[2001]76ITD272(ALL.

INTHEITATALLAHABADBENCHB AssistantCommissionerofIncometax v. U.P.NationalManufacturersLtd.

P.N.PARASHAR,JUDICIALMEMBERANDMOHANSINGH,ACCOUNTANTMEMBER ITAPPEALNO.1176(ALL.)OF1993[ASSESSMENTYEAR199293] NOVEMBER30,1999

Section194H,readwithsection201,oftheIncometaxAct,1961DeductionoftaxatsourceCommission, brokerageetc.Assessmentyear199293Whetherliabilitycreatedundersection194Hisabsoluteandthereis noquestionofreasonablecausefornotdeductingtaxHeld,yesWhetherthoughsubsection(2)ofsection 194HcarvesoutcertainexceptionsandempowersCentralGovernmenttograntexemptionstocertainpersons orclassesofpersons,butthatbynomeansconfersanyrightonassesseenottodeducttaxundersection194H merelybecauseithasmaderepresentationforexemptionHeld,yesWhethermerefactthatadvancetaxhad beenpaidbyfirmstowhomcommissionwaspaidcouldabsolveassessee fromliability cast onitunder section194HHeld,no InterpretationofstatutesRuleofliteralconstruction
FACTS

The assessee-company was carrying on business of manufacturing and selling Tullu water pumps, fans and machines, etc. The company was paying commission on its products to the selling agents. As the assesseecompany failed to deduct tax at source as required under section 194H, the Assessing Officer issued a notice for showing cause as to why the prescribed form was not deposited by it. In its reply the assessee stated that it had applied to the Central Board of Direct Taxes (CBDT) for granting exemption from the provision of section 194H, and that it had also filed a writ petition before the High Court which directed the CBDT to decide the representation within a period of two months. The Assessing Officer, however, found that neither the Board nor the High Court had stayed the operation of the provisions of section 194H nor exemption was granted to the assessee by any other authority. It was also found that the representation of the assessee seeking exemption under section 194H was rejected by the Finance Minister, Government of India. The Assessing Officer, therefore, held the assessee liable for not deducting tax at source and also held it liable to pay interest under section 201 on the amount of T.D.S. which was not deducted and paid by the assessee. On appeal, it was contended by the assessee that the tax at source was not deducted by it because it had applied for exemption from the provision of section 194H and that when on 30-9-1992 its representation was rejected by the CBDT it deposited the entire tax on 29-10-1992 and, therefore, there was no wilful neglect on its part in not deducting income tax at source out of the income by way of commission. The Commissioner (Appeals), having been convinced by the plea of the assessee, cancelled the interest imposed under section 201(1A). On the revenues appeal :
HELD

One might agree that the assessee acted bona fide and that there was reasonable cause, belief or bona fides on its part for not deducting the tax under section 194H and was waiting for the orders of the CBDT. However, the relevant provisions, and more particularly the provisions under section 194H(1) and section 201(1A), are to be read and re-read to decipher the legislative intent. It is a well-settled principle of interpretation of statutes and statutory provisions that if the language adopted and used by the Legislature is clear, plain and unambiguous, then effect is to be given to such language. According to the golden rule of interpretation, the provisions of a statute are to be interpreted according to the plain language adopted by the Legislature. The words "reasonable cause", "sufficient cause", "reasonable belief", "bona fide conduct", "without

