2015 (12) TMI 184 - AT - Income Tax

Short deduction of tax at source on interest paid - demand raised under section 201 and levy of interest under section 201(1A) - Held that - From the confirmation letter of Tata Motors Ltd., submitted before the first appellate authority, it is very much clear that the deductee has admitted that interest payment of ₹ 1,87,33,461, received from the assessee bank was offered to tax in the return of income filed for the assessment year 2008 09. In the said confirmation, Tata Motors Ltd., also furnished their assessment particulars. Thus, from the confirmation letter of the deductee, it is very much clear that the interest payment on which short deduction was alleged was declared as income by deductee in its return of income filed for the assessment year 2008 09. Thus, it pre supposes that tax due on such income returned must also have been paid by the deductee. Therefore, the learned Commissioner (Appeals), in our view, was not justified in rejecting assessee s claim on the observation that whether tax paid on such income by the deductee was not mentioned. When the income tax assessment particulars of Tata Motors Ltd. was furnished in the confirmation letter, if the learned Commissioner (Appeals) had any doubt with regard to payment of tax by Tata Motors Ltd., he could have verified from the Departmental Authorities. We have no hesitation in holding that the assessee cannot be treated as assessee in default for the purpose of raising demand under section 201(1) of the Act in respect of interest payment to Tata Motors Ltd. As far as charging of interest under section 201(1A) is concerned, we are unable to accept assessee s contention, because the decision of the Hon ble Gujarat High Court in Rishikesh Apartment Co- operative Society Ltd. (2001 (6) TMI 17 - GUJARAT High Court ) is prior to the decision of the Hon ble Supreme Court in Hindustan Cocacola Beverages Pvt. Ltd. (2007 (8) TMI 12 - SUPREME COURT OF INDIA), wherein upheld the applicability of circular no.275/201/95 IT(V) dated 29th January 1997, issued by the CBDT stating that liability to charge interest under section 201(1A) of the Act till the date of payment of tax by the deductee would remain. We, therefore, while deleting the demand under section 201(1) of the Act, direct the Assessing Officer to compute interest under section 201(1A) of the Act till the date of payment of tax by the deductee. - Decided partly in favour of assessee.

Summary

Issues:
1. Short deduction of tax at source under section 201 and levy of interest under section 201(1A) of the Income Tax Act, 1961 for the assessment year 2008-09.

Analysis:
The appeal was filed against the order passed by the Commissioner (Appeals) regarding the demand raised due to short deduction of tax at source by the assessee, a banking company, for the financial year 2007-08. The Assessing Officer found a significant short deduction of tax and levied a demand along with interest under section 201(1A). The total demand amounted to a substantial sum, leading to the appeal by the assessee.

Upon reconciliation before the first appellate authority, the assessee explained the reasons for the alleged short deduction, citing errors in deductee codes and lack of knowledge about the final beneficiary in certain transactions. The assessee also relied on legal precedents to support the argument that since the deductee had declared the income and paid taxes, the assessee should not be considered in default under section 201(1) of the Act.

The Commissioner (Appeals) upheld the demand related to short deduction of tax on interest payment to a specific entity, emphasizing that the correct deduction rate was not applied by the assessee. However, the Commissioner's decision on the interest levy was challenged by the assessee based on legal interpretations and the deductee's compliance with tax obligations.

The Tribunal, after considering submissions and evidence, concluded that the assessee could not be deemed in default under section 201(1) for the interest payment in question, as the deductee had declared and paid tax on the income. Nonetheless, the Tribunal directed the Assessing Officer to calculate interest under section 201(1A) until the deductee's tax payment date, in line with applicable legal principles and precedents cited during the proceedings.

Therefore, the Tribunal partially allowed the assessee's appeal, highlighting the distinction between default under section 201(1) and the liability for interest under section 201(1A) based on the deductee's tax compliance status. The judgment emphasized the importance of verifying tax payment details and applying relevant legal interpretations to determine the assessee's obligations accurately.