PSEB, PATIALA vs. COMMISSIONER OF INCOME TAX PATIALA

CWP No. 16418 of 1994 -1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH CWP No. 16418 of 1994 Date of Decision: 28.6.2010 The Punjab State Electricity Board, Patiala ....Petitioner. Versus The Commissioner of Income-Tax, Patiala and another ...Respondents. CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. Pankaj Jain, Advocate and Mr. Rishabh Kapoor, Advocate for the petitioner. Ms. Urvashi Dugga, Advocate for the Revenue. ADARSH KUMAR GOEL, J. 1. This order shall dispose of CWP No. 16418 of 1994 and ITA Nos. 104, 106, 109 of 2002, 17, 29 of 2003, 509 and 523 of 2006. 2. In the writ petition, the petitioner seeks a direction for quashing the orders dated 1.7.1994 (Annexure P-1) and dated 9.11.1994 (Annexure P-2) passed by respondent No.2 for recovery of amount of surcharge from the petitioner on the ground that the petitioner failed to deduct at source the amount of surcharge due, under Section 193 of the Income Tax Act, 1961 (in short, “the Act”), for the financial years 1990-91 and 1987-88 to 1989-90, respectively. 3. The case of the petitioner is that it issued bonds to raise finances which were subscribed by the nationalized banks and other

CWP No. 16418 of 1994 -2- financial institutions. The petitioner-Electricity Board paid interest on the bonds to the banks and financial institutions. While making the payment of the interest so accrued in favour of the banks and financial institutions, the petitioner was required to deduct tax at source under Section 193 of the Act. The petitioner having not made the said deduction, the revenue took steps to recover the said amount from it. The objection of the petitioner is that the tax on the interest income having been paid directly by the banks and financial institutions who were recipients of income, the petitioner could not be required to meet the said liability. 4. During the pendency of the writ petition, the matter was considered by the Income Tax Appellate Tribunal (ITAT). The ITAT accepted the plea of the petitioner that it was not liable to pay the amount of tax which was not deducted under Section 193 of the Act when the tax liability has been duly discharged by the banks and the financial institutions concerned. Only interest was liable to be paid for the period of delayed payment. The department filed appeals bearing ITA Nos. 104, 106, 109 of 2002, 17, 29 of 2003, 509 and 523 of 2006 which were admitted by this Court in view of pendency of the writ petition. 5. Learned counsel for the petitioner-Electricity Board states that in view of the orders passed in the departmental proceedings by the ITAT for the assessment years in question, the writ petition has become infructuous. Accordingly, the present writ petition is disposed of as having been rendered infructuous. 6. As regard the appeals filed by the revenue which have

CWP No. 16418 of 1994 -3- been admitted only on account of pendency of the writ petition, there is a finding of fact recorded that the tax liability has been duly met by the concerned banks and the financial institutions. The appeals under Section 260A of the Act are competent only when there are substantial questions of law. Though the substantial questions of law have been framed in the appeals but the same were admitted without examining the said questions of law. We have, thus, to determine whether any substantial question of law for entertaining the appeals arises or not. 7. The findings recorded by the CIT (A) in its order dated 8.6.1994 (Annexure A-1) for the assessment years 1990-91, 1991-92 and 1992-93 are as under:- “24. As far as financial year 1990-91 is concerned, the facts are slightly different. Order u/s 201 (1A) itself mentions that out of total amount of surcharge of Rs.72,23,554 only a sum of Rs.37,95,906.76 was recovered by the Deptt. from the appellant on 28.7.1993. The balance amount of Rs.34,28,352/- was not collected due to the fact that the assessments of different banks from whom the amount of surcharge was to be recovered had since been completed and refunds had also been determined. Photocopies of these assessment orders were filed before the Assessing Officer and the plea of the appellant for not depositing the balance amount was accepted. Assessing Officer, however, calculated the interest on the entire amount

CWP No. 16418 of 1994 -4- due for the three years upto the date of payment and even levied interest on the balance amount of Rs.34.28 lacs which was not even deposited by the appellant. This is apparently wrong. There is no question of interest being levied on the amount of surcharge which itself has not been collected for reasons discussed in the order of the Assessing Officer. As decided in respect of financial years 1991-92 & 92-93 interest on non-payment of surcharge should be recalculated upto the end of the financial year i.e. 31st March, 1991 after verification of the fact that all the payees had duly paid their taxes either by way of advance-tax or by way of TDS.” 8. The findings of the ITAT on this aspect are as under:- “The A.O. in the assessment order has recorded that on verification, the contention of the assessee that recipients paid surcharge on interest received by them was correct. The CIT (A) on the basis of material available has held that surcharge must have been paid before 31st of March of the financial years 1991-92 and 1992-93 and, therefore, directed that interest could be charged only upto 31st of the respective financial year. Similar recommendation was made in the period relevant to assessment year 1990-91. The aforesaid inference from the facts collected by the Assessing Officer is possible. But

CWP No. 16418 of 1994 -5- both the parties are aggrieved from the aforesaid findings. In principle, it has to be accepted that interest could be charged only upto the date the surcharge due was actually paid to the credit of the Government. Now what is the actual date of payment, is a question of fact. Each payment will have to be examined in case the interest is to be correctly computed. We see no reason why correct amount should not be determined. After all, interest payable is compensatory in nature and has to be recovered for the period for which the State was deprived of the amount due to it. None of the parties has furnished calculation or details of date of actual payment. But then as per mandate of sub-section (1A) of section 201 read with Article 265 of the Constitution of India, interest can be recovered only till the amount was actually paid. The date of actual payment has to be determined and interest computed from the date of default to the aforesaid date as on visages under sub-section (1A) of Section 201 of the Income Tax Act. The A.O. has collected material from various recipients regarding surcharge paid by them. Therefore, he should have taken date of actual payment into account. It is possible that the recipients paid tax and surcharge on this income (Interest on Bonds) along with other income and

CWP No. 16418 of 1994 -6- bifurcated figures are not available. In that case, the A.O. should allow benefit of payment on proportionate/rational basis having regard to the fact that the entire liability was cleared in the financial year. We direct accordingly and modify the directions of the CIT (A) on the question of interest payable u/s 201 (1A) of the Income Tax Act.” 9. In view of the above findings which are not shown to be erroneous, we are unable to hold that any substantial question of law arises in these appeals. 10. The appeals are accordingly dismissed. (ADARSH KUMAR GOEL) JUDGE June 28, 2010

(AJAY KUMAR MITTAL) gbs JUDGE