2016 (6) TMI 887 - AT - Income Tax

Non deduction of tds u/s 195 - Interest under section 201(1) - sole contention of the assessee had been that since return have been filed by the payee/deductee and taxes/interest under section 234A B and C have been paid therefore department have been compensated. Hence no interest should be charged - Held that - The contention of the assessee is not tenable because charging of interest under section 201(1A) and interest charged under section 234A 234B and 234C of the Act operate in under different fields of the Income Tax Act. There might not have been any loss to the revenue in terms of tax but the revenue have to be compensated for the delay in payment of taxes to the exchequer. The charging of interest under section 201(1A) since is mandatory therefore no interference is required in the matter. - Decided against assessee

Summary

Issues involved:
Challenging orders under section 201(1A) of the Income Tax Act for assessment year 2009-10 due to failure to deduct tax at source while making payment to non-residents.

Detailed Analysis:

Issue 1: Failure to deduct tax at source
The assessee, along with another party, purchased a property from non-residents without deducting tax at source as required under Section 195 of the Income Tax Act. The Assessing Officer initiated proceedings under section 201/201(1A) due to this failure. The seller later paid the tax on capital gains, but the assessee was held liable for interest under section 201(1A) as per the judgment in Hindustan Coco Cola case. The contention that no interest should be recovered since the seller paid the tax was rejected by the authorities.

Issue 2: Liability to pay interest
The ld. CIT(Appeals) upheld the charging of interest under section 201(1A) as a compensatory measure, distinct from interest under sections 234A, 234B, and 234C. The appellant's plea that the interest was penal in nature was deemed unfounded. The Hon'ble Supreme Court's decision in Hindustan Coca Cola case emphasized the mandatory nature of interest under section 201(1A) until the deductee pays the tax. The liability to pay interest was upheld based on the vicarious liability of the assessee.

Issue 3: Appeal and Dismissal
The assessee challenged the orders of the authorities, arguing that since the seller paid the tax, no interest should be charged. However, the authorities maintained that interest under section 201(1A) was mandatory and correctly charged. The Hon'ble Supreme Court's decisions supported the charging of interest until the deductee pays the tax. The appeals were dismissed based on the findings and legal precedents cited, upholding the liability of the assessee to pay interest under section 201(1A) from the date of deductibility to the date of payment by the deductee.

Conclusion:
The appeals by the assessees were dismissed as the liability to pay interest under section 201(1A) was upheld based on the failure to deduct tax at source, even though the seller eventually paid the tax. The legal precedents and judgments cited supported the mandatory nature of interest under section 201(1A) until the tax was paid by the deductee, leading to the dismissal of the appeals.