ORDER
B. S. Saluja, J.M.
1. The assessee is in appeal against order of CIT(A), dt. 11th January, 1992, mainly on the ground of confirmation of order passed by AO under s. 201 holding that tax had not been properly deducted.
2. Brief facts are that on scrutiny of Form No. 24 filed on 10th July, 1989, the AO observed that net taxable salary of Kanwar Jasjit Singh, employee of the assessee-company, was Rs. 54,240, whereon tax of Rs. 11,493 was to be deducted at source but the assessee had deducted only an amount of Rs. 9,000. He, therefore, held that there was deficiency of Rs. 2,493. AO directed the assessee to pay an amount of Rs. 2,493 plus interest thereon amounting to Rs. 1,277. AO also initiated penalty proceedings under ss. 272A(2) and 271C.
3. On first appeal, learned counsel submitted that AO had erred in directing the assessee to pay amount of Rs. 3,770 as also in initiating penalty proceedings under s. 271C/272A(2). Learned CIT(A) considered the submissions and observed that apparently the assessee has not correctly deducted tax from salary of Kanwar Jasjit Singh and it was, therefore, liable to pay balance tax which was not deducted as also interest thereon, as per provisions of s. 201. He also observed that AO has no discretion in this respect. He, therefore, upheld action of AO. With reference to penalty proceedings, CIT(A) held that no penalty has been levied as yet and, therefore, the said ground was premature and rejected.
4. Learned counsel referred to the reply filed before AO, wherein it was submitted that Kanwar Jasjit Singh had intimated the office that he will be depositing Rs. 20,000 in NSS as before and this fact resulted in short deduction. Kanwar Jasjit Singh was regular income-tax assessee and had deposited tax on his income. The assessee filed a statement of income and expenditure in the case of Kanwar Jasjit Singh. It also attached statement of income and expenditure for asst. yr. 1988-89, which clearly provided that he had been regularly depositing in NSS. The assessee, therefore, urged that there was no intentional default on the part of the company and that short deduction of tax was caused due to wrong intimation by Kanwar Jasjit Singh. CIT(A) has not taken into consideration the said submissions before confirming order of AO. Learned counsel referred to the decision in the case of Gwalior Rayon Silk Co. Ltd. vs. CIT (1983) 140 ITR 832 (MP), wherein the ITO made certain controversial additions to salary as a result of which TDS became less. Regular assessment of the concerned employee was completed and tax paid. It was held that ITO had no jurisdiction to demand further tax from the employer in respect of tax short deducted. It was also held that it had not been found by ITO and the Tribunal that the assessee’s estimate was not honest and fair. The assessee had deducted tax from salary of the employee on salary income honestly estimated by it and had also paid tax as required by s. 200. It could not be held to be an assessee in default in respect of the tax. Therefore, the provisions of s. 201(1A) also were not attracted. It further held ……. where the regular assessment of an employee had been completed and the amount of tax was fully paid by him, the ITO (TDS) had no jurisdiction under s. 201 to demand further tax from the employer in respect of tax short deducted relating to such employee’.
5. Learned Departmental Representative submitted that if the proposition made by learned counsel is accepted, the provisions relating to TDS would be defeated. He submitted that the employer could not go by intimation of the employee that he would be depositing Rs. 20,000 in NSS and which had not been deposited in time. Learned Departmental Representative relied on the following decisions :
(i) IAC vs. Tata Chemicals Ltd. (1999) 64 TTJ (Mumbai) 26.
Wherein it was held that there is an absolute obligation on the payer to deduct tax at source barring some exceptions provided in the statute. Payer has no option to deduct or not to deduct tax even if the payer incurs a loss. Liability to pay interest under s. 201(1A) starts from the moment the default is committed by not deducting tax at source at the time of payment or after deducting the tax at source not paying it to the Government account within prescribed time and continues till tax is payable by assessee or orders a refund to be given to that payee-assessee.
(ii) Traco Cable Co. Ltd. vs. CIT (1987) 166 ITR 278 (Ker).
Wherein it has been observed that liability under s. 201 arises by operation of law and not by reason of any demand. It is further observed that “…….. s. 201 further shows that the failure of such a person makes him an assessee in default, although he would not, but for the default, be an assessee in respect of the sum referred to in s. 195. It is his failure to discharge his statutory obligation that visits him with the liability of ‘an assessee in default’. This liability is cast upon him under the aforesaid provisions, not because of any order or notice of demand, but because of the operation of the statute itself.”
(iii) CIT vs. Kumudam Publications (P) Ltd. (1991) 188 ITR 84 (Mad).
6. Wherein it was observed that where tax on amount paid to printer was not deducted and paid to Government, levy of interest under s. 201 was justified.
