IT : Where assessee was in default in making payment of interest, no penalty under section 221(1) could be levied
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[2014] 41 taxmann.com 72 (Punjab & Haryana)
HIGH COURT OF PUNJAB AND HARYANA
Commissioner of Income-tax -II, Amritsar
v.
Great Value Food*
AJAY KUMAR MITTAL AND JASPAL SINGH, JJ.
IT APPEAL NO. 283 OF 2009 (O&M)†
OCTOBER 29, 2013
Section 221, read with section 2(43), of the Income-tax Act, 1961 - Collection and recovery of tax - Penalty payable when tax in default [Interest] - Assessment year 2004-05 - Assessee-firm filed its return of income and had not deposited interest under sections 234B and 234C - Assessing Officer treated it as an assessee in default and imposed penalty under section 221 - In CIT v. P.B. Hathiramani [1994] 207 ITR 483/[1993] 68 Taxman 449 (Bom.), High Court held that penalty under section 221 was leviable only when assessee was in default or is deemed to be in default in making a payment of 'tax' - Whether since definition of 'tax' under section 2(43) did not include penalty or interest, penalty under section 221(1) could not be levied - Held, yes [Paras 8, 9 & 11] [In favour of assessee]
CASES REFERRED TO
E.K. Varghese v. ITO [1974] 96 ITR 577 (Ker.) (para 3), CIT v. Shreeniwas & Sons v. ITO [1974] 96 ITR 562 (Cal.) (para 4) and CIT v. P.B. Hathiramani [1994] 207 ITR 483/[1993] 68 Taxman 449 (Bom.) (para 4).
Dinesh Goyal for the Appellant. Aman Bansal for the Respondent.
ORDER
Ajay Kumar Mittal, J. - This appeal has been preferred by the revenue under Section 260A of the Income Tax Act, 1961 (in short, "the Act") against the order dated 8.10.2008, Annexure A.3 passed by the Income Tax Appellate Tribunal, Amritsar Bench, Amritsar (in short, "the Tribunal") in ITA No.16/ASR/2008, for the assessment year 2004-05, claiming following substantial questions of law:-
| "(a) | Whether the Hon'ble ITAT Amritsar Bench, Armitsar erred in law and on facts in deleting the penalty of Rs. 11,50,000/-imposed by the Assessing Officer under section 221 of the IT Act, 1961 and duly confirmed by the learned CIT(A), without appreciating the fact that the assessee was treated in default under section 140A(3) of the IT Act, 1961 for non payment of tax due on returned income which also includes interest payment under section 234B and 2334C of the IT Act, 1961? | |
| (b) | Whether the ITAT erred both in law and on fact in not correctly appreciating the provisions of Section 140A(3) of the IT Act, 1961 which clearly states that for default of whole or any part of tax or interest or both under section 140A(1) of the IT Act, 1961 which remain unpaid, all the provisions of this Act shall apply accordingly which also includes section 221 of the IT Act, 1961 under which penalty was imposed? | |
| (c) | Whether the ITAT erred in law and on fact in deleting the penalty amount of Rs. 11,50,000/- without considering the Explanation 1 to section 140A(3) of the IT Act, 1961 which clearly stipulates that where the amount paid by the assessee falls short of tax and interest, the amount of tax so paid shall be adjusted towards interest payable and the balance towards the tax payable?" |
2. Briefly, the facts necessary for adjudication of the controversy involved, as narrated in the appeal, may be noticed. The assessee firm filed its return of income for the assessment year 2004-05 on 31.10.2004 showing total income of Rs. 3,33,29,720/-. There was a note given in the return that interest under sections 234B and 234C of the Act was liable to be waived. It was also stated that the assessee being new firm who started its business in the middle of February 2004 could not estimate its income. The return was processed under section 143(1) of the Act on 17.3.2006 and a demand of Rs. 13,51,857/- was raised. Later on, the assessee moved rectification application under section 154 of the Act and the order under Section 154 of the Act was passed by the Assessing Officer on 26.6.2006 creating rectified demand of Rs. 11,54,400/-. Since the assessee firm failed to pay the tax of Rs. 11,54,400/- under Section 140A(1) of the Act before filing the return of income, it was treated as an assessee in default and penalty of Rs. 11,50,000/-was imposed under section 221(1) of the Act vide order dated 8.6.2007, Annexure A.1. Aggrieved by the order, the assessee filed appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. Vide order dated 20.11.2007, Annexure A.2, the appeal was dismissed and the penalty of Rs. 11,50,000/- was confirmed. Still not satisfied, the assessee filed appeal before the Tribunal. Vide order dated 8.10.2008, Annexure A.3, the Tribunal allowed the appeal and deleted the penalty. Hence the present appeal by the revenue.
