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2016 (8) TMI 1474 - AT - Income TaxInterest u/s 201(1A) - failure of the Appellant to deduct tax at source even when the deductee was not liable to pay Income Tax on account of losses - HELD THAT - In the instant case, it is proved beyond doubt that the deductee does not have any liability to pay tax as could be evident from the scrutiny assessment order u/s 143(3) of the Act for the Asst Year 2004-05 enclosed in pages 50 to 52 of the paper book. This fact was also placed by the assessee before the ld AO and he had also noted the same in the assessment order. We hold in the instant case, there is no tax due to the exchequer and accordingly there is no question of compensating the same by way of interest. We find that this aspect is also dealt by the Hon ble Supreme Court in the case of CIT s Eli Lilly Company (India) (P) Ltd Ors 2009 (3) TMI 33 - SUPREME COURT - Decided in favour of assessee.
Issues Involved:
1. Whether interest under Section 201(1A) of the Income Tax Act, 1961, could be charged in the facts and circumstances of the case. 2. Whether the appellant could be treated as 'assessee in default' under Section 201(1) of the Act. 3. Whether the proceedings initiated and the impugned order are barred by limitation. Issue-Wise Detailed Analysis: 1. Interest under Section 201(1A): The primary issue was whether interest under Section 201(1A) of the Act could be charged when the deductee (subsidiary company) had no tax liability due to losses. The appellant argued that since the deductee had incurred significant losses and had no resultant tax liability, interest should not be charged. The Revenue, however, maintained that interest was compensatory and should be charged for the period until the deductee filed its return, even if the deductee had no tax liability. The tribunal concluded that interest under Section 201(1A) is compensatory and is charged to compensate for the delay in payment of taxes. Since there was no tax liability for the deductee, the appellant could not be treated as an 'assessee in default,' and thus, no interest under Section 201(1A) could be charged. 2. Assessee in Default under Section 201(1): The tribunal examined whether the appellant could be treated as an 'assessee in default' under Section 201(1). The appellant contended that it had full knowledge of the deductee's financial status (being a 100% subsidiary) and that the deductee had no tax liability. The tribunal held that for an assessee to be treated as 'in default,' there must be a tax liability due to the government. Since the deductee had no tax liability due to its losses, the appellant could not be treated as an 'assessee in default.' The tribunal emphasized that the primary condition for treating the payer as 'assessee in default' is the existence of a tax liability, which was absent in this case. 3. Proceedings Barred by Limitation: The appellant argued that the proceedings were barred by limitation. However, the tribunal did not find it necessary to delve deeply into this issue, as the primary grounds were already decided in favor of the appellant based on the lack of tax liability and the resultant non-applicability of interest under Section 201(1A). Conclusion: The tribunal allowed the appeal, holding that the appellant could not be treated as 'assessee in default' and that no interest under Section 201(1A) could be charged due to the absence of any tax liability for the deductee. The tribunal's decision was based on the principle that interest is compensatory and can only be charged when there is a tax liability, which was not the case here. The appeal was thus allowed, and the order pronounced on 03.08.2016.
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