ORDER
I.S. Nigam, Accountant Member
1. These nineteen appeals, filed by the assessee-company, against the consolidated order of the Commissioner (Appeals), Kanpur, deal with the same issue and are, therefore, for the sake of convenience disposed of by a common order.
2. The assessee is a limited company having four sugar mills at Gauri, Padrajna, Kathjuiyan and Marhowrah. Here it will be necessary to point out that the assessee-company was making purchases of sugarcane from the farmers for which a Purja was issued by the factory concerned and the farmers, if they were members of Cane Growers Co-operative Society, in turn passed on those Purjas to the Co-operative Society, which on presentation of those Purjas received payments for the supplies of sugarcane. According to Section 3A, as introduced by the Sugar Cane Control Order, 1966, where the payment for cane purchases was not made within 14 days of the date of delivery, the sugar mills were liable to pay interest at 15 per cent per annum for the period of delay beyond 14 days, and where the payment of interest on delayed payments was made to a cane growers society, the society was to pass on the interest to the cane growers concerned after deducting the administrative charges, if any, permitted by the rules of the society. The IAC found that during the years relevant to the assessment years 1971-72 to 1978-79 (except 1974-75) in the case of Gauri factory branch, the assessment years 1969-70 to 1973-74, 1977-78 and 1978-79 in the case of Padrajna factory branch and the assessment years 1969-70 to 1973-74, 1977-78 and 1978-79 in the case of Kathjuiyan factory branch, the assessee-company made payments by way of interest to Co-operative Cane Development Union or Cooperative Cane Development Council which in the aggregate exceeded the prescribed limit of Rs. 400 for payments up to 31-3-1975 and Rs. 1,000 thereafter and from these interest payments no tax was deducted at source, as required by Section 194A of the Income-tax Act, 1961 (‘the Act’). The IAC, therefore, issued to the assessee-company a show-cause notice giving the assessee a specific opportunity for showing cause why penalty should not be imposed under Section 221, read with Section 201, of the Act. The IAC was not satisfied with the assessee’s reply to the show-cause notice. He, therefore, imposed penalties under Section 221, read with Section 201, of the Act on the assessee-company for the default of non-deduction of tax on payments by way of interest to the Co-operative Cane Development Union or Co-operative Cane Development Council. In addition to the penalty, the IAC also charged interest as laid down under Section 201(1A) for the default of the assessee of not deducting tax at source and crediting them to the Central Government’s account. The details of the penalties imposed and interest levied are as follows :
GAURI FACTORY BRANCH :
Assessment year Penalty Interest
Rs. Rs.
1971-72 1,167 1,008
1972-73 18,670 15,905
1973-74 8,698 6,905
1975-76 2,006 1,404
1976-77 4,100 1,547
1977-78 453 109
1978-79 5,817 873
Penalty Interest
PADRAJNA FACTORY BRANCH : Rs. Rs.
1969-70 2,835 3,296
1971-72 16,526 18,865
1972-73 14,489 12,163
1973-74 9,871 8,306
1977-78 23,824 6,193
1978-79 4,608 507
KATHJUIYAN FACTORY BRANCH :
1969-70 993 1,080
1971-72 4,560 4,378
1972-73 15,195 13,333
1973-74 21,757 16,318
1977-78 4,314 1,208
1978-79 2,203 284
Aggrieved by the imposition of these penalties and interest, the assessee-company went up in appeal before the Commissioner (Appeals). The Commissioner (Appeals), while upholding the levy of interest, held that even though on the facts and in the circumstances of the case, the penalties under Section 221, read with Section 201, were attracted and justified, the penalties imposed equal to 100 per cent of the tax deductible, which was the maximum prescribed penalty, was excessive and should be reduced to 50 per cent. Not satisfied with this relief, the assessee-company has come up in further appeal before us.
