2009 (7) TMI 922 - AT - Income Tax

Income - Deemed to accrue or arise in India, Deduction of tax at source - Consequence of failure to deduct or pay

Summary

Issues:
- Whether the payments made by the assessee to non-resident companies for obtaining Transponder Services are liable to tax deduction at source.
- Whether the CIT(Appeals) erred in quashing the orders of the TDS Officer under section 201(1) and 201(1A) and directing a refund to the assessee.
- Whether the conduct of the assessee in not remitting the tax deducted at source to the Central Government justifies treating the assessee as an assessee in default.
- Whether the past conduct of the assessee in deducting tax at source and paying to the Central Government is a valid ground for the TDS Officer to treat the assessee as an assessee in default.

Analysis:

The appeals before the Appellate Tribunal ITAT Cochin involved the issue of tax deduction at source concerning payments made by an assessee, a Television Channel operating from Kochi, to non-resident companies for Transponder Services. The TDS Officer had treated the assessee as an assessee in default under section 201(1) and 201(1A) for failure to remit the tax deducted at source to the Central Government. The CIT(Appeals) had quashed the TDS Officer's orders, stating that the payments made by the assessee were not income liable to tax in India, thus no obligation for tax deduction at source existed.

However, the Tribunal found that the CIT(Appeals) overlooked the fact that the assessee had deducted tax at source but failed to remit it to the Central Government. The Tribunal emphasized the mandatory nature of the duty to pay tax deducted at source to the Central Government under section 200 of the Income-tax Act. The failure to remit the tax was deemed sufficient to hold the assessee as an assessee in default, irrespective of whether the payments were actually liable for tax deduction at source.

The Tribunal also highlighted that once tax is deducted at source, it becomes the money due to the Central Government, and neither the deductor nor the deductee can appropriate it. The Tribunal referred to legal precedents supporting the deductor's obligation to pay the tax deducted at source to the Central Government.

Regarding the past conduct of the assessee in deducting tax at source and paying it to the Central Government, the Tribunal upheld the TDS Officer's reliance on this conduct to treat the assessee as an assessee in default. The Tribunal emphasized that the Assessing Officer was justified in considering the past conduct as indicative of the assessee's responsibility to deduct tax at source.

Moreover, the Tribunal cited a relevant judgment by the Income-tax Appellate Tribunal, Mumbai, which held that payments for Transponder Services constituted "royalty" under section 9(1)(vi) of the Act, making them liable for tax deduction at source. Therefore, the Tribunal allowed the Revenue's appeals, restoring the TDS Officer's orders and vacating adverse comments made by the CIT(Appeals) against the TDS Officer.