1981-VIL-25-ITAT-

Equivalent Citation: TTJ 011, 386,

Income Tax Appellate Tribunal BOMBAY

Date: 05.02.1981

THIRD INCOME TAX OFFICER.

Vs

BOMBAY CABLE CO. PVT. LTD.

BENCH

Member(s)  : A. Krishnamurthy., S. N. Rotho.

JUDGMENT

2. The assessee is a private limited company. The assessment years involved in these appeals are 1969-70 to 1972-73 (both inclusive). The subject-matter of these appeals relates to the imposition of interests under s. 201(1A) of the IT Act, 1961. The case of the ITO was that the assessee failed to deduct and deposit the tax from the salaries paid by it to its Directors and emplyees, in accordance with the provisions of s. 192 of the Act, r/w rr. 32,33 and 34 of the IT Rules, 1962. The orders passed by the ITO were under s. 201(1A) r/w s. 192(1) and s. 200 of the Act. The ITO calculated the period of defaults for the four years and demanded interest of Rs. 92, Rs. 3,266, Rs. 3,225 and Rs. 1,039 for the respective four years under consideration. The orders passed by the ITO merely state that he found the assessee to be in default and, so, he was imposing interests under s. 201(1A) of the Act.

3. The assessee appealed to the CIT(A) and contended that the imposition of interests was not justified. It was explained that the assessee was being assessed to Income-tax since 1954 and there was no instance of any failure on the part of the assessee to deduct the tax at source and deposit the same within the prescribed time till 1968. However, the company faced difficult days from the year 1968-69 onwards on account of labour unrest, which led to a steep fall in the production and the consequent financial difficulties. These difficulties ultimately led the creditors of the company to thereafter winding up of the company in 1971. In fact, the High Court was moved by the creditors by company Application No. 59 of 1972 praying for the winding up of the company and applying the assets of the company for the satisfaction of the dues to the creditors. The litigation continued and the High Court sanctioned a scheme of compromise on 18th Dec., 1976 whose implementation was extended from time to time until it was carried out on 21st March, 1979. On that day, the High Court passed final orders and directed the assessee company to pay the creditors in accordance with the scheme. These creditors included these demanding statutory liabilities to the tune of Rs. 2,27,000 and this sum included a sum of Rs. 4,083 towards IT deducted from the salaries which remained to be paid to the Government. However, it was explained before the CIT(A) that the tax deducted at source, in respect of which the interest was imposed during the four years under consideration, was actually paid even before the aforesaid order of the High Court. The case of the assessee was that the assessee was not able to deposit the tax deducted at source within the prescribed time limit due to difficult financial circumstances narrated above. Further, it was urged that in the last two years, no payment of salary was made to the Directors and only their accounts in the books of the company were credited with the account of the salary without any actual payment, so that there was no necessity to deduct the tax at source at the stage. The CIT(A) observed that in view of the financial difficulties and the order of the High Court, this was not a fit case to charge interests under s. 201(1A) for the four years under consideration. He, therefore, cancelled the interests for the respective four years.

4. Shri N.K. Vohra, the ld. Deptl. Rep., argued before us that the CIT(A) was not justified in his decision and submitted that the CIT (A) should not have entertained the appeals at all because s. 201(1A) was not appealable. He pointed out that there was no proviso in sub-s. (1A) regarding satisfaction of the ITO on good and sufficient reasons. Further no provision for waiver of the interest is found in the IT Rules, 1962, unlike the interest charges under other sections of the Act. His point was that though s. 246(1) says that the order under s. 201 is appellable, yet the order under 201(1A) was not appealable. Coming to the merits of the case, he stated that the financial difficulties of the company started with the filing of the petition in 1971 which did not explain the details of the first two years. Even regarding the latter two years, he urged that the assessee should have deposited the tax deducted at source instead of using the same in its business. Hence, he urged that the orders of the CIT (A) deserved to be vacated and those of the ITO restored. Shri V.H. Patil, the ld. Representative of the assessee, on the other hand, supported the order of the CIT (A). He pointed out that no specific ground had been taken in the appeals to the effect that the CIT (A) should not have entertained the appeals at all. Even otherwise, he stated, the whole of s. 201 has been stated to be appellable in s. 246(1) and, so, the CIT(A) rightly entertained the appeals. About the merits of the case, he stated that the assessee was in difficulties right from the year 1968-69 and the creditors of the company took the matter to the Court only after waiting for a reasonable time with the hope that the assessee could get over its difficulties and repay their dues. He urged that the financial difficulties of the assessee did not begin in 1971 but right from the year 1968, as stated before the ITO. He stated that the assessee was not in a position to pay even the salaries of the staff on the due dates and the salaries paid during the years under consideration were, somehow, managed inspite of the great pressure from the secured and unsecured creditors. His point was that the assessee was prevented from deducting and paying tax from the salaries under the aforesaid difficult circumstances. He also urged that no actual payment of salary had been made to the Directors in the latter two years and so, no obligation to deduct tax at source arose in this case. Further, he pointed out that the penalty proceedings under s. 201(1) were started by the ITO and the assessee explained the whole position by its letter dt. 28th July, 1979, addressed to the ITO. He further stated that the penalty proceedings were dropped under identical circumstances and, so, there was no justification for imposing the interests for the same default.

5. We have considered the contentions of both the parties as well as the facts on record. Even though no specific ground challenging the admission of the appeals has been taken in the appeals before us, yet, we find that the first ground taken is wide enough to cover the point raised by the ld. representative of the Department which goes to the very root of the matter. We, therefore, proceed to consider as to whether the orders under s. 201 (1A) as appealable. We find that s. 246(1) clearly states that order under s. 201 is appealable. Evidently, s. 201 includes all its sub-sections, including sub-s. 1A. We, therefore, held that CIT (A) was quite justified in entertaining the appeals under consideration against the orders passed under. 201(1A).

6. Coming to the merits of the case, we find from the facts on record that the assessee was in financial difficulties, as explained by him during the penal proceedings, by its letter dt. 28th July, 1979. There is force in the explanation of the assessee that the financial difficulties started at a stage earlier to the final action of the creditors in 1971 threatening legal action against the assessee. A copy of the order of the Hon'ble High Court, referred to by the CIT (A) in his order, has been placed before us. This order shows that the assessee was able to pay a part of its total dues to the creditors. This fact proves the financial difficulties of the assessee during the years under consideration. If an order is appealable, the appellate authority has to see whether the order appealed against was justified in the facts and circumstances of the case. The orders under appeal levied interests on the assessee on the ground that the tax deducted at source was not paid within the prescribed time, but paid only after the prescribed dates. The CIT (A) considered the circumstances which prevented the assessee from deducting and depositing the tax within the prescribed dates and found that the assessee was prevented by genuine difficulties from doing so. In our opinion, the decision of the CIT(A) is based on sound reasoning and good evidence. Besides, we find the penalty proceedings, started under s. 201(1) for these very four years, which are now under our consideration, were dropped under identical facts and circumstances on the ground that the explanation given by the assessee in its letter dt. 28th July, 1979 was quite satisfactory.

7. In the light of the aforesaid discussion, we, therefore, agree with the conclusions of the CIT (A) and uphold his orders for all the four years.

8. In the results, the departmental appeals are dismissed.

 

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