Citi Bank N.A. vs Commissioner Of Income-Tax
2002 Latest Caselaw 1230 Bom

JUDGMENT

S.H. Kapadia, J.

1. At the behest of the assessee, the Tribunal has referred the following three questions under Section 256(1) of the Income-tax Act, 1961, to this court. The three questions are as follows :

"1. Whether, on the facts and in the circumstances of the case, the Tribunal erred in holding that the burden was on the assessee to prove by cogent and convincing evidence that the recipient had actually paid tax on the income or the income had been held to be non-assessable ?

2. Whether, on the facts and in the circumstances of the case, the Tribunal ought to have held that whatever burden lay on the assessee for not being regarded as an assessee in default under Section 201 had been discharged ?

3. Whether the Tribunal erred in holding that the proceedings initiated under Section 201 of the Income-tax Act, 1961, were not barred by limitation ?"

Preface :

2. At the outset, it may be mentioned that the Tribunal did not refer to this court the first two questions. That, the Tribunal referred to this court only the third question, vide, I. T. R. No. 44 of 1986. Therefore, the assessee-bank made an application to this court under Section 256(2) of the Act for issuance of a

writ of mandamus to the Tribunal to forward to this court statement of case on questions Nos. 1 and 2 reproduced hereinabove. The said application No. 413 of 1983 was granted by the Division Bench of this court as far back as February 13, 1984. Thereafter, the present reference came before the earlier Division Bench of this court on July 1, 1998, when the present reference was adjourned to enable the Tribunal to refer questions Nos. 1 and 2 to this court so that all the three questions could be disposed of together. The present reference once again came before the earlier Division Bench on July 13, 1999, when once again the present matter was adjourned in order to enable the Tribunal to refer the questions to this court. Till today, the order passed by the earlier Division Bench has not been complied with. However, both the learned advocates appearing before me stated that we need not wait for the Tribunal to forward the statement of case. That, the matter can be disposed of on the paper book in this I. T. R. No. 44 of 1986. Accordingly, questions Nos. I and 2 have been framed by the court and with consent of all sides, the matter is proceeded with.

Facts :

3. In this case, we are concerned with the assessment years 1975-76 and 1976-77. On March 9, 1978, the Inspecting Assistant Commissioner (IAC) passed an order against the assessee-bank for non-deduction of tax at source from interest payable to non-residents (hereinafter referred to as recipients). That, the said non-deduction of tax at source was detected during the course of the proceedings for the assessment year 1975-76. In the circumstances, the Inspecting Assistant Commissioner treated the assessee-bank as assessee-in-default and also called upon the assessee under Section 156 to pay Rs. 8,31,419 being the tax which the assessee ought to have deducted at the appropriate rates. A similar order was passed on March 7, 1979, against the assessee-bank for non-deduction of tax at source from interest payable to the recipients, which was detected during the proceedings for the assessment year 1976-77. The assessee-bank contended before the Inspecting Assistant Commissioner that the sums have been included in the income of the recipients and they have been taxed and, therefore, the Inspecting Assistant Commissioner was not entitled to recover the tax once again from the assessee-bank. The assessee-bank took the plea that failure to deduct the TDS took place on account of genuine mistake. That, each of the recipients have paid tax on the amount received by them and, therefore, it was contended by the assessee that no recovery proceedings would lie because, it will amount to recovery of tax, twice over. The assessee relied upon the letters written by each of the recipients to the assessee-bank by which each of the recipients admitted having paid tax on the amounts received by way of interest from the assessee-bank. The Inspecting Assistant Commissioner rejected the contention of the assessee on the ground that if the assessee's argument was to be accepted, viz., that the recipients have included the sums in their returns then, it would lead to a situation wherein any assessee can defer deduction and payment of tax and whenever such failures were detected, it can explain away its failure by staring that the concerned sums have suffered tax in somebody's hands, which would defeat Section 195 of the Act. Being aggrieved, the assessee preferred appeal to the Commissioner of Income-tax (Appeals). The first appellate authority set aside the order of the Inspecting Assistant Commissioner and directed the assessing authority to verify whether the said sums have been taxed in the hands of the recipients. Accordingly, the first appellate authority cancelled the two orders of the Inspecting Assistant Commissioner.

4. Being aggrieved, the Department carried the matter in appeal to the Tribunal. The Tribunal confirmed the order of the Commissioner of Income-tax (Appeals) with certain modifications. Under the modifications, the demand under Section 156 was set aside and the Inspecting Assistant Commissioner was directed to pass fresh orders, after giving opportunity to the assessee to prove its case, viz., that the said sums have been taxed in the hands of the recipients of the interest amounts. The Inspecting Assistant Commissioner was also directed to verify whether Coca Cola Export Corporation had paid the tax on the interest income by including the same in their estimate of advance payment of tax. The Tribunal directed the Inspecting Assistant Commissioner to raise the demand once again only after making appropriate enquiries as directed by the Tribunal. Being aggrieved by this order of the Tribunal dated March 10, 1980, the matter has come before us by way of reference under Section 256(1) of the Act.

Conclusion :

5. We do not wish to answer the questions referred to us. As stated above, the demand under Section 156 of the Act raised by the Inspecting Assistant Commissioner vide two impugned orders dated March 9, 1978, and March 7, 1979, were set aside as far back as March 10, 1980. The Inspecting Assistant Commissioner was asked to verify, after giving opportunity to the assessee, the claim made by the, assessee, viz., that the interest income has been taxed in the hands of the recipients. From March 10, 1980, till today, no such enquiry has been held. The correctness of the claim of the assessee has not been examined. No opportunity has been given to the assessee as directed by the Tribunal. We are informed that in 1981, the Inspecting Assistant Commissioner passed an order without hearing the assessee, which has been set aside by the Commissioner of Income-tax (Appeals). The Inspecting Assistant Commissioner was directed once again to carry out the directions of the Tribunal dated March 10, 1980. Thereafter, no steps have been taken for the last more than 20 years. No explanation has been given as to why the Inspecting Assistant Commissioner did not take appropriate steps. We, therefore, return the reference unanswered. Since more than 20 years have elapsed, we cannot permit the

Department to raise the demand once again. Consequently, proceedings under Section 256(2) will also not survive.

ORDER

6. Subject to above, the reference is returned unanswered. No order as to costs. Matter is disposed of.