2017 (10) TMI 1209 - AT - Income Tax

Levy of interest u/s 201(1A) - non-deduction of tax at source and non-remittance to Government of India account - date from which interest will be chargeable - Held that - The plain reading of the proviso to section 201(1A) of the Act makes it very clear that even though the assessee is not deemed to be assessee in default under first proviso to sub section (1), the interest under clause (i) shall be payable from the date on which such tax is deductible to the date of furnishing of return of income by such a resident. Therefore, the tax liability in the hands of the deductee has no relation or connection for charging the interest u/s 201(1A) of the Act. Mere non-deduction of tax at source and non-remittance to Government of India account attracts the interest u/s 201(1A) of the Act and that is the reason for which the provision has been inserted to charge interest from the date of the tax deductible to the date of furnishing of return of income by the resident. Since the decisions relied upon by the Ld. A.R. are related prior to insertion of the proviso u/s 201(1A) of the Act, the decisions relied upon by the assesse are not applicable in assessee s case. Thus we hold that the interest is chargeable from the date of such tax is deductible to the date of furnishing of return of income and we uphold the order of the Ld. CIT(A) and dismiss the appeals of the assessee.

Summary

Issues:
Levy of interest under section 201(1A) of the Income Tax Act, 1961.

Analysis:
The appeals were filed against the order of the Commissioner of Income Tax (Appeals) regarding the levy of interest under section 201(1A) of the Income Tax Act. The Assessing Officer held the assessee in default for not deducting TDS on payments made, resulting in the imposition of interest under sections 201 and 201(1A) of the Act. The CIT(A) confirmed the action, stating that the assessee should have deducted tax at source as per section 194J. However, relief was granted for interest imposed under section 201(1) of the Act. The assessee argued that since the deductee had filed returns showing nil income, no tax liability existed, and thus, no interest under section 201(1A) should be charged. The AR contended that interest under section 201(1A) is compensatory and should not apply when there is no tax liability for the deductee. The AR cited various cases to support this argument.

The Departmental Representative argued that interest under section 201(1A) is mandatory and not dependent on reasonable cause for non-deduction or non-payment. The CIT(A)'s decision was supported, emphasizing that the interest is automatic and mandatory. The AR's reliance on certain cases was countered by stating that those decisions were not applicable in the present case. It was highlighted that the interest is charged from the date of tax deduction to the date of the deductee's income tax return filing, irrespective of the deductee's tax liability. The interest was deemed penal rather than compensatory in nature by the High Court, reinforcing the mandatory nature of the interest under section 201(1A).

The Tribunal analyzed the provisions of section 201(1A) of the Act and interpreted the proviso, which mandates interest payment from the date of tax deduction to the date of the deductee's income tax return filing. The Tribunal held that the interest is applicable regardless of the deductee's tax liability, as long as there was a failure to deduct TDS and remit to the government account. The decisions cited by the AR were deemed inapplicable post the insertion of the proviso to section 201(1A). The Tribunal upheld the CIT(A)'s order, dismissing the appeals of the assessee for the assessment years in question.