1991 (8) TMI 162 - AT - Income Tax

Summary

Issues Involved:
1. Liability to deduct tax at source under Section 194C of the Income-tax Act.
2. Interpretation of Section 201(1) and Section 201(2) regarding the default in tax deduction.
3. Applicability of Section 191 concerning the direct payment of tax by the payee.
4. Determination of the amount in default and the role of equity in such determination.
5. Exemption under Section 194C(3)(i) for contracts with value less than Rs. 10,000.

Issue-wise Detailed Analysis:

1. Liability to Deduct Tax at Source under Section 194C:
The assessee, a private limited company involved in the manufacture and export of leather products, made payments to various contractors for job work without deducting tax at source as mandated by Section 194C of the Income-tax Act. The Income-tax Officer (ITO) issued notices and subsequently held the assessee as an assessee in default under Section 201(1) for failing to deduct tax at source for the assessment years 1987-88 to 1990-91. The Commissioner (Appeals) confirmed this decision, stating that the assessee knowingly contravened the provisions of the Act by not deducting the tax at source.

2. Interpretation of Section 201(1) and Section 201(2):
The assessee argued that Section 201(2) should apply only when tax was deducted but not remitted, and not in cases where tax was not deducted at all. However, the Tribunal held that Section 201(1) covers both situations: failure to deduct and failure to remit deducted tax. The Tribunal emphasized that the provisions are clear and should be interpreted harmoniously, ensuring that one provision does not render another redundant. Therefore, the assessee's argument that it should not be considered in default if the tax was paid directly by the payee was rejected.

3. Applicability of Section 191:
The assessee contended that under Section 191, the liability to deduct tax shifts to the payee if the tax is paid directly by the payee. The Tribunal, however, clarified that Section 191 is an enabling provision for the Revenue to proceed against the payee directly and does not absolve the payer from the duty to deduct tax at source. The Tribunal held that the duty to deduct tax at source under Section 194C remains, regardless of the payee's direct payment of tax.

4. Determination of the Amount in Default and Role of Equity:
The Tribunal considered whether the assessee should be held in default for the entire tax amount or only for the shortfall, if any, after considering the taxes already paid by the payees. It was held that if the payees had already paid the full tax due, there would be no purpose in declaring the assessee in default for the same amount. The Tribunal directed the ITO to verify the assessments of the payees and determine the shortfall, if any, and hold the assessee in default only to that extent. This approach was deemed equitable and just.

5. Exemption under Section 194C(3)(i):
The assessee claimed exemption under Section 194C(3)(i), arguing that the value of each contract was less than Rs. 10,000. However, the Tribunal found that the assessee failed to substantiate this claim with evidence. There were no written contracts or account book entries to support the assertion that the contracts were piece-rate contracts. Consequently, the Tribunal held that the assessee was not entitled to the exemption under Section 194C(3)(i).

Conclusion:
The Tribunal allowed the appeals for statistical purposes, remanding the matter back to the ITO with directions to verify the assessments of the payees and determine the amounts in which the assessee should be held in default. The Tribunal upheld the assessee's liability to deduct tax at source under Section 194C and rejected the arguments concerning Sections 191 and 201(2). The exemption claim under Section 194C(3)(i) was also denied due to lack of evidence.