2019 (7) TMI 73 - AT - Income Tax

Levy of interest u/s. 201(1A) - delayed payment of TDS into Government account - TDS demand was deleted on ground that assessee is not in default within the provisions of section 201(1) as deductees/parties have reflected the receipts in their income - absence of liability for tax - HELD THAT - Levy of interest u/s. 201(1A) is compensatory measure for withholding the tax which ought to have gone to the exchequer and therefore levy of interest is mandatory and the absence of liability for tax will not dilute the default. As far as the levy of interest u/s. 201(1A) is concerned it is mandatory. What is the period for which the interest is to be calculated? - A proviso has been inserted to the provisions of section 201(1A) by the Finance Act, 2012 w.e.f 01.07.2012 wherein it has been clarified that the interest u/s. 201(1A) shall be payable from the date on which such tax was deductible to the date of the furnishing of return of income by the deductee. This proviso to section 201(1A) of the Act is only clarificatory in nature and would apply retrospectively. In the circumstances, we do not find any infirmity in the order passed by the Ld.CIT(A) in holding that the interest shall be calculated from the date on which tax was first deductible by the deductor to the date of filling of return by the recipient deductee. Thus, we uphold the orders of the Ld.CIT(A) and reject the grounds of the assessee.

Summary

Issues:
Appeals against orders of Ld.CIT(A) for Assessment Years 2008-09, 2009-10, and 2011-12 regarding interest u/s. 201(1A) for delayed TDS payment.

Analysis:
1. Nature of Payments and TDS Deduction:
The assessee, a Public Charitable Hospital, made payments to various parties deducting TDS @2% u/s. 194C. The Assessing Officer contended these were professional charges requiring TDS u/s. 194J. Assessee argued payments were for services on a contractual basis, not professional services. Assessing Officer held the assessee in default for short deduction of TDS.

2. Rectification Petition and Deletion of Demand:
Assessee filed a rectification petition demonstrating that payees paid taxes on received amounts. DCIT (TDS) accepted this, deleting the demand u/s. 201(1). Subsequently, interest u/s. 201(1A) was charged for delayed TDS payment.

3. Interest Calculation Period and Liability:
Assessee contended no interest if no tax liability for the deductee. Ld.CIT(A) held interest u/s. 201(1A) chargeable from the date of deductibility to the filing date of the return by the deductee. Assessee cited Supreme Court and High Court decisions to support their case.

4. Judicial Interpretations and Provisions:
Supreme Court rulings emphasized the mandatory nature of interest u/s. 201(1A) as a compensatory measure for withholding tax. The interest period is from the date of deductibility to the return filing date by the payee. The insertion of provisos by the Finance Act, 2012 clarified the interest calculation period retrospectively.

5. Decision and Conclusion:
The Tribunal upheld Ld.CIT(A)'s decision, stating interest calculation from the date of deductibility to the payee's return filing date. Previous judgments cited by the assessee were deemed inapplicable due to the insertion of provisos. Therefore, the appeals of the assessee were dismissed, and the order was pronounced on 31st May 2019.