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TMI Blog2016 (8) TMI 1240X X X X Extracts X X X X X X X X Extracts X X X X ..... ner for alleged doubt and we have proceeded to decide the matter holding the petitioner defaulter by violating requirement of deduction of TDS under section 194A so as to attract action by the concerned authority under section 201 of the Act, 1961. In view of the above, demand of tax is patently illegal and without jurisdiction. Vires of section 201 challenged - Held that:- When commenced arguments, gave up this plea and stated that he is confining his challenge only to the validity of orders passed by the Income-tax Officer (TDS), impugned in writ petitions, and the same may be considered in the light of relevant provisions of the Act, 1961, and matter be decided accordingly. Hence, we have not looked into vires of section 201 since that plea has been given up. The Income-tax Officer (TDS) is required to find out whether there is any liability of interest on the amount of TDS deductible under section 194A but not deducted and then from the date on which such amount was deductible and the date when actual tax was paid, to compute the amount of interest payable by the petitioner. In this regard, he will have to pass a fresh order X X X X Extracts X X X X X X X X Extracts X X X X ..... h 3, 2006 informed the Income-tax Officer (TDS) that no TDS was deductible under section 194A hence the GDA cannot be held to be an "assessee in default" under section 201(1). 7. The Income-tax Officer (TDS) thereafter passed orders dated April 5, 2006 in respect to both assessment years demanding the amount of TDS as tax, and, interest under section 201(1A) and also surcharge to the following effect : Sl. Assessment year Amount of Surcharge Amount of interest (Rs.) Total 1 2001-02 2,03,63,740 1,71,80,520 26,47,281 4,01,91,541 2 2002-03 1,66,24,683 3,32,496 99,90,446 2,69,47,625 8. The petitioner has also stated that in respect of assessment orders passed by the Assessing Officer for disputed period of assessment in respect to PNBHFL and LICHFL, tax on the amount of interest received by both bodies was already paid by them and in support thereof a copy of the assessment orders of both PNBHFL and LICHFL have been filed. 9. The respondents have filed counter-affidavit stating that the petitioner was under statutory obligation of deduction of TDS under section 194A on the amount of interest paid to PNBHFL and LICHFL. Since no TDS was deducted and deposit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to which the Banking Regulation Act, 1949 (10 of 1949) applies (including any bank or banking institution referred to in section 51 of that Act) ; or (b) time deposits with a co-operative society engaged in carrying on the business of banking ; (c) deposits with a public company which is formed and registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes and which is eligible for deduction under clause (viii) of sub-section (1) of section 36, the aforesaid amount shall be computed with reference to the income credited or paid by a branch of the banking company or the co-operative society or the public company, as the case may be ; . . . (iii) to such income credited or paid to- (a) any banking company to which the Banking Regulation Act, 1949 (10 of 1949), applies, or any co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank), or (b) any financial corporation established by or under a Central, State or Provincial Act, or (c) the Life Insurance Corporation of India established under the Life Insu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applicable nor the Financial Corporation established by or under a Central, State or Provincial Act nor LIC Housing Finance Limited can be said to be LIC of India itself established under the Life Insurance Corporation Act, 1956, nor is a company carrying on business of insurance and both were not covered by any of the exception under sub-section (3), therefore, liability of deduction of tax under section 194A(1) was clear and unambiguous, still GDA made default in not deducting TDS on huge amount of interest paid to the aforesaid two companies hence it is an "assessee in default" under section 201(1) of the Act, 1961. 14. After going carefully through the provisions of section 194A(1) and (3), we are satisfied that neither PNBHFL nor LICHFL comes within any of the exceptions in respect whereto TDS deductible under sub-section (1) of section 194A was excepted. Therefore, GDA was in default when it did not deduct TDS on the amount of interest paid to these two companies. Issue 1 is answered in the affirmative. 15. However, the matter does not rest here for the reason that section 201 takes care where some default has been committed in deduction of TDS. The liability or c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 94G, section 194H, section 194-I, section 194J, section 194K, section 194L, section 195, section 196A, section 196B, section 196C and section 196D shall be without prejudice to any other mode of recovery." (emphasis added) 16. Section 200 requires a person, deducting any sum under section 194A and others, to pay the same within prescribed time to the credit of the Central Government or as the Board directs. Therefore, if TDS has been deducted, it is more serious matter, if amount of TDS is kept by person, who has deducted it and fails to deposit the same with the Income-tax Department. 