2016 (2) TMI 1361 - AT - Income Tax

TDS u/s 194A - reversal of TDS deducted on submission of relevant Forms - As per revenue Form 15H was not filed at the time of either payment of interest or credit of interest - According to the ld. DR, there is no provision in the Income-tax Act, 1961 to refund the tax deducted by the deductor - assessee claims that it received Form 15H from the respective depositors and accordingly, the tax deducted was credited to the respective accounts by making a reversal entry - HELD THAT - Before the due date for depositing of the funds the assessee has received Form 15H, therefore, there was a statutory obligation on the part of the assessee to forward the Form 15H to the respective Commissioners. At the best, it can be said that there was a delay on the part of the respective depositors in filing Form 15H. When the recipients of the interest are not liable for taxation under the Income- tax Act, 1961 or they have filed the return of income and paid the taxes on the interest income, naturally, the assessee is not liable to pay the tax deducted u/s 201 of the Act. When the recipients have no liability to pay tax, the question of payment of interest does not arise for consideration. As observed by the CIT(A), it has to be verified whether the recipients had paid the taxes if at all they are liable for taxation. It is also to be verified whether the recipients have any taxable income in the light of Form 15H filed before the assessee. Accordingly, the orders of the lower authorities are modified and the AO is directed to examine whether the recipients have any taxable income or not. If they have taxable income it also needs to be verified whether they have paid taxes on the interest paid by the assessee and thereafter, the Assessing Officer shall decide the matter in the light of the observation made by this Tribunal in this order. Appeal of the assessee is partly allowed.

Summary

Issues involved:
1. Non-deduction of tax at source on interest payment to M/s V.S.V.N. Polytechnic under section 194A of the Income-tax Act.
2. Reversal of tax deduction entry due to Form 15H filed belatedly by senior citizens.
3. Dispute regarding the liability to deduct tax when recipients have no taxable income.
4. Interpretation of provisions related to refund of tax deducted at source.
5. Assessment of the correctness of the orders of lower authorities.

Issue 1: Non-deduction of tax at source on interest payment:
The Assessing Officer found that the assessee did not deduct tax at source on interest payments to M/s V.S.V.N. Polytechnic under section 194A of the Act. The bank remitted the entire TDS amount after the depositor was found ineligible for exemption. The Assessing Officer also noted that for other depositors, tax was deducted but reversed after Form 15G/15H filings. The CIT(A) upheld the Assessing Officer's decision, emphasizing that Form 15H should have been obtained at the time of payment/credit of interest.

Issue 2: Reversal of tax deduction entry due to belated Form 15H filings:
The appellant argued that tax deduction was made but later reversed due to Form 15H filings by senior citizens before the due date for depositing tax. The appellant contended that since the senior citizens had no taxable income and filed Form 15H, the reversal of entry was justified. The CIT(A) considered this as a case of non-deduction of tax rather than a refund, directing the appellant to remit the tax deducted.

Issue 3: Dispute over liability to deduct tax when recipients have no taxable income:
The Departmental Representative argued that if interest payment exceeds Rs. 10,000, tax must be deducted unless Form 15H is filed. As Form 15H was not filed at the time of payment or credit of interest, the appellant rightly deducted tax. The Departmental Representative contended that the reversal of entries amounted to a refund, which is not provided for in the Income-tax Act.

Issue 4: Interpretation of provisions related to refund of tax deducted at source:
The Tribunal considered the judgment in Hindustan Coca Cola Beverage(P) Ltd vs CIT and CBDT Circular, stating that when recipients pay taxes, deductors need not recover tax. The Tribunal noted that the reversal entry by the appellant indicated non-deduction of tax, not a refund. The Tribunal emphasized that the appellant's obligation was to forward Form 15H to the Commissioners.

Issue 5: Assessment of correctness of lower authorities' orders:
The Tribunal modified the lower authorities' orders, directing the Assessing Officer to verify if recipients had taxable income and paid taxes on interest income. It was stated that if recipients were not liable for taxation, the appellant was not required to pay tax deducted under section 201 of the Act. The Assessing Officer was instructed to decide the matter based on these observations.

In conclusion, the Tribunal partly allowed the appeal, emphasizing the importance of verifying recipients' taxable income and tax payments to determine the appellant's liability for tax deduction at source.