2009 (12) TMI 93 - HC - Income Tax

Interest and penalty - Assessee while making payments to building owners failed to deduct tax at source from the payments - Assessing Officer held that the assessee was required to deduct the tax at source and for non-deducting tax at source is required to pay the interest, as well as penalty apart from the tax to be deducted at source. - Supreme Court in Hindustan Coca Cola Beverage P. Ltd. v. CIT has ruled that if the payee has paid the tax, even though the assessee failed to deduct tax, the tax cannot be recovered once again from the assessee as it amounts to double collection of tax - the matters are required to be re-considered by the Assessing Officer in the light of the judgment of the Supreme Court, on the merits - However, it is made clear that the assessee, in the present case, shall raise the question that whether the assessee being an association under the provisions of the Karnataka Societies Registration Act is liable to collect tax at source

Summary

Issues:
1. Challenge to the order of the Income-tax Appellate Tribunal regarding deduction of tax at source.
2. Assessment of the appellant as an AOP and liability for tax deduction under specific sections of the Income-tax Act.
3. Validity of orders passed under section 201(1) of the Income-tax Act and the application to the society.
4. Applicability of sections 194C/194-I and 204(iii) of the Income-tax Act to the appellant-society.
5. Tax implications on the purchase of stationery under section 194C of the Income-tax Act.
6. Applicability of section 194-I to payments exceeding Rs. 1,20,000 to a family as a whole.
7. Validity of levy of interest under section 201(1A) of the Act.
8. Confirmation of penalty under section 271C and the appellant's belief regarding tax deduction.
9. Consideration of the appellant's bona fide belief as a reasonable cause for canceling the penalty under section 271C of the Income-tax Act.

Analysis:
1. The appellant, an educational institution registered under the Karnataka Societies Registration Act, challenged the order of the Income-tax Appellate Tribunal regarding the deduction of tax at source. The appellant contended that as a society, it was not required to deduct tax at source from payments made to building owners and others. However, the Assessing Officer held the appellant liable for tax deduction and subsequent penalties for non-compliance.

2. The Assessing Officer's decision was upheld by the Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal, leading to the current appeal. The appellant argued that the Supreme Court's ruling in Hindustan Coca Cola Beverage P. Ltd. v. CIT precludes double collection of tax if the payees have already paid the tax on their income. The appellant requested a remand to the Assessing Officer for reconsideration based on this judgment.

3. The court, considering the submissions, set aside all previous orders and directed the Assessing Officer to re-examine the matter in light of the Hindustan Coca Cola case. The court granted liberty to the Assessing Officer to consider the levy of interest and penalty afresh. The question of whether the appellant, as a society under the Karnataka Societies Registration Act, is liable to collect tax at source was left open for future proceedings.

This detailed analysis covers the various issues raised in the legal judgment, outlining the arguments presented by the parties and the court's decision in each aspect of the case.