2017 (11) TMI 1717 - HC - Income Tax

TDS u/s 195 - levy of interest u/s 201(A) - assessee failed to deduct tax at source as mandatorily required u/s 195 and wrongly gave benefit of the orders u/s 195/197 of the Act, beyond the amount and period of their validity? - Interest on the amount of tax which had already been paid on the due date - Held that - In the instant case Ravi Builder, on whose behalf the tax was to be paid by the assessee, had duly paid its tax and was not required to pay any tax to the Revenue in respect of the income earned by it from the assessee. If the tax was duly paid and that too at the time when it had become due, it would not be proper on the part of the Revenue to levy any interest under Section 201(1A) of the Act especially when Ravi Builder had paid more amount of tax by way of advance tax than what was payable by it. As the amount of tax payable by the contractor had already been paid by it and that too in excess of the amount which was payable by way of advance tax, in our opinion, the Tribunal was absolutely right in holding that the tax paid by the contractor in its own case, by way of advance tax and self-assessment tax, should be deducted from the gross tax that the assessee should have deducted under Section 194C while computing interest chargeable under Section 201(1A). If the Revenue is permitted to levy interest under the provisions of 201(1A), even in a case where the person liable to pay the tax has paid the tax on the date due for the payment of the tax, the Revenue would derive undue benefit or advantage by getting interest on the amount of tax which had already been paid on the due date. Such a position, in our opinion, cannot be permitted. - Decided in favour of assessee.

Summary

Issues:
1. Interpretation of Section 201(1A) of the Income Tax Act regarding the levy of interest for failure to deduct tax at source.
2. Justification of the Tribunal's decision to delete the levy of interest under Section 201(1A) of the Act.
3. Comparison of various High Court judgments regarding the interpretation of Section 201(1A) and the liability to pay interest for delayed payment of tax.

Issue 1: Interpretation of Section 201(1A) of the Income Tax Act
The appellant challenged the Tribunal's decision to delete the levy of interest under Section 201(1A) of the Income Tax Act for failing to deduct tax at source as required by law. The appellant contended that the Tribunal erred in its interpretation. The appellant cited the decision of the Delhi High Court in the case of Commissioner of Income Tax vs. American Express Bank Ltd. to support their argument. The High Court held that the proviso to Section 201(1) of the Act, which concerns good and sufficient reasons for not deducting and paying tax, does not absolve the assessee from being considered as an "assessee in default" under Section 201(1). The High Court set aside the Tribunal's finding and ruled in favor of the Revenue on this matter.

Issue 2: Justification of the Tribunal's Decision
The Tribunal had justified the deletion of the levy of interest under Section 201(1A) of the Act based on its interpretation of the law. The appellant relied on the decision of the Bombay High Court in the case of Pentagon Engineering Pvt. Ltd. to argue that Section 201(1A) is mandatory and does not require consideration of reasonable cause for non-payment of taxes deducted under Section 192 of the Act. The High Court agreed with the Tribunal's interpretation, emphasizing that the use of the word "shall" in Section 201(1A) makes the liability to pay interest mandatory without the precondition of considering a reasonable cause for non-payment. The High Court upheld the Tribunal's decision in this regard.

Issue 3: Comparison of Various High Court Judgments
The High Court compared and analyzed various High Court judgments to determine the correct interpretation of Section 201(1A) and the liability to pay interest for delayed payment of tax. The Court considered the decisions of the Gauhati High Court, Gujarat High Court, and Rajasthan High Court in different cases. The Court highlighted that the Gauhati High Court emphasized the payment of interest for delayed tax payment without imposing any restrictions, while the Gujarat High Court ruled that if the tax was duly paid when due, interest under Section 201(1A) should not be levied. The High Court cited the Rajasthan High Court's decision, which supported the deletion of interest under Section 201(1A) after due verification by the Assessing Officer. Ultimately, the High Court concluded that the appeal lacked merit and deserved dismissal, upholding the view in favor of the assessee and against the department, based on the concurrent findings of the authorities.

In conclusion, the High Court addressed the issues surrounding the interpretation of Section 201(1A) of the Income Tax Act and the deletion of interest under this section. The Court analyzed relevant case laws and upheld the Tribunal's decision to delete the levy of interest under Section 201(1A) in favor of the assessee.