Leema Resorts (P.) Ltd. vs C.G. Suryakant

K.A. Swami, C.J.—This petition is filed by the appellants in Contempt Appeal No. 5 of 1994, who are the tenants of the premises

concerned in that appeal, for permitting them to deduct 20 percent out of the sum of Rs. 10 lakhs paid on 1-8-1994, and Rs. 3 lakhs payable on

or before 10-9-1994, and in subsequent monthly payments, as per order dated 2-8-1994, passed in Contempt Appeal No. 5 of 1994. Contempt

Appeal No. 5 of 1994 was preferred against the order dated 21-7-1993, passed by the learned Single Judge in Contempt Application No. 596 of

1992 finding the appellants guilty of contempt of Court and imposing a fine of Rs. 1,500 in default to undergo simple imprisonment for a period of

30 days. The complainants also filed L.P.A. No. 172 of 1993 against the very order dated 21-7-1993, passed in Contempt Application No. 596

of 1992.

Both L.P.A. No. 172 of 1993 and Contempt Appeal No. 5 of 1994 were heard together and decided by a common judgment dated 29-7-1994.

We agreed with the finding recorded by the learned single Judge that the appellants in Contempt Appeal No. 5 of 1994 were guilty of contempt of

Court for having wilfully disobeyed the orders of this Court. However, we did not agree with the sentence imposed by the learned single Judge.

Hence, we altered the sentence by directing that the appellants in the contempt appeal should be detained in civil prison for a period of two

months. The imposition of fine was also affirmed. It was also further ordered that the detention would come to an end no sooner than the amount is

deposited as ordered in the case or paid to the plaintiffs in the suit. However, the appellants in the contempt appeal undertook to pay a sum of Rs.

10 lakhs on or before 1-8-1994. Therefore, we postponed the enforcement of the order and directed the matter to be called on 1-8-1994, at

2.15 p.m. On 1-8-1994, when the matter was called, the appellants paid a sum of Rs. 10 lakhs and as requested by both sides we adjourned the

case to 2-8-1994, and kept our judgment dated 29-7-1994, in abeyance till 2-8-1994. On 2-8-1994, the appellants in Contempt Appeal No. 5

of 1994 filed an undertaking to pay the remaining amount in instalments. After hearing both the sides, we passed the following order:

We have recorded yesterday the payment of a sum of Rs. 10 lakhs to the appellants in L.P.A. No. 172 of 1993. Today, the case was posted for

further orders as to implementation of our judgment dated July 29, 1994. Today, the appellants in Contempt Appeal No. 5 of 1994 have filed an

undertaking which reads thus:

''The appellant undertakes to deposit a sum of Rs. 3,00,000 (Rupees three lakhs only) per month towards compliance with the order in

Application No. 4181 of 1991 in C.S. No. 970 of 1991.

The payment to be made on or before 10th of every succeeding month commencing from September 10, 1994. Out of this a sum of Rs. 2,15,000

(Rupees two lakhs and fifteen thousand only) will be towards arrears and Rs. 85,000 (Rupees eighty-five thousand only) towards current payment.

The moment the arrears are cleared the monthly payment will be Rs. 85,000 (Rupees eighty-five thousand only) as per order in Application No.

4181 of 1991''.

The undertaking is placed on record. However, for the undertaking to be effective, it must be necessary that there must be a defaulting clause and

the consequences flowing out of such default. Therefore, placing on record the memo of undertaking, we postpone the implementation of our

judgment directing the appellants in Contempt Appeal No. 5 of 1994 to be put in civil prison on the following conditions:

''The appellants in Contempt Appeal No. 5 of 1994 as per the undertaking shall pay to the appellants in L.P.A. No. 172 of 1993, a sum of Rs. 3

lakhs per month on or before 10-9-1994. Thereafter, further payments are to be made on or before the 10th of each succeeding month. The

appellants in L.P.A. shall execute proper stamped receipt for having received the same. Out of the aforesaid sum of Rs. 3 lakhs, Rs. 2,15,000 will

be towards the arrears and Rs. 85,000 will be towards the monthly rent. The receipts shall also be given accordingly. As soon as the entire arrears

are wiped out, the appellants in Contempt Appeal No. 5 of 1994 will continue to pay only a monthly rent of Rs. 85,000. If any default is

committed, the respondents in Contempt Appeal No. 5 of 1994 shall immediately bring it to the notice of the Court by filing a memo after serving a

copy to the learned counsel appearing for the appellants in Contempt Appeal No. 5 of 1994, the default committed by the appellants and seek

appropriate orders for the implementation of our judgment dated July 29, 1994. In the event without any default the directions are complied with,

that shall also be reported to this Court for passing orders as to the implementation of the judgment dated July 29, 1994''.