3. The assessee’s learned counsel, Dr. Vaish, at the outset raised the preliminary objection that the IAC, who imposed the penalty under Section 221, read with Section 201, had considered only Sub-section (1) of Section 201 and not the proviso thereto. Proceeding further, Dr. Vaish argued before us that the proviso to Sub-section (1) of Section 201 clearly lays down that no penalty shall be imposed under Section 221 unless the ITO was satisfied that the failure to deduct the tax at source and pay the tax deducted at source was without good and sufficient reasons. Our attention was drawn to the language of the proviso to Sub-section (1) of Section 201 which reads as follows :
(1). If any such person and in the cases referred to in Section 194, the principal officer and the company of which he is the principal officer does not deduct or after deducting fails to pay the tax as required by or under this Act, he or it shall, without prejudice to any other consequences which he or it may incur, be deemed to be an assessee in default in respect of the tax :
Provided that no penalty shall be charged under Section 221 from such person, principal officer or company unless the Income-tax Officer is satisfied that such person or principal officer or company, as the case may be, has without good and sufficient reasons failed to deduct and pay the tax.
This was compared with the second proviso to Sub-section (1) of Section 221 which laid down that where the ITO was satisfied that the default was for good and sufficient reasons, no penalty shall be imposed and it was vehemently argued by Dr. Vaish that the change in the language of the proviso to Sub-section (1) of Section 201 from that appearing in the second proviso to Sub-section (1) of Section 221 was not without purpose. According to Dr. Vaish, since the penalty in any case for the default under Section 201(1) was to be imposed under Section 221, there was no need of a separate proviso to Sub-section (1) of Section 201 and that too in a phraseology different from what was appearing in the second proviso to Section 221, except that the Legislature wanted a more stringent test to be prescribed before penalty was imposed for the default laid down under Section 201(1) as compared to the other defaults of nonpayments of tax and wanted to be sure that penalty for this default will not be imposed unless the ITO was satisfied that the failure to deduct the tax and pay the same to the Central Government’s account was without good and sufficient reasons. This, according to Dr. Vaish, assumes great importance because what is at issue before us is the imposition of penalty, and in dealing with the penal provisions of the Act, it has to be construed strictly and the benefit of doubt, if any, has to go to the assessee. Viewed in this context, Dr. Vaish read out to us the penalty order of the IAC to point out that there was no finding by him that the failure to deduct the tax on payments by way of interest exceeding in the aggregate the prescribed limit, was without good and sufficient reasons and this alone was enough to warrant the cancellation of the penalty imposed by the ITO under Section 221, read with Section 201. Our attention was also invited to the scheme of the Act, particularly Chapter XVII where Sub-section (1) of Section 190 lays down that notwithstanding that the regular assessment in respect of any income is to be made in a later assessment year, the tax on such income shall be payable by deduction at source or by advance payment in accordance with the provisions of Chapter XVII and on this basis, it was argued by him that the purpose of the various provisions under Chapter XVII of the Act was to expedite or ensure collection of tax and if there was no tax to be levied and no assessment to be made in a later assessment year in respect of any income, the question of any deduction of tax at source from that income will not simply arise. Elaborating on his argument, Dr. Vaish pointed out that the Co-operative Cane Development Unions or Co-operative Cane Development Councils were not liable to tax and, in fact, their income was exempt from tax in view of the provisions of Section 80P(2)(iii). Our attention was also invited to the notification No. SO 3489 dated 22-10-1970 whereby there was exemption from deduction of tax at source on payments made to any undertaking or body including a society registered under the Societies Registration Act, 1860, financed wholly by the Government. In these circumstances, according to Dr. Vaish, considering the purpose of Chapter XVII under which Section 194A appears, it is obvious that there was no liability on the assessee to deduct tax on payments by way of interest to Co-operative Cane Development Union or Co-operative Cane Development Council which were exempt from tax. Dr. Vaish then took us to the provisions of Section 201 in order to point out that it starts with the words if any such person, etc., immediately after Section 200 which talks of any person deducting any sum in accordance with the provisions of Sections 192 to 194 and 194A shall pay within the prescribed time limit the sum so deducted to the credit of the Central Government or as the CBDT directs, in support of the contention that Section 201(1) refers to only such person who, having deducted the tax at source, fails to pay the same as required by the preceding section and this does not apply to a case where no tax was deducted at all.
