VINAR AND CO Vs. INCOME TAX OFFICER

JUDGEMENT

(1.) IT is the contention of the writ petitioners that, until the death of its partner, Sri. H. P. Nevatia, on October 15, 1977, the business and the accounts of petitioner No. 1 firm were solely looked after and maintained by and under the instructions of the said Sri. H. P. Nevatia. Other partners of the said firm did not at any time have any significant participation in the activities of petitioner No. 1. Petitioner No. 1, at all material times, maintained and still maintains its accounts in accordance with the mercantile system of accountancy. This application relates to purported criminal proceedings sought to be initiated by respondent No. 1 against the petitioners for alleged failure to pay the tax deducted at source under section 194A of the said Act within time, under section 276B of the said Act, for the assessment years 1970-71 to 1976-77. The previous years of petitioner No. 1 were the relevant financial years. During the course of its business, petitioner No. 1 raised and/or received loans and/or advances from different persons on interest. The accounts of the said creditors in the books of petitioner No. 1 used to be credited with the amount of accrued interest in every accounting year on the basis of the mercantile system of accountancy. On such credit for interest made in the accounts of the creditors, the petitioner-firm was required to deduct income-tax at source under section 194A of the said Act at the rate prescribed therein. In accordance with the mercantile system of accountancy, simultaneously with the crediting of interest to the accounts of the creditors, the petitioner-firm used to credit the Central Government with the amount of tax notionally deducted at source thereon every accounting year. The petitioner-firm was always in financial stringency. The balance-sheet of the petitioner-firm always showed debit balance in the capital accounts of its partners. In the premises, the petitioner-firm, as and when liquid funds were available with it, used to pay the tax deducted at source under section 194A of the said Act to the Central Government as follows :