negligence", etc., cannot be introduced in the provisions contained under section 194H(1) or under section 201(1A). The language of the provisions is plain and clear and there is no ambiguity so far as the understanding of these provisions is concerned. These provisions cast an absolute obligation on the part of the assessee who is obligated to deduct income-tax at the rate prescribed. The provision contained under section 194H(1) does not admit of any scope of a reasonable cause for not deducting the tax. The liability is absolute. The plea of the assessee that the liability crystallized on the date when the order of rejection of the representation was conveyed to the assessee by the CBDT, could not be entertained in view of the clear and plain language adopted under section 194H. It is true that sub-section (2) of section 194H carves out certain exceptions and empowers the Central Government to grant exemptions to certain persons or classes of persons but that by no means confers any right on the assessees not to deduct tax under section 194H merely because they have made a representation for exemption. If this approach is accepted, then it will be very easy for the assessees to flout the provisions of section 194H just by making or sending representations and not deducting tax under the Act on the pretext that they were waiting for the result of their representations. The remedy for seeking exemption is no doubt available and in case the remedy is granted, then consequent effect can be given to the orders passed by the CBDT on the representations made for seeking relief. Further, the mere fact that the advance tax was paid by the firms to whom the commission was paid, could not absolve the assessee from the liability cast on it under section 194H, read with section 201(1A). Therefore, the Legislative intent being very clear and decipherable from the plain language, there is no scope for introducing either the reasonableness of the cause or bona fide belief or sufficient cause for exonerating the assessee from this liability which is strict liability and in the discharge of which the element of mens rea is not at all relevant. Therefore, the Commissioner (Appeals) was not justified in cancelling the levy of interest.
CASES REFERRED TO

ITO v. Khushi Ram & Sons [1989] 31 ITD 151 (Asr.), ITO v. Das Biri Mfg. Co. (P.) Ltd. [1984] 10 ITD 35 (Cal.), Cawnpore Sugar Works Ltd. v. IAC [1982] 2 ITD 654 (All.), ITO v. Marshall Sons & Co. (I) Ltd. [1992] 42 ITD 496 (Cal.), ITO v. Sood Enterprises [1992] 41 ITD 234 (Delhi), Munak Investment (P.) Ltd. v. ITO [1995] 55 ITD 429 (Chd.), N.K. Patel & Co. v. ITO [1993] 69 Taxman 39 (Ahd.) (Mag.), Nestle India Ltd. v. Asstt. CIT [1997] 61 ITD 444 (Delhi), CIT v. Shahzada Nand & Sons [1966] 60 ITR 392 (SC) and CED v. R. Kanakasabai [1973] 89 ITR 251 (SC). B.P. Singh for the Appellant. S.K. Garg for the Respondent.
ORDER

Per Shri P.N. Parashar, J.M. - In this appeal against the order of ld. Commissioner of Income-tax dated 12-31993 for the assessment year 1992-93, the department has objected to the deletion of interest of Rs. 11,962 levied under section 201(1A) by the A.C.I.T. (TDS). 2. The assessee-company was carrying on business of manufacturing and selling of Tullu water pumps, fans and machines etc. The company was paying commission on its products to the selling agents. In the assessment year 1992-93, it paid commission to the tune of Rs. 89,24,231 to the following firms : 1.M/s Shah Agencies, Hoza Katora, Varanasi Rs. 50,92,594 2.M/s Hemant Vidyut Pratishthan, Sigra, Varanasi Rs. 31,57,759 3.M/s Cinni Tullu Sales and Service Centre, Lahuravir, Varanasi Rs. 6,73,878. 3. A new provision under section 194H of the Income-tax Act was enforced w.e.f. 1-10-1991. It required the assessees to deduct Income-tax at source from the amount of commission. This provision is reproduced below : "194H-(1) Any person, not being an individual or a Hindu undivided family, who is responsible for paying on or after the 1st day of October, 1991 (but before the 1st day of June, 1992), to a resident, any income by way of commission (not being insurance commission referred to in section 194D) or brokerage, shall, at the time of credit of such income to the account of the payee or at the time of payment of such income in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct Income-tax

