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2014 (1) TMI 1543 - AT - Income TaxDemand raised u/s 201 of the Act Interest charged u/s 201(1A) of the Act Non-deduction of TDS u/s 194A of the Act - Held that - The Government shall not be entitled to recover the said amount, if the recipient has declared the said amount as his income in the income tax return filed by him and paid the tax due - Thus, it is seen that the objective of provisions of sec. 201 is only to compensate the Government for the failure of an assessee to deduct or pay the TDS amount - The provisions of sec. 40(a)(ia) and sec. 201 operate on different objectives - the provisions of sec. 40(a)(ia) do not override the provisions of sec. 201 of the Act thus, the assessee is liable to deduct tax at source on interest payments, even if it has not claimed the same as deduction while computing its total income, in which case the revenue is entitled to initiate proceedings u/s 201 of the Act for such failure - The assessee has failed to adduce any evidence to show that the recipients of interest amounts have declared the same in their income tax returns and paid tax due the order of the CIT(A) upheld Decided against Assessee.
Issues Involved:
1. Whether the assessee is liable to deduct tax at source under Section 194A of the Income Tax Act. 2. Whether the assessee can be treated as an 'assessee in default' under Section 201 of the Income Tax Act. 3. Applicability of the provisions of Section 201(1A) regarding interest for failure to deduct tax at source. 4. Relevance of the assessee's claim that the payees have already paid taxes on the interest income. Issue-wise Detailed Analysis: 1. Liability to Deduct Tax at Source under Section 194A: The assessee, a Private Limited company, credited interest to its sister concerns without deducting tax at source as required under Section 194A of the Income Tax Act. The Assessing Officer (AO) determined that the assessee failed to deduct tax at source on interest payments totaling Rs. 11,93,820, thereby treating the assessee as an 'assessee in default'. The assessee argued that since the interest was not claimed as an expenditure in the return of income, the provisions of Section 194A should not apply. However, the tribunal held that the liability to deduct tax at source is independent of whether the interest is claimed as an expenditure or not. The section mandates deduction at the time of credit or payment, whichever is earlier, and applies irrespective of the accounting treatment by the payer. 2. Treatment as an 'Assessee in Default' under Section 201: The tribunal referred to Section 201, which treats an assessee who fails to deduct or pay the TDS amount as an 'assessee in default'. The assessee contended that no action was initiated against the payees, and hence, the proceedings under Section 201 were not valid. The tribunal, however, clarified that the provisions of Section 201 are to ensure that the government recovers the tax amount from the payer if the payer fails to deduct tax at source. The tribunal emphasized that the provisions of Section 40(a)(ia), which disallow certain expenditures for non-compliance with TDS provisions, do not override Section 201. Thus, the assessee's failure to deduct tax at source justified the initiation of proceedings under Section 201. 3. Applicability of Section 201(1A) Regarding Interest: The AO levied interest under Section 201(1A) amounting to Rs. 7,16,290 for the failure to deduct tax at source. The tribunal upheld this levy, noting that the interest liability under Section 201(1A) is a compensatory measure for the delay in remitting the tax due to the government. The tribunal reiterated that the objective of Section 201(1A) is to compensate the government for the loss of revenue due to the payer's failure to deduct and pay the tax on time. 4. Payees' Payment of Taxes on Interest Income: The assessee argued that it should not be treated as an 'assessee in default' if the payees have already paid taxes on the interest income. The tribunal acknowledged the legal proposition that the government should not recover the tax again if the payees have declared the income and paid taxes. However, the tribunal noted that the assessee failed to provide evidence showing that the payees had indeed declared the interest income in their tax returns and paid the due taxes. Consequently, the tribunal could not apply this legal proposition to the case at hand. Conclusion: The tribunal dismissed the appeal filed by the assessee, upholding the order of the CIT(A) and confirming the assessee's liability to deduct tax at source under Section 194A, the treatment as an 'assessee in default' under Section 201, and the levy of interest under Section 201(1A). The tribunal emphasized the importance of compliance with TDS provisions and the independent operation of Sections 194A, 201, and 40(a)(ia) of the Income Tax Act.
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