ORDER
Per J. Kathuria – These six cross-appeals – three by the assessee and three by the Revenue – pertain to assessment years 1983-84, 1984-85 and 1985-86.
2. The facts of the case are these: The assessee is a private limited company. During the previous years relevant to assessment years 1983-84, 1984-85 and 1985-86, the assessee paid/credited interest amounting to Rs. 2,38,775, Rs. 2,92,316 and Rs. 3,88,604 respectively to the account of its Chairman Shri R.K. Garg. No tax at source was, however, deducted under the provisions of section 194A of the Income-tax Act. According to the Assessing Officer, tax amounting to Rs. 23,877, Rs. 29,231 and Rs. 38,860 was required to be deducted under section 194A of the Act for assessment years 1983-84, 1984-85 and 1985-86 respectively. Since the assessee-company did not comply with the provisions of section 194A of the Act, the Assessing Officer charged interest of Rs. 15,300 under section 201(1A) of the Act for assessment year 1983-84, for the period from 1-3-1983 to 30-9-1987. Similarly, for assessment year 1984-85, interest under section 201(1A) was charged at Rs. 15,200 for the period from 1-3-1984 to 30-9-1987 and for assessment year 1985-86 likewise interest of Rs. 12,050 under section 201(1A) was charged for the period from 1-3-1985 to 30-9-1987. The interest was charged up to 30-9-1987 because a consolidated order under section 201(1A) for all the three years under consideration was passed on 9-10-1987, i.e., immediately after 30-9-1987.
3. The assessee-company preferred appeals before the learned CIT(A) who upheld the charging of interest under section 201(1A). It was contended before the learned CIT(A) on behalf of the assessee that the payee i.e., Shri R.K. Garg had filed declarations on Form No. 15A of the Income-tax Rules as contemplated by the proviso to section 194A of the Act and in that view of the matter, the assessee-company had not deducted the tax at source.
4. The learned CIT(A), however, found that the payee had not filed declarations on Form No. 15H and since section 197A of the Act under which Form No. 15H was to be filed overrides the provisions of section 194A, the mere filing of a declaration on Form No. 15A had no effect. She accordingly upheld the leviability of interest under section 201(1A) of the Income-tax Act for all the three years under consideration.
5. As regards the computation of interest, the Assessing Officer had computed the same from 1-3-1983, 1-3-1984 and 1-3-1985 respectively for assessment years 1983-84, 1984-85 and 1985-86. This was found to be in order by the learned CIT(A). She, however, accepted the argument advanced on behalf of the assessee-company that since assessments had already been framed in the hands of the payee, the interest may be limited to the period when the payee had actually paid the tax for the assessment years under consideration. She, therefore, directed the Assessing Officer to charge interest from 1st March of each assessment year up to the date when the tax due had actually been paid for the relevant assessment year by Shri R.K. Garg and amend the orders, if so required.
6. While the assessee-company is aggrieved against the charging of interest under section 201(1A) per se, the Revenue is aggrieved against the direction of the learned CIT(A) to charge interest up to the date of payment of tax by Shri R.K Garg, the payee.
7. Shri D.S. Gupta, the learned Counsel for the assessee, made two submissions. The first submission was that under the proviso to section 194A of the Act, if a payee not being a company or a registered firm files a declaration on Form No. 15A to the effect that his estimated total income assessable for the assessment year next following the financial year in which the income was credited or paid will be less than the minimum liable to income-tax, then the payer-company shall not deduct the tax at source. It was vehemently argued that this was a facility provided under the law to enable the payee not to get the tax deducted at source in respect of his interest income if his total income in the relevant assessment year was less than the minimum chargeable to tax. Referring to the provisions of section 197A of the Act, it was submitted that this provided an additional facility to the payees to get out of the rigour of having tax deducted at source in respect of certain incomes if the tax on his estimated total income of the previous year was going to be nil. In this regard reliance was placed on the circular of the Central Board of Direct Taxes being Circular No. 351 dated 26-11-1982, reproduced in 140 ITR (Statutes) 20. In particular, our attention was drawn to para 4 of the said circular which is reproduced hereunder:
“4. The effect of non obstante clause in section 197A of the Income-tax Act is that it supersedes the provisions of sections 193, 194 and 194A of the Act only in so far as these cast a legal obligation on the person responsible for paying the income of the nature referred to in the said sections to deduct tax at source. Thus, the provisions of sections 193, 194 and 194A which provide a facility for receiving the income referred to therein without deduction of tax at source continue to be in force and the facility provided in the new section 197A is in addition to the facility provided under the existing provisions in sections 193, 194 and 194A of the Income-tax Act.”