thereon at the rate of ten per can. (2) The provisions of sub-section (1) shall not apply (a )to such persons or class or classes of persons as the Central Government may, having regard to the extent of inconvenience caused or likely to be caused to them and being satisfied that it will not be prejudicial to the interests of the revenue, by notification in the Official Gazette, specify in this behalf; (b)where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year by the person referred to in sub-section (1) to the account of, or to, the payee, does not exceed two thousand five hundred rupees." 4. The assessee-company under the above-mentioned provision was liable to deduct a sum of Rs. 9,99,413 as tax at source out of the amount of the commission. When the assessee-company failed to deduct tax at source, the Assessing Officer issued a notice for showing cause as to why Form No. 26(1) was not deposited by it. The Assessing Officer also refused the summoning to the assessee under section 131 of Income-tax Act on 7-9-1992. In its reply the assessee stated that it had applied to the Central Board of Direct Taxes for granting exemption from the provision of 194H. It was further pointed out that it had also filed a writ petition before the Honble High Court at Allahabad and the Honble High Court directed the Central Board of Direct Taxes to decide the representation within a period of two months and in compliance to the order of the High Court dated 23rd July, 1992, the CBDT was to decide the representation of the assessee for granting exemption under section 194H. The ld. Deputy Commissioner of Income-tax found that neither the Board nor Honble High Court had stayed the operation of the provisions of section 194H nor exepmption was granted to assessee by any other authority. It was also found that the representation of the assessee seeking exemption under section 194H was rejected by the Honble Finance Minister, Government of India. The Asstt. Commissioner of Incometax held the assessee liable for not deducting tax of Rs. 9,99,513 at source and also held it liable to pay interest under section 201 at Rs. 71,962 on the amount of TDS of Rs. 9,99,513 which was not deducted and paid by the assessee. 5. The assessee preferred the appeal against the order of CIT dated 14-10-1992 passed under section 201 of Income-tax Act. 6. In appeal, it was submitted on behalf of the assessee that the tax at source was not deducted by it because it had applied for exemption from the provision of section 194H and that when on 30-9-1992 its representation was rejected by CBDT it deposited the entire tax on 29-10-1992 and therefore there was no wilful neglect on its part in not deducting income tax at source out of the income of the commission. The ld. CIT(A) having been convened by the plea of the assessee cancelled the interests imposed under section 201(1A). 7. The department has challenged the order of the ld. CIT(A) before us in this appeal. 8. The ld. D.R. emphatically argued that in view of the mandatory provisions of section 194H, the ACIT(TDS) was fully justified in levying the interest under section 201(1A) of the Income-tax Act and that the ld. CIT(A) has committed a legal error in cancelling the levy of interest. In support of his contention, the ld. D.R. has made reference to the following decisions : 1.ITO v. Khushi Ram & Sons [1989] 31 ITD 151 (Asr.). 2.ITO v. Das Biri Mfg. Co. (P.) Ltd. [1984] 10 ITD 35 (Cal.). 3.Cawnpore Sugar Works Ltd. v. IAC [1982] 2 ITD 654 (All.). 4.ITO v. Marshall Sons & Co. (I) Ltd. [1992] 42 ITD 496 (Cal.). 9. Shri, S.K. Garg, ld. counsel for the assessee-company submitted detailed arguments for supporting the order of ld. CIT(A). He raised following specific pleas : (i)In view of the provisions contained under section 194H which came into effect from 1-10-1991, the relevant date for ascertaining the liability is the date on which the liability crystallised. (ii)As section 194H(2) itself provides for certain exemptions, the liability can arise only when the prayer for seeking exclusion/exemption is disposed of. Accordingly in the instant case, just after the enforcement of section 194H, i.e., from 1-10-1991 on 4-11-1991, the assessee applied to the Central Government for claiming exemption and the representation of the assessee-company was rejected on 30-9-1992 under

