2016 (5) TMI 154 - AT - Income Tax

Levy of interest under sec. 201(1A) - non deduction of tds u/s 192 - period of computation of interest - Held that - A simple reading of sec. 192(1) makes it clear that it specified the manner and rates at which tax shall be deducted. Sub sec. (3) of sec. 192 provides for adjustment of excess or deficiency within the financial year, not only in the cases of short deduction and also for failure to deduct during the financial year. The object and purpose of Sub section (3) is to permit the deductor to adjust the short or excess deduction in the financial year. Therefore, sub sec. (3) abundantly makes it clear that if failure to deduct tax, the same can be deducted by way of adjustment during the financial year. Similarly, section 201(1A) provides for computation of income from the date it was deductible to the date of such deduction or payment as the case may be. A conjoint reading of sec. 192(1) and 192(3) along with section 201(1A) makes it clear that liability to interest arises only, when such tax was deductible as per sub sec. (3) of section 192 and not as per sub sec. (1) of sec. 192 of the Act. Therefore, we are of the opinion that, interest u/s 201(1A) is payable from the 1st day of April of subsequent year. - Decided against the revenue.

Issues Involved:

1. Non-deduction of TDS on pension payments.
2. Levy of interest under Section 201(1A) of the Income Tax Act, 1961.
3. Period of computation of interest under Section 201(1A).
4. Adjustment of TDS liability under Section 192(3) of the Income Tax Act, 1961.

Detailed Analysis:

1. Non-deduction of TDS on Pension Payments:

The brief facts of the case are that the assessee, a university established under an act of state legislature, was found during a survey operation under Section 133A of the Income Tax Act, 1961, to have not deducted TDS on pension payments to its pensioners. The Assessing Officer (A.O.) passed an order under Sections 201(1) and 201(1A) on 6-1-2012, raising a demand of tax and interest amounting to ?62,36,410/-. After rectification applications under Section 154, the demand was reduced to ?12,47,485/- under Section 201(1) and ?8,48,585/- under Section 201(1A).

2. Levy of Interest under Section 201(1A):

The assessee challenged the levy of interest under Section 201(1A) before the Commissioner of Income-tax (Appeals) [CIT(A)]. The CIT(A) held that interest is leviable even in cases where the deductee has paid the taxes and filed a return of income, relying on the judgment of the Hon’ble Supreme Court in Hindustan Coca Cola Beverages (P) Ltd vs CIT, 293 ITR 226, and Board Circular No. 275/201/95-IT(B) dated 29-1-1997. The CIT(A) directed the A.O. to re-compute the interest under Section 201(1A).

3. Period of Computation of Interest under Section 201(1A):

The CIT(A) held that the liability to deduct TDS arises only when there is a tax liability for the deductee, and thus, the interest liability under Section 201(1A) should be computed from the month in which the income of the deductee exceeds the basic exemption limit. The A.O. had levied interest by dividing the total taxes by 12 and calculating the interest, which was contested by the assessee as not being in accordance with the provisions of Section 192(3) of the Act.

4. Adjustment of TDS Liability under Section 192(3):

The assessee argued that the CIT(A) was justified in holding that the TDS liability cannot be divided by 12 and distributed evenly over the year for the purpose of computation of interest under Section 201(1A). Section 192(3) provides for adjustment of TDS liability in cases where any excess or deficiency arises out of any previous deduction or failure to deduct during the financial year. The Tribunal held that any shortfall in deduction of TDS or total failure to deduct TDS can be adjusted at the end of the financial year, in view of Section 192(3) of the Act. The liability to pay interest under Section 201(1A) arises only when such tax is deductible to the date of such tax deduction or payment as the case may be.

Conclusion:

The Tribunal concluded that interest on failure to deduct TDS under Section 192(1) is payable from the first day of April of the subsequent year. The A.O. was directed to compute the interest from the first day of April to the date of payment of taxes by the deductee-assessee in cases where the deductees have paid the taxes. In the case of other deductees, the interest liability shall be computed from the first day of April to the date of the order under Section 201(1) of the Act.

Judgment:

The appeals filed by the revenue were dismissed, and the cross-objections filed by the assessee were partly allowed. The order was pronounced in the open court on 31st March 2016.

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