2022 (9) TMI 408 - AT - Income Tax

TDS on settlement amount paid by the Appellant - demand u/s 201 and u/s 201 (1A) - difference between the words paid and payable - amount was received by the Payees as per Settlement Agreement for relinquishment of right of equity in the appellant company - as per assessee amount is not paid but made only a provision - Whether the assessee has claimed the said amount as deduction while computing the income of the assessee? - HELD THAT - If the assessee claimed it as deduction while computing income of the assessee for AY 2013-14, then the assessee is liable to deduct the TDS on the said amount. The amount paid to the said persons which is Profit in lieu of salary and which being a part of total salary and the same is paid based on settlement agreement, thought the sum is over and above the salary, par takes the character of salary, therefore, the sum is liable for deduction of TDS in the hands of the assessee. The plea of the counsel for the assessee is that the said amount is not paid but made only a provision, therefore, provisions of Section 201(1) and 201(1A) cannot be invoked. This plea of the assessee is devoid of merit. Supreme Court in the case of Shri Choudhary Transport Company 2020 (8) TMI 23 - SUPREME COURT held descriptive of the payments which attract the liability for deducting tax at source and has not been used in the provision in question to specify any particular class of default on the basis of whether or not payment has been made. The semantical suggestion that this expression payable be read in contradistinction to the expression Paid is not sustainable. By reading the above judgment it is clear that there is no difference between the words paid and payable . Settlement amount paid by the assessee to liable to deduct the TDS at the time of payment. The assessee vide written submission dated 12/02/2018 submitted before the CIT(A) that during FY 2012-13, the amount was not actual paid by the assessee but only provision was made in the books of accounts. The assessee further contended before the CIT(A) that as there was no actual payment during the FY 2012-13, therefore, the CIT(A) held that the assessee was not liable to deduct TDS on the said amount during the year under consideration. CIT(A) gave liberty to the Assessing Officer to examine the issue of non deduction of TDS in the year in which this amount is actually paid. We do not find any error or infirmity in the approach of the Ld. CIT(A). We deem it fit to remand the matter to the file of the A.O with a direction to the assessee to provide the material to prove that the recipients have actually paid the tax. If such materials are produced by the assessee, the Ld. A.O is directed to verify the same and decide the issue in accordance with law. A.O is also at liberty to examine the issue of non deduction of TDS in the year in winch the said amount is actually paid. Accordingly, the Ground No. 1 to 2(i) to (viii) and the Ground No. 3 are dismissed and Ground No. 2 ((ix) is allowed for statistical purpose.

Summary

Issues:
1. Nature of settlement amount paid by the appellant to two individuals - whether in the nature of salary liable to TDS.
2. Validity of the settlement agreement for relinquishment of right of equity in the appellant company.
3. Application of Section 201(1) and 201(1A) of the Act regarding TDS liability.
4. Interpretation of the settlement agreement and its impact on TDS obligations.
5. Compliance with legal provisions and previous judicial decisions regarding TDS liability.

Issue 1: Nature of settlement amount and TDS liability
The appellant contested the CIT(A)'s decision that the settlement amount paid to two individuals was in the nature of salary and subject to TDS. The appellant argued that the payment was for relinquishment of equity rights and not salary, thus not liable for TDS. However, the tribunal held that the settlement amount constituted "profit in lieu of salary" as per the settlement agreement, making it subject to TDS. The tribunal emphasized that agreements cannot override tax laws, and the character of the payment as salary for services rendered was established.

Issue 2: Validity of settlement agreement
The appellant claimed that the settlement agreement for relinquishment of equity rights should exempt the payment from TDS. However, the tribunal determined that the payment was essentially remuneration for services, akin to salary, and therefore subject to TDS obligations. The tribunal highlighted that the agreement's terms did not negate the nature of the payment as salary, emphasizing the legal requirement to deduct TDS on such payments.

Issue 3: Application of Section 201(1) and 201(1A)
The tribunal invoked Sections 201(1) and 201(1A) of the Act to address the non-deduction of TDS by the appellant. It clarified that if the appellant claimed the amount as a deduction while computing income, TDS should have been deducted. The tribunal emphasized that the provision of TDS applies to payments categorized as "profit in lieu of salary," even if the payment was provisioned but not actually made.

Issue 4: Interpretation of settlement agreement for TDS obligations
The tribunal scrutinized the settlement agreement's terms and the nature of the payment to determine TDS liability. It emphasized that the payment, though related to equity rights, was essentially remuneration for services and therefore subject to TDS. The tribunal rejected the argument that the absence of actual payment exempted the appellant from TDS obligations, reiterating that the character of the payment as salary mandated TDS deduction.

Issue 5: Compliance with legal provisions and judicial decisions
The tribunal referenced the Supreme Court's decision in a relevant case to clarify the distinction between "paid" and "payable" concerning TDS obligations. It underscored the appellant's responsibility to prove the recipient's tax payment to avoid TDS liability. The tribunal upheld the CIT(A)'s decision to allow the Assessing Officer to examine the TDS issue upon actual payment of the settlement amount, emphasizing compliance with legal provisions and judicial precedents.

The tribunal concluded that the settlement amount paid by the appellant to the individuals was subject to TDS as it constituted "profit in lieu of salary." The tribunal remanded the matter to the Assessing Officer for verification of the recipient's tax payment, directing the appellant to provide evidence. The tribunal dismissed certain grounds of appeal while allowing one for statistical purposes, ultimately partly allowing the appellant's appeal.