2014 (6) TMI 672 - AT - Income Tax

Demand u/s 201(1) and 201(1A) against short deduction of TDS or non-deduction of TDS u/s 194A - TDS on interest on certain deposits placed by the customers with the assessee (Bank) - Held that - the taxes cannot be recovered once again from the assessee in a situation in which the recipient of income has paid due taxes on income embedded in the payments from which tax withholding requirements were not fully or partly, complied with. - Decision in the case of Hindustan Coca Cola Beverage Pvt. Ltd. v. CIT 2007 (8) TMI 12 - SUPREME COURT OF INDIA followed. Onus is on the revenue to demonstrate that the taxes have not been recovered from the person who had the primarily liability to pay tax, and it is only when the primary liability is not discharged that vicarious recovery liability can be invoked. Once all the details of the persons to whom payments have been made are on record, it is for the Assessing Officer, who has all the powers to requisition the information from such payers and from the income tax authorities, to ascertain whether or not taxes have been paid by the persons in receipt of the amounts from which taxes have not been withheld. So far as penal provisions are concerned, the penalty is for lapse on the part of the assessee and it has nothing to do with whether or not the taxes were ultimately recovered through other means. The provisions regarding interest in delay in depositing the taxes are set out in Section 201(1A). These provisions provide that for any delay in recovery of such taxes is to be compensated by the levy of interest. In a case in which the recipient of income had no tax liability embedded in such payments, there will obviously be no question of delay in realization of taxes and the provisions of section 201(1A) will not come into play at all. The computation of interest is to be redone in the light of this legal position. Matter remanded back to AO for fresh adjudication in accordance with the law - Decided in favor of assessee.

Summary

Issues:
Challenging correctness of a common order regarding tax withholding demands under section 201(1) and 201(1A) r.w.s. 194 A for assessment years 2001-02 to 2007-08.

Analysis:
The judgment concerns seven appeals questioning the correctness of a common order passed by the CIT(A) Ghaziabad regarding tax withholding demands under section 201(1) and 201(1A) r.w.s. 194 A for specific assessment years. The appeals relate to a nationalized bank branch that failed to comply with tax deduction at source obligations concerning interest on deposits. The demands were raised on the bank for non-deduction of tax at source and delay in depositing the tax. The Appellate Tribunal noted that while various factual aspects were raised and discussed in lower authorities' orders, the focus was on the demands under section 201.

The Tribunal emphasized the legal position established by the Hon'ble Supreme Court and the jurisdictional High Court regarding tax recovery in cases of short deduction of tax at source. It highlighted that the onus is on the revenue to demonstrate that taxes were not recovered from the person primarily liable to pay tax before vicarious recovery liability can be invoked. The judgment underscored that the Assessing Officer must ascertain whether taxes have been paid by the recipients of income before invoking recovery provisions under section 201(1). The Tribunal acknowledged a paradigm shift in recovery provisions post the judgment in Jagran Prakashan's case, emphasizing the need for the Assessing Officer to establish non-payment of taxes by the recipient as a condition precedent to invoking section 201(1).

Regarding the consequences of non-deduction of tax at source, the judgment delineated penal provisions, interest provisions, and recovery provisions under relevant sections of the Income Tax Act. It clarified that recovery provisions under section 201(1) can only be invoked when there is a loss of revenue, which necessitates demonstrating that the recipient of income did not pay due taxes. The judgment highlighted the compensatory nature of interest levied under section 201(1A) and its applicability irrespective of the assessee's fault, emphasizing the need to compute interest based on the period between when tax was required to be deducted and eventually paid.

Ultimately, the Tribunal directed the matter to be restored to the Assessing Officer for fresh adjudication in compliance with the law and the observations made in the judgment. It instructed the Assessing Officer to provide a fair hearing to the assessee and issue a speaking order. Other issues were left open pending the outcome of the tax demands under section 201(1) and 201(1A) after implementing the Tribunal's directions. The appeal was allowed for statistical purposes, and the judgment was pronounced in open court on a specified date.