2018 (9) TMI 531 - AT - Income Tax

Levy of interest u/s 201(1A) - failure to deduct TDS u/s 194J - payments made by the assessee herein have been included in the income of the deductees and taxes paid thereon. - additional ground of appeal - assessee in default - Held that - AO in his assessment order had categorically recorded that the assessee has been given several show cause notices in the course of assessment proceedings stating as to why it should not be treated as an assessee in default u/s 201(1)and consequential charging of interest u/s 201(1A). The assessee had even replied to the said show cause notices. AO after examining the replies of the assessee and the evidences filed on record, concluded that the assessee cannot be treated as an assessee in default u/s 201(1) but however charged interest u/s 201(1A) for the delayed period of remittance of tax dues to the exchequer. Hence the additional ground of appeal raised by the assessee is devoid of any merit and is hereby dismissed. We find lot of force in this argument of the AR in as much as the interest u/s 201(1A) of the Act is only compensatory in nature and the Government should be compensated for the delayed remittance of TDS from the date of default by the deductor to the actual date of remittance of taxes by the deductees. Accordingly, we direct the AO to recomputed the interest u/s 201(1A) of the Act accordingly. There is no choice available to the revenue and interest u/s 201(1A) is to be mandatorily charged for the delayed period of remittance and is automatic in nature. It is not in dispute before us that the tax is required to be deducted by assessee TPA on payments made to hospitals. Hence we are not inclined to agree with the argument of the AR in this regard. We hold that the AO had rightly levied interest u/s 201(1A) in the instant case. With regard to the calculation of interest u/s 201(1A) we have already directed the AO to re-compute the said interest upto the date of actual remittance of taxes by the deductees and not upto the date of filing of return of income by the deductees. Appeal of the assessee is partly allowed for statistical purposes

Summary

Issues:
1. Levy of interest u/s 201(1A) of the Income Tax Act, 1961 on the Assessee.

Analysis:
The appeal before the Appellate Tribunal ITAT Kolkata centered around the issue of whether the Assessee could be charged with the levy of interest u/s 201(1A) of the Income Tax Act. The Assessee, a company functioning as a Third Party Administrator (TPA) for health insurance, made payments to hospitals without deducting TDS. The Assessing Officer (AO) charged interest u/s 201(1A) for the delay in tax remittance by the deductees, despite finding that the Assessee was not an 'assessee in default' u/s 201(1) of the Act. The AO relied on a decision of the Karnataka High Court regarding TPA's obligation to deduct tax at source. The Assessee contended that interest should only be charged until the date of actual tax remittance by deductees, not until the filing of the income tax return. The Tribunal directed the AO to recompute the interest accordingly.

The Assessee raised an additional ground of appeal, arguing that show cause notices were not issued before charging interest u/s 201(1A). However, the Tribunal found that the AO had issued several show cause notices during assessment proceedings, and the Assessee had replied to them. The Tribunal dismissed this ground, affirming the charging of interest. The Assessee also argued that since it was not an 'assessee in default' u/s 201(1), interest u/s 201(1A) should not have been levied. The Tribunal clarified that interest u/s 201(1A) is mandatory and compensatory, independent of section 201(1), and directed the AO to recompute the interest up to the date of actual tax remittance by deductees.

In conclusion, the Tribunal partly allowed the Assessee's appeal for statistical purposes, emphasizing the mandatory nature of interest u/s 201(1A) for delayed tax remittance by the Assessee. The judgment highlighted the importance of complying with TDS obligations and the specific calculation of interest under the Income Tax Act.