17. Here is not a case where TDS was deducted by GDA but not paid within time with the Income-tax Department. Here is a case where no TDS was deducted under section 194A(1) at all. 18. Sub-section (1) of section 201, by applying fiction, declares that the person who fails to deduct tax at source or deducted but not deposited as required under the Act, 1961, is deemed to be an "assessee in default" in respect of tax without prejudice to any other consequence which he or it may incur. Therefore, sub-section (1) declares such a person, an "assessee in default", in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uot;assessee in default" or by the assessee to whom interest was actually paid, but TDS was not deducted, the liability of interest under sub-section (1A) will be confined only to the period of the date of deduction of TDS or when it was deductible, and the date of actual payment of tax, irrespective of the fact, who has paid tax to the Department. The reason is quite obvious. Tax deducted at source is not a tax or income of person who is deducting tax at source while making payment. Deduction at source is only to secure tax payable to the Government. It is not a fresh levy. Income remains the same. There may be occasions when a person to whom payment is made, may be exempted from payment of tax. Deduction of tax at source is not a liability of tax under the Act. It is only a mode of recovery of tax deducted. Section 201, by deeming fiction, failure to deduct tax by a person declares him or it an "assessee in default", so as to impose penalty and charge interest. But if tax is actually paid, it is not to be realised again from such person liable to deduct tax at source. In fact, section 201 itself no where authorises any authorities of the tax Department to demand or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court in Grindlays Bank Ltd. v. CIT [1992] 193 ITR 457 (Cal) wherein the court said that if tax has been realised once, it cannot be realised again, but that does not mean that the assessee will not be liable for payment of interest or any legal consequence for its failure to deduct or to pay in accordance with law to the Revenue. 26. In CIT v. Dhanalakshmy Weaving Works [2000] 245 ITR 13 (Ker), the court read section 201 of the Act, 1961 in the manner that sub-section (1) talks of levy of penalty for non-deduction or failure in deposit of deducted TDS while sub-section (1A) deals with levy of interest. It also held that sub-section (1A) which talks of interest is mandatory provision and if there is default in deduction of TDS, interest shall be leviable. 27. Learned counsel for the Revenue also could not dispute that recently Amritsar Bench of the Income-tax Appellate Tribunal has followed the same view in M. S. Chahal, Chief Agricultural Officer v. ITO [2004] 82 TTJ (Asr) 841 decided on December 31, 2003, and that the judgment has become final. The Tribunal has found that deduction of tax at source is different from tax on total income. Any amount of TDS is liable to be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal was dismissed by the High Court also. HCCBPL then submitted a rectification application before the Tribunal stating that it has no objection regarding levy of interest under section 201(1A) but since the warehouse owner namely M/s. Pradeep Oil Corporation was assessed on its income and tax due was recovered by the Revenue from it, therefore no further tax towards alleged shortage of TDS could have been demanded from HCCBPL and this aspect was not considered earlier hence there is a mistake. The Tribunal allowed this application of HCCBPL and held that the amount of tax was not leviable from M/s. Pradeep Corporation by Assessing Officer. The Revenue came in appeal before the High Court which was allowed by holding that the Tribunal could not have reopened the matter. The Supreme Court referring to Circular No. 275/201/95-IT(B) dated January 29, 1997, issued by the Central Board of Direct Taxes held that no recovery on tax could have been made from HCCBPL and set aside the judgment of the High Court. Paras 10, 11 and 13 of the judgment, referring to circular dated January 29, 1997, read as under (page 230 of 293 ITR) : "Be that as it may, Circular No. 275/201/95-IT(B), dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsequently it has been omitted. 32. So far as the status of PNBHFL and LICHFL is concerned, there was some genuine doubt regarding their status. Both companies are public limited companies and subsidiaries of the Punjab National Bank and Life Insurance Corporation of India. This caused some doubt whether TDS was deductible or not. However, for the purpose of adjudication of dispute in the present writ petition, we have not given any leverage or advantage to the petitioner for alleged doubt and we have proceeded to decide the matter holding the petitioner defaulter by violating requirement of deduction of TDS under section 194A so as to attract action by the concerned authority under section 201 of the Act, 1961. 33. In view of the above, demand of tax is patently illegal and without jurisdiction. 34. Moreover, the Income-tax Officer (TDS) has also demanded surcharge on the amount of TDS but has failed to appreciate that TDS is different from tax on total income and in absence of any specific provision, "assessee in default" under legal fiction by virtue of section 201(1) cannot be saddled with the liability of surcharge on the amount of TDS. 35. The petitioner has als ..... X X X X Extracts X X X X X X X X Extracts X X X X
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