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 :
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.
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.
(3.) 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  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.;