2015 (9) TMI 1163 - AT - Income Tax

TDS liability - treating the assessee as an assessee in default - Held that - Provisions of section 201(1) have to be interpreted in the manner they have been incorporated in the Act. A general rule in this regard can be told in simple language that deduct tax at source in case of doubt. In the case before us the assessee had paid interest amount to two parties without deducting taxes. In our opinion sub-section (1B) of section 197A (inserted w.e.f 01/06/2002) has overriding effect over sub-section (1A) for those cases where the aggregate of the amounts of such incomes credited or paid or likely to be credited or paid during the previous year in which such income is to be included exceeded the maximum amount which is not chargeable to income-tax . If such income i.e. income of the nature referred in sections 193, 194A and 194K exceeds the thresh hold of a particular sum during a particular year, the provisions of sub-section (1A) of section 197A shall not apply and the declaration in Form 15G becomes immaterial. It is clear that the assessee failed in its statutory obligation and therefore, it is an A-I-D for the amount of tax not deducted U/S.194A on payment of interest. The provisions of the Act envisage that wherever deductibility arises, the deductor may not deduct tax only in two conditions firstly, where the case falls under the purview of section 197A and secondly, where AO authorises him to do so by issuing a certificate u/s. 197 (read with Rule 28AA) on an application made by the payee/deductee. In no other circumstances the payer of interest can justify upon deduction of tax by taking shelter of ultimate tax effects of the payee. In the case before us, the assessee was not able to demonstrate that either of the two conditions existed in the matter under appeal. We further find that the FAA has given a categorical finding of fact that the assessee had failed to prove that the deductee included the amount received from the deductor in his return of income. In these circumstances, we are of the opinion that the order of the FAA does not suffer from any legal or factual infirmity. As far as charging of interest u/s.201(1A) it is true that use of the expression is not always determinative of the fact whether a provision is directory or mandatory in nature, but the context in which expression is used in section 201(1A) makes it clear that the levy is mandatory. The purpose of the levy is to claim compensation on the amount which ought to have been deducted and deposited and has not been done. The ultimate liability for tax being not there (since the firm which received the interest from the assessee had paid tax on such interest) did not dilute the requirements for the non-compliance of which interest is levied under section 201(1A) - Decided against assessee.

Summary

Issues:
1. Whether the assessee was correctly treated as an "assessee in default" under section 201(1) of the Income Tax Act, 1961.
2. Whether the assessee was liable to pay further tax of Rs. 2,19,620/- including interest of Rs. 19,960/- charged under section 201(1A) of the Income Tax Act, 1961.

Issue 1:
The case involved the question of whether the assessee was rightly considered an "assessee in default" under section 201(1) of the Income Tax Act, 1961. The assessee-firm had made a payment of Rs. 14,93,925/- as interest on an unsecured loan without deducting tax at source. The Assessing Officer (AO) found that the income paid exceeded the maximum amount not chargeable to income tax, thus requiring tax deduction at source under section 194A. The AO held the assessee liable to pay further tax of Rs. 2,19,620/- including interest of Rs. 19,960/- under section 201(1) and 201(1A) of the Act. The First Appellate Authority (FAA) upheld the AO's order, emphasizing the mandatory nature of sections 201(1) and 201(1A) and rejecting the assessee's arguments based on section 197A and case law references. The FAA also noted the failure of the assessee to prove that the deductee included the amount in their income tax return, shifting the burden of proof onto the assessee.

Issue 2:
The second issue pertained to the liability of the assessee to pay further tax of Rs. 2,19,620/- including interest of Rs. 19,960/- charged under section 201(1A) of the Income Tax Act, 1961. The Appellate Tribunal considered various legal precedents and interpretations of TDS provisions. It highlighted the duty of deducting tax at source, even in cases where the recipient's income is below the taxable limit. The Tribunal referred to judgments such as CIT v. Ramesh Enterprises and CIT v. Meat Products of India Ltd. to emphasize the mandatory nature of TDS provisions and the liability of the deductor for non-compliance. The Tribunal rejected the assessee's argument regarding the payee's income status and business losses, stating that deductors are not authorized to assess the tax implications for the payee. Additionally, the Tribunal confirmed the charging of interest under section 201(1A) as a compensatory measure for withholding tax, emphasizing its mandatory nature and the purpose of claiming compensation for the tax not deducted and deposited.

In conclusion, the Appellate Tribunal upheld the orders of the AO and FAA, confirming the assessee's status as an "assessee in default" and the liability to pay further tax including interest under sections 201(1) and 201(1A) of the Income Tax Act, 1961. The decision was based on the mandatory nature of TDS provisions, the burden of proof on the deductor, and the compensatory purpose of interest levied for non-compliance with tax deduction requirements.