the directions of the Honble High Court. Hence the liability crystallised only after 30-9-1992. In this regard it was further submitted by him that the order of rejection was communicated in the month of October, 1992 and the tax was deducted on 27-10-1992 and the same was paid on 29-10-1992. Hence there was no fault on the part of the assessee. (iii)The assessee made best efforts and acted with all diligence in getting the matter solved by CBDT. The matter remained pending before the CBDT for a long time and thus the fault, if any, was on the part of the CBDT and not on the part of the assessee. (iv)All the three firms to whom the commission was paid i.e., (1) Hemant Vidyut Pratisthan (2) Shah Agency and (3) Cinni Tullu Sales and Service Centre, had already paid tax by way of advance tax and the major amount was refunded to them. In this regard the ld. counsel has invited our attention to pages 72, 79 and 83 of the paper book Vol. II, Ld. counsel on this basis has contended that if payee had discharged the liability, the payer cannot be held responsible for default in not deducting the tax at source. In this regard, ld. counsel relied on the decision in the following cases : 1.ITO v. Sood Enterprises [1992] 41 ITD 234 (Delhi). 2.Munak Investment (P.) Ltd. v. ITO [1995] 55 ITD 429 (Chd.). He also made reference to the decisions in N.K. Patel & Co. v. ITO [1993] 69 Taxman 39 (Ahd.) (Mag.) and (sic.) 61 ITD 104. 10. The ld. counsel for the assessee also contended that in the penalty matter, considering all these relevant aspects, including the conduct of the assessee, the Tribunal dismissed the appeal of the deptt. filed against the cancellation of penalty under section 271C. In this regard our attention was invited to the decision of ITAT A Bench Allahabad dated 12-4-1999 rendered in ITA No. 480 (All.) of 1991 in the case of assessee. He also made reference to the decision of Delhi Bench in the case of Nestle India Ltd. v. Asstt. CIT [1997] 61 ITD 444 (Delhi) a copy of which has been filed on the paper book at pages 104 to 109. 11. In reply, the ld. D.R., Shri B.P. Singh submitted that no credit can be given to the assessee on account of the fact that payees had made the payment of tax by way of advance tax. He also submitted that so far as the exemption provided under section 194(2) is concerned, remedy was available to the assessee before 31-31991 and, in any case, on that account, the obligation cannot be held to be discharged. He also submitted that the language of section 194H and that of 201(1A) is very plain and there is no scope for introducing the scope of reasonable cause for not deducting tax at source under section 194H. 12. We have carefully considered the facts and circumstances relating to this matter, the material to which our attention was invited and the rival submissions. The ld. counsel for the assessee took extraordinary pains to demonstrate that the assessee had taken all care to comply with the provisions of section 194H. Referring to the sequence of events relating to this matter as described on pages 1 and 2 of the paper book, he submitted that the assessee has moved representation to the Central Government on 4-11-1997 and pursued the matter before the High Court when the representation was not disposed of. In this regard he made reference to the copies of petitions filed by the assessee and others before the High Court. The order of the High Court dated 23-7-1992 and the order of the Ministry of Finance, Deptt. of Revenue, Central Board of Direct Taxes dated 30-9-1992 rejecting the representation of the assessee. He also pointed out that the CBDT had granted exemption to some classes of persons under section 194H. In support of this contention, he has filed copies of orders of CBDT dated 6-2-1992 (Paper No. 65 of the paper book and dated 3-3-1992 paper Nos. 67 and 68 of the paper book). 13. Referring to the order of the Tribunal dated 12-4-1999 (supra) he explained that the provisions of section 194H(1) cannot be constituted in isolation and if provisions of section 194H(2) are considered, then it is clear that such a provision grants a right to the assessee for seeking exemption. 14. After considering the above material, we may agree with the ld. counsel for the assessee that the assessee acted bona fide and that there was reasonable cause, belief or bona fides on his part for not deducting the tax under section 194H and to wait for the orders of the CBDT. However, the relevant provisions and more particularly the provisions under section 194H(1) and section 201(1A) are to be read and re-read to decipher the legislative intent. It is a well-settled principle of interpretation of Statutes and statutory provisions that if the language adopted and used by the Legislature is clear, plain and unambiguous, then effect is to be

