2015 (8) TMI 515 - HC - Income Tax

Interest payment under Section 201(1A) on late payment of TDS - Tribunal confirming the order passed by the CIT (A) directing the A.O. to recalculate the interest payment from the date of deduction of TDS to the date of assessment of payee or after the date of actual payment of TDS, whichever is earlier - Held that - In our opinion, when the assessee company had to pay the tax on behalf of the payee companies and when the payee companies themselves had not to pay any tax, subsequent to such declaration with regard to payee companies, no interest can be leviable against the company since there would be no loss of revenue in whatsoever manner. In the present case, it has been held that when the assessment qua the payee companies was completed and it was held that both the companies were not liable to pay any tax, the liability to pay interest upon the late payment of TDS by assessee would stop running. In our opinion the case of Commissioner of Income Tax V. Anjum M.H.Ghaswalla & Ors. (2001 (10) TMI 4 - SUPREME Court) would not be applicable to the present case. - Decided in favour of assessee.

Summary

Issues Involved:
1. Interpretation of Section 201(1A) of the Income Tax Act, 1961 regarding interest calculation on delayed payment of TDS.
2. Whether the interest under Section 201(1A) should be calculated up to the date of assessment of the payee companies or the actual date of TDS payment by the assessee company.

Issue-wise Detailed Analysis:

1. Interpretation of Section 201(1A) of the Income Tax Act, 1961 regarding interest calculation on delayed payment of TDS:

The central issue in this case concerns the correct interpretation of Section 201(1A) of the Income Tax Act, 1961. The respondent assessee company was found to have delayed the payment of TDS for the assessment years 1997-98 and 1998-99. The CIT (Appeals) and the Tribunal held that the interest under Section 201(1A) should be calculated only up to the date of assessment of the payee companies, which were running in losses and not liable to pay any tax. The revenue, however, argued that interest should be calculated until the actual date of TDS payment by the assessee company.

2. Whether the interest under Section 201(1A) should be calculated up to the date of assessment of the payee companies or the actual date of TDS payment by the assessee company:

The facts of the case reveal that the respondent assessee company deducted TDS from payments made to two companies, Labh Estate Organizers Pvt. Ltd and M/s. Labh Organizer Pvt. Ltd., but failed to deposit the TDS within the prescribed period. The Assessing Officer demanded the TDS amount along with interest under Section 201(1A). The CIT (Appeals) and the Tribunal ruled that interest should be calculated only up to the date of assessment of the payee companies, as they were not liable to pay any tax. The revenue's appeal argued that interest should be calculated until the actual date of TDS payment by the assessee company.

The court analyzed the provisions of Section 201(1A) and relevant case law, including Commissioner of Income Tax V. Anjum M.H.Ghaswalla & Ors. and Commissioner of Income Tax V. Rishikesh Apartments Co-op. Housing Society Ltd. The court noted that the payee companies were assessed and found not liable to pay any tax, as they were running in losses. Therefore, the court held that no interest could be levied on the assessee company beyond the date of assessment of the payee companies, as there was no loss of revenue.

The court emphasized that the crucial point for calculating interest under Section 201(1A) is the date of assessment of the payee companies. Once it is determined that the payee companies are not liable to pay any tax, the interest liability on the assessee company ceases. The court concluded that the CIT (Appeals) and the Tribunal did not err in their interpretation and application of Section 201(1A).

Conclusion:

The court ruled in favor of the respondent assessee, affirming that interest under Section 201(1A) should be calculated only up to the date of assessment of the payee companies. The substantial question of law was answered against the appellant revenue and in favor of the respondent assessee. The orders of the CIT (Appeals) and the Tribunal were upheld.