Divisional Manager, New India Assurance Co. Ltd. v. Income Tax Officer & Anr.

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The Tax Publishers2005 TaxPub(DT) 1272 (Karn-HC) : (2005) 006 (I) ITCL 0343 : (2005) 275 ITR 0227 : (2005) 195 CTR 0360 : (2005) 144 TAXMAN 0321 Divisional Manager, The New India Assurance Co. Ltd. v. ITO () INCOME TAX --Recovery----GARNISHEE PROCEEDINGS UNDER SECTION 226(3)Writ--Penalty was levied on the petitioner for not having deducted the tax at source in respect of the interest payments made by the petitioner-company to the claimants who had put forth claims against the owners of the Motor Vehicles which had been insured with the petitioner Insurance company.The revenue issued notice under section 226(3) and writ petitions were filed by the Insurance Company for quashing the notice issued under section 226(3) to the banker of the petitioner-company with which the accounts of the petitioner was maintained for the payment of amount notified in the demand notice in favour of the income-tax department. The notice was sought to be quashed on the premise that the amount mentioned in the notice is the subject-matter of appeal before the Tribunal in an appeal which was pending. Held: As the subject-matter was not before the High Court, therefore, recovery notice under section 226(3) could not be quashed. Income Tax Act, 1961 s.226(3) Income Tax Act, 1961 s.194A Constitution of India, 1950 Article 226 Divisional Manager, The New India Assurance Co. Ltd. v. I.T.O. In the Karnataka High Court D.V. Shylendra Kumar, J. WP Nos. 3850 to 3853 of 2005 (T-IT) 28 January 2005 Counsel: M.V. Javali, for the assessee. ORDER 1. These writ petitions by the Insurance Company is for quashing the notice issued under section 226(3) of the Income Tax Act to the banker of the petitioner-company with which the accounts of the petitioner is maintained for the payment of amount notified in the demand notice in favour of the income-tax department. 2. The notice is sought to be quashed on the premise that the amount mentioned in the notice is the subject-matter of appeal before the Income Tax Appellate Tribunal in an appeal pending before the Tribunal and that the Appellate Tribunal has declined to grant stay in favour of the petitioner in respect of the liability, the subject-matter of appeal during the pendency of the appeal, and even during the pendency of the appeal the respondent income-tax department has resorted to coercive recovery proceedings. 3. Sri M.V. Javali, learned counsel for the petitioner, submits that the subject-matter of appeal before the Tribunal is the legality of levy of penalty on the petitioner for not having deducted the tax at source in respect of the interest payments made by the petitioner-company to the claimants who had put forth claims against the owners of the Motor Vehicles which had been insured with the petitioner Insurance company. 4. Submission of Sri Javali, learned counsel for the petitioner, is that the question as to whether the petitioner was liable to deduct tax at source in respect of payment of such interest on the compensation amount payable to the victims of motor accidents was the subject-matter of decision by the Gujarat High Court in the case of United India Insurance Co. Ltd. v. Mitaben Dharmeshbhai Shah (2004) 269 ITR 63and in favour of the petitioner and when the very question as to whether the petitioner was liable to deduct any tax at source and remit it to the income-tax department was doubtful, further levy of penalty in respect of non-compliance is necessarily not warranted and when the levy of penalty has been questioned and is the subject-matter of appeal before the Tribunal, then it is a fit case for granting interim order of stay by the Tribunal during the pendency of appeal before it is the principle of law laid down in a catena of decisions both by the High Court and the Supreme Court and places reliance on the following cases: Birla Cement Works v. CBDT (2001) 248 ITR 216(SC). V.M. Salgaoncar & Bros. Ltd. v. ITO (1999) 237 ITR 630(Kar.). Learned counsel for the petitioner submits that in the present case the subject-matter of appeal before the Tribunal involving such disputed question of law, the Tribunal should have granted an order of stay and not granting has enabled the respondent income-tax department to issue notices under section 226(3) of the Income Tax Act and in the interest of justice such notices should be quashed and the petitioner extended the benefit of stay of recovery of the amount which is the subject-matter of appeal before the Tribunal. 5. In the context of the submission, learned counsel has drawn my attention to the provisions of section 194A of the Income Tax Act (hereinafter referred to as 'Act') and draws particular attention to clause IX of section 194A of the Act inserted by Finance Act, 2003 with effect from 1-6-2003 and submits that it is only thereafter the petitioner is required to deduct tax at source on payment of interest made to the claimants under the provisions of the Motor Vehicles Act and if that is the legal position for non-compliance with a statutory requirement which was not in force prior to the said date, levy of penalty is required to be set aside and at any rate the Tribunal should have granted stay of the recovery of such amount levied on the petitioner by way of penalty. 6. A look at the provision of section 194A of the Act will clear the understanding of the matter. Section 194A of the Act reads as under: 'Interest other than 'Interest on securities'(1) Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any income by way of interest other than income (by way of interest on securities), shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force: Provided that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such interest is credited or paid, shall be liable to deduct income-tax under this section. Explanation.For the purposes of this section, where any income by way of interest as aforesaid is credited to any account, whether called. 'Interest payable account' or 'Suspense account' or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly. (2) (Omitted by the Finance Act, 1992, with effect from 1-6-1992). (3) The provisions of sub-section (1) shall not apply- (i) to (viii)** (ix) to such income credited or paid by way of interest on the compensation amount awarded by the Motor Accident Claims Tribunal where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid during the financial year does not exceed fifty thousand rupees.' Inserted by Finance Act, 2003, with effect from 1-6-2003. Reading of section 194A (1) of the Act clearly indicates that any person, not being an individual or a Hindu undivided family and who is responsible for distribution of interest which is not by way of interest on securities, is under an obligation to deduct income-tax thereon at the rates in force. Sub-section (3) of section 194A of the Act provides for exceptions in the sense the obligation to so deduct is relieved in such a situation. One of the provisions is, clause (ix) where a relaxation is made in favour of the person like the petitioner viz, the Insurance Company who may have occasion to make payment on interest to claimants and if such payment of interest for a period of one year does not exceed a sum of Rs. 50,000, the Insurance Company is not under an obligation to deduct tax at source. 7. The subject-matter of non-compliance of the provision was of the period prior to 1-6-2003. Admittedly, during the period the petitioner was under an obligation to deduct tax at source on payment of interest in terms of sub-clause (1) of section 194A of the Act. Submission on the same on behalf of the petitioner that the petitioner was not obliged to deduct tax at source on the payment of amount by way of interest does not merit consideration. Whether, the non-deduction also warranted levy of penalty or the circumstances did not call for levy of penalty is a question which is sought to be agitated by the petitioner before the Appellate Authority. There is neither any need nor the occasion to examine this aspect by the court in this writ petition. 8. No occasion to interfere particularly for quashing recovery notice under section 226(3) of the Income Tax Act when the subject-matter is not before this court nor can be agitated before this court in these writ petitions. Hence, these writ petitions are dismissed. OPEN SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2005 TaxPub(DT) 1272 (Karn-HC) : (2005) 006 (I) ITCL 0343 : (2005) 275 ITR 0227 : (2005) 195 CTR 0360 : (2005) 144 TAXMAN 0321