7. Learned Departmental Representative further referred to pp. 4615-16 of Fourth Edition of Income-tax Law by Chaturvedi & Pithisaria, where scope of s. 201 has been discussed. He pointed out that s. 201 enacted three-fold punishment for non-Government person including a company bound to deduct tax at source and defaulting to so deduct tax or, after having deducted, defaulting in making payment thereof to the credit of the Central Government as prescribed in s. 200, r/w r. 30 of the IT Rules. Firstly, the defaulter is to be treated as an assessee in default, which may lead to levy of penalty under s. 221. Secondly, any person failing to deduct tax at source while being liable to deduct, or failing to make due payment after having deducted tax, is liable to pay interest at 15 per cent p.a. on the amount of such tax from the date on which such tax was deductible to the date when such tax is actually paid. These two consequences are without prejudice to each other and both will operate simultaneously even against persons who, being liable, have failed to make the deduction of tax at source. The third consequence is meant to be applicable to persons making deduction but failing to make payment of the deducted amount in the manner prescribed in s. 220, r/w r. 30 of the IT Rules, Learned Departmental Representative referred to the decision in Grindlays Bank Ltd. vs. CIT (1992) 193 ITR 457 (Cal), as discussed in the said commentary, wherein it was held that proceedings under s. 201 could be initiated and continued and interest under s. 201 could be recovered from the employer-bank, as the assessee failed to deduct income-tax at source under s. 192 from furlough pay which was payable in terms of contract of service and was paid to the expatriate officer of the assessee in sterling in UK.
8. Learned counsel in his reply, submitted that learned Departmental Representative has not been able to controvert, the decision in Gwalior Rayon Silk Co. Ltd.’s case (supra). He further submitted that the decision favourable to the assessee ought to be applied. He submitted that penalties initiated against the assessee under s. 272A(2)/271C have been dropped as the assessee had sufficient reasons for short deduction of tax at source.
9. I have carefully considered the submissions made by both the parties and have perused orders of the tax authorities as also written submissions filed before AO to which our attention was invited during the course of hearing. It is observed that emphasis of learned counsel has been that Kanwar Jasjit Singh has ultimately paid tax and, therefore, the assessee-company is not liable for payment of tax under s. 201. He has greatly relied on the decision in Gwalior Rayon Silk Co. Ltd.’s case (supra). It is observed that the said decision has been rendered by M.P. High Court keeping in view the fact that AO had made some controversial additions on the basis of valuation of perquisite relating to accommodation and furniture, disallowance of claim for exemption of LTC and reduction of standard deduction at Rs. 1,000 on the ground that the employees were in receipt of conveyance allowance. In those circumstances, ITO demanded extra tax as well as interest under s. 201(1A) from the assessee. The Tribunal held that if salary income of the employee was not correctly estimated by the employer, ITO (TDS) could demand additional tax under s. 201 but where full tax had been realised from the employee/s, no demand could be made. It further held that interest under s. 201(1A) was leviable. On a reference, Hon’ble High Court held that in the instant case it had not been found by ITO or the Tribunal that the assessee’s estimate was not honest and fair. The assessee had deducted tax from salary of the employees on salary income honestly estimated by it and had also paid tax as required by s. 200 and, therefore, it could not be held to be an assessee in default in respect of tax. Where the regular assessment of an employee had been completed and the amount of tax was fully paid by him, the ITO (TDS) had no jurisdiction under s. 201 to demand further tax from the employer in respect of tax short deducted relating to such employee. I feel that the aforesaid decision is on different facts and is not applicable to the facts of the instant case. It is not in dispute that the assessee deducted less tax by an amount of Rs. 2,493. The only defence advanced is that the assessee was misled by request of the concerned employee that he would be depositing Rs. 20,000 in NSS. I feel that it is the duty of the payer of remuneration to the employee to ensure that the employee would have deposited the impugned amount before close of the financial year/period within which tax is to be deducted at source. In case deposit of Rs. 20,000 was not made in time, the employer was duty-bound to make enquiry and deduct tax at source. Thus, I feel that the provisions of s. 201 are clearly attracted and interest has been properly levied. Further, keeping in view the decision in Gwalior Rayon Silk Co. Ltd.’s case (supra), I hold that the employer is not responsible for making further payment of tax in case the same has already been paid by the concerned employee. I, therefore, direct AO to verify as to whether Kanwar Jasjit Singh has paid the amount of Rs. 2,493, i.e., short deduction of tax at source, and in case he has made the said payment, the assessee is allowed relief to the extent of Rs. 2,493. Payment of interest amounting to Rs. 1,277 is, however, sustained.
10. In the result, the appeal is allowed in part.