C.I.T. JDR. vs. QUALITY PACKS

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ITR/35/1992HC Punjab & HaryanaPHHC01021996199214 November 2006Author: MR. JUSTICE RAJESH BINDAL,MR. JUSTICE ADARSH KUMAR GOEL2 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the Tribunal was not in error in cancelling the interest levied under Section 201(1A). The Court reasoned that the liability to deduct tax at source under Section 195 of the Act arises only if the payment is made to a non-resident, as defined under Section 2(30) of the Act. Since the Tribunal found no evidence that M/s. Saggar and Co. was a non-resident, the prerequisite for invoking Section 195 was not met. Consequently, the levy of interest as a penalty for non-deduction of tax was unjustified. The Court relied on the principle that in the absence of a finding that the assessee was liable to deduct tax, the penalty cannot be justified. The Court also referred to the decision in ITO, Rampur v. Raza Textiles Limited, (1977) 106 ITR 408, which held that a firm with partly within taxable territories control and management cannot be considered non-resident. The question referred is answered against the revenue and in favour of the assessee. The reference is disposed of accordingly.

What were the facts?

The assessee, Quality Packs Maqsoodan, was levied interest under Section 201(1A) of the Income Tax Act, 1961, for failing to deduct tax at source under Section 195 on rent paid to M/s. Saggar & Co. and other individuals. The revenue contended that these recipients were co-owners and their shares were ascertainable. The assessment years in question were 1981-82 to 1987-88. The Income Tax Appellate Tribunal cancelled the interest, holding that there was no evidence that M/s. Saggar and Co. was a non-resident, which is a prerequisite for Section 195 applicability. The Commissioner of Income Tax (CIT) has referred the matter to the High Court.

What were the issues?

1. Whether, on the facts prevailing in this case, the Tribunal was in error in cancelling interest levied under Section 201(1A) of the Income Tax Act, 1961, for the seven years under reference? Assessee's Contention: The judgment does not record specific arguments made by the assessee. However, the Tribunal's reasoning implies the assessee likely argued that the condition for deducting tax at source under Section 195 was not met. Revenue's Contention: The revenue contended that the assessee firm failed to deduct tax at source under Section 195 in respect of rent paid to M/s. Saggar & Co. and other individuals, whose shares were definite or ascertainable and who were co-owners for purposes of Section 26 of the Act. The revenue argued that this failure justified the levy of interest under Section 201(1A).

Which sections of the Income-tax Act were involved?

Section 201(1A),Section 195,Section 2(30),Section 26

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
ITR Nos.35 to 41 of 1992 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITR Nos 35 to 41 of 1992 Date of decision:14.11.2006 The Commissioner of Income Tax, Jalandhar ....Petitioner versus Quality Packs Maqsoodan, GT Road, Jalandhar ....Respondent CORAM: HON'BLE MR. JUSTICE ADARSH KUMAR GOEL HON'BLE MR. JUSTICE RAJESH BINDAL Present: Dr. N.S.Sharda, Advocate, for the revenue.

JUDGMENT: Following question has been referred for the opinion of this Court by the Income tax Appellate Tribunal, Amritsar Bench, Amritsar, (for short, 'the Tribunal') arising out of its order dated 26.10.1990 in ITA Nos.384 to 390 (ASR)/1989, for the assessment years 1981-82 to 1987-88:- “Whether on the facts prevailing in this case the Tribunal was in error in cancelling interest levied under section 201(1A) of the Income tax Act, 1961 for the seven years under reference?” The assessee firm was subjected to interest under section 201 (1A) of the Income Tax Act, 1961 (for short, 'the Act') on the ground that it failed to deduct tax at source under section 195 of the Act in respect of rent paid to M/s. Saggar & Co. Association of nine persons for the assessment year 1981-82 and rent paid to three persons for the later years whose shares were definite or ascertainable and who were co-owners for purposes of ITR Nos.35 to 41 of 1992 2 Section 26 of the Act. Smt. Baldev Kaur was holding power of attorney from Shri Saggar Singh, one of the co-owners of properties held by M/s. Saggar and Co. The Tribunal set aside the levy of interest on the ground that there being no evidence that M/s. Saggar and Co. was a non-resident, payment of rent to M/s. Saggar and Co. was not liable to deduction of tax at source under section 195 of the Act. Reference to provisions of section 195 of the Act makes it clear that liability to deduct tax arises only if any payment is to be made to a non- resident, which has been defined under section 2(30) of the Act. Thus, in absence of a finding being recorded that the assessee was liable to deduct tax out of the payments to be made, the penalty by way of interest could not be justified. In ITO, Rampur v. Raza Textiles Limited, (1977) 106 ITR 408, it was held that if the control and management of a firm is partly within taxable territories, such a firm cannot be held to be non-resident. In view of the above, the question referred is answered against the revenue and in favour of the assessee. Reference is disposed of accordingly. (Adarsh Kumar Goel) Judge November 14, 2006 (Rajesh Bindal) 'gs' Judge

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