COMMISSIONER OF INCOME TAX Vs. MAJESTIC HOTEL LTD.

JUDGEMENT

(1.) ALL these appeals arise out of a common order passed by the Tribunal, Delhi Bench and shall stand disposed of by this order. Before adverting to the questions that arise for consideration, it is necessary to briefly state the facts giving rise to these appeals.

(2.) THE respondent -company is running a five -star hotel in Ludhiana, Punjab. In the course of a survey of the premises of the respondent, it was found that it had failed to deduct tax at source under s. 194A of the IT Act, 1961 (for short "the Act"), while paying interest on the loan borrowed by the respondent from the Tourism Finance Corporation of India Ltd. ("TFCI"). The AO held the respondent -company to be 'an assessee in default' in terms of s. 201(1) of the Act for the financial years 1994 -95 to 2001 -02. An aggregate tax liability of Rs. 3,41,46,984 was, on that basis, determined against the respondent. In addition, a sum of Rs. 2,13,89,341 towards interest was held payable by it under s. 201(1A) of the Act.

(3.) AGGRIEVED by the said order, the respondent appealed to the CIT(A) and argued that payments made to TFCI towards interest were immune from any deduction at source in terms of s. 194A(3)(iii)(b) of the Act. It was alternatively argued that even if the deduction at source was in law necessary, the respondent could not be treated as 'an assessee in default' as it was labouring under a bona fide belief that TFCI was covered under the provisions mentioned above and payments made to it were exempt from any deduction at source. Reliance was also placed by the assessee upon a notification issued by the Central Government notifying TFCI for purposes of s. 194A(3)(iii)(b) of the Act. The said notification, it was argued, was applicable retrospectively to grant immunity from deduction even in regard to payments made to the Corporation before the same was issued. The CIT(A) repelled all these contentions. The CIT(A) held that TFCI did not fall under s. 194A(3)(iii)(b) of the Act nor was the notification relied upon by the respondent applicable retrospectively. The CIT(A) was also of the opinion that no defence based on "reasonable cause" or "bona fide belief" justifying non -deduction of tax at source was available to the assessee in proceedings meant to determine whether the assessee was or was not in default. Repelling the contention that the order passed by the AO was not made within a reasonable period, the CIT(A) remitted the matter back to the AO to ascertain whether the TFCI had paid the amount of tax due on the amount received by it from the assessee and if so, to give credit of such payments to the respondent while recalculating the short deduction, if any. Dealing with the question of payment of interest on the amount of tax which should have been but was not deducted, the CIT(A) observed :