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2017 (8) TMI 278 - AT - Income TaxTDS u/s 192 - short deduction of tds - assessee in default - Violation of the mandate of the Explanation to section 191 - Held that - Before treating the deductor to be an assessee in default under section 201(1) of the Act, it is the bounden duty of the ITO (TDS) to ascertain and ensure that the assessee has also not paid due tax, for which, the assessee has to provide the requisite details to the ITO (TDS). At the time of issuance of notice dated 02.03.2015, under sections 201/201(1A) of the Act to the University, the ITO (TDS) was in possession of the requisite details of the recipients of the income. As such, the legislative mandate of the Explanation to section 191 of the Act, as explained by their Lordships in M/s Jagran Prakashan Ltd. (2012 (5) TMI 488 - ALLAHABAD HIGH COURT) was violated by the ITO (TDS), by not requisitioning, before issuing the show cause notice to the University, information from the recipients of the income, as to whether or not the taxes had been paid by them, nor seeking such information from the concerned Income Tax Authorities. As observed, this is a foundational jurisdictional defect going to the root of the matter. Violation of the mandate of the Explanation to section 191 is prejudicial to the invocation of the jurisdiction of the ITO (TDS) u/s 201/201(1A) of the Act. In absence of such compliance, the invocation of the jurisdiction is null and void ab initio. Such invocation of jurisdiction is, 10 accordingly, cancelled, respectfully following M/s Jagran Prakashan Ltd. (supra) and The Branch Manager, Allahabad Bank (2016 (3) TMI 1240 - ITAT DELHI). - Decided in favour of assessee.
Issues involved:
1. Whether the deductor can be deemed an assessee in default if the payee fails to pay tax directly. 2. The duty of the Income Tax Officer (TDS) to ascertain if the payee has failed to pay tax directly before treating the deductor as an assessee in default. 3. Compliance with the Explanation to section 191 of the Income Tax Act in cases of tax deduction at source. 4. Judicial precedents regarding the foundational and jurisdictional requirement for treating a deductor as an assessee in default. Issue 1: Whether the deductor can be deemed an assessee in default if the payee fails to pay tax directly: The case involved a University deducting tax at source under section 192 of the Income Tax Act. The Assessing Officer treated the University as an assessee in default for allowing exemption under section 10(10AA)(i) beyond the maximum limit of ?3 lacs. The Appellate Tribunal noted that for a deductor to be deemed an assessee in default, it is essential that the payee has also failed to pay tax directly. The Explanation to section 191 clarifies this requirement, emphasizing that both the deductor's failure to deduct tax and the payee's failure to pay tax directly are necessary to deem the deductor as an assessee in default. Issue 2: The duty of the Income Tax Officer (TDS) to ascertain if the payee has failed to pay tax directly before treating the deductor as an assessee in default: The Tribunal highlighted that before declaring a deductor as an assessee in default under section 201(1) of the Act, the Income Tax Officer (TDS) must ensure that the payee has not paid the due tax directly. The Tribunal emphasized that it is the deductor's responsibility to provide details to the Income Tax Officer (TDS) regarding the payment of due tax by the payee. Failure to comply with this requirement can render the invocation of jurisdiction under sections 201/201(1A) null and void ab initio. Issue 3: Compliance with the Explanation to section 191 of the Income Tax Act in cases of tax deduction at source: The Tribunal stressed the importance of compliance with the Explanation to section 191, which mandates that both the deductor's failure to deduct tax and the payee's failure to pay tax directly are prerequisites for deeming the deductor as an assessee in default under section 201(1). The Tribunal held that the Income Tax Officer (TDS) must ensure that the payee has not paid the due tax directly before treating the deductor as an assessee in default. Issue 4: Judicial precedents regarding the foundational and jurisdictional requirement for treating a deductor as an assessee in default: The Tribunal cited judicial precedents, including the case of "M/s Jagran Prakashan Ltd. vs. DCIT," emphasizing that the foundational and jurisdictional requirement for treating a deductor as an assessee in default is that the payee must have failed to pay tax directly. The Tribunal noted that the onus is on the Income Tax Officer (TDS) to ascertain whether the payee has paid the due tax before deeming the deductor as an assessee in default. This detailed analysis of the judgment highlights the key legal principles and precedents involved in the case concerning the treatment of deductors as assessees in default under the Income Tax Act.
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