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2022 (7) TMI 19 - AT - Income TaxDefault in payment of TDS - liability to pay interest - when the assessee is considered as in-default u/s. 201(1) - precondition - whether being not deemed to be in-default u/s. 201(1) would by itself result in being not deemed to be in-default u/s. 201(1A) of the Act? - assessee contested no tax was liable to be deducted as the payee-company had in fact suffered losses for each of the relevant years, i.e., after including the income received from the assessee, so that it (payee) was not liable to any tax u/s. 4, toward which the tax deduction at source is, seeking refund of both, the deposit of tax deducted at source (TDS) and interest paid for its delayed deposit. HELD THAT - The two provisions are to be therefore considered independently, i.e., in the given facts and circumstances of the case, on the terms specified therein, and an absence of any outstanding liability for tax deduction at source may not dilute or extinguish that toward interest, which sure is though compensatory in character. All the three components of interest find specification in the provision (s. 201(1A)) itself. The obligation to deduct and deposit tax at source is thus with reference to tax deductible, i.e., that liable to be deducted under the provisions of Chapter-XVII of the Act, which provides for a mechanism for a lower (including nil) deduction of tax at source u/s. 197. The fact of the payee company having incurred a loss, so that it was not liable to any tax for the relevant year/s, becomes, therefore, largely irrelevant as far as assessee-payer is concerned. As a corollary, while the tax liable to be deducted at source could be recovered from an assessee-payee, as indeed he is liable to (s.190 r/w s. 191), the interest liability (for delayed payment of tax) cannot. That is, while the liability to tax is a vicarious liability, even as clarified earlier by the Apex Court in Eli Lily Co. (I) Pvt. Ltd. ( 2009 (3) TMI 33 - SUPREME COURT that to interest is not. The position shall continue even post-amendment by way of proviso to s.209(1)(d) by Finance Act, 2012, w.e.f. 01/04/2012, i.e., AY 2012-13 onwards. This is as both the payee-deductee and the payer-deductor are separately liable to interest for default on delayed payment of advance tax and tax deductible at source u/ss. 234B and 234C and s. 201(1A) respectively. The liability to tax, incurred in either case, u/s. 4 r/w s. 190, being, however, in respect of the same tax, payment by either would serve as the terminus point for computing/working the liability to interest, even as clarified by the Apex Court in Hindustan Coca-Cola Beverages ( 2007 (8) TMI 12 - SUPREME COURT ). The question posed by the assessee-appellant at the beginning of the order, is, in light of the foregoing, answered in the negative. We are conscious, when we say so, that our answer may, perhaps be, or construed as, at variance with that by the Hon'ble jurisdictional High Court in IJM Ltd . ( 2017 (1) TMI 1713 - MADHYA PRADESH HIGH COURT , whose ruling is binding on us. We shall revert in this aspect, in some detail, later. Suffice here to say that our stating so is, with respect, based on the clear provisions of law, as explained by the Apex Court per its several decisions, some of which stand referred to. Assessee in-default u/s. 201(1) - whether the assessee is liable to refund of interest levied and deposited u/s. 201(1A) of the Act? - HELD THAT - as the assessee had been deemed to be in default u/s. 201(1) for such larger sums. We have already abundantly clarified that the tax deductible is only with reference to the tax liable to be deducted under the provisions of the Act and, therefore, any deduction in excess of the rate/s specified in the tax deduction certificate/s, which is separate for each year, cannot be regarded as tax liable to be deducted u/c. XVII-B. The date of issue of the certificate, as long as it falls within the relevant year or prior thereto, is immaterial. Any tax collected u/s. 201(1) in excess of this sum is not liable for compensatory interest u/s. 201(1A). Interest in excess of that computed thus is liable for refund along with interest u/s. 244A, even as held by the Hon'ble jurisdictional High Court 2020 (5) TMI 25 - MADHYA PRADESH HIGH COURT . The AO shall, for each of the years under reference, modify the order u/s. 201(1) 201(1A) accordingly, and toward which the assessee shall provide him the necessary details with dispatch, which the AO shall verify/cause to verify from his records. The AO shall also share the computation of the refund of interest u/s. 201(1A), and interest u/s. 244A thereon, with a view to avoid subsequent application/s u/s. 154 in the matter. Any unresolved difference, if any, shall be spelt out by the AO per a speaking order. The AO shall, considering the time lapsed, shall complete the process latest by 31/10/2022. We decide accordingly.
Issues Involved:
1. Liability under Section 201(1) and Section 201(1A) of the Income Tax Act, 1961. 2. Whether the assessee is deemed to be in default under Section 201(1) if the payee is assessed at a loss. 3. Interest liability under Section 201(1A) in the absence of liability under Section 201(1). 4. Refund of interest paid under Section 201(1A). Detailed Analysis: 1. Liability under Section 201(1) and Section 201(1A) of the Income Tax Act, 1961: The primary issue is whether the assessee, who failed to deduct tax at source (TDS) on payments made to a non-resident company, can be deemed in default under Section 201(1) and consequently liable for interest under Section 201(1A). The Tribunal clarified that the provisions of Section 201(1) and Section 201(1A) are independent and must be considered separately. The liability under Section 201(1A) is compensatory and mandatory for withholding tax that should have been remitted to the exchequer. 2. Whether the assessee is deemed to be in default under Section 201(1) if the payee is assessed at a loss: The Tribunal examined whether the assessee could be deemed in default under Section 201(1) when the payee company was assessed at a loss. The Tribunal referred to the Hon'ble jurisdictional High Court's decision, which stated that no liability to interest under Section 201(1A) arises if the payee is assessed at a loss and, therefore, no tax was due. However, the Tribunal also noted that the assessee's liability to deduct tax at source is with reference to the tax deductible under the Act, not the final tax liability of the payee. 3. Interest liability under Section 201(1A) in the absence of liability under Section 201(1): The Tribunal emphasized that the interest liability under Section 201(1A) is compensatory and arises for the period during which the tax was not deducted or deposited. This liability exists independently of the tax liability under Section 201(1). The Tribunal cited the Apex Court's decisions in Hindustan Coca-Cola Beverages Pvt. Ltd. and Eli Lilly & Co. (India) Pvt. Ltd., which clarified that interest under Section 201(1A) could be levied even if the tax liability under Section 201(1) is subsequently satisfied. 4. Refund of interest paid under Section 201(1A): The Tribunal addressed the assessee's claim for a refund of interest paid under Section 201(1A). The Tribunal noted that the assessee had recovered the interest from the payee, which the Hon'ble High Court deemed illegal. The Tribunal concluded that the refund of interest paid under Section 201(1A) should be granted if it was paid in excess of the amount legally due. The Tribunal directed the Assessing Officer to verify the details and compute the refund accordingly, ensuring compliance with the law and the directions issued by the Hon'ble High Court. Conclusion: The Tribunal allowed the assessee's appeals on the terms that the Assessing Officer must verify the details and compute the refund of interest paid under Section 201(1A), considering the tax deductible under the Act and the directions issued by the Hon'ble High Court. The Tribunal emphasized that the liability under Sections 201(1) and 201(1A) must be considered independently, and the interest liability under Section 201(1A) is compensatory and mandatory.
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