorporating the principles of natural justice and if declarations in Form No. 15H are found to be defective, the Income-tax Officer in conformity with the provisions of the principles of natural justice, should give an opportunity to the petitioner for rectification of the defects in the declarations. The case of the Department that if such an opportunity is given to the petitioner, there will be no case of liability under Section 194A being imposed is not a ground to hold that an opportunity need not be given to rectify the defective nature of the declarations. As already held by me, the section is not intended to impose the liability for filing defective declaration forms, but the liability is sought to be imposed for the failure to deduct income-tax. Further, the liability is imposed on the person paying interest and the section should be construed strictly and reasonably.
8. Learned counsel for the petitioner relied upon a decision of the Supreme Court in the case of C.B. Gautam v. Union of India : [1993]199ITR530(SC) . The said decision is an authority for the proposition that the courts should generally read into the provisions of the relevant sections a requirement of giving a reasonable opportunity of being heard before an order is made which would have adverse civil consequences for the parties affected and this would be particularly so in a case where the validity of the section would be open to serious challenge for want of such an opportunity. In my view, the principle laid down by the Supreme Court would equally apply to the interpretation of Section 194A of the Act as therejection of the declarations for defects, however minor it may be, would have adverse civil consequences against the person paying interest other than the interest on securities and, therefore, requirement of giving an opportunity to the person filing the declaration form should be read into the provisions of Section 194A of the Act. Though the declarations were of the declarations belonging to the declarants, the rejection of the declarations for want of filling up of certain particulars in the declarations would have adverse civil consequences against the person filing the declarations if an opportunity is not granted to the person filing the declarations.
9. Learned counsel for the petitioner next relied upon the decision of the Supreme Court in the case of K.P. Varghese v. ITO : [1981]131ITR597(SC) . The Supreme Court in the above case made the following observations which are relevant for the purpose of this case (page 605) :
'We must, therefore, eschew literalness in the interpretation of Section 52, Sub-section (2), and try to arrive at an interpretation which avoids this absurdity and mischief and makes the provision rational and sensible, unless of course, our hands are tied and we cannot find any escape from the tyranny of the literal interpretation. It is now a well-settled rule of construction that where the plain literal interpretation of a statutory provision produces a manifestly absurd and unjust result which could never have been intended by the Legislature, the court may modify the language used by the Legislature or even 'do some violence' to it, so as to achieve the obvious intention of the Legislature and produce a rational construction : Vide Luke v. IRC [1965] AC 557 ; [1964] 54 ITR 692 (HL). The court may also in such a case read into the statutory provision a condition which, though not expressed, is implicit as constituting the basic assumption underlying the statutory provision.'
The above observation of the Supreme Court is relevant for the construction of Section 194A of the Act and to avoid hardship and unjust result that may flow against the person filing the declaration, the requirement of granting an opportunity to the said person for rectification of defects in the declaration should be afforded to make it reasonable and justifiable in the eye of law.
10. In this connection, it is relevant to notice a Full Bench decision of the Andhra Pradesh High Court in the case of CIT v. Hyderabad Stone Depot : [1977]109ITR686(AP) . The case before the Andhra Pradesh High Court was a case dealing with registration of a firm and the registration of the firm was refused on the ground that the application for registration filed was defective and the Andhra Pradesh High Court held that an opportunity should be granted to the assessee to rectify the defects found in the application form for registration. The Andhra Pradesh High Court held as under (page 698) :
'The intent of the law is not that the Revenue should gain a larger amount of tax by refusing registration to a firm on the ground of technical, immaterial or insignificant defects in the application. The assessee-firm was in existence and it was evidenced by an instrument in writing and the shares of the partners are specified in the instrument of partnership. The instrument of partnership was also appended to the application. It is not the case of the department that the profits of the firm have not been divided among the partners in accordance with the shares of the partners as specified in the deed of partnership. In these circumstances, the mere omission to state the shares of the partners in column 6 of the Schedule to the application cannot be said to be a material defect which should be seriously countenanced. It is a curable defect as pointed out by the Accountant Member of the Tribunal. The Income-tax Officer cannot take advantage of the absence of a provision of law under the Indian Income-tax Act of 1922 and refuse registration to a firm for some defects he has detected in the application for registration. It is, in our opinion, the duty of the Income-tax Officer to act in a fair and just manner and to bring to the notice of the assessee the defects in the application for registration and to give him an opportunity to remove those defects. Only if the assessee fails to remove the defects, then the Income-tax Officer could refuse registration to a firm.'
The above decision of the Andhra Pradesh High Court on the construction of registration provisions in the Indian Income-tax Act, in my view, would equally apply to the interpretation of Section 194A of the Act. In my view, it is not open to the Income-tax Officer to take advantage of the absence of a provision of law in Section 194A and impose tax liability on the petitioner and it is the bounden duty of the Income-tax Officer to bring to the notice the defects found in the declarations to the person who filed the return so that the defects can be rectified and only after giving such an opportunity, if the person fails to rectify the defects, the Income-tax Officer would be empowered to further proceed in the matter and impose tax liability on the person filing the declarations.
11. The Bombay High Court in the case of Dattatraya Gopal Shette v. CIT : [1984]150ITR460(Bom) , has also taken the same view. The Bombay High Court was dealing with a case where an application for renewal of registration was not signed by one of the partners and it was rejected on the ground that the application was defective. The question arose whether the action of the Income-tax Officer was justified and whether the Income-tax Officer was required to give an opportunity to the assessee to rectify the defects in the application filed for renewal of registration of the firm. Sujutha V. Manohar J. (as her Lordship then was) speaking for the Bench of the Bombay High Court referred to a circular issued by the Central Board of Revenue dated April 11, 1955 (Circular No. 14 (XL-35) of 1955) and held as under (page 463) :
'It is now well-settled that even if the contents of a circular may amount to a deviation on a point of law, a circular of the Central Board of Revenue which confers some benefit on the assessee is binding on all officers concerned with the execution of the Income-tax Act ; and they must carry out their duties in the light of the circular. In the present case, therefore, it was, in the first place, the duty of the Income-tax Officer to have drawn the attention of the assessee-firm to the defect in the application for renewal of registration. The Income-tax Officer, however, granted registration to the firm. In such a situation it was equally the duty of the Commissioner of Income-tax to have given an opportunity to the assessee-firm to remedy the defect in their application. The Commissioner of Income-tax, in view of this circular, clearly should not have cancelled the renewal of registration of the assessee-firm without giving an opportunity to the assessee-firm to remedy the defect in the application.'
12. Following the decision of the Bombay High Court, I hold that it is the duty of the Income-tax Officer to give an opportunity to rectify the defects in the declarations in Form No. 15H and imposition of tax liability without giving an opportunity to the petitioner to rectify the defects in the declarations in spite of the petitioner asking for an opportunity to rectify the defects is not justified in the eye of law. Therefore, the impugned order passed by the first respondent is quashed and the result is, the matter is remitted to the Income-tax Officer to grant an opportunity to the petitioner for the rectification of the defects noticed in the declarations in Form No. 15H and then proceed in accordance with law. The writ petition is allowed. However, in the circumstances, there will be no order as to costs.