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2016 (12) TMI 1534 - HC - Income TaxDefault u/s 201(1) - failure to deduct TDS - liability to pay interest u/s 201(1A) if the payee of such amounts has files a nil return or a return showing a loss - Held that - We will presume that the first proviso to sub section (1) operates retrospectively and that the proviso to sub section (1A) does not. As the amendment of 2009 is with effect from 01.07.2010 a question may arise in a given case whether it applies only from the next assessment year i.e. From 01.04.2011 or whether it applies to the assessment year 2010-11 only from 01.07.2010 and prior to that i.e. From 01.04.2009 to 30.06.2010 the unamended provisions applies. The issue however does not affect the result of this appeal. Even if the proviso to sub section (1) is not retrospective it would make no difference to the assessee s case in view of the judgment of the Supreme Court in Hindustan Coca Cola Beverage P. Ltd. vs. Commissioner of Income Tax 2007 (8) TMI 12 - SUPREME COURT OF INDIA .The last sentence makes it clear that even if the deductee assessee has paid the tax dues it would not alter the liability to charge interest under Section 201(1A) till the date of payment of taxes by the deductee assessee. It is further held that the same would not even affect the liability for penalty under Section 271C. Thus even prior to the amendment on 1st July 2012 the liability to pay interest under Section 201 (1A) was there even in cases where the deductee assessee had paid the tax dues. The language of Section 201 is clear and unqualified. It indeed does not permit an assessee to decide for itself what the liability of the deductee assessee is or is likely to be. That is a matter for the assessing officer who assesses the returns of the deductee assessee. It is in fact not even possible for him to do so. He cannot ascertain with any degree of certainty as to the financial position of the deductee assessee. A view to the contrary would enable an assessee to prolong the matter indefinitely. If accepted it may even entitle the assessee to contend that it is not liable to pay interest till the finalisation of the assessment of the deductee assessee. This could never have been contemplated by the Legislature. The language of Section 201 does not even suggest such an intention. Even if the assessee is in a position to ascertain the tax liability of the deductee assessee it would make no difference for the reasons already stated. The section does not distinguish between cases where an assessee is in a position to determine the tax liability of the deductee assessee and cases where it is not in a position to do so. The terminal point has to be taken as a date on which the payee/deductee should have filed returns. Thus even before and de hors the amendment of 1st July 2012 the assessee would be liable to pay interest under Section 201(1A). The amendment which introduced inter-alia the first proviso to Section 201(1) is of no assistance to the assessee either. Section 197 establishes that where the deductor assessee wishes to reduce its liability on account of a possible absence of liability or a reduced liability of the deductee assessee the deductee assessee must obtain a certificate. In the event of such a certificate being issued in favour of the deductee assessee the person responsible for paying the income i.e. the deductor assessee would be entitled to deduct tax at the rates specified in such certificate or deduct no tax as the case may be. Section 197 thus militates against the deductor assessee unilaterally not paying or paying an amount less than the specified amount of TDS. It militates against the deductor-assessee deciding for itself the deductee assessee s liability to tax. Sub section (1A) as amended by Finance Act 2010 with effect from 1st July 2010 is applicable in respect of the assessment year 2010-11. The section as amended also does not make any difference to the assessee s liability to pay interest. In the circumstances the question of law is answered in favour of the appellant-revenue and against the respondent-assessee.
Issues Involved:
1. Whether the assessee was bound to deduct tax at source (TDS) under Section 194C. 2. Whether the assessee is liable to pay interest under Section 201(1A) if the payee has filed a nil return or a return showing a loss. Issue-Wise Detailed Analysis: 1. Applicability of Section 194C: The first issue concerns whether the assessee was obligated to deduct tax at source under Section 194C of the Income Tax Act, 1961. The Assessing Officer (AO) held that the assessee was liable to deduct TDS and levied interest under Section 201(1A) for failing to do so. The assessee contended that the provisions of Section 194C were not applicable to its case. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld this contention, ruling that Section 194C did not apply and thus deleted the interest levied under Section 201(1A). The Tribunal did not address this primary contention as it ruled in favor of the assessee on an alternate ground. The High Court, however, remanded the matter back to the Tribunal to decide on this primary contention. 2. Liability to Pay Interest Under Section 201(1A): The second issue revolves around whether the assessee is liable to pay interest under Section 201(1A) if the payee has filed a nil return or a return showing a loss. The Tribunal had ruled in favor of the assessee, holding that no interest was payable under Section 201(1A) in such cases. The High Court overruled this decision, stating that the liability to pay interest under Section 201(1A) is mandatory and applies even if the payee has filed a nil return or a return showing a loss. The Court referred to the Supreme Court's judgment in Hindustan Coca Cola Beverage P. Ltd. vs. Commissioner of Income Tax, which clarified that interest under Section 201(1A) is a compensatory measure for withholding tax and is payable until the tax is actually paid by the deductee. Legal Provisions and Interpretations: The High Court examined the relevant provisions of Section 201 and Section 194C. It noted that the first proviso to Section 201(1), inserted by the Finance Act, 2012, with effect from 1st April 2012, provides that a person shall not be deemed to be an assessee in default if the payee has furnished a return of income, taken into account the sum for computing income, and paid the tax due. However, the Court held that this proviso does not absolve the liability to pay interest under Section 201(1A), which is mandatory and compensatory in nature. The Court also referred to the judgment of the Madras High Court in Commissioner of Income Tax vs. Ramesh Enterprises and Commissioner of Income Tax vs. Chennai Metropolitan Water Supply and Sewerage Board, which supported the view that the liability to pay interest under Section 201(1A) exists even if the payee has filed a nil return or a return showing a loss. The Court emphasized that the obligation to deduct tax at source is independent of the payee's tax liability and is intended to ensure prompt payment of tax to the government. Conclusion: The High Court concluded that the Tribunal erred in holding that the assessee was not liable to pay interest under Section 201(1A) on account of the payees having filed nil returns or returns showing a loss. It set aside the Tribunal's order and remanded the matter back to the Tribunal to decide on the primary issue of the applicability of Section 194C. The Court held that the liability to pay interest under Section 201(1A) is mandatory and applies regardless of the payee's tax liability. The appeal was allowed in favor of the Revenue, and the matter was remanded for further consideration on the applicability of Section 194C.
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