Income Tax Appeal No. 120 of 2006 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. --- Income Tax Appeal No. 120 of 2006 Date of decision: 21.3.2011 Commissioner of Income Tax, Faridabad --- Appellant Versus The Senior Post Master, Faridabad --- Respondent CORAM: HON’BLE MR. JUSTICE ADARSH KUMAR GOEL HON’BLE MR. JUSTICE AJAY KUMAR MITTAL --- Present: Ms. Urvashi Dhugga, Senior Standing Counsel for the appellant-Revenue. --- AJAY KUMAR MITTAL, J. This order will dispose of two appeals, i.e. Income Tax Appeal Nos. 120 of 2006 and 192 of 2008, as the same are between the same parties and relate to the same assessment year. Facts have been taken from Income Tax Appeal No. 120 of 2006. 2. This appeal under Section 260A of the Income-Tax Act, 1961 (for short “the Act”) has been filed by the Revenue against the order dated 14.6.2005, passed by the Income Tax Appellate Tribunal, New Delhi, Bench ‘D’ (in short “the Tribunal”) in ITA No. 932/DEL/2005, relating to the assessment year 2002-2003. Income Tax Appeal No. 120 of 2006 2 3. The appeal was admitted by this Court on 17.9.2007 for determination of the following substantial question of law: “Whether on the facts and in the circumstances of the case, the Hon’ble ITAT erred in law in confirming the order of the CIT(A) in quashing the order passed by the Assessing Officer under Section 201 and 201(1-A) of the Act charging tax and interest for not deducting tax at source from commission paid to the Agents?” 4. The facts, in brief, necessary for adjudication as narrated in the appeal, are that during the course of survey carried on 29/30.9.2003 under Section 133A of the Act in the office of the respondent-assessee it was detected by the assessing officer that the assessee was not filing return under Section 206 of the Act in Form No. 26-I. It was stated by the Sr. Post Master that commission amounting to Rs. 2,30,56,660/- was paid during the financial year 2001-02 on which no tax was deducted under Section 194-H of the Act. In consequence upon failure of the assessee to comply with the provisions of Rule 30 of the Income Tax Rules, 1962, tax under Section 201 of the Act amounting to Rs. 23,51,780/- and interest of Rs. 9,14,214/- under Section 201(1A) of the Act up to the date of the order were charged vide order dated 29.3.2004. 5. The appeal carried by respondent-assessee to the Commissioner of Income-tax (Appeals) {in short “the CIT (A)”}, was allowed by order dated 28.12.2004 in view of a memorandum dated 4.12.2002 issued by the Director (Budget), Ministry of Finance and Company Affairs. Income Tax Appeal No. 120 of 2006 3 6. Aggrieved by the order of the CIT(A), the Revenue preferred an appeal before the Tribunal. The appeal was dismissed vide order dated 14.6.2005. 7. We have heard learned counsel for the Revenue and have perused the record. 8. The point for determination in this case is, whether the respondent-assessee was liable to deduct the tax at source on account of payment made to the agents as commission charges. 9. Learned counsel for the Revenue relied upon a communication dated 12.12.2003 from the Government of India, Ministry of Finance, Department of Economics Affairs (Budget Division), New Delhi addressed to all Joint National Savings Commissioners wherein it had been stated that where the National Savings Organisations and the Post Offices pay commission to the Small Savings Agents/investors during the period from 1.6.2001 to March, 2002, the deduction of tax at source was required to be made. 10. The stand of the assessee before the CIT(A) was that a communication dated 4.12.2002 had been issued by the Ministry of Finance and Company Affairs wherein it was provided that no tax was required to be deducted in that year in respect of commission paid in the previous year. The CIT(A) had accepted the plea of the assessee with the following observations: “4. Coming to the merits, the learned counsel has invited attention to the communication dated Office Memorandum, dated 4.12.2002 wherein it has been stated by the Director, (Budget), Ministry of Finance and Company Affairs that no TDS in the current year be deducted in respect of commission Income Tax Appeal No. 120 of 2006 4 already paid in the previous year. The Ld. counsel has also invited attention to the letter addressed to the Additional Secretary, Budget, Ministry of Finance. 4.1. The issue has been examined. For ready reference it is necessary to quote the necessary extract of the office Memorandum issued on 4.12.2002, vide F. No. 1/15/2000-NS- II, which reads as under: “Please refer to this office letter of even No. dated 24.9.2002 on the subject cited above. Para 2 of the said letter has been reviewed and it has been decided that in accordance with Section 194H of the Income Tax Act, 1961, TDS be deducted from the commission paid to agents in the current financial year. No TDS in the current year be deducted in respect of commission already paid in the previous year. This Ministry may also be informed about the financial implication of non-recovery of TDS for the previous years. It may also be ensured that the rate of TDS to be deducted from the commission bills is in accordance with the provisions of Section 194H of the Income Tax Act.” 4.2. A perusal of the above clearly shows that the AO erred in charging tax u/s 201 of the I.T. Act and interest u/s 201(1A) of the I.T. Act after holding that the Senior Post Master, General Post Office, Faridabad was in default for not deducting tax at source from the commission paid to the Income Tax Appeal No. 120 of 2006 5 agents. In view of the decision of the Government of India brought to the attention of the undersigned by the appellant the order passed under Section 201 and 201(1A) of the I.T. Act is hereby quashed and the demands raised amounting to Rs. 32,65,994/- is cancelled.” 11. The Tribunal had affirmed the aforesaid order of the CIT(A). 12. We are unable to accept the contention of the counsel for the Revenue. A reading of the communication dated 4.12.2002 shows that it has been specifically mentioned therein that no tax at source in the current year is required to be deducted in respect of commission already paid in the previous year. Once a communication had been issued on the basis of which the assessee was not required to deduct the tax at source, he cannot be held liable on the basis of a subsequent communication to deduct tax at source after the expiry of the said period. The Revenue could initiate action against the agents to whom the payment was made as it was the income in their hands which was taxable. The details could be obtained by the Department from the respondent-assessee. Accordingly, the order passed by the Tribunal cannot be faulted. 13. In view of the above, the appeals are dismissed. (AJAY KUMAR MITTAL) JUDGE (ADARSH KUMAR GOEL) March 21, 2011 JUDGE *rkmalik*