It is reported to us that the appellants in Contempt Appeal No. 5 of 1994 have been paying the amounts accordingly.

In the meanwhile, the ITO TDS, Madras-600 006, has issued a notice dated 2-9-1994, to the appellants in the contempt appeal, which reads

thus:

As per section 194-I of the income tax Act newly introduced with effect from June 1, 1994, any person other than an individual and a Hindu

undivided family, who is responsible for paying any income by way of rent exceeding Rs. 1,20,000 during the financial year shall at the time of

credit in the account/payment/making adjustment, etc., whichever is earlier, deduct income tax at source at the rate of 20 percent and remit the

amount to the Government of India account. ''Rent'' here means any payment by whatever name called, under lease, sub-lease, tenancy or any

other agreement or arrangement for the use of any land or any building (including factory building), together with furniture, fittings and the land

appurtenant thereto, whether or not such building is owned by the payee.

In this connection, you are requested to furnish information as per pro forma enclosed. Your reply may be handed over to the Inspector and

bearer of this notice who will collect the same after two days.

In the light of the aforesaid notice, the appellants in the contempt appeal have filed the present petition for permission to deduct 20 percent of the

amount paid, as indicated above.

As the prayer in the instant petition related to deduction of income tax at source, we considered it necessary to hear the learned senior standing

counsel for the department. Accordingly, the learned senior standing counsel for the department was directed to take notice for the department and

assist the Court in the matter. The learned senior standing counsel has accordingly put in appearance for the department and argued the matter.

The question for consideration is as to whether the provisions of section 194-I of the income tax Act, 1961 (''the Act'') are attracted to the case on

hand; and if so, whether the petitioners/appellants in the contempt appeal should be permitted to deduct 20 percent out of the sum of Rs. 10 lakhs

paid on 10-8-1994, and the further two payments of two instalments of Rs. 3 lakhs each, being the monthly instalments for September and

October 1994.

It is the contention of the learned senior standing counsel for the income tax Department that section 194-I which came to be inserted in the Act

with effect from 1-6-1994, by the Finance Act, 1994, is attracted to the case on hand, not only in respect of rent payable for the current year, viz.,

for the period from 1-4-1994, onwards, but also for the period prior to 31-3-1994, and paid subsequent to 1-6-1994.

As far as the appellants in the contempt appeal are concerned, it is their submission that they have paid the amount to the landlords, respondents

in the contempt appeal as also in the instant petition, as per the direction of this Court and that they had been left with no option but to obey and

comply with the order of the Court; as such there was no scope left to them to comply with section 194-I. As there was sufficient cause for them in

not complying with the provisions of section 194-I, suitable directions may be issued to the department in this regard to permit them to deduct 20

percent of the amount paid.

The learned counsel for the respondents in this petition submits that as the annual rent payable for the premises in question by the petitioners

exceeds Rs. 1,20,000, the provisions of section 194-I are attracted in respect of the rent payable for the financial year 1994-95, i.e., for the

period from 1-4-1994 to 31-3-1995, and also for subsequent years. It is further contended that the arrears of rent relatable to the period prior or

up to 31-3-1994, even though paid subsequent to 1-6-1994, cannot be subjected to the provisions contained in section 194-I, because if the rents

would have been paid during that period, no such deduction could have been made. Therefore, by the mere fact that the payment has been made

subsequent to 1-6-1994, the provisions of section 194-I cannot be applied to it. If applied, that would amount to applying the provisions of that

section with retrospective effect, which the Finance Act, 1994, does not provide, as the said section is introduced with effect from 1-6-1994.

In the light of these rival contentions, our decision would depend upon the interpretation of the provisions contained in section 194-I and also the

definition of the expression ''financial year'' contained in the Act. Section 194-I reads thus:

Rent. -Any person, not being an individual or a Hindu undivided family, who is responsible for paying to any person any income by way of rent,

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 the issue of a cheque or draft

or by any other mode, whichever is earlier, deduct income tax thereon at the rate of twenty percent:

Provided that no deduction shall be made under this section where the amount of such income or, as the case may be, the aggregate of the

amounts of such income credited or paid or likely to be credited or paid during the financial year by the aforesaid person to the account of, or to,

the payee, does not exceed one hundred and twenty thousand rupees.

