2017 (4) TMI 46 - AT - Income Tax

Levy of interest under Section 201(1A) - non deduction of TDS under Section 194A (3) in respect of the interest on the deposits - Held that - Facts in the present case clearly show that M/s VTU has filed an application for retrospective recognition under Section 12AA of the Act to the CBDT under Section 119(2B) of the Act. In the event the CBDT accepts the claim of the assessee, then the liability of the assessee under Section 201(1) and 201(1A) of the Act would efface. This being so in the interest of natural justice the issues in these appeal are restored to the file of the Assessing Officer with the following directions - AO is to await the decision of the CBDT in respect of the petition filed by the VTU in respect of the retrospection grant of registration under Section 12AA of the Act. In the event the application filed by the VTU is not considered favourably by the CBDT then in respect of the levy under Section 201(1) the Assessing Officer is to re-adjudicate the issue in line with the decision in the case of Hindustan Coca Cola Beverage Private Limited as referred (2007 (8) TMI 12 - SUPREME COURT OF INDIA ), as also after considering the impact of the certificate issued by the deductee (VTU) in form 26A. In respect of levy of interest under Section 201(1A) of the Act the interest is to be computed for the period from the date from which the tax was deductable to the date of filing of the return by the deductee (VTU). This is because once any income is liable for TDS then in the hands of the deductee no interest under Section 234A, 234B & 234C can be levied in respect of such income. Therefore till such income is disclosed by the deductee in its return the liability of the tax rests on the deductor. Once the deductee has filed his return disclosing such income then for such return to become valid the taxes of such return should have been paid and the liability in respect of such taxes and the credit for such taxes goes to the deductee only.

Summary

Issues involved:
Appeals against confirmation of interest levy under Section 201(1A) and Section 201(1) of the Act for various assessment years.

Detailed Analysis:

1. The appeals were filed by the assessee, a bank, against the orders of the Learned CIT(A) regarding the confirmation of interest levy under Section 201(1A) and Section 201(1) of the Act for different assessment years. The issue revolved around the non-deduction of TDS under Section 194A(3) concerning deposits held by an university, VTU, which was denied exemption under Section 10(23C) of the Act. The university later applied for registration under Section 12AA of the Act, which was granted retrospectively. The bank argued that it believed TDS was not required and had been provided with Form 26A by VTU, indicating no tax deduction was necessary.

2. The Revenue contended that since VTU had not paid the entire tax for certain assessment years, the bank was liable under Section 201(1) as an assessee in default. Regarding the interest levy under Section 201(1A), it was argued that the interest was compensatory in nature, citing a Supreme Court judgment. The Revenue maintained that the bank's bonafide belief did not absolve it from the liability to pay interest under Section 201(1A). The issue of interest calculation was suggested to be reconsidered by the Assessing Officer.

3. The Authorized Representative of the assessee had no objection to the issues being sent back to the Assessing Officer for reevaluation. It was emphasized that the interest calculation under Section 201(1A) needed to be reviewed as it was allegedly incorrect. The proviso of Section 201(1A) was highlighted to suggest that interest should only be levied from the date of tax deductibility to the date of the deductee's income tax return filing.

4. The Judicial Member directed that the issues be returned to the Assessing Officer pending the CBDT's decision on VTU's registration application under Section 12AA. If the application was accepted, the bank's liabilities under Section 201(1) and Section 201(1A) would be nullified. The Assessing Officer was instructed to reevaluate the issues based on the Supreme Court's decision and the impact of Form 26A. The interest under Section 201(1A) was to be calculated from the date of tax deductibility to the deductee's return filing date to ensure fairness and compliance with tax laws.

5. Ultimately, the appeals of the assessee were partially allowed for statistical purposes, with the decision pronounced at the hearing on a specified date in 2017 in Goa.