- (1.) These three appeals invoke a common issue and are, therefore, disposed of by this single order.
(2.) The dispute in these appeals relates to the assessees liability to be deemed to be an assessee in default and for payment of interest under section 201 (1) and section 201(1A) of the Income-tax Act, 1961 (the Act). In the first year the ITO noticed that a sum of Rs. 2,71,382 had been paid to the contractors for binding bidis on which tax should have been deducted at source and deposited to the account of the State under section 194C of the Act which the assessee failed to do. He, accordingly, issued a notice to the assessee to show cause as to why interest under section 201(1A) should not be levied. The assessee failed to respond and, accordingly, he treated the assessee to be a defaulter in the payment of tax to the tune of Rs. 5,428, being 2 per cent of the total payment to the contractors, and, accordingly, directed payment of interest on this amount for the period from 1-4-1977 to 30-4-1979 which be calculated at Rs. 2,008. Similarly, for the second year it was noticed that the assessee had paid a sum of Rs. 36,48,056.08 in respect of which it was liable to deduct and deposit Rs. 72,966 as the income-tax under section 194C. A similar interest amounting to Rs. 18,220 was, accordingly, levied. Both these levies have been knocked off by the Commissioner (Appeals) on appeals having been filed by the assessee. The revenue has come up in second appeals before us and in respect of the assessment year 1976-77 the assessee has also filed its own appeal on the ground that although the Commissioner (Appeals) had cancelled the order of the ITO levying interest under section 201(1A) on the ground that there was no deliberate and contumacious conduct on the part of the assessee, he should have held that the assessee did not come within the purview of section 194C altogether.
(3.) Notice of hearing of these matter was sent to the assessee by registered post and its acknowledgment in token of service is on the record. Nobody turned up to argue these appeals on its behalf. We have, therefore, heard the representative of the department ex parte. The main contention raised on behalf of the department was that the Commissioner (Appeals) had wrongly knocked off the levy of interest by observing that it was necessary to establish mens rea on the part of the assessee for not having complied with the provisions of section 194C. According to the Commissioner (Appeals), the interest livable under section 201(1A) was penal in nature as was the penalty under section 201(1). There was a good deal of genuine doubt and controversy whether the assessee came within the purview of section 194C at all and, therefore, the assessee could not be held liable for interest. We agree with the representative of the department that some of the observations of the Commissioner (Appeals) are not correct in law. If a person is liable for deduction of any amount as income-tax under section 194C and fails to do so, he would ordinarily be liable to be declared as an assessee in default and also to pay penal interest under section 201(1A). Whether the assessee knew of his obligations under the Act would not be very material because the liability is imposed by law but it does not mean that in each case where the ITO chooses to hold an assessee to be responsible for deduction of tax under section 194 of the Act, liability to be declared a defaultor and payment of interest is always there. Each case would have to be examined on its own merits. One of the contentions raised on behalf of the assessee was that the persons to whom the present payments were made were not really contractors. It had been argued before the Commissioner (Appeals) that in bidi trade wages were negotiated and fixed between the manufacturers and the Bidi Shramik Union, very often in the presence of labour directorate officials. In the fixation of rates the alleged contractors better known as munshis did not play any role. A contractor is one who is free to employ his own labour at the rate most profitable to him. In the present case the munshis did not have any such discretion. In fact, they were wrongly called as contractors. Bidi manufacture has its own pattern of operation peculiar to this industry. There is an Act known as Bidi and Cigarette Workers (Conditions of Employment) Act, 1966, and these conditions had been discussed in detail by the Supreme Court in the case of Mangalore Ganesh Beedi Works v. Union of India, 1974 AIR(SC) 1832, decided on 31-1-1974. One of the systems of employment is contract system. Under this system a proprietor gives bidi leaves and tobacco to the middleman who employs labour directly for manufacturing bidis or distributes the materials among the home workers mostly women who manufacture bidis in their own homes with the assistance of other members of the family including children. The Bidi Workers (Conditions of Employment) Act itself recognises a system where the manufacturer is called the principal employer and the munshi or contractor as defined in section 2(a) of the said Act. The labour is really engaged on behalf of the manufacturer, i.e., the principal employer, and it is for the manufacturer who happens to be the trade mark holder. The legislation was intended to achieve welfare, benefits and amenities for the labour. The manufacturer or the trade mark holder becomes principal employer though he engages the labour through the contractor. He cannot escape liability by stating that he had engaged the labour through the contractor. No doubt, technically speaking the provision of section 194C may apply to the assessee but in effect the payment to the munshis is a payment to the labour employed by the manufacturer itself. This aspect of the matter has not been examined by the ITO at all and, prima facie, it appears that the assessee may not be liable to deduct tax under section 194C at all.;