Divisional Manager, The New India Assurance Co. Ltd. v. ITO ()

INCOME TAX

--Recovery----GARNISHEE PROCEEDINGS UNDER SECTION 226(3)Writ--Penalty was levied on the petitioner for not having deducted the tax at source in respect of the interest payments made by the petitioner-company to the claimants who had put forth claims against the owners of the Motor Vehicles which had been insured with the petitioner Insurance company.The revenue issued notice under section 226(3) and writ petitions were filed by the Insurance Company for quashing the notice issued under section 226(3) to the banker of the petitioner-company with which the accounts of the petitioner was maintained for the payment of amount notified in the demand notice in favour of the income-tax department. The notice was sought to be quashed on the premise that the amount mentioned in the notice is the subject-matter of appeal before the Tribunal in an appeal which was pending. Held: As the subject-matter was not before the High Court, therefore, recovery notice under section 226(3) could not be quashed.

Income Tax Act, 1961 s.226(3)

Income Tax Act, 1961 s.194A

Constitution of India, 1950 Article 226

Divisional Manager, The New India Assurance Co. Ltd. v. I.T.O.

In the Karnataka High Court D.V. Shylendra Kumar, J.

WP Nos. 3850 to 3853 of 2005 (T-IT) 28 January 2005

Counsel: M.V. Javali, for the assessee.

ORDER

1. These writ petitions by the Insurance Company is for quashing the notice issued under section 226(3) of the Income Tax Act to the banker of the petitioner-company with which the accounts of the petitioner is maintained for the payment of amount notified in the demand notice in favour of the income-tax department.

2. The notice is sought to be quashed on the premise that the amount mentioned in the notice is the subject-matter of appeal before the Income Tax Appellate Tribunal in an appeal pending before the Tribunal and that the Appellate Tribunal has declined to grant stay in favour of the petitioner in respect of the liability, the subject-matter of appeal during the pendency of the appeal, and even during the pendency of the appeal the respondent income-tax department has resorted to coercive recovery proceedings.

