Pramod Kumar, J. - (1.) THIS appeal filed by the revenue, is directed against the order dated 5 -1 -1994, passed by the learned Deputy Commissioner (Appeals) Range IX, Calcutta, in the matter of penalty under section 221(1) for the financial year 1990 -91. Revenue is aggrieved that the Deputy Commissioner (Appeals) erred in deleting penalty of Rs. 15,000 charged under section 221 of the Income Tax Act, 1961 (hereinafter referred to as the Act).
(2.) FIRST , the relevant material facts. Admittedly, the only lapse on the part of the assessee tax deductor was that he did not take into account the increase in surcharge, effected vide Finance (Second Amendment) Ordinance, 1990 promulgated on 15 -10 -1990, which resulted in a surcharge on TDS to at the rate of 15 per cent. In the case of companies, as against 8 per cent surcharge in force upto that point of time. The assessees case is that it was simply an inadvertent error on the part of the assessee which was solely attributable to the fact that the person responsible for TDS work missed this increase in surcharge rate. The assessee has stated that it was a bona fide mistake and that there were no, and could not have been, any mala fides in this marginal short deduction of tax at source. In view of the default of short deduction, however, the assessee was called upon, under section 201(1), to make good the shortfall in deduction in tax at source and consequential interest under section 201(1A) was also charged. It appears that these demands were duly paid, and the orders were duly accepted, by the assessee; there was no challenge to these proceedings by way of appeal. However, the assessing officer (TDS) did not stop here and went on to initiate penalties under section 271C and under section 221(1) also. We find that penalties under both these sections have been imposed on the assessee under section 221 for, what the assessing officer (TDS), has termed as "default for deducted (sic) but had failed to deposit the tax within the time prescribed under section 200 read with rule 30 of the Income Tax Rules, 1962", and under section 271C because, in considered opinion of the Deputy Commissioner, "it appears that the surcharge rate has been deliberately applied at 8 per cent instead of 15 per cent with the intention of defrauding the revenue ". Both these penalties were deleted by separate orders of the first appellate authority and the revenue is at present in appeal before us against the cancellation of penalty under section 221(1) of the Act.
(3.) RIVAL contentions are heard, orders of the authorities below perused, and applicable legal position deliberated upon. As we have stated earlier, admitted and only lapse of the assessee is that there was a short deduction in tax at source from dividends paid to the corporate shareholders. Inasmuch as the surcharge rate was applied at the rate of 8 per cent as against 15 per cent applicable rate. In the backdrop of this fact, let us take a look at the consequences of such a short -deduction of tax at source. Of course, the first and foremost consequence is that the tax deductor has to make good the shortfall in tax deduction and the tax deductor also has to compensate the revenue by way of interest for the period of late realization of this tax to the revenue authorities. These provisions, contained in section 201(1) and 201(1A), are set out in Chapter XVII -B titled as Collection and Recovery of Tax. The next set of consequences are contained in section 271C and section 276B, covered by Chapter XXI Penalties Imposable and Chapter XXII -Offences and Prosecutions respectively. Section 276B, as it stands now, is not applicable on the facts of this case which comes to the play only when the assessee has deducted the tax at source but he does not pay, or does not pay in time, the taxes so deducted at source. We, therefore, need not elaborate on this aspect of the matter. Section 271C deals with levy of penalty for total or partial failure to deduct tax at source i.e., for non -deduction and short -deduction of tax at source. This provision is clearly a penalty provision which is applicable for the cases of tax deductors not discharging, wholly or partially, statutory obligations of deducting taxes at source. In the case before us, penalty under section 271C has been imposed on the assessee (although the penalty has been cancelled by the first Appellate Authority and the matter is in further appeal at the instance of the revenue) and the assessing officer has also imposed penalty under section 221(1) which is subject -matter of appeal before us. It may be mentioned that section 221(1) provides that when an assessee is in default or is deemed to be in default in making a payment of tax, he shall, in addition to the amount of arrears and the amount of interest payable under section 220(2), be liable to pay such penalty as the assessing officer may impose -of course subject to certain limitation which, for the present purposes, are not necessary to be examined. It is also not in dispute that by the virtue of section 201(1) the tax deductor is to be deemed to be an assessee in default to the extent of amount of non -deduction or short deduction of tax is concerned. In view of these discussions, imposition of penalty under section 221(1), in case of an assessee being treated as an assessee in default under section 201, seems to be prima facie according to the scheme of the Act, but the question that stares at our face then is that if the assessee has already been penalised, by way of penalty under section 271C for short -deduction of tax at source, what for he is being penalised by way of penalty section 221 which, in such a situation, is de facto a penalty for short -deduction of tax at source because that is the only lapse on the part of the assessee and because it is only due to such a short -deduction that the assessee is being treated as an assessee in default. A question also emerges as to whether an assessee can be, in effect, penalised twice for the same default of short -deduction of tax at source, and if he can only be penalised once, under which section should such a lapse be penalised.;