2022 (6) TMI 749 - AT - Income Tax

Maintainability of the order/s u/s. 201 201(1A) for failure to deduct tax at source and interest thereon (for the delayed deposit with the Central Government) - The confused and non acceptable system of accounting was being followed - whether income of recipient is exempt from tax or whether tax has been paid by the recipient in view of judgment of Hon'ble Apex Court in Hindustan Cola 2007 (8) TMI 12 - SUPREME COURT ? - HELD THAT - It is clear that neither before him nor before us there is anything on record to exhibit the income of the payee-societies, much less the whole of it, as exempt u/s. 80P, or even if they have claimed it per their returns of income for the relevant years. Rather, as observed by the ld. CIT(A), the proper course, even in such a case, is for the payees to obtain a certificate of deduction of tax at source u/s. 197 at nil or a lower rate, only which would enable the assessee to either not deduct tax at source or do so at a lower rate. Further, as we see it, it is only where the fact of exemption from tax of the payee s income, which is subject to TDS, is admitted and unqualified, as where it is not hinged by or subject to any conditionality, that perhaps one could argue of non-liability to TDS (inasmuch as the tax deduction provisions would extend only to income chargeable to tax), else not (see G.E. India Technology Centre (P.) Ltd. 2010 (9) TMI 7 - SUPREME COURT The Apex Court in Hindustan Coca Cola Beverage P. Ltd. (supra) held that a payer may not deduct tax at source where the same stands already deposited by the payee (with the Central Govt.), adducing proof to that effect, though shall be liable to interest for the delayed payment of tax as well as penalty, being the position of law as clarified by the Board itself per it s Circular dated 29/1/1997. The assessee s reliance on the said decision is wholly unevidenced and without merit. The assessee s liability to deduct tax at source in respect of the sums under reference being patent and, in fact, admitted, we have no hesitation in, upholding the impugned order, dismissing the assessee s appeals as not pressed/without merit.

Summary

Issues:
Maintainability of the order/s u/s. 201 & 201(1A) for failure to deduct tax at source and interest thereon.

Analysis:

1. The appeals by the Assessee contested the order dated 21/3/2013 under sections 201(1) & 201(1A) of the Income Tax Act, 1961 for AYs 2010-11 to 2012-13. The appeals raised identical issues regarding the maintainability of the orders for failure to deduct tax at source and interest thereon. The appeals were heard together and disposed of through a common order.

2. The Assessee, a Department of the State Government, procures food grains directly from farmers organized in societies for the Public Distribution System. The tax deduction at source on various payments made to these societies, including commissions and charges, was the main contention. The CIT(A) upheld the TDS liability, emphasizing that even if the income of the recipient is exempt, the liability to deduct TDS cannot be diluted. The Assessee followed a hybrid system of accounting, leading to confusion in financial affairs.

3. The Assessee pressed Ground 9 before the tribunal, arguing that the CIT(A) failed to examine if the recipient's income was exempt from tax. However, none of the societies claimed exemption under section 80P. The tribunal noted that without proof of exemption, the liability to deduct TDS remains. The tribunal cited legal precedents to support the position that TDS is required unless the payee's income is unconditionally exempt from tax.

4. As the Assessee's liability to deduct tax at source was evident and admitted, the tribunal upheld the impugned order, dismissing the appeals. The tribunal emphasized that the Assessee's reliance on a specific judgment was unfounded and without merit. Therefore, the appeals were dismissed, affirming the Assessee's obligation to deduct tax at source on the payments made to the societies.

5. The tribunal pronounced the order on June 15, 2022, dismissing the Assessee's appeals challenging the TDS liability and interest under sections 201(1) & 201(1A) of the Income Tax Act, 1961 for the assessment years 2010-11 to 2012-13.