1984 (4) TMI 94 - AT - Income Tax

Summary

Issues:
Assessee's liability under section 201(1) and section 201(1A) of the Income-tax Act, 1961.

Detailed Analysis:

Issue 1: Liability under section 201(1) and section 201(1A)
The dispute revolves around the assessee's liability to be deemed as an assessee in default and for payment of interest under section 201(1) and section 201(1A) of the Income-tax Act, 1961. The Income Tax Officer (ITO) noticed discrepancies in tax deductions at source by the assessee in two separate instances. In the first year, the ITO found that tax should have been deducted from payments made to contractors for binding bidis under section 194C, but the assessee failed to do so. The ITO treated the assessee as a defaulter and levied interest under section 201(1A). Similarly, in the second year, a similar situation arose, resulting in interest being levied. The Commissioner (Appeals) overturned these levies, leading to the revenue's appeals. The department contended that mens rea was not necessary for imposing interest under section 201(1A) and that the assessee's obligation under section 194C should have been met. The Tribunal opined that liability under section 194C should be examined on a case-by-case basis. The Tribunal also delved into the nature of the contractors in the bidi industry and their relationship with the manufacturer, suggesting that the assessee may not be liable under section 194C after all.

Issue 2: Appealability of Orders under section 201(1A)
The department argued that orders under section 201(1A) were not appealable to the Appellate Authority. The Tribunal disagreed, stating that orders under section 201(1) and 201(1A) were interconnected, with appeals permissible under section 246(1)(b) of the Act. The Tribunal highlighted the necessity of examining the liability under section 201 in conjunction with interest under section 201(1A). The Tribunal differentiated the present case from precedents cited by the department, emphasizing the right to appeal for the assessee in this scenario.

Issue 3: Determination of Liability
The Tribunal analyzed the liability of the assessee under section 194C in relation to the contractors' tax obligations. It emphasized that if the contractors were liable to pay income tax on the payments received, the assessee would be a defaulter. However, if the contractors were not assessed for income tax, there would be no requirement for tax deduction at source by the assessee. The Tribunal directed the ITO to reassess the individuals receiving payments from the assessee to determine their tax liabilities. Interest would only be levied on the assessee if the contractors were found liable for tax during the relevant period.

In conclusion, the Tribunal allowed the appeals for statistical purposes and directed a reassessment based on the observations made regarding the liability under section 194C and the necessity of tax deductions at source.