CASE LAWS
2017-TIOL-207-SC-IT + Story
PALAM GAS SERVICE Vs CIT: SUPREME COURT OF INDIA (Dated: May 3, 2017)
Income Tax - Sections 40(a)(ia), 194C & 200
Keywords - carriage - freight - LPG cylinders - sub-contract - tax at source
The assessee is engaged in the business of purchase and sale of LPG cylinders. During assessment proceedings, it was noticed by the AO that the main contract of the assessee for carriage of LPG was with the Indian Oil Corporation, Baddi. The assessee had received the total freight payments from the IOC Baddi to the tune of Rs.32,04,140/-. The assessee had, in turn, got the transportation of LPG done through three persons, namely, Bimla Devi, Sanjay Kumar and Ajay to whom he made the freight payment amounting to Rs. 20,97,689/-. The AO observed that the assessee had made a sub-contract with the said three persons within the meaning of Section 194C and, therefore, he was liable to deduct tax at source from the payment of Rs. 20,97,689/-. On account of his failure to do so the said freight expenses were disallowed by the AO as per the provisions of Section 40(a)(ia). Against the said order, the assessee preferred an appeal before the CIT(A) who upheld the order. The Tribunal also upheld the order. High Court affirmed the order of Tribunal. The question put before various high courts was - when the word used in Section 40(a)(ia) is 'payable', whether this Section would cover only those contingencies where the amount is due and still payable or it would also cover the situations where the amount is already paid but no advance tax was deducted thereupon. There are divergent views of the High Courts there upon.
Having heard the parties, the Supreme Court held that,
Whether as per the provisions of Section 40(a)(ia) a person is required to deduct tax at source not only on amounts payable but also when the sums are actually paid - YES: SC
++ Section 40(a)(ia) covers not only those cases where the amount is payable but also when it is paid. Once it is found that a person is required to deduct tax at source not only on the amounts payable but also when the sums are actually paid to the contractor, any person who does not adhere to this statutory obligation has to suffer the consequences. Certain consequences of such failure are stipulated in Section 201 which provides that in that contingency, such a person would be deemed to be an assessee in default in respect of such tax. While stipulating this consequence, Section 201 categorically states that the aforesaid Sections would be without prejudice to any other consequences which that defaulter may incur. Other consequences are provided under Section 40(a)(ia) of the Act, namely, payments made by such a person to a contractor shall not be treated as deductible expenditure. When read in this context, it is clear that Section 40(a)(ia) deals with the nature of default and the consequences thereof. When the entire scheme of obligation to deduct the tax at source and paying it over to the Central Government is read holistically, it cannot be held that the word 'payable' occurring in Section 40(a)(ia) refers to only those cases where the amount is yet to be paid and does not cover the cases where the amount is actually paid. If the provision is interpreted in the manner suggested by the appellant herein, then even when it is found that a person, like the appellant, has violated the aforesaid provisions, he would still go scot free, without suffering the consequences of such monetary default in spite of specific provisions laying down these consequences.
