THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment delivered on: 11.11.2014
+ W.P.(C) 3563/2012 & CM No.7517/2012
UCO BANK ..... Petitioner
versus
UNION OF INDIA & ORS. ..... Respondents
AND
+ W.P.(C) 2714/2014 & CM 5633-34/2014
UCO BANK ..... Petitioner
versus
DEPUTY COMMISSIONER OF INCOME TAX ..... Respondent
Advocates who appeared in this case:
For the Petitioner : Ms Prem Lata Bansal with Mr Sarfaraz Khan.
For the Respondents : Mr N.P. Sahni.
Mr Anuj Aggarwal with Mr Gaurav Khanna
UOI.
CORAM:
HON'BLE MR. JUSTICE S. RAVINDRA BHAT
HON'BLE MR. JUSTICE VIBHU BAKHRU
JUDGMENT
VIBHU BAKHRU, J
1. The writ petition (W.P.(C) No.3563/2012) has been filed challenging
a notice dated 25.04.2012 issued by the Assistant Commissioner of Income
Tax, Delhi (hereafter `ACIT') whereby the petitioner bank was directed to
submit the details of deposits made with the petitioner bank by all litigants
W.P.(C)Nos. 3563/2012 & 2714/2014 Page 1 of 14
in the name of Registrar General of this Court during the Financial Years
2005-06 to 2010-11. The petitioner bank also impugns a circular bearing
no. 8/2011 dated 14.10.2011 (hereafter `impugned circular') issued by
Central Board of Direct Taxes (CBDT) whereby it was clarified that in
cases where deposits were made in terms of directions issued by Court, the
Banks were required to deduct tax at source and issue tax deducted at
source (hereafter `TDS') certificates.
2. The writ petition (W.P.(C) No.2714/2014) has been filed impugning
an order dated 10.03.2014 passed by the Deputy Commissioner of Income
Tax, holding the petitioner bank to be an assessee in default within the
meaning of Section 201(1) of the Income Tax Act, 1961 (hereafter the
`Act') for a sum of `7,78,34,950 determined under Section 201(1)/(lA) of
the Act.
3. The brief facts necessary for considering the present petitions are
that the petitioner bank, on 29.09.2004, accepted a Fixed Deposit (FD) for a
sum of `7,07,45,550/- in the name of Register General of this Court and
issued a Fixed Deposit Receipt (FDR) bearing no. 163275. The said FD
was made in compliance of a direction passed by this Court in Execution
Petition No. 216/1999 titled as `Union of India v. Oriental Building
Furnishing Co. Ltd.' The said FD was initially for a period of one year,
however, before maturity of the said FD, certain amount was paid to M/s
CJ International Hotel on 27.10.2004 and the remaining amount of
`6,93,87,888/- (being balance principal and accrued interest) was again
accepted as a FD for a period of one year. The said FD was renewed
W.P.(C)Nos. 3563/2012 & 2714/2014 Page 2 of 14
annually except once when instead of 30.10.2007, it was renewed on
06.02.2008.
3.1 In relation to proceedings pending against M/s Oriental Building
Furnishing Company Limited, the Deputy Director, Income Tax
(Investigation) issued summons dated 14.03.2011 under Section 131(1A) of
the Act directing the petitioner bank to furnish details of the interest
accrued with respect to the FDR No.163275, TDS deducted on the interest
accrued and renewal of FD with respect to the company M/s Oriental
Building Furnishing Company Limited. The petitioner bank complied with
the said direction and by its letter dated 15.03.2011 intimated the details
and status of the above stated FDR.
3.2 Subsequently, the ACIT issued a show cause notice dated 21.03.2011
to the petitioner bank for not deducting TDS on the interest accrued and to
show cause why the petitioner bank be not treated as an assessee in default
under Section 201(1)/201(1A) of the Act. The petitioner, by its reply dated
22.03.2011, submitted that the said FD was in the name of Register General
of this Court as a custodian and no TDS was deducted on the accrued
interest because the actual beneficiary was not known as the matter was sub
judice. It was also submitted that the TDS would be deducted on when
payment is made to the beneficiary as may be decided by the Court.
