1995 (2) TMI 116 - AT - Income Tax

Summary

Issues Involved:
1. Levy of interest under Section 201(1A) for failure to deduct TDS.
2. Relationship of contractor and sub-contractor under Section 194C(2).
3. Bona fide impression regarding TDS liability.
4. Limitation period for order under Section 201(1A).
5. Correctness of the quantum of interest charged.

Issue-wise Detailed Analysis:

1. Levy of Interest under Section 201(1A) for Failure to Deduct TDS:
The primary issue is whether the assessee is liable to pay interest under Section 201(1A) for failing to deduct TDS from payments made to sub-contractors. The assessee argued that no interest was chargeable as no tax was payable by the sub-contractors, citing several precedents. The Departmental Representative countered that the liability to deduct tax at source arises at the time of payment, irrespective of the payees' income. The Tribunal concluded that since the payees had no tax liability at the time of assessment, the assessee should not be held liable for interest under Section 201(1A).

2. Relationship of Contractor and Sub-contractor under Section 194C(2):
The assessee contended that there was no contractor-sub-contractor relationship as they had assigned the entire contract and were only entitled to a commission. The Departmental Representative argued that even if the whole contract is transferred, it constitutes a sub-contract under Section 194C(2). The Tribunal did not delve deeply into this issue, as their decision on the first issue rendered it unnecessary.

3. Bona Fide Impression Regarding TDS Liability:
The assessee claimed they were under a bona fide impression that no TDS was required due to the reasons mentioned above. The Departmental Representative argued that bona fide belief is irrelevant for the mandatory levy of interest. The Tribunal, aligning with its decision on the first issue, did not find it necessary to address this argument in detail.

4. Limitation Period for Order under Section 201(1A):
The assessee argued that the order under Section 201(1A) was barred by limitation as per Section 231 of the IT Act. The Departmental Representative cited various decisions to argue that the order was not time-barred. The Tribunal did not address this issue explicitly, focusing instead on the primary issue of interest liability.

5. Correctness of the Quantum of Interest Charged:
The assessee challenged the quantum of interest on several grounds, including the period for which interest was charged and whether it should be on gross or net receipts. The Tribunal noted that interest under Section 201(1A) is chargeable from the date the tax was deductible to the date it is actually paid. Since the assessee had not paid the tax at all, the Tribunal found it peculiar to charge interest indefinitely and thus ruled that interest under Section 201(1A) was not chargeable.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, holding that interest under Section 201(1A) was not chargeable since the payees had no tax liability at the time of assessment. The decision was based on the principle that when two views are reasonably possible, the one favorable to the assessee should be adopted. The Tribunal did not find it necessary to address other arguments in detail due to this conclusion.