4. Another point made out by Dr. Vaish was that the interest received from the assessee-company by Co-operative Cane Development Council was passed on to the cane growers who were the ultimate recipients and in the case of none of these growers the aggregate of the payments on account of interest exceeded the prescribed limit of Rs. 400 up to 31-3-1975 or Rs. 1,000 thereafter. Our attention in this connection was invited by him to Section 3A of the Sugar Cane (Control) Order, 1966 which had laid down that the interest on delayed payments made to a cane grower society has to be passed on after deducting administrative charges, if any, permitted by the rules of the society to the cane growers concerned. Here again, Dr. Vaish reiterated his submission that since we were dealing with the penal provisions, the provisions should receive strict construction and the benefit of doubt, if any, should go to the assessee. Dr. Vaish then referred to the explanation of the assessee in response to the show-cause notice as discussed in the order of the Commissioner (Appeals) wherein it was pointed out that for decades earlier the assessee-company was paying interest on delayed payments to the Co-operative Cane Development Unions or Co-operative Cane Development Councils at source from these payments, the income-tax department never found fault and in these circumstances, if the assessee was under the bona fide belief that it was not liable to deduct tax at source on these payments, the belief of the assessee cannot be said to be not bona fide and on this ground also no penalty can be imposed. He referred to the other reasons also mentioned in the order of the Commissioner (Appeals), one of which was that the assessee-company could not dare to deduct tax at source from interest payments made to Co-operarive Societies or Councils as any attempt to do so would have resulted in an uproar creating serious problems of cane supply which would have adversely affected the company’s working. On this basis, Dr. Vaish vehemently argued before us that the default, if any, of failure to deduct the tax at source on payments by way of interest was not without good and sufficient reasons and, therefore, the imposition of penalties under consideration here was not justified. Relying on a ruling of the Allahabad High Court in the case of ITO v. Bisheshwar Lal [1970] 76 ITR 653, Dr. Vaish submitted that where a penalty was not imposed within a reasonable time, the imposition of penalty amounted to abuse of power and can be quashed. Elaborating on this argument, Dr. Vaish pointed out that the penalties for the assessment year 1969-70 relating to the payments made on or about 1968 from which no tax was deducted at source at that time after about 10 years on 23-10-1978 amounted to abuse of power for imposition of penalty and, therefore, on this ground also the penalties for the assessment year 1969-70 should be quashed and this argument will also apply even though with lesser force to the penalties for the subsequent assessment years where also the penalties were imposed after the lapse of several years on 23-10-1978. In the alternative, Dr. Vaish vehemently argued before us that the penalties sustained in appeal by the Commissioner (Appeals), equal to 50 per cent of the tax deductible, were highly excessive and should be reduced to a token amount. Coming to the levy of interest under Section 201(1A), Dr. Vaish contended before us that since in the first place the provisions of Section 194 were not applicable in the assessee’s case and, secondly, the provisions of Section 201 were also not applicable, there was no question of any charge of interest under Section 201(1A). Summing up, Dr. Vaish vehemently argued that the penalties as well as the interest were both unjustified and should be cancelled or else in the alternative, the penalties should be reduced to a token amount.
