2014 (8) TMI 633 - HC - Income Tax

Legal obligation of Municipal Corporation to deduct surcharge on TDS - TDS was deducted u/s 194C revenue felt that the Municipal Corporation in addition to tax deducted at source at the rate of 2 per cent., should also have further deducted surcharge on the tax at 12 per cent. at source itself - surcharge came to be introduced by the Finance (No. 2) Act, 1991 - Held that - Section 194C (1) and (2) of the Act as existed at the relevant point of time had cast no obligation on the assessee-Municipal Corporation to deduct any surcharge during the relevant years when payments were made to the contractors Relying upon Sriram Refregeration Industries v. ITO 2014 (4) TMI 277 - ANDHRA PRADESH HIGH COURT - section 201(1A) of the Act has no application in the case of short deduction - when we say even assuming it does not mean that at the relevant point of time there was any obligation on the Municipal Corporation to deduct surcharge as the very obligation to collect surcharge was not in existence and the same came to be introduced only with effect from April 1, 1991, by the Finance (No. 2) Act, 1991 the order of the Tribunal is upheld Decided against revenue.

Summary

Issues:
1. Obligation to deduct surcharge on income-tax by Municipal Corporation.
2. Liability of Municipal Corporation to pay interest on surcharge under section 201(1A) of the Income-tax Act.

Analysis:
1. The primary issue in this case was whether the Municipal Corporation had an obligation to deduct surcharge on income-tax in addition to the regular tax deducted at source (TDS) when making payments to contractors. The Income-tax Officer claimed that the Corporation should have deducted surcharge at 12 per cent in addition to the 2 per cent TDS. The Tribunal, however, ruled in favor of the Corporation, stating that there was no legal obligation for the Corporation to deduct the surcharge. The Tribunal's decision was based on the interpretation of section 194C of the Income-tax Act, which did not mandate the deduction of surcharge during the relevant period. The Finance Act of 1991 introduced the obligation to deduct surcharge, but it was not applicable to the period in question. The Court upheld the Tribunal's decision, emphasizing that the relevant provisions at the time did not impose a duty on the Corporation to deduct surcharge.

2. The second issue revolved around the liability of the Municipal Corporation to pay interest on the alleged short deduction of surcharge. The Income-tax Officer had imposed interest on the Corporation for the shortfall in surcharge deduction. However, the Court referred to previous judgments and held that section 201(1A) of the Income-tax Act did not apply in cases of short deduction. The Court cited a previous case law to support its decision, clarifying that the obligation to pay interest on surcharge was not applicable in this scenario. Consequently, the Court ruled in favor of the Corporation, stating that there was no error in the Tribunal's decision, and answered the legal question in favor of the assessee and against the Revenue. The case was closed with no order as to costs.