2017 (1) TMI 1681 - HC - Income Tax

Liability of interest of Assessee u/s 201(1A) - Tribunal held that deductor is not liable for interest under Section 201(1A) if the deductee has returned losses for relevant years and it will not make any difference if the assessment of the deductee was completed at positive income - HELD THAT - If it is established that the recipient had filed all its returns for these years declaring loss in all the impugned assessment years, interest under Section 201 (1A) of the Act cannot be charged against the assessee. It may be that against loss declared by the recipient in its return, ultimately the assessment was completed at a positive income but in that situation also, that demand is on account of different between the returned income and assessed income and not because of non deduction of TDS by the assessee and hence it will not alter the situation particularly if that assessee has challenged the addition in his hands in appeal. Accordingly the order of the CIT(A) on this issue is set aside and the matter is restored to the file of the Assessing Officer for verification and adjudication of the issue in terms indicated above after affording an opportunity of being heard to the assessee. If it is found that in the return of income filed for these years by the deductee, it has included the impugned amount in its receipts and there is loss as per return, no demand can be raised u/s 201(1A) on the present assessee Question about liability of interest under Section 201(1A) has also been considered by this Court in Ghaziabad Development Authority Vs. Union of India and others 2016 (8) TMI 1240 - ALLAHABAD HIGH COURT wherein it has been held that it is compensatory and if recipient Assessee has already paid tax or not liable to pay any tax whatsoever, obviously no interest under Section 201(1A) of Act, 1961 could have been recovered from alleged Assessee in default for the reason that interest could have been charged for the period when TDS fell due and actual amount of tax is paid by recipient -Assessee. If there is no liability of payment of tax by recipient -Assessee, the question of deduction of tax by Assessee in default would not arise and the question of payment of tax by such recipient- Assessee also would not arise. In such case interest also could not have been charged. Hence, on the question of liability of interest, Tribunal has rightly observed that this aspect shall be examined by Assessing Officer and thereafter he shall pass a fresh order.

Summary

Issues:
Liability of interest under Section 201(1A) of the Income Tax Act, 1961 based on deductee's returns showing losses and subsequent positive assessments.

Analysis:
The appeals stemmed from a common judgment by the Income Tax Appellate Tribunal (referred to as the "Tribunal"), questioning the deductor's liability for interest under Section 201(1A) of the Income Tax Act, 1961. The primary issue revolved around whether the deductor is liable for interest if the deductee declared losses in their returns, even if the final assessment showed positive income. The Tribunal emphasized the need for evidence to substantiate the deductee's losses and highlighted that if the deductee indeed declared losses, the deductor would not be liable for interest under Section 201(1A). The Tribunal ordered the matter to be referred back to the Assessing Officer for further verification and adjudication.

Additionally, the Court referred to a previous case, Ghaziabad Development Authority Vs. Union of India, where it was established that interest under Section 201(1A) is compensatory and should only be charged if the recipient-assessee is liable to pay tax. If the recipient has already paid the tax or is not obligated to pay any tax, then no interest should be recovered from the alleged assessee in default. The Court concurred with the Tribunal's decision to have the Assessing Officer reexamine the issue of interest liability based on the recipient's tax liability status.

In conclusion, the Court upheld the Tribunal's decision, dismissing all appeals and directing the Assessing Officer to reevaluate the liability of interest under Section 201(1A) in accordance with the Tribunal's directions.