1995 (7) TMI 138 - AT - Income Tax

Summary

Issues:
1. Whether the levy of interest under section 201(1A) was correctly upheld by the CIT (Appeals) but the quantum reduced?
2. Whether the CIT (Appeals) erred in restricting the interest levied under section 201(1A) to the date of actual payment by the recipients?
3. Whether the liability of the employer to the interest leviable under section 201(1A) is fixed solely on the employer and not on the employees who have already paid tax on the interest income?
4. Whether the CIT (Appeals) was justified in giving the direction to restrict the interest levied by the Assessing Officer?

Analysis:
1. The appeals consolidated and disposed of by a common order due to common facts and issues. The CIT (Appeals) upheld the levy of interest under section 201(1A) but reduced the quantum, directing to restrict the levy from the date tax was deductible to the date actually paid by recipients.
2. The revenue contended that failure to deduct tax at source does not absolve the assessee of liability under section 201(1A). They argued that the CIT (Appeals) erred in restricting the interest levied by the Assessing Officer and sought restoration of the original order.
3. The CIT (Appeals) considered certificates from recipients asserting inclusion of interest income in their returns and not claiming credit for tax deducted at source. Relying on case law, the CIT restricted the interest to the date of actual payment by recipients, emphasizing the employer's liability for interest under section 201(1A).
4. The Departmental Representative argued that interest under section 201(1A) is a continuous process until actually paid by the employer. The employer's responsibility for deducting tax at source and paying interest was highlighted, supporting the Assessing Officer's original levy of interest.

5. The assessee's counsel acknowledged non-deduction of tax at source and non-payment to the government. Citing case law, they argued against double taxation and supported the CIT (Appeals) direction to calculate interest up to the date of actual payment by the employer or employee.
6. The Departmental Representative maintained that interest under section 201(1A) continues until payment by the employer, rejecting the CIT (Appeals) direction to restrict the interest.
7. The judgment emphasized the employer's liability for interest under section 201(1A) and rejected the CIT (Appeals) direction to limit interest to the date of payment by recipients. The employer's duty to ensure tax deduction and payment was underscored, holding the employer solely responsible for interest payment.
8. The judgment rejected the paucity of funds as a valid reason for non-deduction of tax at source. It highlighted the continuing nature of the default until actual payment by the employer, supporting the Assessing Officer's levy of interest. The CIT (Appeals) direction was set aside, upholding the original interest levy.

9. Ultimately, the appeals were allowed, and the Assessing Officer's levy of interest under section 201(1A) was upheld, setting aside the CIT (Appeals) direction to restrict the interest.