1999 (11) TMI 100 - AT - Income Tax

Summary

Issues Involved:

1. Deletion of interest levied under section 201(1A) of the Income-tax Act.
2. Liability to deduct tax at source under section 194H.
3. Bona fide belief and reasonable cause for non-deduction of tax.
4. Payment of advance tax by the payees and its effect on the payer's liability.

Issue-wise Detailed Analysis:

1. Deletion of interest levied under section 201(1A) of the Income-tax Act:

The primary issue in this appeal is the deletion of interest amounting to Rs. 11,962 levied under section 201(1A) by the Assistant Commissioner of Income-tax (TDS) due to the assessee's failure to deduct tax at source as mandated by section 194H. The CIT(A) cancelled this interest, but the department challenged this decision, arguing that the provisions of section 194H are mandatory and the interest under section 201(1A) was justified.

2. Liability to deduct tax at source under section 194H:

Section 194H, effective from 1-10-1991, required the assessee to deduct income tax at source from commission payments. The assessee-company, which paid substantial commissions to three firms, failed to deduct the required tax totaling Rs. 9,99,413. The assessee contended that it applied for an exemption from this provision and only after the rejection of its application on 30-9-1992 did it deposit the tax on 29-10-1992. However, the tribunal emphasized that the language of section 194H is clear and unambiguous, imposing an absolute obligation to deduct tax, and does not entertain any scope for reasonable cause or bona fide belief for non-compliance.

3. Bona fide belief and reasonable cause for non-deduction of tax:

The assessee argued that it acted with due diligence by applying for an exemption and awaiting the decision of the CBDT, which ultimately rejected the application. The tribunal acknowledged the assessee's bona fide belief and reasonable cause but reiterated that these factors are irrelevant under the strict liability imposed by section 194H. The tribunal cited the principle that statutory provisions must be interpreted according to their plain language, without introducing external notions of justice or expediency.

4. Payment of advance tax by the payees and its effect on the payer's liability:

The assessee further argued that the firms receiving the commission had already paid advance tax, implying that the payer should not be held liable for not deducting tax at source. However, this argument was raised for the first time before the tribunal and lacked sufficient evidence to ascertain whether the advance tax paid related to the commission. The tribunal held that the payer's liability under section 194H remains unaffected by the payee's payment of advance tax, emphasizing that the statutory obligation to deduct tax at source is absolute and cannot be circumvented by such arguments.

Conclusion:

The tribunal concluded that the CIT(A) erred in cancelling the interest levied under section 201(1A). The provisions of section 194H impose a strict liability to deduct tax at source, and the assessee's arguments based on bona fide belief, reasonable cause, or the payees' payment of advance tax do not absolve it from this obligation. Therefore, the tribunal reversed the CIT(A)'s decision and upheld the action of the Assessing Officer, allowing the department's appeal.