It was, therefore, submitted that on the basis of Form No. 15A filed by the payee, the company was not obliged to deduct tax at source on the interest credited to the account of the payee and hence the assessee-company was not an assessee in default and no interest under section 201(1A) of the Act was exigible.
8. The second submission of Shri Gupta was that according to section 201(1A), interest had to be reckoned from the date on which such tax was chargeable to the date on which such tax was actually paid. It was submitted that the date of deducting the tax at source was known but since the assessee had not actually paid the tax, the date of actual payment of tax was not known. In the absence of actual date of payment being there, it was contended, the interest chargeable under section 201(1A) could not be calculated and once the computational process failed, no charging of interest could be done. In this regard, reliance was placed on a decision of the Chandigarh Bench of the Tribunal dated 24-6-1988 in the case of Ess Kay Construction Co. v. ITO in which the Tribunal held that “it is a well settled principle as held by the Supreme Court in the case of CIT v. B.C. Srinivasa Setty [1981] 128 ITR 294, that charging section and the computation provisions together constitute an integrated code. When there is a case to which computation provision cannot apply at all, it is evident that such a case was not intended to fall within the charging section”. It was, therefore, submitted that on both the counts, charging of interest under section 201(1A) was bad in law and be struck down.
9. The learned D.R., on the other hand, contended that it was an admitted fact that all the other parties who had been paid interest in excess of Rs. 1,000 had filed declarations on Form No. 15H before the assessee-company but the payee Shri R.K. Garg had not filed any such declaration. It was submitted that the provisions of section 197A open with a non obstante clause and hence they would override the provisions contained in section 194A of the Act. The argument, therefore, was that even if the payee had filed declarations on Form No. 15A, there would have no effect because declarations on Form No. 15H had not been filed by him. As regards the second submission of the learned Counsel for the assessee, the learned D.R. submitted that the Assessing Officer could charge interest for a continuing default and even if the assessee-company had not deducted the tax at source, the interest could be charged under section 201(1A) of the Act.
10. The learned D.R. placed reliance on the Madras High Court decision in the case of Southern Brick Works Ltd. v. CIT [1984] 146 ITR 479 in which the levy of interest under section 201(1A) was held to be valid. Reliance was also placed on the following observations of the Calcutta High Court in the case of Martin & Harris (P.) Ltd v. CIT [1994] 73 Taxman 555:
“Section 201 enacts a three-fold punishment for a 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. Firstly, the defaulter is treated as an assessee in default and is liable to pay a penalty under section 221. Secondly, he is liable to pay interest on the amount of such tax from the date on which such tax was deductible to the date when such tax is actually paid. The third consequence is that it creates a statutory charge upon all the assets of the defaulter for the amount of tax deducted and not paid plus the amount of interest leviable under section 201(1A).”
It was also submitted that it would be highly discriminatory to charge interest from those who had deducted the tax at source though belatedly but not to charge interest from those who had not deducted the tax at source at all. It was also submitted that the provisions of section 220(2) of the Act were also similar and there interest was being charged when the amount was not paid as per the demand notice issued under section 156 of the Act. It was vehemently argued that the Assessing Officer had charged interest because the assessee-company had not deducted the tax at source and in the face of demand being not paid, the default was a continuing one.
11. Arguing the revenues appeals, the learned D.R. further submitted that under section 201(1A) of the Act, tax was to be deducted by the payer and interest was also chargeable from the payer and hence the payment of tax by the payee in his individual assessments would not absolve the payer of its default and hence the learned CIT (Appeals) was not justified in directing the Assessing Officer to re-calculate the interest with reference to the date when the payee Shri R.K. Garg actually paid the tax.
