2016 (4) TMI 1048 - AT - Income Tax

TDS u/s 192 - Non deduction of tds - assessee in default in respect of salary remaining unpaid to its employees till the end of the relevant assessment year - Held that - In view of the express provision of S. 192, the Assessee cannot be deemed to be in default under S. 201(1) and S. 201(1A) to this extent. The liability to deposit sum, not deducted or collected, with the Govt. treasury does not arise under Chapter XVII-B of the Act read with Rule 30(2) of the Income Tax Rules 1962. Thus, the action of the Assessing Officer under section 201(1) & 201(1A) imposing liability towards unpaid salary is without authority of law. As a sequel to these aforesaid observations, We do not find any merit in the plea of the Revenue that liability to deposit the tax arises simply because provision thereof has been made in the books of account. It is trite that the determination of tax liability depends upon the provisions of law relating to it and mere book entries made in this regard are not conclusive. As a corollary, patent mistake has been committed by the AO in applying the statutory provisions of S. 192 while framing impugned order which is rectifiable under S. 154. In this view of the matter, we direct the Assessing Officer not to hold the assessee as assessee in default under section 201(1) & 201(1A) of the Act in respect of TDS liability attributable to unpaid salary. While computing the revised liability for default under S. 201(1) & 201(1A), however, the Assessing Officer shall be at liberty to satisfy himself about the arithmetical correctness of quantum of outstanding salary remaining unpaid at the end of the year qua the total salary expenditure incurred by the Assessee in pursuit of its own business for the year in consideration and shall give suitable relief in terms of direction above.

Summary

Issues:
1. Whether the assessee is liable for TDS on unpaid salary and is in default under section 201(1) & 201(1A) of the Income Tax Act, 1961.
2. Whether the authorities correctly applied the provisions of section 192 of the Act in determining the default.

Analysis:
1. The appeal concerned the rejection of the assessee's petition seeking rectification of an order passed under section 201(1) & 201(1A) of the Act related to the assessment year 2009-10. The Assessing Officer (TDS) had imposed TDS liability on the assessee for defaults under Chapter XVII-B, specifically regarding salary expenses remaining unpaid. The assessee contended that no default should be attributed to the unpaid salary as per section 192. The Assessing Officer rejected the application under section 154, citing that unpaid salary should reflect as a liability in the Balance Sheet. The CIT(A) upheld this decision, emphasizing the statutory obligation to pay deducted tax to the Government. The ITAT Pune, after reviewing the case, sided with the assessee, stating that TDS liability under section 192 arises only upon actual payment of salary, not on mere book entries. The tribunal directed the Assessing Officer not to hold the assessee in default for TDS on unpaid salary, emphasizing the need for arithmetical correctness in determining the outstanding salary.

2. The key issue revolved around the correct application of section 192 of the Act. The assessee argued that the liability to deduct tax arises only when salary is paid, not when recognized in books. The tribunal agreed, citing precedents and the clear language of section 192. It noted that the provision of unpaid salary in the Balance Sheet does not automatically trigger TDS liability. The tribunal highlighted that the determination of tax liability must align with legal provisions and not solely rely on book entries. The Assessing Officer's error in applying section 192 incorrectly led to the rectification order. The tribunal allowed the assessee's appeal, emphasizing the statutory requirement for TDS only upon actual payment of salary, not on unpaid amounts reflected in the Balance Sheet.