2023 (9) TMI 745 - AT - Income Tax

Assessee in default - Period of limitation to pass order - TDS u/s 194A - Interest other than interest on securities - Non deduction of TDS where form 15H has been furnished - order passed u/s. 201(1)/201(1A) treating the assessee in default for non-deduction of tax at source - HELD THAT - The time limit under the substituted provision is seven years from the end of the financial year in which the payment is made or credit for the income is allowed. The order u/s 201(1)/(1A) came to be passed in this case on 27.3.2019, which is within a period of seven years from the end of the financial year in which the interest income was paid/credited to the customers accounts. Such an order is clearly within the limitation period. Thus, the ground of limitation raised by the assessee does not stand. The same is, ergo, dismissed. Liability of the assessee to deduct tax at source - The net effect of the Explanation to section 191, section 194A read with section 197A and 201 is that there will be no obligation to deduct tax at source on furnishing the necessary declaration by customers where either the interest income does not exceed the basic exemption limit or the depositor is more than the prescribed age and he furnishes the declaration that tax on his total income including interest from the bank will be Nil. In order to treat a person as assessee in default, firstly, there should be an obligation to deduct tax at source and despite such obligation, the person fails to deduct tax at source or pay after such deduction and further the payee has also not paid tax directly. The question whether the assessee is in default in terms of section 201(1) needs to be determined in the light of Explanation to section 191. Howbeit, the cases covered u/s 197A(1A) i.e. the eligible person furnishing declaration in form No. 15G that his tax liability on total income, including the interest, will be Nil but not hit by section 197A(1B) i.e. interest income other than interest on securities as referred to in section 194A does not exceed the basic exemption limit , will at the outset be excluded from consideration as not entailing any obligation to deduct tax at source. Similarly, the cases covered u/s 194A(1C) i.e. persons exceeding the specified age furnishing form No. 15H to the effect that tax on their total income including such interest will be Nil will also be excluded. Interest u/s 201(1A) is payable by the assessee - Even w.r.t. the cases where it is not in default in terms of Explanation to section 191 - from the date when the tax was deductible up to the date of filing of return by the payee including the interest income in his total income. However, the cases in which there is no obligation to deduct tax at source will not be considered for interest u/s 201(1A) of the Act. In the ultimate conclusion, we set aside the impugned order and send the matter back to the AO for passing a fresh order u/s 201(1)/(1A) in the light of above directions. In case it is found that the recipients included such amount of interest in their total income, then the assessee should not be treated in default in terms of section 201(1).

Summary

Issues Involved:
1. Delay in filing the appeal before CIT(A).
2. Limitation for passing the order under section 201(1)/(1A).
3. Liability of the assessee to deduct tax at source under section 194A.
4. Treatment of the assessee as in default under section 201(1) and interest under section 201(1A).

Summary:

1. Delay in Filing the Appeal:
The appeal by the assessee was delayed by 633 days. After accounting for the Corona period, the delay was reduced to 324 days. The CIT(A) did not condone the delay, leading to the dismissal of the appeal. However, the Tribunal, following a similar case (Bank of India, Dongargaon Branch), condoned the delay, finding a reasonable cause for the late filing.

2. Limitation for Passing the Order under Section 201(1)/(1A):
The assessee argued that the order passed by the AO was time-barred based on the provisions of section 201(3)(i). However, the Tribunal noted that the relevant financial year was 2011-12, and the substituted sub-section (3) of section 201, effective from 01-10-2014, applied. This provision allows a seven-year period from the end of the financial year in which the payment was made or credit was allowed. The order dated 27-03-2019 was within this period, thus not time-barred.

3. Liability to Deduct Tax at Source:
The assessee contended that it received Form Nos. 15G/15H from customers, discharging it from the obligation to deduct tax at source under section 194A. However, the Tribunal emphasized that the obligation to deduct tax remains unless the recipient has paid the tax directly. The mere submission of Form Nos. 15G/15H does not suffice if the interest income exceeds the basic exemption limit.

4. Treatment as Assessee in Default and Interest under Section 201(1A):
The Tribunal clarified that under Explanation to section 191, a person responsible for deducting tax can only be treated as an assessee in default if both conditions are met: failure to deduct/pay tax and the recipient's failure to pay tax directly. The bank's obligation to deduct tax persists unless the recipient pays the tax directly. The Tribunal also noted that even if the assessee is not treated as in default under section 201(1), it is still liable to pay interest under section 201(1A) for the period from when the tax was deductible to when the recipient paid the tax.

Conclusion:
The Tribunal set aside the impugned order and remanded the matter back to the AO for a fresh order under sections 201(1)/(1A), considering the directions provided. The AO must verify if the recipients included the interest in their total income, in which case the assessee should not be treated as in default under section 201(1). The appeal was partly allowed for statistical purposes.