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TMI Blog2014 (1) TMI 1442X X X X Extracts X X X X X X X X Extracts X X X X ..... on 194A, no TDS was required to be made as all the recipients of interest are Banks which are exempted from TDS. 3. Because without prejudice to Grounds of Appeal No.1 and 2 above the Learned Commissioner of Income Tax (Appeals) I, Kanpur erred in ignoring the fact and also case laws of CIT v. Eli Lily & Co. 178 Taxman 505 (SC), Hindustan Coca Cola Beverage P. Ltd. v. CIT 163 Taxman 355 (SC), CIT v. Rishikesh Aptmts. 119 Taxman 239 (Guj.) and CIT v. Raj. Rajya Vidyut Prasaran Nigam Ltd. 161 Taxman 133 (Raj.) cited before him that since the income of the recipients of the interest paid by the appellant were Gramin Banks whose income was entitled for deduction under section 80P of the Act vide Circular no. 319 dated 11.1.1982 therefore not liable to pay tax hence no Interest should have been charged at all under section 201 (1A) even if the appellant was held to be a defaulter for not having made TDS on interest paid because there being no loss to the exchequer as interest is held to be compensatory in nature. 4. Because the Learned Commissioner of Income Tax (Appeals) erred in ignoring the fact of charging of TDS and interest even in such cases where TDS exemption forms were obtai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r interest on debentures or other securities for money issued by or on behalf of a local authority or a company or a corporation established by a Central, State or Provincial Act. UPFC is a corporation established by State Financial Corporations Act, 1951, hence there is no exemption available to it for non deduction of tax u/s 193. I. The assessee did not deduct tax at source on payment of interest on SLR and non SLR bonds to certain banks as mentioned in the list at beginning of this order. In its reply, the assessee submitted that all of these banks were Gramin and cooperative banks which were covered under the exemption of income under section 80P of the Income Tax Act, 1961 and they had represented to the assessee for non deduction of TDS, therefore, tax was not deducted. The reply of the assessee is not acceptable. The assessee has to deduct tax at source in all the conditions except in the cases where it has been specifically provided. In section 193, there is no exemption from deduction of tax on payment of interest to these banks. However, no tax should be deducted where any certificate u/s 197 by the AO of the payee. Further, as per the provisions of section 197A, tax ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orporation and had no mala fide or vested interest in not complying with any provisions of the Act regarding TDS to be made on payment of interest by the assessee. It was further contended that the recipients of interest were also public bodies and were not private parties which may have some interest in not getting the TDS made by the assessee at the time of payment of interest to them, therefore, there was no mala fide at all. It was further contended that the interest payable on SLR and non SLR bonds was in the nature of interest payable on Government securities, therefore, there was no need to make TDS as it was exempted from TDS u/s 193 of the Act. It was also contended that most of the recipients are Gramin Banks which were entitled to deduction of income u/s 80P of the Act vide Circular No. 319 dated 11/01/1982, therefore, the interest income received by them from the assessee was also exempted from tax in the recipients hands. Thus, it was considered that there was no requirement for the assessee to deduct TDS from the payment of interest made to Gramin and Cooperative Banks. The contentions of the assessee were examined by the CIT(A). Being not convinced with it, he dismis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. CIT 163 Taxman 355 (SC) 3. CIT vs. Rishikesh Apartments 119 Taxman 239 (Guj.) 4. CIT vs. Rajasthan Rajya Vidyut Prasaran Nigam Ltd. 161 Taxman 133 (Raj.) 5. Jagran Prakashan Ltd. vs. Dy. CIT [2012] 345 ITR 285 (All) 6. Commissioner of Income-tax Vs Adidas India Marketing P. Ltd. [2007] 288 ITR 379 (Del) 7. Ramkrishna Vedanta Math vs. Income Tax Officer 18 ITR (Trib) 603 (Kol) 6. The learned D.R., on the other hand, submitted that before the Tribunal the assessee has raised a new argument with regard to the financial position of the assessee and its method of accounting. This argument was never raised before any of the lower authorities. Since the argument requires verification of facts, it cannot be considered at this stage. The learned D.R. further placed heavy reliance upon the order of CIT(A) with the submission that since the assessee has not deducted TDS while making payment of SLR and non SLR bonds, the Revenue has rightly treated it to be an assessee in default and charged interest u/s 201(1A) of the Act. 7. Having given a thoughtful consideration to the rival submissions and from a careful perusal of the material available on record and the judgments referred to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the recipient of income has not paid due taxes thereon. In the absence of the statutory powers to requisition any information from the recipient of income, the assessee is indeed not always able to obtain the same. Once assessee furnishes the requisite basic information, the Assessing Officer can very well ascertain the related facts about payment of taxes on income of the recipient directly from the recipients of income. Therefore, once recipient has paid the taxes on the receipts, the payer cannot be held to be the assessee in default and so far the levy of interest u/s 201(1A) is concerned, the interest is admittedly compensatory in nature and it is applicable for the period of the date on which tax was required to be deducted till the date when tax was eventually paid. The relevant observations of the Tribunal in the aforementioned case are extracted as under for the sake of reference: "6. It is, however, important to bear in mind the settled legal position that a short deduction of tax at source, by itself does not result in a legally sustainable demand u/s 201(1) and u/s 201(1A). As held by Hon'ble Supreme Court in the case of Hindustan Coca Cola Beverage Pvt. Ltd. Vs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icer to demonstrate that the condition is satisfied. No doubt the assessee has to submit all such information about the recipient as he is obliged to maintain under the law, once this information is submitted, it is for the Assessing Officer to ascertain whether or not the taxes have been paid by the recipient of income. This approach, in our humble understanding, is in consonance with the law laid down by Hon'ble Allahabad High Court. 8. It is important to bear in mind that the lapse on account of non deduction of tax at source is to be visited with three different consequences - penal provisions, interest provisions and recovery provisions. The penal provisions in respect of such a lapse are set out in Section 271 C. So far as penal provisions are concerned, the penalty is for lapse on the part of the assessee and it has nothing to do with whether or not the taxes were ultimately recovered through other means. The provisions regarding interest in delay in depositing the taxes are set out in Section 201(1A). These provisions provide that for any delay in recovery of such taxes is to be compensated by the levy of interest. As far as recovery provisions are concerned, these provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l the learned Counsel for the assessee has raised a new argument for non deduction of TDS on account of its financial constraints and the pendency of the agreement with the bondholders for appropriate reduction in interest rates. Besides, the contention was raised that most of the recipients are cooperative societies and Gramin Banks and entitled for deduction u/s 80P of the Act and some of the recipients have also submitted the Form No. 15A for non deduction of TDS. Even if it is to be held that the assessee was required to deduct TDS, the matter has to go back to the Assessing Officer for verification of the facts whether the recipients are exempted from tax u/s 80P of the Act or they have filed the Form No. 15A for non deduction of TDS before the Assessing Officer during the course of proceedings. Without adjudicating these facts, the assessee cannot be held to be in default. Besides, for verification of the above facts, the Assessing Officer is also required to verify about the payment of tax on receipts by the recipients. Unless and until it is established that the recipients have not paid any tax on the receipts on which they are liable to pay the tax, the assessee cannot be ..... 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