2015 (3) TMI 224 - AT - Income Tax

Section 201, read with section 191 of the Income-tax Act, 1961 - Deduction of tax at source - Consequence of failure to deduct or pay (Penal interest) - Assessment year 2009-10 - Assessee-bank filed its e-TDS statement - TDS officer observed that assessee bank had short deducted tax at source on interest paid and held assessee to be in default under section 201(1) and 201(1A) - Assessee-bank submitted that payees had already included such interest in their respective total incomes and paid tax thereon - Whether in view of Hindustan Coca Cola Beverages (P.) Ltd. v. CIT 2007 (8) TMI 12 - SUPREME COURT OF INDIA , if payees had included interest income earned from assessee-bank in their total income and paid tax thereon, assessee could not be considered as in default in terms of section 201(1) - Held that - It is further relevant to note that Explanation to sec. 191 now makes it unequivocal that where the person who is required to deduct any sum in accordance with the provisions of this Act does not deduct or after so deducting fails to pay, or does not pay the whole or any part of the tax as required by or under this Act, he may be deemed to be an assessee in default within the meaning of Sec. 201(1) in respect of such tax, if the deductee has also failed to such tax directly. Thus it is obvious that the person responsible for deduction of tax at source on an income paid can be considered as in default only where the payee has not paid any tax on such income. To put it simply, if the payee has paid tax on such income, then the payer cannot be considered as the assessee in default. The insertion of this Explanation by the Finance Act 2008 with retrospective effect from 1.6.2003 is the reiteration of the mandate laid down by the Hon'ble Supreme Court in the case of Hindustan Coca Cola Beverages (P) Ltd. (2007 (8) TMI 12 - SUPREME COURT OF INDIA). In the light of the above discussion, we set aside the impugned order and send the matter back to the A.O for necessary verification. The assessee is directed to produce the relevant evidence in support of its contention that all the payees included such interest income in their total income and paid tax thereon. In so far as the question of interest u/s 201(1A) is concerned, the same is chargeable for the period between the date on which tax was deductible till the date on which the tax was actually paid by the payee notwithstanding the fact that the payee ceases to be an assessee in default for the purpose of Sec. 201(1) - Decided in favour of assessee.

Summary

Issues:
1. Dismissal of appeal by CIT(A) against orders u/s 201(1) and 201(1A) of the Income Tax Act, 1961.
2. Determination of short deduction of tax at source on interest.
3. Applicability of the judgment in Hindustan Coca Cola Beverages (P) Ltd.
4. Power of CIT(A) to remand proceedings to the Assessing Officer.
5. Interpretation of Explanation to sec. 191 regarding default in deduction of tax at source.
6. Liability for interest u/s 201(1A) till the tax is paid by the payee.

Analysis:
1. The appeal was filed against the CIT(A)'s order dismissing the appeal regarding non-payment of TDS, low deduction of tax at source, and late payment of tax deducted at source. The total short deduction of tax at source on interest was determined, leading to the assessee being held in default under sections 201(1) and 201(1A) of the Income Tax Act for the assessment year 2009-10.

2. The Hon'ble Supreme Court's judgment in Hindustan Coca Cola Beverages (P) Ltd. was cited, stating that if the payee has paid tax on the income where there was a short deduction of tax at source, the tax cannot be recovered again from the tax deductor. The CIT(A) directed the assessee to verify with the TDS officer, but lacked the power to remand the proceedings to the Assessing Officer.

3. The Explanation to sec. 191 clarifies that a person responsible for deducting tax at source can be considered in default only if the payee has not paid tax on the income. Therefore, if the payee has paid tax on the income, the deductor cannot be considered in default, as reiterated by the Supreme Court's precedent in Hindustan Coca Cola Beverages (P) Ltd.

4. The matter was sent back to the Assessing Officer for necessary verification, requiring the assessee to provide evidence that all payees included the interest income in their total income and paid tax on it.

5. Regarding interest u/s 201(1A), it was clarified that interest is chargeable from the date tax was deductible till the date it was paid by the payee, even if the payee is no longer in default under sec. 201(1). The determination of interest was remitted to the Assessing Officer for fresh consideration.

6. The appeal was allowed for statistical purposes, and the order was pronounced in the open court on 9/4/2014.