3. Learned counsel for the revenue submitted that the Tribunal was in error in deleting the penalty imposed under section 221(1) of the Act as the assessee had failed to deposit the interest under sections 234B and 234C of the Act. According to the learned counsel, the payment was made on 28.6.2006 for the assessment year 2004-05 and therefore, the Assessing Officer and the CIT(A) had rightly imposed the penalty on the assessee. Support was drawn from judgment of the Kerala High Court in E.K. Varghese v. ITO [1974] 96 ITR 577.
4. Controverting the submissions made by learned counsel for the revenue, learned counsel for the assessee relied upon judgments in CIT v. Shreeniwas & Sons v. ITO [1974] 96 ITR 562 (Cal.) and CIT v. P.B. Hathiramani [1994] 207 ITR 483/[1993] 68 Taxman 449 (Bom.) to submit that no penalty under Section 221(1) of the Act could be levied where there was default in making the payment of interest. According to the aforesaid provision, where there was default in deposit of tax, only then penalty was leviable.
Reference was also made to CBDT circular/notification dated 23.5.1996 issued under Section 119(2) (a) of the Act to contend that even the interest levied under Sections 234B and 234C of the Act were liable to be waived for which an application was pending with the Chief Commissioner of Income Tax.
5. After hearing learned counsel for the parties, we do not find any merit in the appeal.
6. The relevant portion of Section 221(1) of the Act reads thus:—
"221 Penalty payable when tax in default.—(1) 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 the arrears and the amount of interest payable under sub-section (2) of section 220, be liable, by way of penalty, to pay such amount as the Assessing Officer may direct and in the case of continuing default, such further amount or amounts as the Assessing Officer may, from time to time, direct, so however, that the total amount of penalty does not exceed the amount of tax in arrears."
7. According to the aforesaid provision, wherever there is default in deposit of the tax, the assessee in addition to the amount of arrears and the amount of interest payable under section 220, is liable for penalty which shall not exceed the amount of tax in arrears.
8. 'Tax' has been defined in Section 2(43) of the Act, as under:—
"2(43) 'tax' in relation to the assessment year commending on the Ist day of April, 1965, and any subsequent assessment year means income-tax chargeable under the provisions of this Act, and in relation to any other assessment year income tax and super-tax chargeable under the provisions of this Act prior to the aforesaid date."
The tax, penalty and interest are different concepts under the Act. The definition of 'tax' under Section 2(43) of the Act does not include penalty or interest. Similar view was taken by the Calcutta High Court in Shreeniwas & Sons case (supra) wherein it was noticed that interest cannot be held to be 'additional tax'.
9. The Bombay High Court in P.B. Hathiramani's case (supra), applying the principles as laid down in Shreeniwas & Sons case (supra) interpreted the provisions of section 221(1) with section 2(43) of the Act as under:—
'4. A bare reading of this provision shows that penalty under section 221 is leviable only when the assessee is in default or is deemed to be in default to making a payment of "tax". The expression "tax" has been defined in section 2 (43) of the Act as under :
"2. In this Act, unless the context otherwise requires —
(43) 'tax' in relation to the assessment year commencing on the 1st day of April, 1965, and any subsequent assessment year means income-tax chargeable under the provisions of this Act and in relation to any other assessment year income-tax and super-tax chargeable under the provisions of this Act prior to the aforesaid date :"
Reading the two provisions together, it is clear that, unless the assessee is or is deemed to be in default in making a payment of "tax", as defined in section 2(43) of the Act, which means that he is in default or in deemed default in payment of income-tax chargeable under the provisions of the Act or super-tax chargeable under the provisions of the Act, depending upon the assessment year in question, there could be no levy of penalty under section 221(1).'
10. Adverting to the judgment in E.K. Varghese's case (supra) relied upon by learned counsel for the revenue, the issue before the Court therein was whether advance tax was to be characterised as tax or not. It was held that advance tax would fall within the ambit of tax. The position in the present case is different as it relates to interest and not advance tax and, therefore, no benefit can be derived by the revenue from the aforesaid pronouncement.
11. In view of the above, the substantial questions of law are answered accordingly and finding no merit in the appeal, the same is hereby dismissed.
■■ †Arising out of order of ITAT in Appeal No. 16/Asr./2008, dated 8-10-2008.
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