2011 (3) TMI 1019 - HC - Income Tax

Non deduction of TDS - Commission - Held that - A reading of the communication dated 4.12.2002 shows that it has been specifically mentioned therein that no tax at source in the current year is required to be deducted in respect of commission already paid in the previous year - Once a communication had been issued on the basis of which the assessee was not required to deduct the tax at source, he cannot be held liable on the basis of a subsequent communication to deduct tax at source after the expiry of the said period. The Revenue could initiate action against the agents to whom the payment was made as it was the income in their hands which was taxable - The appeals are dismissed.

Summary

Issues:
Determining liability to deduct tax at source on commission paid to agents.

Analysis:
The case involved two appeals related to Income Tax Appeal Nos. 120 of 2006 and 192 of 2008, concerning the same parties and the same assessment year. The primary issue was whether the respondent-assessee was liable to deduct tax at source on commission payments made to agents. The Revenue contended that tax should have been deducted under Section 194-H of the Income Tax Act, as revealed during a survey that commission amounting to Rs. 2,30,56,660/- was paid without tax deduction. The CIT(A) allowed the appeal based on a memorandum from the Ministry of Finance, stating that no tax was required to be deducted for the relevant year. The Tribunal upheld the CIT(A)'s decision.

The Revenue relied on a communication from the Government of India, stating that tax should have been deducted at source on commission payments to agents. However, the Ministry of Finance had issued a communication on 4.12.2002, specifying that no tax needed to be deducted for the previous year's commission payments. The CIT(A) accepted this argument and quashed the tax and interest charges imposed on the assessee. The Tribunal upheld this decision, emphasizing the communication's validity.

The High Court dismissed the appeals, concluding that the assessee was not liable to deduct tax at source based on the communication from the Ministry of Finance. The court highlighted that once an instruction was issued relieving the assessee from tax deduction, they could not be held liable based on a subsequent communication. The court suggested that the Revenue could pursue action against the agents for taxable income. Consequently, the Tribunal's decision was upheld, and the appeals were dismissed.