5. On the other hand, the learned departmental representative, Shri Prakash, submitted to us that as is obvious from the order of the IAC, imposing penalties under Section 221 read with Section 201 and levying interest under Section 201(1A), all the facts and circumstances were considered, the assessee’s reply was found to be quite irrelevant and without force, and a clear finding had been given that penal provisions were clearly attracted and thus in these circumstances, the imposition of penalty as sustained in appeal by the Commissioner (Appeals) and the levy of interest were perfectly justified. Proceeding further, Shri Prakash submitted that even though there was a slight difference in the wordings of the proviso to Sub-section (1) of Section 201 and the corresponding second proviso to Sub-section (1) of Section 221, it was a mere style of drafting which was of no consequence and in any case since the facts responsible for the default of failure to deduct the tax at source and pay the same to the Central Government’s account were within the knowledge of the assessee and nobody else, the onus was on the assessee to come forward with those facts and establish that the default was due to good and sufficient reasons. Proceeding further, Shri Prakash read to us the provisions of Section 194A which speak of paying any income by way of interest other than the income chargeable under the head ‘Interest from securities’ and submitted that it was significant that the words used were ‘any income by way of interest’ and not ‘any income by way of interest chargeable to tax’ and this itself shows that the person paying any income by way of interest was not concerned whether in the hands of the payee this interest was charged to tax or not and it was his duty to deduct tax at source on such payments unless the payee complied with the proviso to Sub-section (1) of Section 194A, that is, he furnished an affidavit or statement in writing as prescribed by Rule 29A and Form No. 15A of the Income-tax Rules, 1962 declaring that its estimated total income for the assessment year next following the financial year in which the payment was being made will be less than the minimum liable to tax, the other particulars in this connection were given and there was an attestation by a Gazetted Officer, etc., as prescribed in the rules and this had not been done by the assessee. Coming to the notification dated 22-10-1970, Shri Prakash submitted that there was no material furnished before the lower authorities or even before us to show that the Co-operative Cane Development Unions or Cooperative Cane Development Councils, to whom payments were made, were financed wholly by the Government and had it not been so, it would not have been necessary for the assessee-company to approach the CBDT for the issue of a clarification that the exemption by the CBDT’s notification will extend to such Co-operative Cane Development Unions and Cooperative Cane Development Councils. Reference in this connection was made by him to the application for adjournment moved before the Tribunal to which were attached copies of the representations of the assessee-company before the CBDT. Relying on the ruling of the Hon’ble Supreme Court in the case of CED v. R. Kanakasabai [1973] 89 ITR 251, Shri Prakash submitted to us that where the words of a provision were clear and unambiguous, it was not permissible to read into the provision any words which were not there or to exclude words which were there and the words found in the provisions must be given their natural meaning. On this basis, Shri Prakash vehemently argued before us that the words ‘income by way of interest’ appearing in Section 194A were clear and unambiguous and it was not possible to interpret them as income by way of interest which was chargeable to tax in the hands of payee. He, therefore, vehemently argued before us that the claim of the assessee’s learned counsel Dr. Vaish before us that the provisions of Section 194A were not applicable to the assessee-company under consideration here was without any force. We were taken to the provisions of Section 201(1) which reads as follows:
(1) If any such person and in the cases referred to in Section 194, the principal officer and the company of which he is the principal officer does not deduct or after deducting fails to pay the tax as required by or under this Act, he or it shall, without prejudice to any other consequences which he or it may incur, be deemed to be an assessee in default in respect of the tax :
Provided that no penalty shall be charged under Section 221 from such person, principal officer or company unless the Income-tax Officer is satisfied that such person or principal officer or company, as the case may be, has without good and sufficient reasons failed to deduct and pay the tax.
It was pointed out that the default referred to in this sub-section is both of failure to deduct the tax at source and failure after deducting the tax at source to pay it to the Central Government account and the claim of Dr. Vaish before us that this sub-section deals only with the default of a person who having deducted the tax at source fails to pay it to the Central Government account and not to a person who did not deduct the tax at source at all was again without any merit. Coming to what was claimed by Dr. Vaish to be good and sufficient reasons for failure to deduct the tax at source on payments by way of interest to Co-operative Cane Development Unions and Co-operative Cane Development Councils, Shri Prakash vehemently argued before us that simply because the assessee in the past committed the default of not deducting tax at source and got away with it, does not mean that when the default was detected subsequently, the assessee can claim that because in the earlier years he was able to commit the default and get away with it, he should again be allowed to get away with the default. Shri Prakash also pointed out that no details of what payments were made to the cane growers by the Co-operative Cane Development Council or Co-operative Cane Development Unions and whether the payments in any case exceeded the prescribed limits were given either to the lower authorities or even to us and, therefore, the claim before us that since the payments were received on behalf of the cane growers in whose case the payments by way of interest never exceeded the prescribed limits was again without any material or evidence and could not be accepted. It was also pointed out by him that the fear of uproar and protest by the societies and councils, to whom the payments were made, was unwarranted because it was always possible for the assessee-company to ask the unions or councils to furnish the statements as required by the proviso to Section 194A(1) and if this was not done and still the tax was not deducted at source from interest payments, this clearly shows the conscious disregard by the assessee-company of its statutory obligations. Summing up, Shri Prakash vehemently argued before us that the penalty under Section 221, read with Section 201, on the facts and circumstances of the present case was clearly attracted. Proceeding further, Shri Prakash argued that the penalty had already been reduced by the Commissioner (Appeals) from the maximum prescribed penalty to 50 per cent of the tax deductible and no further relief was called for. The provisions of Section 201(1 A) were read out to us in support of the contention that the charge of interest was mandatory and fixed under the statute and there is no discretion vested in any authority either to waive or reduce this interest. Summing up, Shri Prakash vehemently agrued before us that there was no merit in the assessee’s appeals.
