2015 (1) TMI 1219 - HC - Income Tax

TDS liability - demand of short deducted tax - assessee in default - Held that - At present there is an outstanding demand of 12, 76, 85, 755/- namely the short deducted tax amounting to 10, 29, 72, 390/- and the interest component amounting to 2, 47, 13, 365/-. We direct the petitioner to deposit the component of interest of 2, 47, 13, 365/- within two weeks from today. Upon deposit the Commissioner of Income Tax (Appeals)-respondent no.2 where the petitioner s appeal is pending would be decided on a priority basis within three months. The balance demand towards short deducted tax will remain stayed during the pendency of the appeal.

Summary

Issues involved:
1. Liability of payment of tax against a deductor under Section 201 of the Income Tax Act.
2. Validity of order under Section 201(1)/201(1A) declaring the assessee in default.
3. Disposal of rectification applications under Section 154 of the Act.
4. Rejection of stay application by the Deputy Commissioner of Income Tax.
5. Contention regarding demand for short deducted tax after previous litigation.

Analysis:

1. The High Court considered the issue of liability of payment of tax against a deductor under Section 201 of the Income Tax Act. In a previous round of litigation, the Court had framed various issues, including whether a deductor failing to deduct tax at source could be held liable for payment of tax under Section 201. The Court concluded that in cases where tax was not deducted at source, the deductor could not be held responsible for the short deducted tax, but could be liable for interest and penalty. Consequently, the assessment orders were quashed by the Division Bench.

2. For the financial year 2011-12, the petitioner received notices to show cause regarding an order under Section 201(1)/201(1A) declaring them in default. The Deputy Commissioner of Income Tax passed an order treating the petitioner in default for a specific amount, including short deducted tax and interest. The petitioner appealed this order before the Commissioner of Income Tax (Appeals) and filed rectification applications under Section 154, resulting in a reduction of the demand. However, subsequent stay applications were rejected, leading to the filing of the present writ petition.

3. The Court addressed the disposal of rectification applications under Section 154 of the Act, noting that the petitioner's applications were partially allowed, resulting in a reduction of the demand amount. The petitioner also filed a stay application, which was rejected by the Deputy Commissioner of Income Tax, prompting the petitioner to move the present writ petition.

4. The Deputy Commissioner of Income Tax rejected the petitioner's stay application, leading to the filing of the writ petition. The petitioner contended that the demand for short deducted tax was unwarranted based on the previous litigation's decision regarding the deduction of tax issue.

5. In light of the previous litigation and the contentions raised by the parties, the Court disposed of the writ petition by directing the petitioner to deposit the interest component within a specified timeframe. The Commissioner of Income Tax (Appeals) was instructed to prioritize the petitioner's appeal, with the balance demand towards short deducted tax remaining stayed during the appeal's pendency.