2013 (4) TMI 369 - HC - Income Tax

TDS u/s 194C - Assessee in default According to the agreement between assessee and TNREL , the assessee would construct the building with technical assistance from TNREL, who would also incur the expenses on behalf of the assessee and get them reimbursed from the assessee. A.O proceeded that the assessee should have deducted the tax at source at 2% on the entire cost of construction. Thus, the Assessing Officer raised a demand under Section 201(1) and also charged interest under Section 201(1A). Held that - Going by the decision of Hon ble Supreme Court in Hindustan Coca Cola Beverage P.Ltd., Vs. CIT 2007 (8) TMI 12 SC what emerges is that the even though the appellant herein is held as assessee in default, tax cannot be recovered from them, if the same has been paid by the recipient viz., TNREL. It is needless to say that the Assessing Officer should find out as to what extent the recipient had paid the tax. If the entire tax amount as claimed from the assessee herein has been paid by the recipient, then there cannot be any further demand of the same from the assessee. On the other hand, if the recipient had only paid part of the tax amount, then rest of the same shall be recovered from the assessee. Insofar as the interest demand is concerned, the assessee is liable to pay the interest from the date of its liability till the date of actual payment made by the recipient. Accordingly, the Assessing Officer is directed to re-compute the liability of the assessee and pass fresh orders . The questions of law raised in both the appeals are answered accordingly.

Summary

Issues:
1. Default under Section 201(1) of the Income Tax Act
2. Levy of interest under Section 201(1A) of the Income Tax Act

Default under Section 201(1) of the Income Tax Act:
The case involved an appeal against the order of the Income Tax Appellate Tribunal for the assessment year 2003-2004. The primary issue revolved around whether the assessee was correctly held in default under Section 201(1) for not deducting tax at source on payments made to M/s. Tamil Nadu Real Estates Ltd. (TNREL). The Assessing Officer contended that tax should have been deducted at 2% on the entire cost of construction as per the agreement. The Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal upheld this view, leading to the present appeal. The Tribunal found that the assessee failed to deduct tax on the entire contract payments exceeding Rs. 20,000 as required under Section 194C. The Tribunal also noted the absence of evidence for taxes already deducted by the assessee. Consequently, the Tribunal held the assessee in default under Section 201(1) and liable for interest under Section 201(1A) from the due date till the actual payment date.

Levy of interest under Section 201(1A) of the Income Tax Act:
The second issue pertained to the levy of interest under Section 201(1A) of the Income Tax Act. The assessee challenged the interest imposed without considering taxes previously deducted and paid. The Tribunal, however, upheld the interest levy. The counsel for the assessee relied on a Supreme Court decision to argue that the assessee should not be directed to pay tax if the recipient had already paid it. The counsel for the Revenue did not contest this argument but maintained the assessee's default status. The Court noted the Supreme Court decision cited by the assessee, which emphasized that while tax need not be recovered if paid by the recipient, interest under Section 201(1A) remains payable until the date of actual payment by the recipient. As the authorities had not determined the recipient's tax payments, the Court directed the matter back to the Assessing Officer to ascertain the recipient's tax payments and recompute the assessee's liability and interest accordingly.

In conclusion, the Court found that while the assessee was held in default under Section 201(1), tax could not be recovered if already paid by the recipient. However, interest under Section 201(1A) remained payable until the recipient's actual payment date. The Assessing Officer was instructed to reassess the recipient's tax payments to determine the assessee's liability and interest accurately. The Court disposed of the appeals accordingly, emphasizing the need for a detailed re-computation by the Assessing Officer.