2012 (8) TMI 128 - AT - Income Tax

Non deduction of tax at source - demands raised under section 201(1) and 201(1A) r.w.s. 194 - Held that - The onus is on the revenue to demonstrate that the taxes have not been recovered from the person who had the primarily liability to pay tax, and it is only when the primary liability is not discharged that vicarious recovery liability can be invoked. The provisions regarding interest in delay in depositing the taxes are set out in Section 201(1A)and recovery provisions are set out in Section 201(1) - recovery provisions u/s 201(1) can be invoked only when loss to revenue is established, and that can only be established when it is demonstrated that the recipient of income has not paid due taxes thereon - once assessee furnishes the requisite basic information, the AO can very well ascertain the related facts about payment of taxes on income of the recipient directly from the recipients of income - matter is restored to the file of the AO for fresh adjudication - in favour of assessee for statistical purposes.

Summary

Issues:
1. Condonation of delay in filing appeals challenging CIT(A)'s orders under sections 201(1) and 201(1A) r.w.s. 194 for assessment years 2005-06, 2006-07, and 2008-09.
2. Enforcement of demand under section 201(1A) r.w.s. 194 C when the recipient has paid taxes on income.
3. Onus of proving payment of taxes on income embedded in payments made by a charitable trust.

Analysis:
1. The appeals challenging the correctness of CIT(A)'s orders were time-barred by 93 days. The assessee sought condonation of the delay, which was granted based on a previous decision in the assessee's own case for a different assessment year. The Tribunal agreed to hear the appeals on merits despite the delay.

2. The key issue in all three appeals was whether a demand under section 201(1A) r.w.s. 194 C could be enforced when the recipient of income had already paid taxes on the payments received. The Assessing Officer required the charitable trust to justify why it should not be treated as an assessee in default for not deducting tax at source. The trust argued that the recipients had paid taxes on the income, citing a Supreme Court decision. However, the Assessing Officer rejected this argument, stating that the trust failed to prove tax payment by the recipients. The trust's request for the Assessing Officer to verify tax payments from the payers was also denied.

3. The Tribunal considered the legal position and relevant case law, including a judgment from the Allahabad High Court. The Court's decision emphasized that the deductor cannot be treated as an assessee in default until it is established that the assessee has also failed to pay the tax directly. The onus was placed on the revenue to demonstrate that taxes were not paid by the primary taxpayer before invoking recovery from the deductor. The Tribunal agreed with this interpretation, highlighting the need for the Assessing Officer to verify tax payments by the recipients. The Tribunal directed the matter to be reconsidered by the Assessing Officer, emphasizing the importance of a fair hearing and a detailed order in line with the legal principles discussed.

Overall, the Tribunal allowed the appeals for statistical purposes, setting aside the previous orders and instructing a fresh adjudication by the Assessing Officer based on the clarified legal principles.