2016 (2) TMI 509 - AT - Income Tax

Short deduction of tax at source - non deducting tax at appropriate rate - Held that - We direct the Assessing Officer to verify whether taxes have been paid by the payees in respect of the amount received by them from the assessee and if upon such verification it is found that the deductees have paid tax on the amount received by them from the assessee cannot be treated as an assessee in default. - Decided in favour of assessee for statistical purposes. Liability to pay interest under section 201(1A) - Held that - As held by the Hon ble Supreme Court in Hindustan Coca Cola Beverage (P.) Ltd. (2007 (8) TMI 12 - SUPREME COURT OF INDIA ), assessee is liable to pay interest under section 201(1A) till the date of payment of taxes by the deductees on the income received by them from the deductor assessee

Summary

Issues:
1. Short deduction of tax at source leading to the assessee being treated as "assessee in default" under section 201 of the Act.
2. Levying of interest under section 201(1A) of the Act.

Analysis:

Issue 1: Short deduction of tax at source
The assessee appealed against the order of the Assessing Officer treating them as "assessee in default" due to short deduction of tax at source. The assessee argued that the short deduction was unintentional and that the recipients had already paid taxes on their income, thus recovering tax twice would be unjust. The confirmation letters from the recipients indicated that they had declared the received amounts as income and paid taxes. The Commissioner (Appeals) upheld the Assessing Officer's decision, stating that the confirmation letters did not specify if taxes were paid and the date of payment. The Tribunal disagreed, citing the principle from Hindustan Coca Cola Beverage (P.) Ltd. v/s CIT, [2007] 293 ITR 226 (SC), that if deductees have declared income and paid taxes, the assessee cannot be treated as "assessee in default." The Tribunal directed the Assessing Officer to verify if taxes were paid by the recipients based on the details provided by the assessee.

Issue 2: Levying of interest under section 201(1A)
The assessee contested the levy of interest under section 201(1A) of the Act. The Tribunal held that the liability to pay interest remains regardless of whether the deductees paid taxes on the received income. Citing Hindustan Coca Cola Beverage (P.) Ltd. (supra), the Tribunal stated that the assessee is liable to pay interest until the deductees pay taxes on the income received. Consequently, the appeal on this ground was dismissed.

In conclusion, the appeal was partly allowed for statistical purposes, with the Tribunal directing the Assessing Officer to verify tax payments by the recipients and dismissing the appeal regarding the interest levied under section 201(1A) of the Act.