3. Sri M.V. Javali, learned counsel for the petitioner, submits that the subject-matter of appeal before the Tribunal is the legality of levy of penalty on the petitioner for not having deducted the tax at source in respect of the interest payments made by the petitioner-company to the claimants who had put forth claims against the owners of the Motor Vehicles which had been insured with the petitioner Insurance company.

4. Submission of Sri Javali, learned counsel for the petitioner, is that the question as to whether the petitioner was liable to deduct tax at source in respect of payment of such interest on the compensation amount payable to the victims of motor accidents was the subject-matter of decision by the Gujarat High Court in the case of United India Insurance Co. Ltd. v. Mitaben Dharmeshbhai Shah (2004) 269 ITR 63and in favour of the petitioner and when the very question as to whether the petitioner was liable to deduct any tax at source and remit it to the income-tax department was doubtful, further levy of penalty in respect of non-compliance is necessarily not warranted and when the levy of penalty has been questioned and is the subject-matter of appeal before the Tribunal, then it is a fit case for granting interim order of stay by the Tribunal during the pendency of appeal before it is the principle of law laid down in a catena of decisions both by the High Court and the Supreme Court and places reliance on the following cases:

Birla Cement Works v. CBDT (2001) 248 ITR 216(SC).
V.M. Salgaoncar & Bros. Ltd. v. ITO (1999) 237 ITR 630(Kar.).

Learned counsel for the petitioner submits that in the present case the subject-matter of appeal before the Tribunal involving such disputed question of law, the Tribunal should have granted an order of stay and not granting has enabled the respondent income-tax department to issue notices under section 226(3) of the Income Tax Act and in the interest of justice such notices should be quashed and the petitioner extended the benefit of stay of recovery of the amount which is the subject-matter of appeal before the Tribunal.

5. In the context of the submission, learned counsel has drawn my attention to the provisions of section 194A of the Income Tax Act (hereinafter referred to as 'Act') and draws particular attention to clause IX of section 194A of the Act inserted by Finance Act, 2003 with effect from 1-6-2003 and submits that it is only thereafter the petitioner is required to deduct tax at source on payment of interest made to the claimants under the provisions of the Motor Vehicles Act and if that is the legal position for non-compliance with a statutory requirement which was not in force prior to the said date, levy of penalty is required to be set aside and at any rate the Tribunal should have granted stay of the recovery of such amount levied on the petitioner by way of penalty.

6. A look at the provision of section 194A of the Act will clear the understanding of the matter.

Section 194A of the Act reads as under:

'Interest other than 'Interest on securities'(1) Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any income by way of interest other than income (by way of interest on securities), shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force:

Provided that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such interest is credited or paid, shall be liable to deduct income-tax under this section.

Explanation.For the purposes of this section, where any income by way of interest as aforesaid is credited to any account, whether called. 'Interest payable account' or 'Suspense account' or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.

(2) (Omitted by the Finance Act, 1992, with effect from 1-6-1992). (3) The provisions of sub-section (1) shall not apply-

(i) to (viii)**

(ix) to such income credited or paid by way of interest on the compensation amount awarded by the Motor Accident Claims Tribunal where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid during the financial year does not exceed fifty thousand rupees.'

Inserted by Finance Act, 2003, with effect from 1-6-2003.

Reading of section 194A (1) of the Act clearly indicates that any person, not being an individual or a Hindu undivided family and who is responsible for distribution of interest which is not by way of interest on securities, is under an obligation to deduct income-tax thereon at the rates in force.

Sub-section (3) of section 194A of the Act provides for exceptions in the sense the obligation to so deduct is relieved in such a situation. One of the provisions is, clause (ix) where a relaxation is made in favour of the person like the petitioner viz, the Insurance Company who may have occasion to make payment on interest to claimants and if such payment of interest for a period of one year does not exceed a sum of Rs. 50,000, the Insurance Company is not under an obligation to deduct tax at source.

7. The subject-matter of non-compliance of the provision was of the period prior to 1-6-2003. Admittedly, during the period the petitioner was under an obligation to deduct tax at source on payment of interest in terms of sub-clause (1) of section 194A of the Act. Submission on the same on behalf of the petitioner that the petitioner was not obliged to deduct tax at source on the payment of amount by way of interest does not merit consideration. Whether, the non-deduction also warranted levy of penalty or the circumstances did not call for levy of penalty is a question which is sought to be agitated by the petitioner before the Appellate Authority. There is neither any need nor the occasion to examine this aspect by the court in this writ petition.

8. No occasion to interfere particularly for quashing recovery notice under section 226(3) of the Income Tax Act when the subject-matter is not before this court nor can be agitated before this court in these writ petitions. Hence, these writ petitions are dismissed.

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