Decided on May 11,1992



Abdul Razack, Judicial Member - (1.) THESE appeals are filed by the ITO against the order of the CIT (Appeals) cancelling the order passed under Section 201 (1A) of the Income-tax Act, 1961 charging interest.
(2.) The brief facts relating to these appeals are that the assessee company having deducted tax at source from salaries of its employees failed to pay the same to the credit of the Central Government as required under Section 200 read with rule 30 of the Income-tax Rules. The reason given by the assessee company to the Assessing Officer was that it faced stringent financial problems on account of several reasons which were beyond its control. The ITO treated the assessee company as in default and charged interest under Section 2O1(1A) amounting to Rs. 9,00,253. Being aggrieved against the order passed by the ITO under Section 201( 1A) the assessee company preferred appeals before the C1T (Appeals) who deleted the interest on the ground that since the proceedings for recovery of tax deducted at source were barred by limitation under Section 231 of the Income-tax Act interest under Section 201 (1 A) was not leviable at all on the company. It is against this finding of the C1T (Appeals) that the present appeals lie before us. It is contended by the learned departmental representative that proceedings for recovery of the tax in respect of assessees who are in default under Section 231 is one of the modes of recovery and the Government can yet file a suit against the assessee company under Section 232 read with Section 202 for recovery and collection of the tax deducted at source and due to the Government. Thus, the Government, according to the departmental representative does not loose the right to charge interest in respect of TDS amount under the provisions of Section 201 (1A) because interest is compensatory in nature for the taxes due to the Government and this right is not taken away for the reason that one of the modes of recovery of taxes is barred by limitation under any provision of the Income-tax Act, 1961. The learned departmental representative, therefore, urged that the CIT (Appeals) erred in deleting the interest charged under Section 201 (1A) by the Assessing Officer and the impugned order, therefore, deserves to be reversed. The learned counsel for the assessee, Sri N.K. Poddar, on the other hand, supported the order of the learned CIT (Appeals) and further submitted that if the principal amount cannot be recovered on the ground that the recovery proceeding is barred by limitation then the interest also cannot be charged and, therefore, the CIT (Appeals) did not go wrong in allowing the appeals of the assessee company. It is further contended by the assessee's counsel that the assessee company faced stringent financial crisis for the reasons beyond its control due to which the failure occurred in depositing within time the tax deducted at source from the employees' salaries to the credit of the Central Government. The Assessing Officer ought to have considered this fact and not charged any interest under Section 201 (1A) particularly when though the assessee company has been treated as in default and no penalty having been levied under Section 221 of the Income-tax Act. This goes to support the case of the assessee company that the Assessing Officer was satisfied about reasonable cause for failure to deposit the TDS. Under such circumstances the Assessing Officer not having levied any penalty also should not have charged any interest for the same reason. Sri Poddar further submitted that the financial crisis faced by the assessee company was also appreciated by the High Court which had granted suitable instalments to deposit the TDS. Sri Poddar further advanced an argument that since an appeal has been provided under Section 246(1) for an order passed under Section 201 it transpires that the charge of interest is not automatic no sooner the default occurs and, therefore, if there is a reasonable cause for not depositing the TDS within the stipulated time due to reasonable cause then interest is not to be levied at all. Therefore, according to Sri Poddar since there is a reasonable cause the Assessing Officer ought not to have charged any interest under Section 2O1(1A). He further submitted that it is a settled law that if there is reasonable cause no penalty under Section 221 is leviable. If the same principle is applied to facts of this case then no interest is to be charged under Section 201 (1A) on a reasonable cause being shown by the assessee company for its failure to deposit TDS within the time prescribed. To support his case the assessee's counsel has relied upon the decisions of the Calcutta High Court in CITv. Dunlop Rubber Co. (India) Ltd. [1980] 121ITR476 and CIT v. Wesman Engg. Co. (P.) Ltd. [1976] 104 ITR 605.
(3.) AFTER hearing both sides and after due consideration of the submissions made before us we are of the opinion that the CIT (Appeals) was not justified in deleting the interest charged by the Assessing Officer under Section 201(1A). We are not at all impressed by the argument of the assessee's counsel that if there is a reasonable cause no interest can be charged under Section 201(1A) on the analogy that no penalty is leviable under Section 221 if there is a reasonable cause. Penalty and interest operate in different fields. 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 non-deposit 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 assessee's counsel that since recovery proceedings under Section 231 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 Income-tax Act, 1961 unless prohibited the recovery of Government dues can also be made by another mode or procedure under any other enactment or statute.;

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