3.3 Thereafter, the ACIT passed an order dated 29.03.2011 considering
the petitioner bank as an assessee in default and demanded `40,33,330 and
`14,19,804 under Section 201(1) and Section 201(1A) of the Act
respectively for the Financial Years 2004-05 to 2010-11. By the said order,
the penalty proceedings under Section 271C of the Act were also initiated
W.P.(C)Nos. 3563/2012 & 2714/2014 Page 3 of 14
separately. A separate demand notice dated 29.03.2011 was also issued
under Section 156 of the Act for the Financial Years 2004-05 to 2010-11.
3.4 In writ petition-W.P.(C) No.2972/2011, an order dated 29.03.2011
and a demand notice dated 29.03.2011 are impugned. On 15.07.2011, the
learned counsel appearing for the Income Tax Authorities made a statement
before the Court that the CBDT, was seized of the matter and there was a
possibility of some solution. In view of that statement, the Court disposed
of the said writ petition with a direction to CBDT to pass necessary orders
within three months. The Court also gave liberty to the petitioner bank to
approach this court at an appropriate stage.
4. The CBDT, thereafter, issued the impugned circular (bearing no.
8/2011 dated 14.10.2011) clarifying that Banks would have to deduct TDS
under Section 194A of the Act at the time of accrual of interest and issue
the TDS certificate in the name of the depositor. The relevant portion of the
said Circular is quoted below:-
"3.1 The matter has been examined in the Board and it has
been decided that, subject to para 4 below, this circular shall
be applicable to cases where one or more than one litigant is
directed by the court that a specified amount be deposited in the
bank directly or through the court. The bank shall in
accordance with the provisions of the Act, deduct tax at source
on the interest accruing on the above mentioned deposit(s) as
per existing procedure and at the rates in force. The certificate
of deduction of tax shall be issued by the bank in the name of
'the depositor'. If more than one person has been directed to
deposit any specified amount, the amount of TDS shall be
corresponding to each such depositor for the portion of interest
accrued in its respective share in the total amount deposited
and TDS certificates shall be accordingly issued by the bank.
W.P.(C)Nos. 3563/2012 & 2714/2014 Page 4 of 14
3.2 At the time of making deposit of the amount ordered by the
court, the depositor(s) shall submit a prescribed declaration
with the court for record purpose and to facilitate the
administration of TDS. The Registrar/Prothonotary and Senior
Master or any person authorized by the court will pass the
information furnished therein to the bank concerned for TDS
properly in the name of the depositor(s) in accordance with the
provisions of the Act."
5. Thereafter, the Commissioner of Income Tax, Delhi (hereafter `CIT')
initiated proceeding under Section 263 of the Act as it was considered that
the said order dated 29.03.2011 was prejudicial to the interest of revenue.
By an order dated 27.03.2012, the CIT set aside the order dated 29.03.2011
as it was limited to the tax assessed with respect to the FD made by M/s
Oriental Building Furnishing Company Limited. The CIT held that there
were other similar deposits, which would also require to be considered for
assessing the liability of the petitioner bank. Accordingly, the Assessing
Officer to pass an order after considering the matter afresh.
6. Pursuant to the CIT's order of 27.03.2011, the ACIT issued a
separate notice dated 25.04.2012 under Section 201(1)/201(1A) of the Act
directing the petitioner bank to submit the details of all deposits made in the
name of Registrar General of this Court during the Financial Years 2005-06
to 2010-11. Aggrieved by the same, the petitioner bank filed the present
petition (W.P.(C) 3563/2012) challenging the said notice dated 25.04.2012
issued the ACIT. By an order dated 01.06.2012, this Court stayed the
impugned notice dated 25.04.2012.
