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Issues involved: Interpretation of provisions of the Income Tax Act regarding deduction of tax at source and jurisdiction of the Income Tax Officer under section 201.
Summary: The High Court of Madhya Pradesh considered a reference under section 256(1) of the Income Tax Act, 1961. The case involved the Manager of a cooperative bank who filed an annual return of salary income for employees, but the Income Tax Officer found discrepancies in tax deductions for 23 employees. The Commissioner of Income Tax (Appeals) set aside the order of the Income Tax Officer, leading to a second appeal before the Income-tax Appellate Tribunal. The Tribunal held that if an employee's assessment is completed and tax fully paid, the Income Tax Officer has no jurisdiction under section 201 to demand further tax from the employer for tax short deducted. In its analysis, the Court referred to the charging section of the Income Tax Act, which mandates income tax to be charged for every assessment year. Section 192 requires deduction of income tax at source for salaries, and section 201 deems a person in default if tax is not deducted or paid. The Court noted that the employer had deducted tax at source, but the Income Tax Officer was dissatisfied with the deductions considered during tax computation. Since the employees' assessments were completed and tax fully paid by them, the Income Tax Officer could not demand additional tax from the employer for the employees' income. Ultimately, the Court upheld the Tribunal's decision, stating that the Income Tax Officer had no jurisdiction under section 201 to demand further tax from the employer when the employees' assessments were finalized and tax fully paid. The question was answered in favor of the Tribunal, and no costs were awarded.
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