HIGH COURT OF
Commissioner of Income-tax
v.
Bareilly
Development Authority
R.K.
Agrawal and Vikram Nath, JJ.
IT
Reference No. 157 of 1989
July
20, 2007
Section 221 read with section 201 of the Income-tax Act 1961 - Collection and recovery of tax - Penalty payable when tax in default - Assessment years 1982-83 and 1983-84 - Assessee, a development authority, failed to comply with provisions regarding TDS from amount paid to various contractors - ITO levied penalty upon assessee under section 221 - Tribunal had set aside penalty on three grounds, namely (i) tax and interest had been deposited before penalty proceedings was initiated, (ii) ITO’s discretion to levy penalty had not been fairly exercised and (iii) no penalty could be levied for non-filing of form No. 26C - Whether view of Tribunal that penalty could not be imposed on ground that TDS and interest due thereon had already been paid before initiation of penalty proceedings was not correct by virtue of Explanation to section 221 - Held, yes - Whether, since penalty proceedings were initiated for violation of provisions of section 201(1), Tribunal had misdirected itself in holding that no penalty could be levied for not filing Form No. 26C - Whether, however, Tribunal’s finding that ITO’s discretion to levy penalty on assessee had not been fairly exercised were based on appreciation of evidence and material on record could not be interfered with and, therefore, penalty was rightly deleted by Tribunal - Held, yes
The
assessee, a development authority, failed to comply with the provisions
regarding TDS from the amount paid to various contractors during the relevant
years. It had also not filed the appropriate form with the IT department nor
the amount of TDS from time to time was deposited by it. The ITO initiated
penalty proceeding under section 221 and after considering the reply and the
material on record, levied penalty upon assessee on appeal, the AAC partly
allowed the appeal.
On
the second appeal, the Tribunal cancelled the penalty levied by the ITO in its
entirety. While deleting the penalty, the Tribunal held that where an assessee
had paid tax on his own without any action or threat of action by the ITO,
penalty could not be properly levied. It had further held that the provision of
section 221 would show that the penalty under this section is discretionary and
the discretion is to be exercised fairly and properly. A person who delays the
payment of tax under section 194C has to pay interest for the period of delay
in terms of section 201(1A) and, therefore, there was no justification for a
penalty when the tax had already been paid. It had further held that the ITO's
discretion to levy penalty on the development authority had not been fairly
exercised. The Tribunal had further held that the ITO had initiated action not
because the tax was not paid but because Form No. 26C was not submitted and, no
penalty could be levied for default in furnishing Form No. 26C in which details
of tax deducted had to be furnished.
On reference:
It was not in
dispute that the Tribunal had set aside the penalty on three grounds, namely
(1) tax and interest had been deposited before the penalty proceedings was
initiated; (2) the ITO’s discretion to levy penalty had not been fairly
exercised; and (3) no penalty could be levied for non-filing of Form No. 26C
required under the provision of rule 27(2)(c). (
So far as the
first ground was concerned, the view of the Tribunal that penalty could not be
imposed on the ground that the TDS and interest due thereon had already been
paid before the initiation of penalty proceeding, was not correct. The Explanation to section 221(1)
specifically provides that the penalty shall not cease to be leviable on an
assessee merely by reason of the fact that before the levy of such penalty, the
assessee has paid the tax, puts the position beyond any pale of doubt that
notwithstanding the fact that the tax and interest had already been paid by the
assessee, the assessee could still be liable for penalty under section
221(1). [
It is immaterial
as to whether TDS and interest, if any, accrued thereon, have been paid prior
to the initiation of penalty proceeding or after the notice has been issued.
The view of the Tribunal on that aspect could not be sustained. [
So far as the
third ground for deleting the penalty, i.e.,
no penalty is exigible for non-filing of Form No. 26C required under
rule 37(2)(c) was concerned, it
was found that the show-cause notice dated 10-8-1984 had been issued by the ITO
under section 201(1)/221(1) after the development authority had filed Form No.
26C and the ITO had noticed the default. Even though no penalty is leviable
under section 221(1) for not furnishing Form No. 26C, yet in the instant case,
the penalty proceedings had been initiated for violation of the provision of
section 201(1). The Tribunal appeared to have misdirected itself on that
issue. [
However, the
Tribunal’s findings that the ITO’s discretion to levy penalty on the assessee
had not been fairly exercised, were based on appreciation of evidence and
material on record. The High Court while giving its opinion in a reference does
not sit in appeal over the findings recorded by the Tribunal, which are not
perverse. Thus, the Tribunal had rightly deleted the penalty. (
Therefore, even
though the order of the Tribunal on the point of law was not correct, yet on
the issue of fair exercise of discretion, there was no reason to
interfere. (
CASE REVIEW
Laxmi & Co. v. CIT [1981] 128 ITR 259(All); Jubilee investments &
Industreis Ltd. v. Asstt. CIT [1999] 238 ITR 648/106 Taxman 210 (