Law:

Section:

Section 201, read with section 221, of the Income-tax Act, 1961 - Deduction of tax at source - Consequences of failure to deduct or pay - Assessment year 1998-99 - Form No. 15H was received by petitioners only on 1-4-1999 as it had been sent by recipient of interest on 31-3-1999 and they failed to deduct tax at source on 31-3-1999 - ITO held that petitioners were defaulters within meaning of section 201, read with section 221 and imposed penalty - Whether since instant case was a case of technical default, ITO should have first sent matter to concerned Commissioner to determine as to whether petitioners could be treated as defaulting assessees or not for purpose of imposing penalty - Held, yes (case remanded back to Commissioner) FACTS The appellants had received the Form No. 15H on 1-4-1999, as it had been sent by the recipient of the interest on 31-3-1999. The question, therefore, arose as to whether the petitioners were defaulting assessees or not, because they failed to deduct tax at source on 31-3-1999. The ITO (TDS), gave a notice to the petitioners on 26-5-1999, mentioning therein that they were required to show cause as to why their case should not be referred to the Commissioner for levy of penalty. It did not transpire from the proceedings that the matter was ever referred to the Commissioner or Joint Commissioner. On writ, the Single Judge rejected the petition in toto. On appeal, the respondent (department) was required to show cause as to whether the matter was ever referred to the Commissioner. However, the respondent failed to show any such material. HELD The plea of the respondent was hardly an answer to the compliance of the condition mentioned by the ITO (TDS) in the show-cause notice, dated 26-5-1999 itself. It was required to be determined in the first instance as to how the appellants were defaulting assessees and only thereafter, the question with regard to imposition of penalty would arise. [Para 3] In view of the contents of the show-cause notice dated 26-5-1999, the ITO (TDS) should have sent the matter to the concerned Commissioner to determine as to whether the appellants could be treated as defaulting assessees or not for the purpose…

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