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2017 (8) TMI 238 - HC - Income TaxTDS u/s 194C - assessee in default - failure to deduct tax or short deducted tax - Held that - It is an important aspect to be examined whether recipient-assessee has directly paid tax or has no liability of tax at all. Since this aspect was not examined by the assessing authority, therefore, in our view, the Tribunal has rightly remanded the matter to the assessing authority to examine this aspect. If the assessing authority finds that the recipient-assesses, i.e., SAL was not liable to pay any tax during the relevant assessment year or has actually paid tax, the assessee cannot be held to be assessee in default merely for the reason that it has failed to deduct tax or has short deducted tax and for that reason alone the assessing authority cannot raise demand of tax from the assessee. We find that similar question has also been considered recently by this court in Ghaziabad Development Authority v. Union of India (2016 (8) TMI 1240 - ALLAHABAD HIGH COURT). - Decided against the Revenue
Issues Involved:
1. Applicability of Section 201(1) of the Income-tax Act, 1961. 2. Verification of tax liability of the deductee. 3. Limitation period for assessment orders under Section 201(1) of the Income-tax Act, 1961. Detailed Analysis: 1. Applicability of Section 201(1) of the Income-tax Act, 1961: The Tribunal's decision centered on whether the assessee was liable for deduction of tax under Section 194C of the Income-tax Act, 1961. The Tribunal concluded that the assessee was not liable for deduction of tax based on the Supreme Court judgment in the case of Hindustan Coca Cola Beverage P. Ltd. The Tribunal noted that the facts and circumstances differed from the Hindustan Coca Cola case, where the issue was the rate of deduction rather than the deduction itself. The Tribunal restored the issue to the Assessing Officer for verification of the deductee's tax returns, specifically whether the deductee had returned losses for the impugned years. 2. Verification of Tax Liability of the Deductee: The Tribunal remanded the matter to the Assessing Officer to verify whether the deductee (SAL) had returned losses for the relevant years or paid taxes due on its assessed income. The Tribunal emphasized that if the deductee had no tax liability or had paid the tax, the assessee could not be considered an "assessee in default" under Section 201(1). The Tribunal's decision was influenced by the principle that the primary liability to pay tax lies with the person whose income is being taxed, as reinforced by Sections 190 and 191 of the Act. 3. Limitation Period for Assessment Orders under Section 201(1) of the Income-tax Act, 1961: The Commissioner of Income-tax (Appeals) held that the assessment orders for the financial years 2002-03 and 2003-04 were time-barred, relying on the judgment of the Delhi High Court. The Tribunal confirmed this view, noting that the four-year time limit was not prescribed in the statute, but the decision of the Delhi High Court was persuasive. The Tribunal also noted that Parliament had since prescribed a time limit of seven years for such assessments under Section 201(3). Conclusion: The High Court upheld the Tribunal's decision, confirming that the assessee could not be held liable for the tax not deducted or short deducted if the deductee had no tax liability or had paid the tax. The High Court also agreed with the Tribunal's remand to the Assessing Officer for verification of the deductee's tax liability. The appeals were dismissed, and the Tribunal's view was confirmed that the Revenue could not demand tax from the assessee merely for failing to deduct or short deducting tax if the deductee had no tax liability or had paid the tax.
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