2014 (3) TMI 178 - AT - Income Tax

Demand raised u/s 201/201(1A) of the Act r.w. section 194H of the Act TDS not deducted Held that - A short deduction of tax at source by itself does not result in a legally sustainable demand u/s 201(1) and u/s 201(1A) the decision in Hindustan Coca Cola Beverage Pvt. Ltd. Vs. CIT 2007 (8) TMI 12 - SUPREME COURT OF INDIA - the taxes cannot be recovered once again from the assessee in a situation in which the recipient of income has paid due taxes on income embedded in the payments from which tax withholding requirements were not fully or partly, complied with. 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 - Once all the details of the persons to whom payments have been made are on record, it is for the Assessing Officer, who has all the powers to requisition the information from such payers and from the income tax authorities, to ascertain whether or not taxes have been paid by the persons in receipt of the amounts from which taxes have not been withheld - The lapse on account of non-deduction of tax at source is to be visited with three different consequences penal provisions, interest provisions and recovery provisions - Recovery provisions under section 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. Interest under section 201(1A) is compensatory interest in nature and it seeks to compensate the revenue for delay in realization of taxes the decision in Bennett Coleman & Co Ltd Vs ITO 1984 (11) TMI 58 - BOMBAY High Court thus, levy of interest u/s 201(1A) is applicable whether or not the assessee was at fault - since it is only compensatory in nature it is applicable for the period of the date on which tax was required to be deducted till the date when tax was eventually paid - in a case in which the recipient of income had no tax liability embedded in such payments, there will obviously be no question of delay in realization of taxes and the provisions of section 201(1A) will not come into play at all - The computation of interest is to be redone in the light of this legal position thus, the matter remitted back to the AO for fresh adjudication Decided in favour of Assessee.

Summary

Issues:
Appeals against demands under sections 201/201(1A) read with section 194H of the Income Tax Act, 1961 for AY 2009-10 & 2010-11. Delay in filing appeals. Whether tax deductor can be treated as an assessee in default when tax was not deducted at source. Applicability of penal provisions, interest provisions, and recovery provisions.

Analysis:

1. Delay Condonation and Merits of Appeals: The appeals were filed 51 days late, but the assessee sought condonation of the delay. The ITAT decided to condone the delay and proceed to consider the appeals on their merits, emphasizing the importance of due process.

2. Background and Observations: The demands were raised on the assessee for not deducting tax at source on discount of recharge vouchers of franchisees. The CIT(A) upheld the demands, prompting the assessee to appeal. During the hearing, it was noted that there was no finding by the AO regarding whether the franchisees had paid taxes on the income. The ITAT referred to relevant legal precedents emphasizing the need for the revenue to demonstrate non-recovery of taxes from the income recipient.

3. Legal Position and Recovery Provisions: The judgment highlighted that short deduction of tax does not automatically result in a valid demand under sections 201(1) and 201(1A). It stressed that recovery provisions can only be invoked when the revenue loss is established due to non-payment of taxes by the income recipient. The onus is on the Assessing Officer to ascertain this, and the deductor cannot be treated as an assessee in default without such a finding.

4. Penal and Interest Provisions: The judgment differentiated between penal provisions, interest provisions, and recovery provisions. It clarified that penalties are related to the assessee's lapse, while interest under section 201(1A) is compensatory and applicable regardless of fault. The levy of interest is meant to compensate for delayed tax realization.

5. Remand and Fresh Adjudication: The ITAT remanded the matter to the AO for fresh adjudication in line with the legal observations made. The AO was directed to provide a fair hearing to the assessee and issue a detailed order. The decision was made in favor of the assessee, and the appeals were allowed for statistical purposes.

This detailed analysis of the judgment provides insights into the legal intricacies surrounding the demands raised under the Income Tax Act and the importance of due process and adherence to legal principles in tax matters.