Assessee's appeal dismissed
2017-TIOL-849-HC-DEL-IT
PREETI N AGGARWALA Vs CCIT: DELHI HIGH COURT (Dated: May 1, 2017)
Income tax - Sections 220(2A) & 244A(1)(b)
Keywords - attachment of assets - tax refund - waiver of interest
The three assessees in the present case were notified under Special Courts (Trial of Offences relating to transactions in Securities) Act, 1992 whereby all the assets were attached to be dealt with as per orders of the Special Court. The consequential assessments made under the Act in respect of each of the assessees entailed their paying the substantial amounts towards tax and interest. By a communication, the Asst CIT Central, New Delhi requested the Custodian (Special Court) for recovery of the income tax demand. By an order the Department recovered in the case of Preeti Aggarwala a sum of Rs. 3,74,323/- towards interest u/s 220(2) for the AY 1998-99 by adjusting the refund due for AY 1992-93. In respect of Naresh Kumar Aggarwal, the dues in respect of taxes and interest were recovered by the Cheif CIT from the Custodian under the orders of the Special Court by debiting the attached account of the said assessee and also by adjusting refunds due for other AYs 2002-03, 2004-2005 and 2006-07. In respect of Brisk Capital Market Services Ltd., the dues in respect of taxes and interest were recovered by the Cheif CIT from the Custodian under the orders of the Special Court by debiting the attached account of the said assessee and also by adjusting refunds due for AYs 1993-94 up to 1996-97. Subsequent to it, the three assessees filed applications for waiver of interest u/s 220(2A) of the I-T Act for the various AYs, which was accepted by the Cheif CIT who had waived all the eligible amounts of interests for late payments. Thereafter, the assessees filed an application before the AO for grant of interest on the above amounts u/s 244 A of the Act. These applications were rejected by the AO stating inter alia that the obligation to refund money received and retained without right implies and carries with it the right of interest also whereas charging of interest u/s 220(2) for non payment of tax within the stipulated period is mandatory and as such department was very much within its right to collect and retain the amount of interest. Thereafter, the present petitions were preferred seeking the quashing of above orders and for a direction to the Department to pay the assessees simple interest @ 6% from the date of recovery of the interest till the date of refund.
On appeal, the HC held that,
Whether the government can avoid its obligation to reimburse the lawful monies "together with accrued interest" for the period of "undue retention" - NO: HC
Whether the provisions of Section 244A(1)(b) of the I-T Act prohibits the payment of interest on an amount of refund due to the assessees as a result of the waiver of interest u/s 220(2A) - NO: HC
++ the assessees applications seeking waiver of interest were finally disposed of by the CCIT only after almost seven years. Certainly, the assessees cannot be held responsible for such delay. Obviously there was a loss suffered by the Assessees as the amounts waived, and therefore refundable, were substantial. In the case of Brisk Capital Market Services. Ltd. the interest amount waived was Rs. 62,24,677/-, in the case of Naresh Aggarwal it was Rs. 79,78,839/- and in the case of Preeti Aggarwala it was Rs. 3,74,323/-. Given this background, it cannot be said there was any undue delay in the assessees approaching this Court for relief. It is not in issue that neither sub-clauses (a) (aa) of sub-section (1) of Section 244-A applies in the present case. Clause (b) deals with 'any other case' - which has to be a case other than refund of taxes or penalties. Clause (b) stipulates that "in any other case" the interest payable shall be calculated at the rate of one-half per cent for every month or part of a month comprised in the period or periods from the date "or, as the case may be" dates of payment of the "tax or penalty" to the date on which the refund is granted. This has to be read with the expression "refund of any amount that becomes due" occurring in Section 244-A (1) of the Act. When the entire sub-section (1) of Section 244 A of the Act is read as a whole, the legislative intent does not appear to be to limit the expression "any amount becomes due" occurring in Section 244A (1) or the expression "in any other case" occurring in Section 244A (1) (b) only to tax and penalty as is sought to be contended by the Department. The words "as the case may be" refers to the period for which the interest will become payable and that the period is said to be dates of payment of tax or penalty to the date on which the refund is granted. This does not mean that the amount other than tax or penalty cannot be included in the expression "in any other case". it is only reflective of the periods for which such interest would become payable. In fact the disjunctive "or" between the words "period" and "periods" indicates that 'in any other case' interest would be calculated for every month or part of a month comprised in the period or periods from the date on which the refund is granted. The Court is not prepared to read the expression in the narrow way as suggested by Revenue's counsel;
