2016 (10) TMI 399 - HC - Income Tax

Imposition of interest under Sections 234B and 234C - liability to deduct tds - Held that - The primary liability of deducting tax for the period concerned since the law has undergone a change after Finance Act, 2012 is that of the payer. The payer will be an assessee in default, on failure to discharge the obligation to deduct tax, under Section 201 of the Income Tax Act, 1961. Following GE Packaged Power Inc. (2015 (1) TMI 1168 - DELHI HIGH COURT ) it must be said that since the primary liability of deducting tax for the concerned period is that of the payer, the assessee is not liable to pay interest as charged by the settlement commission under Sections 234B and 234C of the Income Tax Act, 1961 and to such extent such demand is, therefore, set aside. - Decided in favour of assessee

Summary

Issues:
Challenge to order of settlement commission regarding imposition of interest under Sections 234B and 234C of Income Tax Act, 1961.

Analysis:
The petitioner contested an order by the settlement commission primarily focusing on the imposition of interest under Sections 234B and 234C of the Income Tax Act, 1961. The petitioner argued that they should not be held liable for interest due to defaults of the deductor during the relevant period. Reference was made to a Division Bench judgment of the Delhi Court which favored the assessee in a similar scenario. The court considered the arguments presented by both parties and examined the materials on record.

The key issue addressed in the referenced case was whether interest should be imposed on the assessee under Section 234B for nonpayment of advance tax. The Revenue contended that the assessee's denial of tax liability led to the payer refraining from deducting tax, thus justifying interest imposition. However, the assessee argued that the obligation to deduct tax at source rested with the payer, and their failure should not result in interest liability for the payees. The court held that the primary liability to deduct tax for the relevant period lay with the payer, as per changes in the law post Finance Act, 2012. Consequently, the assessee was not liable to pay the interest imposed by the settlement commission under Sections 234B and 234C of the Income Tax Act, 1961, aligning with the decision in the GE Packaged Power Inc. case.

The court, following the precedent set by the GE Packaged Power Inc. case, set aside the demand for interest under Sections 234B and 234C. However, the department was not restricted from taking action as per the directions outlined in paragraph 23 of the GE Packaged Power Inc. judgment specific to the present case. The court disposed of the writ petition with these directives, clarifying the stance on interest liability in cases where the primary responsibility for tax deduction lies with the payer.