2015 (4) TMI 873 - HC - Income Tax

Personal liability of administrator of trust for non deduction of tax at source - Principal Officers - 40% professional fee paid to consultants/doctors working in their hospital - whether action should have been initiated against M/s. Sri Adichunchanagiri Shikshana Trust? - whether proceedings u/S.201(1) and 201(1)(a) of the Act cannot be initiated against the assessee who had submitted the TDS returns and in whose name TDS account number was allotted and who was issuing TDS certificates on behalf of the hospital and the Trust? - Held that - The consequences of failure to deduct or pay results in the assessee being declared as assessee in default. Therefore, the persons against whom proceedings may be initiated for failure to deduct or pay is the assessee, who may made payment without deducting TDS. In the instant case the assessee was acting as an employee of the Trust. The payment made by him was not in his individual capacity. It was on behalf of the Trust. The money paid is out of the Trust. The consequences of failure to deduct or pay the TDS tax should be visited on that Trust for denying the benefit under the Act. The proceedings initiated is not a criminal proceeding. Under these circumstances the impugned proceedings could not have been initiated against the Administrator, who was only acting as an employee of the Trust, as no payments were made to in his individual capacity and the payments were made by the Trust. Therefore, both the Appellate Authorities were justified in setting aside the order passed by the Assessing Authority, reserving liberty to the department to proceed against the Trust. - Decided in favour of assessee.

Summary

Issues:
1. Whether the assessee was liable to deduct tax at source for professional fees paid to consultants/doctors?
2. Whether proceedings under Section 201(1) and 201(1)(a) of the Income Tax Act can be initiated against the assessee who submitted TDS returns and held the TDS account number?

Analysis:

Issue 1:
The case involved appeals by the revenue against the Appellate Tribunal's order related to four assessment years concerning the deduction of tax at source by the assessee. The assessee, acting as an employee of a Trust, was responsible for managing a hospital under an operational management agreement with a hospital group. The assessing authority found discrepancies in tax deductions on professional charges paid to consultants/doctors. The Appellate Authority sought clarification on the relationship between the hospital group, the Trust, and the assessee, who was considered the Principal Officer. Despite the assessee's submission that the Trust was the actual employer responsible for payments, the assessing authority held the assessee liable for tax deductions. However, the Appellate Authority ruled the demand against the assessee as illegal, stating the assessing authority could proceed against the correct person.

Issue 2:
The revenue appealed to the Tribunal, arguing that the assessee should be held liable for tax deductions as the Principal Officer. The Tribunal, after reviewing the documents and relevant provisions, concluded that the Trust, not being a company, could not hold the Principal Officer liable under Section 201(1) of the Act. The Tribunal upheld the Appellate Authority's decision, dismissing the appeals. The High Court analyzed Section 201(1) of the Act, emphasizing that consequences for failure to deduct or pay taxes apply to the assessee, who acted on behalf of the Trust. The Court ruled that proceedings should be against the Trust, not the Administrator acting as an employee. Therefore, the appeals were dismissed, affirming the Appellate Authorities' decision to set aside the order against the assessee and allowing the department to proceed against the Trust.

In conclusion, the High Court upheld the decision that the assessee was not liable to deduct tax at source and that proceedings under Section 201(1) of the Act could not be initiated against the assessee, as the payments were made on behalf of the Trust. The Court directed the revenue to proceed against the Trust for any tax-related liabilities, dismissing the appeals filed by the revenue.