Explanation. -For the purposes of this section,-

(i) ''rent'' means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of

any land or any building (including factory building), together with furniture, fittings and the land appurtenant thereto, whether or not such building is

owned by the payee;

(ii) where any income is credited to any account, whether called ''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.

The first portion of section 194-I read with the proviso imposes an obligation upon a person, who is not an individual or a HUF and who pays rent

per annum in respect of any premises or property exceeding Rs. 1,20,000, to deduct at the time of payment 20 percent of the amount paid as rent.

Thus, this section is not attracted to a case wherein the annual rent whether paid monthly or annually of the premises or property is Rs. 1,20,000 or

less than that. In such a case, even if the arrears of rent amount to more than Rs. 1,20,000 this section is not attracted. It is also not attracted to a

case where the person responsible for paying the rent is an individual or a HUF. In the instant case, the person responsible to pay the rent is not an

individual or a HUF, but it is a private limited company. The annual rent payable is more than Rs. 1,20,000. Thus, the provisions of section 194-I

are attracted to the case on hand from the date it has come into force covering the period from 1-4-1994. It is because the definition of the

expression ''financial year'' according to the Act means from April 1 to March 31, in the succeeding year. Therefore, even though section 194-I

has come into effect from 1-6-1994, it covered the rents payable from 1-4-1994.

The next question for consideration is as to whether the arrears relating to the period prior to 1-4-1994, but paid subsequent to 1-6-1994, are

also subject to deduction of 20 percent. Once it is held that the provisions of section 194-I are attracted to the case on hand as the annual rent in

the instant case exceeds Rs. 1,20,000 and the person responsible to pay the rent is a company and not an individual or a HUF, the fact that the

payment relates to the period prior to or after 1-4-1994, should not make any difference, because the section directs deduction at the time of

payment, which is made subsequent to 1-6-1994. Therefore, 20 percent deduction shall have to be made even in the arrears of rent, but, such

deduction shall not be treated as tax payable by the landlords during the financial year 1994-95, as it is always open to the assessee/s to file returns

apportioning the income received later in respect of previous or earlier financial year. In the event of filing such returns, such deduction will have to

be adjusted by the department towards the tax payable by the assessee.

One more question that remains for consideration is as to whether the petitioners should be subjected to the proceedings that are now initiated

against them by notice dated 2-9-1994, which is extracted above. We have already extracted the relevant portion of our order dated 2-8-1994,

which directed the mode of payment. Further, the petitioners/appellants in Contempt Appeal No. 5 of 1994, were required to pay under the teeth

of punishment imposed in the contempt proceedings. Our order did not give any scope or option to the appellants in the contempt appeal to

deduct 20 percent of the amount payable to the respondents at source. In such a situation, the proviso to section 201 of the Act is attracted as it

specifically empowers the concerned Assessing Officer to extend the benefit to such an assessee and not to treat him as the assessee in default in

respect of the tax. On this question also, we have heard the learned senior standing counsel for the department, who fairly submitted that as the

petitioners were obliged to make payment pursuant to the order of this Court, they cannot be treated as defaulters and they would fall within the

proviso to section 201, and the Assessing Officer would be suitably advised in this regard, on an application filed by the petitioners pursuant to the

notice dated 2-9-1994. As the case falls under the proviso to section 201(1) and as the submission of the learned senior standing counsel is also to

the same effect, and in addition to this it is also submitted by the learned senior standing counsel that the Assessing Officer would be advised,

accordingly, we do not consider it necessary to issue any such direction as prayed for in this miscellaneous petition as it would be sufficient to place

the submissions made by the learned senior standing counsel for the department on record. For the reasons stated above, the civil miscellaneous

petition is disposed of in the following terms:

In the facts and circumstances of the case, the petitioners are not liable for their failure to deduct 20 percent of the amount so far paid, that is, Rs.

16,00,000 (Rs. 10,00,000 + Rs. 3,00,000 + Rs. 3,00,000). However, in respect of the amounts to be paid hereafter the petitioners shall deduct

20 percent of the amount and account for the same to the department as per the provisions of section 194-I. It is also made clear that the liability

of the respondents to pay the income tax continues, even though the petitioners/appellants in the contempt appeal have not deducted 20 percent of

the amount. The petitioners shall also issue the certificate as per section 203 of the Act and the particulars of the payment to the respondents.