6. The assessee’s learned counsel, Dr. Vaish, in reply, submitted to us that for the imposition of penalty what was necessary was, firstly, the application of mind and, secondly, the judicial satisfaction and there is no room for these conditions being met by implication or by inference. He also submitted that the representation to the CBDT was for clarification that the exemption from deduction of tax, notified by notification dated 22-10-1970, applied also to those payments where the payments were made to Co-operative Cane Development Unions or Co-operative Cane Development Councils and there was nothing new which the assessee was wanting from the CBDT.
7. We have carefully considered the rival submissions. It is by now settled as a result of pronuncements by the Hon’ble Supreme Court in the case of CIT v. Shahzada Nand & Sons [1966] 60 ITR 392 and in the case of Kanakasabai (supra) and host of other cases that if 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 in the provision on the ground 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 wordings of Section 194A(1) are clear and unambiguous and speak of any income by way of interest other than income chargeable under the head ‘Interest on securities’ and in view of the unambiguous and clear wordings used, we do not find any justification from departing from the plain and natural meaning of the words used in the provision, in order to construe that Sub-section (1) of Section 194A which clearly lays down that if the payee’s estimated total income assessable to tax for the assessment year next following the financial year, in which the income was received, was less than the minimum liable to tax, the payee should file a declaration as prescribed in Rule 20A and Form No. 15A and if that was done, there need be no deduction of tax at source on payments of any income by way of interest to such payee. The payments under consideration here exceeded the limits laid down by Clause (v) of Sub-section (3) of Section 194. The authorities mentioned in Clause (Hi) of Sub-section (3) of Section 194A do not cover the payees under consideration here. There was no material either before the lower authorities or before us to show that the Co-operative Cane Development Unions or Co-operative Cane Development Councils were wholly financed by the Government and, therefore, even the notification No. 3489 dated 29-10-1970 cannot be said to cover the payments by way of income From interest to these bodies. The other persons mentioned in the various notifications under Section 194(3)(iii)(f) also do not cover the payees under consideration here. It might perhaps not be out of place to mention here that when the assessee applied to the Secretary, Ministry of Finance, Government of India and the Chairman, CBDT, the Chairman, CBDT by letter dated 1-11-1980 (as per copy filed by the assessee) clarified that the institution receiving the interest alone can be notified for the purpose of exemption of its interest income from deduction of tax at source and, therefore, the Co-operative Cane Development Unions or Cooperative Cane Development Councils which desire such exemption should be advised to apply through their ITO for this purpose. Here again, it will be necessary to point out that on a plain reading of Sub-section (1) of Section 194A, one is led to the irresistible view that it is not for the payer to sit in judgment or adjudicate upon whether income by way of interest paid by him was chargeable to tax in the hands of the payee and the payer was under an obligation to deduct tax at source on such payments unless the payee was covered by the provisions of Sub-section (3) of Section 194A or had furnished the prescribed declaration as laid down by the proviso to Sub-section (1) of Section 194A. Considering all this, we have no hesitation in coming to the conclusion that the provisions of Section 194A were applicable in the case of the assessee-company on the payments under consideration here. A plain reading of the provisions of Section 201(1), extract of which has already been given, clearly shows that it deals with two defaults, one of failure to deduct tax at source and another of failure to pay the tax, as required, after deduction at source. We cannot, therefore, agree with the assessee’s learned counsel, Dr. Vaish that Section 201 deals with two defaults, one of failure to deduct tax at source and another of failure to pay the tax as required and not to a person who fails to deduct the tax at source. It is true that there is a slight change in the language employed in the proviso to Sub-section (1) of Section 201 compared to