2015 (12) TMI 1469 - HC - Income Tax

TDS u/s 194I - assessee in default - Whether the Tribunal was correct in holding that the order passed under Section 201(1) and 201(1A) for the assessment year 2002-03 is barred by limitation? - Held that - In the memorandum explaining the provisions in the Finance (II) Bill, 2009, it was clearly stated that to provide sufficient time for pending cases, it is proposed to provide that such proceedings for a financial year beginning from 1st April, 2007 and earlier years can be completed by the 31st March, 2011 . As such, the memorandum itself clarified that the proviso is for pending cases, and not decided cases. The Circular dated 3.6.2010, issued by the CBDT, also clearly specifies that the said proviso would be for pending cases and not decided cases. With regard to the applicability of the amendment made by the Finance Act, 2009 with effect from 1.4.2010, it was also clarified to be from the assessment year 2011-12 and subsequent years. As such, it is clear that proviso to sub-section (3) did not legalize the cases where action had already been taken, but was meant for only such cases which were pending at the time of insertion of sub-section (3) to Section 201 of the Act. Thus, for the reasons given above, we find that the Tribunal was correct in holding that the order passed under Sec.201 (1) and (1A) of the Act on 28.1.2008 for the assessment year 2002-03, would be barred by limitation as the period of limitation would be four years from the end of the financial year in question. - Decided in favour of the respondent assessee and against the Revenue. Liability to interest under Section 201(1A) - ITAT held that the assessee was liable to pay interest under Section 201(1A) of the Act for not deducting TDS, from the date when the payment was made by the assessee to the Recipient, till the date the tax was deposited by the Recipient - Held that - the provision for tax deduction at source is only a mechanism for collection of tax by the payer, even though the liability to pay tax is that of the Recipient. The provision for payment of interest under sub-section (1A) of Section 201 of the Act is only of compensatory nature. It cannot be a means to penalise the payer. The provision for payment of interest would arise from the date when it ought to have been deducted i.e., from the date of payment by the payer to the Recipient. The liability to pay interest would end on the date when such tax has been deposited by the Recipient, either by way of advance tax or along with the return of income. Interest, herein, being compensatory in nature, cannot be thus charged for the period beyond the date when such tax has already been deposited by the Recipient. If the Revenue is permitted to charge interest even after the Recipient has deposited the tax, the same would amount to undue enrichment of the Revenue, as even after receiving the tax, it would continue to get interest on the amount which has already been paid or deposited with it. As such, the liability of the assessee herein would not be for payment of interest after the period of deposit of tax by the Recipient.- Decided in favour of the respondent assessee and against the Revenue.

Summary

Issues Involved:
1. Limitation for initiating action for failure to deduct and pay TDS under Section 201 of the Income Tax Act.
2. Liability to pay interest under Section 201(1A) of the Income Tax Act for not deducting TDS.

Detailed Analysis:

Issue 1: Limitation for initiating action for failure to deduct and pay TDS under Section 201 of the Income Tax Act

The first issue revolves around the limitation period for initiating proceedings under Section 201 of the Income Tax Act for failure to deduct and pay TDS. The relevant assessment year is 2002-03, and at that time, there was no specific limitation period prescribed under Section 201. It was only by the Finance Act, 2009, that sub-section (3) was inserted, providing a limitation period of two years from the end of the financial year in which the statement is filed, and four years from the end of the financial year in which the payment is made or credit is given. The Tribunal held that the proceedings initiated by the Revenue beyond the period of four years from the end of the relevant financial year were barred by limitation. The Tribunal relied on the Delhi High Court's decision in Commissioner of Income Tax Vs NHK Japan Broadcasting Corporation, which considered four years as a reasonable period for initiating action where no limitation is prescribed.

The Revenue argued that when no limitation is provided under the Act, proceedings can be initiated at any stage and at any time, suggesting that a reasonable period should be seven years, as provided by the Finance Act, 2014. However, the High Court found that the law is well settled that where no limitation is provided, the period of limitation would be a reasonable period, which would depend upon the facts of the case and the provisions of the Act under which action has to be taken. The High Court agreed with the Tribunal's view that four years would be a reasonable period for initiating proceedings under Section 201 of the Act.

Issue 2: Liability to pay interest under Section 201(1A) of the Income Tax Act for not deducting TDS

The second issue pertains to the liability to pay interest under Section 201(1A) of the Income Tax Act for not deducting TDS. The relevant sub-section (1A) of Section 201, as it stood at the relevant time, provided that interest would be payable from the date on which such tax was deductible, i.e., the date when payment was made by the assessee to the Recipient, till the date on which such tax was actually paid, i.e., tax was deposited by the Recipient. The High Court noted that the provision for tax deduction at source is a mechanism for collection of tax by the payer, even though the liability to pay tax is that of the Recipient. The provision for payment of interest under sub-section (1A) of Section 201 is compensatory in nature and cannot be a means to penalize the payer.

The High Court held that interest cannot be charged for the period beyond the date when such tax has already been deposited by the Recipient. If the Revenue is permitted to charge interest even after the Recipient has deposited the tax, it would amount to undue enrichment of the Revenue. The High Court referred to the Division Bench's decision in Solar Automobiles India (P) Ltd Vs Deputy Commissioner of Income Tax, which held that the liability of the assessee to pay interest ceases from the day the tax is paid by the Recipient.

Conclusion:

Both questions of law were answered in favor of the assessee and against the Revenue. The appeal was dismissed without any order as to costs.