12. We have carefully considered the submissions of both the sides. We find merit in the first submission of the learned Counsel for the assessee that if the payee filed a declaration on from No. 15A before the person responsible for deducting the tax at source, then the person so responsible would be bound not to deduct the tax at source. There is no dispute about the factum of the payee Shri R.K. Garg having filed declarations on Form No. 15A before the payer-company on 1-4-1982, 1-4-1983 and 9-4-1984 for assessment years 1983-84, 1984-85 and 1985-86 respectively. It is equally true that the payee Shri R.K. Garg did not file any declarations on Form No. 15H before the payer company. The question to be decided is whether declaration on Form No. 15A has no force as held by the learned CIT (Appeals) in view of the over-riding provisions contained in section 197A of the Act. Section 197A of the Act starts with a non obstante clause. Normally it should have been interpreted to have an overriding effect on other provisions contained in the various sections including section 194A of the Act. This, however, has been rightly interpreted by the CBDT as providing of an additional facility to the payee for receiving the income without deduction of tax at source. Circular No. 351, dated 26-11-1982 issued by the CBDT, in our view is a complete answer to the arguments of the learned D.R. Such instructions which are benevolent in character are binding on the income-tax authorities. We accordingly hold that since the payee Shri R.K. Garg had admittedly filed declarations on Form No. 15A before the payer-company no tax was to be deducted at source in respect of the interest income and hence no interest could be charged under section 201(1A) of the Act.
13. We also find substantial merit in the second submission of the learned Counsel for the assessee, namely, that interest under section 201(1A) was not leviable because the date of payment of tax deducted at source being not known, the interest was incapable of calculation. In this regard, we find that the language used in section 201(1A) is different from the language used in section 220(2) and section 221 of the Act. Under section 220(2), interest is chargeable from the date immediately following the end of the period mentioned in section 220(1) and ending with the date on which the amount is paid. This shows that the concept of continuing default is in-built in the section. Similarly, in section 221(1) there is in terms a reference to a continuing default and the section empowers the Assessing Officer to levy penalty from time to time, so, however, that the total amount of penalty does not exceed the amount of tax in arrears. Section 201(1A), however, is not couched in similar terms as the other two sections referred to above and even if there is discrimination in favour of the companies for paying the tax deducted at source, such discrimination could not be helped. In fact such lacunae in laws abound. We have, therefore, to interpret the law as it is and not to add to or substract therefrom. Following the ratio of the Supreme Court decision in the case of CIT v. B.C. Srinivasa Setty [1981] 128 ITR 294, it is held that where the computation provisions which constitute an integral code with the charging section, fail, interest is not chargeable under section 201(1A) of the Act. The decision of the Tribunal in the case of Ess Kay Construction Co. (supra) also supports the case of the assessee.
14. The learned D.R. has relied on the Madras High Court decision in the case of Southern Brick Works Ltd (supra). The facts of that case were, however, different because in that case there was no such controversy as has been projected before us. Actually in that case, the assessee had deducted the tax due on the amount of interest and actually paid the same in the Government Treasury. Similarly the facts in the case of Martin & Harris (P.) Ltd. (supra) are also distinguishable. In that case, the question to be decided was whether interest paid by the company under section 201(1A) for belated payment of tax deducted at source from the employees salary was allowable as a deduction in computation of its total income. The controversy which has been projected before us was not there in that case either.
15. In view of the foregoing discussion, we uphold the second submission of the learned Counsel for the assessee also and hold that for the failure of the computational process, no interest could be charged under section 201(1A) of the Act.
16. As regards the revenues appeals, these would be infructuous because we have held that interest under section 201(1A) is not exigible at all in the instant case. Since the Revenues appeals relate to the computation of interest, we need not to go into that question at all. However, we may mention that under section 4(1) of the Act which is the charging section, the principal liability for payment of income-tax is that of the person who receives income. Sub-section (2) of section 4 provides that income-tax shall be deducted at source and paid in advance where it is so deductible or payable under any provisions of the Act. Since the principal liability for payment of income-tax is of the person who receives the income which in the present matters is the payee Shri R.K. Garg and if he has also paid the tax on the income so received, then in all fairness, even if technically the default for not deducting the tax at source continues, for all intents and purposes such a default disappears as soon as the recipient of the income discharges his principal liability and pays the tax. For that reason also the revenues appeals deserve to be rejected and are hereby rejected.
17. In the result, while the assessees appeals are allowed, those of the revenue are dismissed.