the corresponding second proviso to Sub-section (1) of Section 221. It, however, cannot be disputed that the facts and circumstances, which constitute good and sufficient reasons for the default of failure to deduct tax at source on payments are intimately in the knowledge of the assessee and nobody else and, therefore, it is for the assessee to come forward with those facts and circumstances and it is for the revenue authorities to adjudicate upon whether they constitute good and sufficient reasons. Even if a more stringent test was provided before the imposition of penalty for the default, as laid down by Sub-section (1) of Section 201, compared to the default of non-payment of taxes in other cases, the satisfaction which was required for this purpose was reached when after a show cause notice was given and after considering the assessee’s reply to the show cause notice a finding was irrelevant and had no force. We cannot, therefore, agree with the assessee’s learned counsel, Dr. Vaish that the provisions of Section 201 are not attracted on the facts of the present case. We agree with the learned departmental representative, Shri Prakash that simply because the assessee was able to commit the default of not deducting the tax at source on similar payments in the past and was able to get away with it, can be no excuse for repeating the defaults subsequently and on that account alone the imposition of penalties under consideration before us cannot be challenged. No reasons have been shown to either the lower authorities or before us why the assessee could not insist from the payees under consideration here to furnish a declaration as required by the proviso to Sub-section (1) of Section 194A and it has also not been shown to us why even when such a declaration was not furnished, the assessee did not deduct the tax at source on payments by way of income from interest made to these bodies. While it is true that it is highly desirable that penalties should not be imposed after a lapse of a number of years but then where the default itself is detected by the revenue authorities after the lapse of a number of years, the assessee cannot be allowed to get away with the consequences of the default simply because the default was not detected earlier. Viewed in this context, it is not under dispute that the default was discovered sometimes in August 1978, the first combined show cause notice was issued on 28-8-1978, the assessee’s reply to the show cause notice was dated 19-9-1972 and the penalties were imposed on 23-10-1978. It cannot, therefore, be said that there was an unreasonable delay in the imposition of penalties. Here, it would be necessary to point out that in the case of Bisheshwar Lal (supra), their Lordships were dealing with a writ petition where the reply to the first show cause notice was sent on 12-10-1944 and the penalty was imposed after 12 years of the assessee’s reply to the show cause notice, which is not the case here. The ruling of the Allahabad High Court in the case of Bisheshwar Lal (supra), therefore, will not be applicable to the facts of the present case. Considering all this and looking to the totality of the facts and circumstances, we have no hesitation in coming to the conclusion that the assessee’s default, as laid down by Sub-section (1) of Section 201, was clearly established and penalty under Section 221, read with Section 201, was clearly attracted. However, coming to the quantum of the penalties, we are of the view considering that the payments were made to Co-operative Cane Development Unions or Co-operative Cane Development Councils, which were co-operative societies of cane growers, this was the first penalty for the defaults, and on the totality of the facts and circumstances, a lenient view should be taken of the defaults. The penalties are, therefore, reduced from 50 per cent sustained in appeal by the Commissioner (Appeals), to 25 per cent of the total tax deductible. The IAC is directed to work out the penalties accordingly and determine the relief to the assessee-company.
8. The levy of interest under Section 201(1A) is obligatory where the assessee is held to have committed the defaults as laid down by Sub-section (1) of Section 194A and Sub-section (1) of Section 201. There is also no discretion vested in any authority to waive or reduce this interest which is fixed under the Act. It has not been shown to us that the interest levied under Sub-section (1A) of Section 201 has not been correctly worked out. We, therefore, see no reason to interfere with the levy of interest under Section 201(1 A).
9. The appeals are partly allowed.