(2.) IN the accounting year relevant to the assessment year 1976-77, Messrs. Hindustan Sugar Mills Ltd., by a letter, informed the said firm that, on and from April 1, 1975, no interest is chargeable on their loan. IN the premises, the said firm, although initially credited interest on the said account for the said accounting year, later on, after the receipt of the said letter, wrote back the interest credited and thus filed a revised return under the said Act and, therefore, no tax was deductible at source for the said assessment year 1976-77. The amount of tax required to be deducted at source on interest payable under section 194A of the said Act could not be deposited or paid to the credit of Central Government within the time specified in rule 30 of the INcome-tax Rules, 1962, i.e., within two months from the date of such credit due to paucity of funds. The accounts of the creditors used to be credited with accrued interest thereon under the mercantile system of accountancy whereas the tax deducted at source thereon could be paid only on the basis of cash funds available with the petitioner-firm. As and when the said cash funds were available, the petitioner-firm duly paid the said tax deducted at source. IN the premises, the petitioners submitted that the delay in depositing the tax deducted at source was due to the difference in the mercantile system of accountancy and payments being made on cash basis as and when liquid funds were available. IN the premises, the petitioners alleged that there was a reasonable and bona fide cause for the delay in depositing the tax deducted at source on the said interest which was created to the accounts of the creditors in the mercantile system of accountancy. The said delay was bona fide. For the assessment years 1970-71 up to 1976-77, the petitioner-firm filed its returns on January 1, 1971, March 9, 1972, December 4, 1972, January 13, 1975, January 31, 1975, June 6, 1976 and March 30, 1977, respectively. Particulars of tax required to be deducted at source under section 194A of the said Act and credited to the Central Government were duly furnished by the petitioner-firm to the said INcome-tax Officer, G-Ward District V (1), Calcutta, and/or respondent No. 1 herein in the course of the assessment proceedings for the relevant assessment year under the said Act. The said INcome-tax Officers were also furnished with the particulars of the payments of the said tax deducted at source by the petitioner-firm for the aforesaid years under section 194A of the said Act in the course of the relevant assessment proceedings. IN the premises, the petitioners alleged that the said INcome-tax Officers were all along aware of the said particulars and details regarding the deduction or regarding the crediting of the accounts of the creditors with accrued interest every year and the tax required to be deducted at source thereon and the dates of payment of such tax by the petitioner-firm for the said assessment years 1970-71 to 1976-77. The petitioner-firm was assessed under the said Act by orders of assessment dated March 17, 1973, April 8, 1974, December 2, 1974, August 22, 1975, March 10, 1976, May 28, 1977, and March 31, 1979, respectively. The assessments for the assessment years 1970-71 and 1976-77 were made afresh by orders dated May 28, 1977, and July 1, 1983 respectively. It has also been alleged that respondent No. 1 was duly satisfied as regards the reason for the delay in payment of the tax required to be deducted at source on the accrued amount of interest credited to the accounts of the creditors in the mercantile system of accountancy and, therefore, respondent No. 1 did not at any time initiate any proceeding or pass any order imposing penalty under section 221 read with 201 (1) of the said Act for any of the aforesaid assessment years. IN the course of the said assessment proceedings, respondent No. 1 also did not charge any interest whatsoever under section 201 (1A) of the said Act. Thereafter, all of a sudden, petitioner No. 1 received on December 7, 1983, a bunch of orders all dated July 1, 1983, for the assessment years from 1968-69 to 1976-77 imposing interest under section 201 (1A) of the said Act on the said firm. Petitioners further state that all the said orders were passed on one day, i.e., July 1, 1983, for several years at a time. The order for the assessment year 1968-69 has been made after 14 years and the order for the last assessment year, i.e., 1976-77, has been made after 6 years from the end of the relevant assessment year. By the said several orders under section 201 (1A) of the said Act, all dated July 1, 1983, respondent No. 1, for the assessment years from 1968-69 to 1976-77, sought to levy and demand interest for delayed payment of tax deducted at source. It has been submitted that there is no reason whatsoever before respondent No. 1 for the aforesaid inordinate delay in passing the said order. All the relevant information relating to deduction of the tax at source and payment thereof were furnished by the petitioner-firm to the said respondent No. 1 in the course of the assessment proceedings and the said firm had also explained to the said respondent the reasons for the delayed payment. IN the circumstances, the petitioners all along, bona fide and reasonably, believed that the said firm was not liable to pay any interest under section 201 (1A) of the said Act. After a lapse of 14 years, it was not reasonably possible for the petitioners to recollect the circumstances which caused delay in payment of the tax deducted at source. No opportunity of being heard was given before passing the said orders dated July 1, 1983. IN the premises, passing of the said orders all dated July 1, 1983, beyond reasonable time extending from 6 years to 14 years and exercise of such powers was not bona fide and was an abuse of power and not reasonable and could not be sustained in law. The delay in passing the said orders under section 201 (1A) of the said Act could not be attributable to the petitioners and there is and could not be any explanation for the said delay on the part of the said respondent No. 1. It has been submitted that the said orders all dated July 1, 1983, made under section 201 (1A) of the said Act are bad in law without and/or in excess of jurisdiction and authority of law. Being aggrieved by the said orders all dated July 1, 1983, under section 201 (1A) of the said Act, the said firm preferred appeals before the Appellate Assistant Commissioner of INcome-tax, Range VI, Calcutta, on the ground, inter alia that, before passing the said order, the INcome-tax Officer did not give the petitioners any opportunity of being heard in the matter and exercise of power under section 201 (1A) of the said Act by respondent No. 1 in the instant case had not been made within a reasonable time and the imposition of interest under section 201 (1A) of the said Act for the aforesaid periods was wholly unreasonable, unjust and improper, illegal and unsustainable and there was sufficient reason for the delayed payment. The Appellate Assistant Commissioner of INcome-tax, Range VI, Calcutta, by a consolidated appellate order dated September 27, 1985, dismissed all the said appeals. The said firm preferred appeals from the said appellate order dated September 27, 1985, before the INcome-tax Appellate Tribunal, Calcutta, which are still pending. One of the grounds of appeal therein is that there was a reasonable cause for the delay in payment of the tax deducted at source and that no interest is leviable under section 201 (1A) of the said Act. The said issue, therefore, is sub-judice. On December 8, 1986, seven show-cause notices all dated November 20, 1986, were received from respondent No. 1 for the assessment years 1970-71 to 1976-77 directing the said petitioner-firm to show cause why prosecution under section 276B of the said Act should not be initiated against the said petitioner-firm for failure to pay the tax deducted at source under section 194A of the said Act read with section 200 of the said Act within the stipulated time as per rule 30 of the INcome-tax Rules, 1962. The petitioners thereafter by letters dated December 17, 1986, and December 22, 1986, requested the said respondent No. 1 to allow some time to the petitioners to reply in the matter. Copies of the said seven show-cause notices under section 276B of the said Act all dated November 20, 1986, and the said letter dated December 17, 1986, and December 22, 1986, have been annexed and collectively marked with the letter "A" to the writ petition. Similar notices all dated December 1, 1986, issued by respondent No. 1 for the assessment years 1970-71 to 1976-77 were also received by petitioner No. 2 to show cause why prosecution under section 276B (ii) should not be initiated. IN this writ petition, the petitioners have challenged all the aforesaid show-cause notices.

(3.) IN the instant petition, the petitioners challenged the said show-cause notices on various grounds. It was submitted that the said show-cause notices were issued under a misconceived notion of law and moreover the said notices were issued after a long lapse of 10/15 years. The learned advocate for the respondent, however, submitted that it was open to the petitioners to give reply to the show-cause notices and, in case the petitioners still give reply to the show-cause notices, they will be duly considered and disposal of in accordance with law. Accordingly, after hearing the respective submissions of the parties on December 13, 1988, an order was passed by me directing the respondents-authorities to consider the representations of the petitioners which would be submitted within a week from date. It was also provided in the said order that the authorities would give a hearing to the writ petitioners and would dispose of such representations within four weeks after the date of receipt of such representations. The authorities were further directed to pass a speaking order.