2019 (8) TMI 810 - HC - Income Tax

Levy of interest on the default u/s 201 - failure to deduct TDS in respect of a company in liquidation - deduction of tax at source on the interest paid by the appellant on the deposits made by the Official Liquidator appointed by the Patna High Court on behalf of the Company in liquidation - absence of any returns filed by the Official Liquidator declaring losses and/or filing of a certificate under section 197A to declare NIL income.- HELD THAT - There is no dispute that the interest on fixed deposit are chargeable to tax, the appellant was under duty to deduct the same in absence of any returns filed by the Official Liquidator declaring losses and/or filing of a certificate under section 197A to declare NIL income. That the fixed deposits generated an interest which constituted income of the company in liquidation and deductable to tax in absence of the documents/ certificate present to justify the non-deduction, the Bank was legally bound to discharge the obligation. The pleadings on record confirm that the appellant Bank was held the assessee in default in respect of the four depositors, namely, BIADA, IDA, the Bihar State Housing Board and the Official Liquidator of Patna High Court. The order of the Assessing Officer, the Assistant Commissioner of Income Tax at Annexure 1 passed in purported exercise of jurisdiction under sections 201(1) and 201(1A) of the Act gives the details of interest generated on deposits in each case as well as the tax deductable against the same. The statutory ladder through which the case has moved confirms that while a demand in its entirety on default of such deduction was raised by the Assistant Commissioner of Income Tax, the same was modified by the order passed under section 154 of the Act in view of the certificates of exemption submitted under section 197A by M/s BIADA and by M/s IDA. The matter moved in appeal as against the remaining two depositors i.e. the Bihar State Housing Board and the Official Liquidator and the Commissioner of Income Tax (Appeals) having noted the losses returned by the Bihar State Housing Board has interfered with the default of the appellant in not deducting tax and thus while modifying the demand in so far as tax element was concerned, the Commissioner of Income Tax (Appeals) upheld the interest chargeable thereon. The order passed by the assessing authority as it stood modified by the order passed under section 154 stood further modified but in so far as the issue in hand is concerned, the appellate authority bearing note of the interest generated of ₹ 44,76,182/- and in absence of any document or a certificate under section 197A found no infirmity in the order passed by the assessing authority and which view of the CIT (Appeals) has been affirmed by the Appellate Tribunal as well which in our considered opinion does not require any interference because in our opinion the appellant was definitely an assessee in default in not having deducted tax at source on the interest generated on the fixed deposits made by the Official Liquidator, Patna High Court in respect of the company in liquidation with the appellant Bank. In so far as the case in hand is concerned, there is absolutely nothing on record in form of return filed by the Liquidator or a certificate to such effect under section 197A of the Act which would justify the default by the appellant in deduction of tax at source on the interest generated on the deposits made by the Official Liquidator on behalf of the company in liquidation. The substantial question of law is answered accordingly.

Summary

Issues: Failure to deduct tax at source on interest generated on deposits made by various entities, liability of the appellant as an assessee in default under Section 201 of the Income Tax Act, 1961, interpretation of relevant provisions, applicability of tax deduction obligations on interest generated by the Official Liquidator, and consideration of exemptions under Section 197A.

Analysis:
1. Failure to Deduct Tax at Source: The case involves the appellant, a nationalized Bank, failing to deduct tax at source on interest generated on deposits made by entities like BIADA, IDA, Bihar State Housing Board, and the Official Liquidator of Patna High Court. The appellant's failure to deduct tax led to a demand being raised, including tax and interest payable, amounting to &8377; 48,89,749. The Assessing Officer confirmed the demand, and the Commissioner of Income Tax (Appeals) partially allowed the appeal, upholding the liability in the case of the Official Liquidator.

2. Liability as an Assessee in Default: The primary issue was whether the appellant could be considered an assessee in default under Section 201 of the Income Tax Act for failing to deduct TDS on interest generated by the Official Liquidator. The appellant argued that since the company in liquidation had no positive income, no tax liability arose. However, the respondent contended that the Bank had the obligation to deduct tax, regardless of the recipient's income status, citing relevant case law and provisions.

3. Interpretation of Relevant Provisions: The appellant's counsel referred to Sections 194A, 2(24), and 197A of the Act to support their argument that no tax was payable on the interest generated. They emphasized that the Bank believed in good faith that no tax was due, given the circumstances of the company in liquidation. However, the respondent argued that the Bank's duty was to deduct tax as per the Act, irrespective of the recipient's income status.

4. Applicability of Tax Deduction Obligations: The Court noted that the appellant was legally bound to deduct tax on interest generated, amounting to &8377; 44,76,182, in the absence of returns or certificates declaring losses or NIL income by the Official Liquidator. The statutory authorities confirmed the appellant's default in deducting tax, leading to the demand raised by the Assessing Officer.

5. Consideration of Exemptions under Section 197A: The case highlighted the importance of certificates under Section 197A to justify non-deduction of tax. While exemptions were granted in the case of BIADA and IDA based on such certificates, the default in the case of the Bihar State Housing Board and the Official Liquidator was upheld due to the lack of supporting documents or certificates.

6. Judicial Interpretation and Conclusion: The Court dismissed the appeal, affirming that the appellant was an assessee in default for not deducting tax at source on the interest generated by the Official Liquidator. The absence of returns or certificates from the Official Liquidator to support the appellant's non-deduction justified the decision, emphasizing the Bank's obligation to comply with tax deduction requirements under the Act.