1996 (8) TMI 100 - HC - Income Tax

Summary

Issues:
- Challenge to order regarding tax deduction at source under section 194B of the Income-tax Act, 1961
- Interpretation of section 205 of the Income-tax Act, 1961
- Legal consequences of failure to deduct or pay tax under section 201
- Application of section 194B regarding winnings from lottery or crossword puzzle

Analysis:
The petitioner won two lottery prizes during the assessment year 1986-87, one for Rs. 10,50,000 and the other for Rs. 18,000. The person responsible for paying winnings from a lottery exceeding Rs. 1,000 was required to deduct income tax at the rates in force under section 194B of the Income-tax Act, 1961. In this case, Chandra Agencies made the payment to the petitioner but failed to remit the tax deducted at source to the income-tax authority. Consequently, the income-tax authority passed an order denying credit for the tax deduction due to the lack of evidence of payment to the government treasury.

The petitioner challenged this order, arguing that section 205 of the Income-tax Act, 1961, prohibits demanding tax payment from the assessee if tax has already been deducted at source. Section 205, read with section 201, establishes consequences for failure to deduct or pay tax, deeming the defaulter an assessee in default. Moreover, section 194B mandates deduction of income tax on winnings exceeding Rs. 5,000 from lotteries or crossword puzzles at the time of payment.

The court analyzed these provisions and held that under section 205, the petitioner cannot be held liable to pay tax if it has already been deducted at source by the paying entity. The certificate issued by Chandra Agencies confirmed the tax deduction, absolving the petitioner of any further tax liability. Consequently, the court deemed the order passed by the Income-tax Officer as illegal and contrary to section 205, quashing it. The authorities were directed to pursue Chandra Agencies for the tax deducted at source.

In conclusion, the petition was disposed of with no costs awarded, affirming that the petitioner was not liable for the tax deducted at source as per the provisions of the Income-tax Act, 1961.