2021 (2) TMI 442 - AT - Income Tax

TDS u/s 194A - Demand u/s. 201(1) and u/s. 201(1A) - non deduction of TDS against the interest credited/paid to the customer by the bank - bank as an assessee in default for not deducting TDS and took up the case of two customers (i) Shri Debabrata Hati and (ii) Smt. Kamala Nag - AO acknowledges that both the customers have filed Form 15G as provided u/s. 197A(1)/1A and read with Rule 29C and was of the opinion that since the interest amount exceeded the threshold limit of taxable income, the AO declared assessee bank as an assessee in default - THAT - As both the customers against whom the AO has found that the assessee bank failed to deduct tax have duly reflected and shown the entire interest income in their respective return of income for AYs 2014-15 and 2015-16 and has remitted the tax on it, then in such a scenario the assessee bank cannot be held to be an assessee in default. However, according to the AO, the assessee did not fulfill the conditions specified as per the first proviso to section 201 of the Act. In the light of the discussion, we set aside the order of the Ld. CIT(A) and remand the issue back to the file of the AO and direct the appellant bank to furnish the documents as required under first proviso to section 201 of the Act and if the assessee files the same before the AO; and if the AO is satisfied that both the customers have shown their interest income received from the assessee bank in their respective Return of Income and they have remitted the tax on it, then the assessee bank should not be treated as an assessee in default. - Appeals of the assessee are allowed for statistical purposes.

Summary

Issues:
Delay in filing appeals, non-deduction of TDS by the bank, applicability of section 201 of the Income-tax Act, 1961, consequences of failure to deduct or pay tax, conditions to avoid being deemed an assessee in default, relevance of Form 15G/15H, interpretation of the first proviso to section 201, legal implications of the case.

Delay in Filing Appeals:
The judgment addresses a delay of 224 days and 202 days in filing appeals for Assessment Years 2014-15 and 2015-16, respectively. The assessee filed a condonation petition, citing reasons for the delay, which was not objected to by the Ld. DR. The delay was condoned, and the appeals were admitted for hearing.

Non-Deduction of TDS by the Bank:
The case involves a Public Sector bank that failed to deduct tax at source on interest payments made to customers, resulting in a demand raised by the AO under section 201(1) and 201(1A) of the Act. The AO declared the bank as an assessee in default for not deducting TDS when interest exceeded the taxable income threshold. The bank's failure to furnish Form 26A was noted by the AO.

Applicability of Section 201 of the Income-tax Act:
Section 201 outlines the consequences of failure to deduct or pay tax. The judgment emphasizes that a payer should not be deemed an assessee in default if the payee meets specific conditions, including filing a return of income, accounting for the sum in the return, paying due taxes, and providing a certificate from an accountant. The first proviso to section 201, introduced in 2012, states that if the payee has already paid tax on the income received, the payer cannot be treated as an assessee in default.

Interpretation of the First Proviso to Section 201:
The judgment relies on the decision of the Hon'ble Supreme Court in Hindusthan Co-cola Breverages Ltd. Vs. CIT to establish that if the payee has paid tax on the income received, the payer cannot be considered an assessee in default. The AO's contention that the bank did not fulfill the conditions specified in the first proviso was addressed by setting aside the Ld. CIT(A)'s order and remanding the issue back to the AO.

Legal Implications of the Case:
Ultimately, the appeals of the assessee were allowed for statistical purposes. The judgment highlights the importance of fulfilling the conditions specified in the first proviso to section 201 to avoid being deemed an assessee in default. It emphasizes the significance of payees meeting tax obligations to prevent the payer from facing default consequences.

This detailed judgment addresses issues related to the delay in filing appeals, non-deduction of TDS by a bank, the applicability of section 201 of the Income-tax Act, the interpretation of the first proviso to section 201, and the legal implications of the case. It underscores the conditions that must be met to avoid being deemed an assessee in default and emphasizes the importance of payees fulfilling tax obligations to prevent adverse consequences for the payer.