++ the Explanation under clause (b) of Section 244 A (1) of the Act serves to clarify the expression "the dates of payment of the tax or penalty." It is not intended to and in fact does not whittle down the ambit of Section 244 A (1) (b) of the Act. In Commissioner of Income Tax v. Birla Corporation Limited, the question that arose was whether the ITAT was justified in granting interest u/s 244A on the refund arising due to excess payment on self-assessment of tax. It was held that Section 244A does not mandate that interest cannot be allowed on self-assessment tax paid under Section 140A of the IT Act. The High Court further held that "it cannot be said that interest u/s 244A can be allowed only in cases where excess payments of tax is made consequent to a notice of demand u/s 156. The language of the Act is clear and there is no ambiguity in it. Hence the Assessee is clearly entitled to claim interest u/s 244A on refund of excess self-assessment tax." As correctly noted in Commissioner of Income Tax v. Birla Corporation Limited, there was a divergence of views of the Division Benches of this Court in CIT v. Sutlej Industries 2010-TIOL-203-HC-DEL-IT and CIT v. Engineers India Limited Ltd. - 2015-TIOL-528-HC-DEL-IT. In the latter decision, the Court purportedly followed the decision of the Supreme Court in Commissioner of Income Tax, Gujarat v. Gujarat Fluoro Chemicals which did not deal with the issue of refund of excess self-assessment tax. It may be noted at this stage that the question of the conflict between the aforementioned two decisions of this Court in CIT v. Sutlej Industries and CIT v. Engineers India Limited has been referred to a larger Bench of this Court. However, the issue in the present case does not involve refund of excess self-assessment tax. Turning to the decision of the Supreme Court in Union of India v. Tata Chemicals Limited, the question that arose was whether the Revenue was liable to pay interest on the refund of tax made to the Resident/Deductor u/s 240 of the Act. Answering the said question in the affirmative, the Supreme Court held that: "....Providing for payment of interest in case of refund of amounts paid as tax or deemed tax or advance tax is a method now statutorily adopted by fiscal legislation to ensure that the aforesaid amount of tax which has been duly paid in prescribed time and provisions in that behalf form part of the recovery machinery provided in the taxing statute. Refund due and payable to the assessee is debt owned and payable by the Revenue. The Government, there being no express statutory provision for payment of interest on the refund of the excess amount/tax collected by the Revenue, cannot shrug of its apparent obligation to reimburse the deductors lawful monies with the accrued interest for the period of undue retention of such monies. ....The obligation to refund money received and retained without right implies and carries with it the right to interest. Whenever money has been received by a party which ex ae quo et bono ought to be refunded, the right to interest follows, as a matter of course...."
Whether the sum found refundable to the assessee as a result of the waiver of interest order passed by the CCIT is a definite sum that was wrongly deducted from the assessees as interest, and payment of interest on that sum by the Revenue cannot be characterised as payment of 'interest on interest' - YES: HC
++ the decision in Union of India v. Tata Chemicals Limited is clear in its enunciation that even if there is no express statutory provision for payment of interest, the government cannot avoid its obligation to reimburse the lawful monies "together with accrued interest" for the period of "undue retention". Once it is clear that Section 244A (1) (b) of the Act which talks of "any other case" does not have to be interpreted restrictively and can include situations like in the present case, then it is evident that there is nothing in the said provision which prohibits the payment of interest on an amount of refund due to the Petitioners as a result of the waiver of interest u/s 220(2A). The circular of the CBDT dated 26th April 2016 accepts the above proposition laid down in Union of India v. Tata Chemicals Limited in its entirety. The sum found refundable to the assessee as a result of the waiver of interest order passed by the CCIT is a definite sum that was wrongly deducted from the assessees as interest. Payment of interest on that sum by the Revenue cannot be characterised as payment of 'interest on interest'. In India Trade Promotion Organization v. CIT, the question before the Court concerned the denial of interest on refund. It was clarified that "if the refund does not include interest due and payable on the amount refunded, the Revenue would be liable to pay interest on the shortfall. This does not amount to payment of interest on interest." For all the aforementioned reasons, the Court sets aside the impugned orders of the AO denying the assessees interest on the amounts refunded to them pursuant to the waiver order of the CCIT. The interest amount as claimed by the assessees on the amount refunded to them will now be paid by the Department to the assessees within four weeks from today in terms of Section 244 A(1)(b) of the Act from the date of recovery till the date of payment.
Assessee's petition allowed
