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2022 (11) TMI 1063 - HC - Income TaxLevy of interest under sub-section (1A) of Section 201 - delayed remittance of TDS deducted from compensation paid to persons from whom land was acquired for the purposes of establishing the Government Medical College at Manjeri - amounts were deducted in the month of January 2014 and the amounts were to be paid over to the Income Tax Department on or before 07.02.2014 - HELD THAT - It is clear from a reading of Section 201 that the liability to deduct tax arises only when it is required to be deducted under the provisions of the Act. Where there is no liability to deduct TDS, the mere fact that TDS was so deducted and paid to the Income Tax Department belatedly, cannot give rise to a claim for interest under sub-section (1A) of Section 201. We feel that this can be the only reasonable interpretation that can be placed under the provisions of Section 201, as interest under sub-section (1A) of Section 201 is obviously to compensate the Government / Income Tax Department for the delay in payment of taxes, which are rightfully due to the Government. It is clear from Ext.P1 that the delay in remitting the amounts deducted as TDS arose only on account of the fact that the Officer in question was deputed for election duty for the period from January 2014 to May 2014 in connection with the Lok Sabha Election of 2014. Cumulatively, these facts compel me to hold that the levy of interest under sub-section (1A) of Section 201 was wholly unwarranted in the facts and circumstances of this case. The contention that the Income Tax Department had to pay interest on refund amount from a date prior to the date on which the Department received amounts is untenable. The Department was under no obligation to pay interest from a date prior to the date on which it actually received the amounts of TDS. The writ petition is, therefore, allowed.
Issues:
1. Demand for payment of interest under sub-section (1A) of Section 201 of the Income Tax Act due to delayed remittance of TDS deducted from compensation. 2. Interpretation of provisions of Section 201 regarding liability to deduct tax and pay it to the Income Tax Department. 3. Dispute over whether the lands subject to acquisition were agricultural lands excluded from the definition of capital assets. 4. Opposing views on the levy of interest under sub-section (1A) of Section 201 and the necessity of interest payment by the Income Tax Department. 5. Application of the judgment in Dwarka Nath v. Income-Tax Officer [AIR 1966 SC 81] to the case at hand. Issue 1: The writ petition concerns the demand for interest payment under sub-section (1A) of Section 201 of the Income Tax Act due to delayed remittance of TDS deducted from compensation. The petitioner, the Special Tahsildar Land Acquisition (General), challenges this demand based on the delayed payment of TDS to the Income Tax Department, citing the officer's absence for election duty as the reason for the delay. Issue 2: The interpretation of the provisions of Section 201 regarding the liability to deduct tax and remit it to the Income Tax Department is central to the case. The petitioner argues that since the lands acquired were agricultural lands excluded from the definition of capital assets, there was no requirement to deduct TDS. This argument is supported by the refund of TDS amounts by the Income Tax Department to the landowners in question. Issue 3: A dispute arises regarding whether the lands subject to acquisition were agricultural lands falling outside the definition of capital assets under Section 2(14) of the Income Tax Act. The respondent contends that the question of the land's classification requires further inquiry, despite the refunds issued to the landowners. Issue 4: The opposing views on the levy of interest under sub-section (1A) of Section 201 and the necessity of interest payment by the Income Tax Department are presented. The respondent argues for the statutory levy of interest in case of delayed tax remittance, emphasizing that interest must be paid even prior to the actual receipt of the TDS amounts. Issue 5: The judgment in Dwarka Nath v. Income-Tax Officer [AIR 1966 SC 81] is invoked to support the petitioner's case. The judgment highlights the wide powers of High Courts under Article 226 of the Constitution to rectify injustices, allowing for a flexible application of legal remedies to suit the specific circumstances of each case. In the final judgment, the Honorable Mr. Justice Gopinath P. rules in favor of the petitioner, the Special Tahsildar Land Acquisition (General). The judgment emphasizes that the liability to deduct tax under Section 201 arises only when required by the Act, indicating that interest payment under sub-section (1A) is to compensate the Government for delayed tax payments. The court finds the levy of interest unwarranted in this case due to the delay caused by the officer's election duty. Additionally, the court dismisses the argument that the Income Tax Department should pay interest prior to receiving the TDS amounts. The judgment quashes the demands for interest payment and declares no costs to be imposed.
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