given to such language. According to the golden rule of interpretation, the provisions of a statute are to be interpreted according to the plain language adopted by the Legislature. 15. In the case of CIT v. Shahzada Nand & Sons [1966] 60 ITR 392 . The Honble Supreme Court has observed that in a taxing Act, one has to look merely at what is clearly stated and in a case of reasonable doubt, if the construction is beneficial to the subject then the same is to be adopted. But even then fundamental rule of construction is the same for all statutes whether fiscal or otherwise. According to Honble Court, the underlying principle is that the meaning and intention of statute must be collected from the plain and unambiguous expression used therein rather than from any notions which may be entertained by the court as to what is just and expedient. The express intention must guide the court. In the case of CED v. R. Kanakasabai [1973] 89 ITR 251 it was observed by the Supreme Court that if taxing provision is ambiguous and is reasonably capable of more than one interpretation, that interpretation which is beneficial to the subject must be adopted. It is not permissible for the court to read into a taxing provision any words which are not there or exclude words which are there. According to Honble Court, the words found in the provision must be given their natural meaning. 16. Viewed in the above perspective and settled legal position, the words "reasonable cause", "sufficient cause," "reasonable belief", " bona fide conduct", "without negligence" etc., cannot be introduced in the provisions contained under section 194H(1) or under section 201(1A) of the I.T. Act. The language of the provisions is plain and clear and there is no ambiguity so far as the understanding of these provisions are concerned. These provisions cast an absolute obligation on the part of the assessee who is obligated to deduct income-tax at the rate prescribed. The provision contained under section 194H(1) does not admit of any scope of a reasonable cause for not deducting the tax. The liability is absolute. 17. In the case of Cawnpore Sugar Works Ltd. (supra) the Honble Allahabad high Court has also taken a similar view. The observations of the Honble Court are reproduced below : "1. It is now well-settled that where the meaning of a provision can be collected from the plain and unambiguous expressions used therein, one has to look fairly at the language used, and it is not permissible to depart from the natural meaning of the plain and unambiguous expressions used therein on the grounds of any notions which may be entertained by the court as to what is just or expedient or what was the purpose of the enactment. Viewed in this context, the language of section 194A(1) speaks of any income by way of interest and hence cannot be constructed to mean only income chargeable to tax. This view becomes apparent from the proviso to that sub-section which enables the recipients to get themselves exempted from the operation of the main provision by furnishing the prescribed declarations. It is not for the payer to sit in judgment or adjudicate upon whether interest paid by him was chargeable to tax in the hands of the payee; his obligation is to deduct tax at source unless the payee is covered by the prescribed exceptions. The provisions of section 194(A) were thus clearly applicable in the case." 18. In the case of ITO v. New Era Engg. Corporation, the ITAT Madras Bench "A" also held that the interest under section 201(1A) had to be paid and as the assessee had not deducted and paid the sums within the stipulated time, the ITO was justified in charging interest under section 201(1A). 19. Taking up the plea of the assessee that the liability crystallised on the date when the order of rejection of the representation was conveyed to the assessee by the Central Board of Direct Taxes, we are of the view that this plea of the assessee cannot be entertained in view of the clear and plain language adopted under section 194H. It is true that clause 2 of section 194H carves out certain exceptions and empowers the Central Goverment to grant exemptions to certain persons or classes of persons but that by no means confers any right on the assessees not to deduct tax under section 194H merely because they have made a representation for exemption. If this approach is accepted, then it will be very easy for the assessees to flout the provisions of section 194H just by making or sending representations and not deducting tax under the Act on the pretext that they are waiting for the result of their representations. The remedy for seeking exemption is no doubt available and in case the remedy is granted, then consequent effect can be given to the orders passed by the CBDT on the representations made for seeking relief. 20. So far as the order of the ITAT B Bench dated 12-4-1999 is concerned, the matter before the Bench in that case related to the penalty under section 271C. In the matters relating to penalty, the reasonable cause or bona fide belief entertained by the assessee has to be considered and entertained. However, so far as the

