Court Upholds Interest Charges on Gaonkar Mines for TDS Non-Compliance

For a comprehensive understanding, check out the original judgement of the court order here."

Case Name:

Gaonkar Mines vs Additional Commissioner of Income Tax

Writ Petition No.36428/2016 (T-IT)

Key Takeaways

- The court upheld the Chief Commissioner of Income Tax's decision to charge interest under Sections 234A, 234B, and 234C.

- The interest charges were deemed automatic and mandatory due to non-compliance with TDS requirements.

- The court found no discretion under the CBDT Circular for waiving the interest in this case.

Issue

Did the Chief Commissioner of Income Tax err in refusing to waive interest under Sections 234A, 234B, and 234C of the Income-tax Act, 1961, for Gaonkar Mines?

Facts

- Gaonkar Mines failed to deduct and remit tax at source on contract payments, leading to disallowance under Section 40(a)(ia) of the Income-tax Act.

- The company argued that the payments were made to laborers who were not taxable, and thus, no TDS was required.

- The Chief Commissioner of Income Tax refused to waive the interest, citing automatic and mandatory interest charges under Sections 234A, 234B, and 234C.

Arguments

Petitioner (Gaonkar Mines):

Argued that the payments were made to non-taxable laborers, and thus, no TDS was required. They also contended that the disallowance under Section 40(a)(ia) was still under adjudication.

Respondent (Chief Commissioner of Income Tax):

Argued that the interest charges were automatic and mandatory due to the company's failure to comply with TDS requirements

Key Legal Precedents

Section 40(a)(ia) of the Income-tax Act:

Disallowance of expenses for failure to deduct and remit TDS.

- Sections 234A, 234B, and 234C of the Income-tax Act:

Provisions for charging interest for defaults in furnishing return of income, payment of advance tax, and deferment of advance tax, respectively.

CBDT Circular dated 26.06.2006:

Conditions for waiver of interest under Sections 234A, 234B, and 234C.

Judgement

The court dismissed the petition, upholding the Chief Commissioner of Income Tax's decision. The court found that the interest charges were automatic and mandatory due to the company's failure to comply with TDS requirements. The court also noted that there was no discretion under the CBDT Circular to waive the interest in this case.

FAQs

Q1: Why was Gaonkar Mines charged interest under Sections 234A, 234B, and 234C

A1: The company failed to deduct and remit tax at source on contract payments, leading to automatic and mandatory interest charges under these sections.

Q2: What was Gaonkar Mines' main argument?

A2: The company argued that the payments were made to non-taxable laborers, and thus, no TDS was required. They also contended that the disallowance under Section 40(a)(ia) was still under adjudication.

Q3: Why did the court dismiss the petition?

A3: The court found no error in the Chief Commissioner of Income Tax's decision, stating that the interest charges were automatic and mandatory due to the company's non-compliance with TDS requirements.

Q4: What is the significance of the CBDT Circular dated 26.06.2006?

A4: The circular outlines the conditions for waiver of interest under Sections 234A, 234B, and 234C. The court found that these conditions did not apply to Gaonkar Mines' case.

Q5: What does this judgment mean for Gaonkar Mines?

A5: The company is required to pay the interest charges under Sections 234A, 234B, and 234C due to its failure to comply with TDS requirements.

1. The petitioner, M/s Gaonkar Mines has challenged the impugned order passed by the respondent – Chief Commissioner of Income-tax (CCIT), Panjim, Goa, refusing to waive interest under Sections 234A, 234B and 234C of the Income-tax Act, 1961 (hereinafter referred to as the ‘IT Act’ for brevity).

2. Following reasons have been recorded by the said respondent in the impugned order of CCIT for the Assessment Year 2005-2006 passed on 13.3.2014:

“I have carefully considered the facts of the case, the written submissions made by the assessee and the relevant provisions of law, in the light of Board’s Circular prescribing conditions for waiver of interest. It is an admitted fact that there was a clear liability to deduct tax and the same was within the knowledge of the assessee. The disallowance u/s 40(a)(ia) was made due to non-deduction/remittance of tax on contract payment. The contract payments were found to have been made through out the year and accordingly TDS is required to be remitted by 7th of the subsequent month. It is also not disputed that there was a certain TDS liability on the contract payment made which is evident even from clause 27(b) of the Auditor’s Report. In view of the above, it cannot be said that the assessee could have anticipated the disallowance u/s 40(a)(ia) as liability to pay TDS had already arisen during the financial year itself and the same did not accrue as on the last day of the year. The charge of interest under section 234B and 234C consequent upon disallowance u/s 40(a)(ia), is therefore, automatic and mandatory in the given circumstances.

6. Existing instructions on reduction or waiver of interest issued by the Board in notification in F.No.400/129/2002-IT(B) dated 26.06.2006 is reproduced below -

“2. The class of incomes or class of cases in which the reduction or waiver of interest under section 234A or section 234B or, as the case may be, section 234C can be considered, are as follows:

(a) Where during the course of proceedings for search and seizure under section 132 of the Income-tax Act, or otherwise, the books of account and other incriminating documents have been seized, and the assessee has been unable to furnish the return of income for the previous year, during which the action under section 132 has taken place, within the time specified in this behalf, and the Chief Commissioner/ Director General is satisfied, having regard to the facts and circumstances of the case, that the delay in furnishing such return of income cannot reasonably be attributed to the assessee.

(b) Any income chargeable to income-tax under any head of income, other than Capital gains is received or accrued after due date of payment of the first or subsequent instalments of advance tax which was neither anticipated nor was in the contemplation of the assessee, and the advance tax on such income is paid in the remaining instalment or instalments, and the Chief Commissioner/Director General is satisfied on the facts and circumstances of the case that this is a fit case for reduction or waiver of the interest chargeable under section 234C of the Income-tax Act.”

3. The learned Counsel for the petitioner, Mr.Mallaharao has urged before this Court that since the petitioner - Company was making payments to the contractors of the labour, who were poor persons and were not taxable under the provisions of the IT Act and therefore, the petitioner- Company did not have any liability to make deduction of tax at source and as far as disallowance in the hands of the petitioner - assessee under Section 40(a)(ia) of the IT Act is concerned, the matter has been remanded back by the learned Income- Tax Tribunal to the Assessing Authority and therefore on merits of such disallowance made under the said Section 40(a)(ia) of the IT Act, it is still pending adjudication and therefore the petitioner should be deemed to have satisfied the conditions of Clause 2(b) of the Central Board of Direct Taxes (CBDT) Circular dated 26.6.2006, quoted above.

4. Having heard the learned Counsel for the petitioner - assessee, this Court is of the opinion that there is no error in the impugned order passed by the respondent – Chief Commissioner of Income-tax. It is clearly and categorically held that he has no discretion under the CBDT Instructions or Circular dated 26.6.2006 inasmuch as the petitioner during the contemporary period itself very well knew that non- deduction/remittance would be disallowable for want of deduction of tax at source under Section 40(a)(ia) of the IT Act. Therefore, such additions to the returned income cannot be said to have arisen or accrued after the due date of payment of first or subsequent instalment of advance tax which was neither anticipated nor was in contemplation of the assessee and therefore in such circumstances, levy of interest under Sections 234A, 234B and 234C was automatic and the same cannot be waived.

5. This Court is satisfied that there is no error or perversity in the order passed by the respondent – Chief Commissioner of Income-Tax and the same is based on sound reasoning and in accordance with the CBDT Instructions in the matter. The present petition is found to be devoid of merits and is liable to be dismissed. Writ Petition is accordingly dismissed. No costs.

Copy be sent to the respondents.

Sd/-

JUDGE