2010 (8) TMI 201 - HC - Income Tax

TDS - on salary payments at the average tax as per provisions of Section 192 (1) of the I.T.Act - interest charges under Section 201 (1A) - Held that - Sub-Section 3, says that, if there is a failure to deduct in a financial year, the same can be deducted by way of adjustment during the financial year - Section 201 (1A) applies only when during the financial year whole or any part of the tax deductible has not been deducted - Answer in favor of assessee - Appeal is dismissed

Summary

Issues:
Interpretation of Section 192 and Section 201 (1A) of the Income Tax Act regarding deduction of tax at source on salary payments and imposition of interest charges.

Analysis:
The judgment dealt with the issue of whether the respondent assessee was liable to pay interest under Section 201 (1A) of the Income Tax Act for not deducting tax at source on salary payments as required by Section 192. The assessee had paid salaries to its employees during the relevant assessment year without deducting tax in each month, only deducting tax in October 1999 and February 2000. The Assessing Officer imposed interest under Section 201 (1A), which was upheld by the CIT Appeals but overturned by the Tribunal. The main question was whether the assessee had committed a default by not deducting tax at source on salary payments and if the interest charges under Section 201 (1A) were applicable.

The court analyzed Section 192 (1) and (3) of the Income Tax Act, which mandate the deduction of income tax at the time of payment of salary and allow for adjustments to be made for any previous deductions or failures to deduct during the financial year. The court emphasized that the obligation to deduct tax at the time of payment, as per Section 192 (1), extends up to the end of the financial year due to the provisions in Section 192 (3). This means that if there is a failure to deduct tax during the financial year, adjustments can be made until the end of that year. However, the right to adjust does not extend beyond the financial year.

The court rejected the argument that the provisions of Section 201 (1A) would become redundant based on the interpretation of Section 192. It clarified that Section 201 (1A) applies when the whole or any part of the tax deductible has not been deducted during the financial year. Therefore, the court concluded in favor of the assessee, stating that the interest charges under Section 201 (1A) were not applicable in this case. The appeal was dismissed, and the matter was resolved in favor of the assessee.