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2016 (8) TMI 1240 - HC - Income TaxTDS u/s 194A - whether GDA cannot be held to be an assessee in default u/s 201(1) - Held that - In the present case, it is not disputed even by the respondents that whatever tax was due on the amount of interest paid by GDA to PNBHFL and LICHFL, the same was paid by two recipient companies to the Revenue. The final assessment orders in respect thereto were also passed. Income of GDA on its own was not taxable during the relevant period by virtue of section 10(20A) though subsequently it has been omitted. So far as the status of PNBHFL and LICHFL is concerned, there was some genuine doubt regarding their status. Both companies are public limited companies and subsidiaries of the Punjab National Bank and Life Insurance Corporation of India. This caused some doubt whether TDS was deductible or not. However, for the purpose of adjudication of dispute in the present writ petition, we have not given any leverage or advantage to the petitioner for alleged doubt and we have proceeded to decide the matter holding the petitioner defaulter by violating requirement of deduction of TDS under section 194A so as to attract action by the concerned authority under section 201 of the Act, 1961. In view of the above, demand of tax is patently illegal and without jurisdiction. Vires of section 201 challenged - Held that - When commenced arguments, gave up this plea and stated that he is confining his challenge only to the validity of orders passed by the Income-tax Officer (TDS), impugned in writ petitions, and the same may be considered in the light of relevant provisions of the Act, 1961, and matter be decided accordingly. Hence, we have not looked into vires of section 201 since that plea has been given up. The Income-tax Officer (TDS) is required to find out whether there is any liability of interest on the amount of TDS deductible under section 194A but not deducted and then from the date on which such amount was deductible and the date when actual tax was paid, to compute the amount of interest payable by the petitioner. In this regard, he will have to pass a fresh order
Issues Involved:
1. Obligation of GDA to deduct TDS under section 194A. 2. Bona fide nature and validity of non-deduction of TDS. 3. Authority of the Income-tax Officer (TDS) to demand TDS from GDA when the principal assessee has already paid the tax. 4. Justification for imposing interest liability under section 201(1A) of the Income-tax Act, 1961. Issue-wise Detailed Analysis: 1. Obligation of GDA to Deduct TDS under Section 194A: The court examined whether the Ghaziabad Development Authority (GDA) was required to deduct TDS on interest payments made to Punjab National Bank Housing Finance Limited (PNBHFL) and Life Insurance Corporation Housing Finance Limited (LICHFL) under section 194A of the Income-tax Act, 1961. Section 194A(1) mandates TDS on interest payments, with certain exceptions outlined in section 194A(3). The court concluded that neither PNBHFL nor LICHFL fell within these exceptions, thus affirming GDA's obligation to deduct TDS. Consequently, GDA's failure to deduct TDS rendered it an "assessee in default" under section 201(1). 2. Bona Fide Nature and Validity of Non-Deduction of TDS: The court noted that section 201 provides for consequences of failure in TDS deduction, including penalty under section 221 and interest under section 201(1A). However, the proviso to section 201(1) exempts a person from penalty if the failure to deduct TDS was for "good and sufficient reasons." The court observed that the Assessing Officer had not initiated any penalty proceedings against GDA, implying that the non-deduction of TDS was not without good and sufficient reasons. Thus, the court acknowledged a bona fide nature in GDA's failure to deduct TDS. 3. Authority of the Income-tax Officer (TDS) to Demand TDS from GDA: The court examined whether the Income-tax Officer (TDS) could demand TDS from GDA when PNBHFL and LICHFL had already paid the tax on the interest received. The court referred to various precedents, including CIT v. Manager, M. P. State Co-operative Development Bank Ltd. and Hindustan Coca Cola Beverage Pvt. Ltd. v. CIT, which established that once the tax on the interest income is paid by the recipient, no further tax can be demanded from the deductor. The court held that demanding TDS from GDA would amount to double taxation, which is impermissible. Therefore, the demand for TDS from GDA was deemed illegal and without jurisdiction. 4. Justification for Imposing Interest Liability under Section 201(1A): The court clarified that while the tax itself cannot be demanded again from the deductor, the liability to pay interest under section 201(1A) remains. This interest is calculated from the date the tax was deductible to the date the tax was actually paid. The court directed the Income-tax Officer (TDS) to determine the interest liability of GDA for the period between the date TDS was deductible and the date the tax was paid by PNBHFL and LICHFL. Conclusion: The court set aside the impugned orders dated April 5, 2006, demanding TDS and surcharge from GDA. It directed the Income-tax Officer (TDS) to pass fresh orders to compute the interest liability of GDA for the period of default in TDS deduction. The court acknowledged that the tax on the interest income had already been paid by PNBHFL and LICHFL, thus preventing double taxation. The parties were directed to bear their own costs equally.
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