levy of interest is concerned, the scheme and intent of these provisions is different from those provisions which relate to penalty. In the case of Marshall Sons & Co. (I) Ltd. (supra) the Calcutta Bench A of ITAT has considered this defence and has observed that the penalty and interest operate in different fields. The observations of the Bench are reproduced below : ". . . Penalty is levied for violation of the provisions of law and is quasi- criminal in nature whereas interest is an amount payable as compensation for use of moneys of the Government beyond a stipulated time. There is an element of mens rea involved for being penalised for a default or a failure whereas the element of mens rea does not come into play or operation for the purpose of charge of interest on the moneys due to the Government. There may be good, sufficient or reasonable causes for non-payment of taxes or any other amount due to the Government which will exonerate an assessee from any penal action envisaged under the law. But those reasons how good, sufficient or reasonable, they may be cannot absolve an assessee from charge of interest if provided under any provision of a statute. Admittedly, the assessee had a reasonable cause namely, stringent financial crisis but the same cannot come to the aid of the assessee when the provisions of section 201(1A) become attracted as in the present case. The Assessing Officer has been benevolent enough in not imposing any penalty under section 221 perhaps due to reasonable cause, though the assessee has been treated as in default under section 201(1) of the Income Tax Act due to nondeposit of TDS to the credit of Central Government as laid down under section 200, read with rule 30 of Income-tax Rules, 1962. The other argument of the assessees counsel that since recovery proceedings under section 211 have been barred by limitation, the interest under section 201(1A) is not leviable has not appealed to us. In our view one of the consequences of failure to deduct or pay tax as per the provision of the Income-tax Act is that the Principal Officer and the company shall be deemed to be an assessee in default in respect of tax under the provisions of section 201(1). Thus if an assessee is in default or deemed to be in default then the recovery of the tax due may be made as per the procedure laid down under the provisions of the Incometax Act, 1961 unless prohibited the recovery of Government dues can also be made by another mode or procedure under any other enactment or statute." 21. So far as the point relating to the payment of advance tax by the three companies is concerned, this plea perhaps has been raised for the first time before us. There is no mention of this plea either in the grounds of appeal taken before the CIT(A) or before us or in the orders or departmental authorities. Further it is not ascertained as to whether the advance tax paid by the three firms referred to above related to the Commission or not. In any case, the mere fact that the advance tax was paid by the three firms to whom the commission was paid cannot, in our opinion, absolve the assessee from the liability cast on it under section 194H, read with section 201(1A) of the I.T. Act. The cases referred to by the ld. counsel for the assessee in support of this plea are distinguishable on facts because these cases did not pertain to section 194H. So far as the decision of Delhi Bench in the case of Nestle India Ltd. ( supra) is concerned that matter related to the scope of section 201. In the facts and circumstances of that case, there was a scope for estimation of the income i.e. whether tax is to be paid on conveyance allowance or not. So far as the matter in hand is concerned, the amount of commission was ascertainable and is specific and there was no scope for any doubt about the quantum of commission and quantum of tax which was to be deducted at source. Hence the liability being very specific and ascertainable in exact figures and being known to the assessee after the enforcement of the specific provision contained under section 194H, the assessee cannot be exonerated from such liability only on the basis that it was waiting for the decision of the CBDT or on any other ground. 22. In our considered view, therefore, the Legislative intent being very clear and decipherable from the plain language, there is no scope for introducing either the reasonableness of the cause or bona fide belief or sufficient cause for exonerating the assessee from this liability which is strict liability and in the discharge of which, the element of mens rea is not at all relevant. 23. In view of the above, we are of the considered opinion that the ld. CIT(A) was not justified in cancelling the levy of interest. We are, therefore, unable to concur with him. Hence we reverse his findings and uphold the action of the Assessing Officer. 24. In the result, departments appeal is allowed.