7. Subsequently, the Deputy Commissioner of Income Tax, Delhi
issued a notice dated 26.11.2013 under Section 201(1)/201(1A) of the Act
W.P.(C)Nos. 3563/2012 & 2714/2014 Page 5 of 14
calling upon the petitioner to furnish information in respect of
deposits/accrued interest for the Financial Year 2011-12. On 10.02.2014,
summon under Section 131 of the Act was issued to the petitioner bank. By
the impugned order dated 10.03.2014, the Deputy Commissioner of Income
Tax, Delhi held the petitioner to be an assessee in default within the
meaning of Section 201(1) of the Act and raised a demand of `7,78,34,950
under Section 201(1)/(lA) of the Act. The petitioner bank, thereafter, filed
the present petition (W.P.(C) No.2714/2014) challenging the said order
dated 10.03.2014 passed by the Deputy Commissioner of Income Tax.
8. Essentially, the controversy in the present case involves the question
whether the provisions of Chapter XVII of the Act would be applicable in
respect of interest which is payable on the fixed deposits maintained by this
Court with the petitioner bank, in the name of the Registrar General.
Concededly, money deposited by litigants or at their instance in this Court
and kept in fixed deposit with the petitioner bank are not funds or assets of
this Court and would be payable to the person as may be ultimately directed
in the concerned proceedings. Any accretion on account of interest on the
said deposits also do not inure to the benefit of this Court
9. There are myriad of situations in which this Court directs deposit of
money by litigants or at their instance; directions for depositing funds in a
case are made after considering the relevant facts and circumstances of that
case. The final recipient or the beneficiaries of the funds can be ascertained
only after appropriate orders are passed in those proceedings.
W.P.(C)Nos. 3563/2012 & 2714/2014 Page 6 of 14
10. It is in the above circumstances that applicability of the provisions of
Chapter XVII of the Act are to be considered.
11. Chapter II of the Act contains the provisions with respect to the basis
of charge of income tax. Section 4 of the Act is the charging Section and
reads as under:-
"4. Charge of income-tax. - (1) Where any Central Act enacts
that income-tax shall be charged for any assessment year at
any rate or rates, income-tax at that rate or those rates shall be
charged for that year in accordance with, and subject to the
provisions (including provisions for the levy of additional
income-tax) of, this Act in respect of the total income of the
previous year of every person :
Provided that where by virtue of any provision of this Act
income-tax is to be charged in respect of the income of a
period other than the previous year, income-tax shall be
charged accordingly.
(2) In respect of income chargeable under sub-section (1),
income-tax shall be deducted at the source or paid in advance,
where it is so deductible or payable under any provision of this
Act."
12. It is apparent from the plain language of Section 4(1) of the Act that
income tax is charged in respect of the total income of the previous year of
every person. Whilst total income is the basis of the charge of income tax
and also the basis of the impost, the liability imposed is on the person
whose total income is subjected to tax. Thus, the levy may be in respect to
total income of a person but the tax is levied on the person so earning the
income. Plainly, for any charge to be sustained under the Act, it is essential
that (a) there is an assessee whose income would form the basis of the
W.P.(C)Nos. 3563/2012 & 2714/2014 Page 7 of 14
charge; and (b) there is income which is subject to tax under the provisions
of the Act.
13. Chapter IV of the Act provides for computation of income under
various heads. Chapter XIV of the Act contains provisions for the
procedure of assessment. The provisions for computation and assessment
are for ascertaining the quantum of tax that is payable by an assessee.
Chapter XVII of the Act contains the machinery provisions for collection
and recovery of tax. Part B of Chapter XVII contains specific provisions
for deduction of tax at source. Section 190 of the Act provides for
deduction of tax at source in accordance with the provisions of Chapter
XVII. Sub-section 2 of Section 190 makes it clear that the provisions of
Sub-section 1 of Section 190 would not prejudice the charge of tax under
the provisions of Section 4(1) of the Act. Section 191 of the Act provides
that where provisions are not made for deducting income tax at the time of
payment or in accordance with the provisions of Chapter XVII of the Act,
income tax shall be paid by the assessee directly. Section 190 and 191 of
the Act are relevant and are quoted below:-
"190. Deduction at source and advance payment. - (1)
Notwithstanding that the regular assessment in respect of any
income is to be made in later assessment year, the tax on such
income shall be payable by deduction or collection at source
or by advance payment, as the case may be, in accordance with
the provisions of this Chapter.
(2) Nothing in this section shall prejudice the charge of tax on
such income under the provisions of sub-section (1) of section
4.
