2014 (9) TMI 756 - HC - Income Tax

Non-deduction of TDS u/s 194I Petitioner contended that, respondent No.2/the Managing Director, Gujarat State Land Development Corporation Ltd. and under the aforesaid heading of rent , the respondent No.1 has made payment of ₹ 4,87,83,300/- during the years 1998 to 2013 to the Gujarat State Land Development Corporation Ltd. but did not care to deduct tax at source, as provided in Section 194-I of the Income Tax Act, 1961. The petitioner contends that for the above violation of mandatory provision of law, the respondent No.1 has become deemed assessee in default within the meaning of Section 201 of the Income Tax Act but the Income Tax Authority did not take any step in spite of continuous violation of the mandatory provision at the instance of the respondent No.1. Held that - There has been violation of the provisions contained in Section 194-I of the Act and as a consequence for not deducting tax at source, the Corporation should not only be deemed to be an assessee in default in respect of such tax which has not been deducted but, at the same time, has also made itself liable to pay interest as provided in Section 201(1A) of the Act - the Income Tax Authority in spite of service of notice has not come forward to disclose why it has not taken any step against the Corporation there was no substance in the contention that in this PIL, the Court should pass an order upon the Income Tax Authority to impose penalty Income Tax Authority is directed to take immediate step against the Corporation for the non-compliances Decided in favour of Petitioner.

Issues Involved:
1. Non-compliance with Section 194-I of the Income Tax Act, 1961.
2. Liability of the Municipal Corporation for not deducting TDS.
3. Role and inaction of the Income Tax Authority.
4. Revenue loss and imposition of penalty and interest.

Issue-wise Detailed Analysis:

1. Non-compliance with Section 194-I of the Income Tax Act, 1961:
The petitioner, a journalist, filed a Public Interest Litigation (PIL) seeking directions against the Municipal Commissioner for failing to deduct Tax Deducted at Source (TDS) on rent payments as mandated by Section 194-I of the Income Tax Act, 1961. The petitioner highlighted that from 1998 to 2013, the Vadodara Municipal Corporation made payments totaling Rs. 4,87,83,300/- to the Gujarat State Land Development Corporation Ltd. for renting bulldozers without deducting TDS.

2. Liability of the Municipal Corporation for not deducting TDS:
The Municipal Corporation admitted in its affidavit that it did not deduct TDS due to a bona fide but erroneous impression. However, it claimed that the Gujarat State Land Development Corporation Ltd. had paid the appropriate income tax on the amount received, resulting in no revenue loss to the Department. The Corporation asserted that upon realizing the correct legal position, it began deducting TDS from December 20, 2013, and assured the Court of compliance henceforth.

3. Role and inaction of the Income Tax Authority:
Despite being served notice, the Income Tax Authority did not appear or provide a rationale for not taking action against the Municipal Corporation for the TDS default. The Court noted the mandatory nature of Section 201 of the Act, which deems a person in default for failing to deduct TDS and imposes liability for interest under Section 201(1A).

4. Revenue loss and imposition of penalty and interest:
The Court acknowledged that the Municipal Corporation's failure to deduct TDS made it a deemed assessee in default and liable for interest under Section 201(1A). However, the imposition of a penalty under Section 221 depended on whether there was a good and sufficient reason for the default, which the appropriate authority must determine. The Court directed the Income Tax Authority to take immediate steps against the Municipal Corporation for the default and to assess the need for penalties and interest, emphasizing that the Corporation would have all legal defenses available.

Conclusion:
The Court disposed of the application by directing the Income Tax Authority to act on the default reported by the petitioner and proceed according to the law. The Court clarified that it did not address the extent of the limitation period or the necessity of penal provisions, leaving these determinations to the Income Tax Authority. The Authority was instructed to initiate appropriate steps within a fortnight from the date of the order's communication. No costs were awarded.

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