W.P.(C)Nos. 3563/2012 & 2714/2014 Page 8 of 14
191. Direct payment. - In the case of income in respect of
which provision is not made under this Chapter for deducting
income-tax 1673 at the time of payment, and in any case where
income-tax has not been deducted in accordance with the
provisions of this Chapter, income-tax shall be payable by the
assessee direct."
14. Thus, although the collection of tax by deduction at source may
precede the assessment, it is clear that the same does not affect the basis of
the levy of tax. The provisions for collection of tax, under Part B of Chapter
XVII of the Act, by way of tax deduction at source are, in substance,
provisions for recovering tax payable by assessees and do not in any
manner affect the levy or the charge of tax. Even though the obligation to
pay the tax with respect to certain payments, is imposed on persons
responsible for making them, Section 199 of the Act makes it clear that the
deduction made under Chapter XVII of the Act and paid to the Central
Government is to be treated as payment on behalf of the assessee. Section
199 of the Act is quoted below for ready reference:-
"199. Credit for tax deducted.-- (1) Any deduction made in
accordance with the foregoing provisions of this Chapter and
paid to the Central Government shall be treated as a payment
of tax on behalf of the person from whose income the deduction
was made, or of the owner of the security, or of the depositor
or of the owner of property or of the unit-holder, or of the
shareholder, as the case may be.
(2) Any sum referred to in sub-section (1A) of section 192 and
paid to the Central Government shall be treated as the tax paid
on behalf of the person in respect of whose income such
payment of tax has been made.
(3) The Board may, for the purposes of giving credit in respect
of tax deducted or tax paid in terms of the provisions of this
Chapter, make such rules as may be necessary, including the
W.P.(C)Nos. 3563/2012 & 2714/2014 Page 9 of 14
rules for the purposes of giving credit to a person other than
those referred to in sub-section (1) and sub-section (2) and
also the assessment year for which such credit may be given."
15. It is clear from the aforesaid scheme that whereas Section 4 of the
Act provides for the basis of charge on the income of an assessee, the tax
levied is collected either by way of tax deducted at source or by direct
payment by the assessee. In case of direct payment by the assessee, it is the
assessee and/or his representative who pays the tax in advance during the
previous year. And in case of tax deduction at source, the person paying or
crediting the income is obliged to pay the tax at the time of paying/crediting
any amount representing income of the recipient assessee. However, such
payment is to the credit of the assessee and is treated by the Income Tax
Authorities as having been paid on behalf of the assessee.
16. In terms of Section 201 of the Act, if a person who is obliged to
deduct tax at source and pay to the Central Government, fails to do so, he
would - by legal fiction be considered as an assessee in default and be
subjected to proceedings for recovery of tax in the same manner as an
assessee who had defaulted in paying his taxes. Section 202 of the Act also
clarifies that deduction of tax is only one of the modes of recovery of tax
and is without prejudice to other modes of recovery of tax under the Act.
The important aspect to bear in mind is that notwithstanding the deeming
provision of Section 201 of the Act, the provisions for recovery of tax are
not in respect of tax levied or chargeable on the payer but the recipient
assessee.
17. In the present case, the controversy is regarding applicability of
Section 194A of the Act which provides for deduction of tax at source in
W.P.(C)Nos. 3563/2012 & 2714/2014 Page 10 of 14
respect of any payment/credit on account of interest, other than interest on
securities. Section 194A(1) of the Act is quoted as under:-
"194A. 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."
18. In terms of Section 194A of the Act, the petitioner would, in the
normal course, be obliged to deduct tax at source in respect of any credit or
payment of interest on deposits made with it. However, in the present case,
the question that needs to be addressed is whether Section 194A of the Act
contemplates deduction of tax in a situation where the assessee is not
ascertainable and the person in whose name the interest is credited is also,
admittedly, not a person liable to pay tax under the Act.
W.P.(C)Nos. 3563/2012 & 2714/2014 Page 11 of 14
19. The Registrar General of this Court is, clearly, not the recipient of
the income represented by interest that accrues on the deposits made in
his/her name. The Registrar General is also not an assessee in respect of the
deposits made with the petitioner bank pursuant to the orders of this Court.
The deposits kept with the petitioner bank under the orders of this Court
are, essentially, funds which are custodia legis, that is, funds in the custody
of this Court. The interest on that account although credited in the name
of the Registrar General - are also funds that remain under the custody of
this Court. The credit of interest to such account is, thus, not a credit to an
account of a person who is liable to be assessed to tax. In this view, the
petitioner would have no obligation to deduct tax, because at the time of
credit there is no person assessable in respect of that income which may be
represented by the interest accrued/paid in respect of the deposits. The
words "credit of such income to the account of the payee" occurring in
Section 194A of the Act have to be ascribed a meaning in conformity with
the scheme of the Act and that would necessarily imply that deduction of
tax bears nexus with the income of an assessee.
20. In absence of an assessee, the machinery of provisions for deduction
of tax to his credit are ineffective. The expression "payee" under Section
194A of the Act would mean the recipient of the income whose account is
maintained by the person paying interest. In the present case, although the
FD is made in the name of the Registrar General, the account represents
funds which are in custody of this Court and the Registrar General is
neither the recipient of the amount credited to that account nor the interest
accruing thereon. Therefore, the Registrar General cannot be considered as
W.P.(C)Nos. 3563/2012 & 2714/2014 Page 12 of 14
a "payee" for the purposes of Section 194A of the Act . The credit by the
petitioner bank in the name of the Registrar General would, thus, not attract
the provisions of Section 194A of the Act. Although, Section 190(1) of the
Act clarifies that deduction of tax can be made prior to the assessment year
of regular assessment, nonetheless the same would not imply that deduction
of tax is mandatory even where it is known that the payee is not the
assessee and there is no other assessee.
21. It is relevant to note that there is no assessee to whom interest
income from the deposits in question can be ascribed; no person can file a
return claiming the interest payable by the petitioner as income. The
necessary implication of this situation is recovery of tax without the
corresponding income being assessed in the hands of any asessee. The
ultimate recipient of the funds from the FD would also not be able to avail
of the credit of TDS. It is apparent that in absence of an ascertainable
assessee the machinery of recovering tax by deduction of tax at source
breaks down because it does not aid the charge of tax under Section 4 of the
Act but takes a form of a separate levy, independent of other provisions of
the Act. This is, clearly, impermissible.
22. The impugned circular proceeds on an assumption that the litigant
depositing the money is the account holder with the petitioner bank and/or
is the recipient of the income represented by the interest accruing thereon.
This assumption is fundamentally erroneous as the litigant who is asked to
deposit the money in Court ceases to have any control or proprietary right
over those funds. The amount deposited vests with the Court and the
depositor ceases to exercise any dominion over those funds. It is also not
W.P.(C)Nos. 3563/2012 & 2714/2014 Page 13 of 14
necessary that the litigant who deposits the money would be the ultimate
recipient of those funds. As indicated earlier, the person who is ultimately
granted the funds would be determined by orders that may be passed
subsequently. And at that stage, undisputedly, tax would be required to be
deducted at source to the credit of the recipient. However, the litigant who
deposits the funds cannot be stated to be the recipient of income for the
reasons stated above.
23. Deducting tax in the name of the litigant who deposits the funds with
this Court would also create another anomaly because the amount deducted
would necessarily lie to his credit with the income tax authorities. In other
words, the tax deducted at source would reflect as a tax paid by that
litigant/depositor. He, thus, would be entitled to claim credit in his return
of income. The implications of this are that whereas this Court had
removed the funds from the custody of a litigant/depositor by judicial
orders, a part of the accretion thereon is received by him by way of Tax
deducted at source. This is clearly impermissible because it would run
contrary to the intent of judicial orders.
24. In the given circumstances, the writ petitions are allowed and the
impugned notice dated 25.04.2012, the impugned circular bearing no.
8/2011 and the impugned order dated 10.03.2014 are set aside.
VIBHU BAKHRU, J
S. RAVINDRA BHAT, J
NOVEMBER 11, 2014
RK
W.P.(C)Nos. 3563/2012 & 2714/2014 Page 14 of 14
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