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TMI Blog2024 (12) TMI 30X X X X Extracts X X X X X X X X Extracts X X X X ..... tion would render Sec. 192(3) nugatory and an employer would be put to undue burden of payment of interest for no fault of him. From this analysis, it is apparent that on mere short deduction of tax at source from the salaries paid to the employees, Sec. 201(1A) cannot be invoked, unless the total tax deducted by the end of the year is less than the tax deductable from the salary paid to the employee in that year. Since, in the instance case the assessee has reasonably estimated the income and in view of the above circumstances there was a short deduction of tax at the beginning of financial year which is adjusted in the later months. Therefore in our considered view interest is not chargeable for mere short deduction in the initial months. Thus these grounds raised by the assessee are allowed. Confirming the levy of interest u/s 220 sub-clause (2) of the Act - After having gone through the provisions of Sec. 220 subclause (2) of the Act, we are of the considered view that the same is applicable only where the amounts specified in the notice of demand issued u/s 156 of the Act is not paid within the stipulated period. But in the present case the provisions of Sec. 220 sub-clause (2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me Tax (Appeals) erred in confirming the levy of interest under Section 220(2) of the Act. The Appellant denies its liability to the levy of such interest and submits that the same be deleted. 3. There is delay in filing this appeal, for which the assessee filed an application for condonation of delay and the contents of application for condonation of delay reads as under: a) The Order under Section 250 of the Act passed by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, ( CIT(A) ) against the Order passed under Section 201(1A) of the Act for the abovementioned Assessment Year was forwarded by e-mail to Mr. Aloysius D'Mello, Assistant General Manager, Accounts (the designated staff member), of the Company on June 27, 2022. The physical copy of the aforesaid Order passed under Section 250 of the Act has not been served on the Company till date. b) The Company recently received a notice dated May 2, 2024, from the Deputy Commissioner of Income Tax, OSD TDS Circle 2(3), Mumbai, for recovery of the outstanding demands raised vide the Orders dated March 11, 2019 passed under Section 201(1A) of the Act for the Financial Years 2011-12 to 2018- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same. I hereby confirm that the statements in this Affidavit hereto are true and correct to the best of my knowledge and belief. 4. On the other hand, the ld DR could not rebut the facts submitted by the assessee before us for seeking condonation of delay. 5. We have considered the rival submissions as well as relevant material on record. As regards the sufficiency of cause for filing the appeals belatedly, it is settled principles of law that the Courts have to take liberal approach while interpreting the expression sufficient cause for condonation of delay. In case of Collector, Land Acquisition Vs. Mst. Katiji (1987) 167 ITR 471, the Hon ble Supreme Court has laid down the principle that the power to condone the delay provided under the statute is to enable the Courts to do substantial justice to the parties by disposing of the matter on merits, therefore, while considering the matters for condonation of delay, the law must be applied in a meaningful manner which subserves ends of justice and technical considerations should not come in the way of cause of substantial justice. There is no quarrel that the explanation and reasons explained for delay must be bonafide and not merel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are the staff which is permanently stationed in the office. The Appellant submits that determining the residential status of onshore staff was not an issue and therefore, there is no delay whatsoever in deducting and depositing the TDS under section 192 in respect of salaries paid to onshore staff. 3) The second category i.e, the floating staff, are employees who are deployed on-board vessels. The vessels of the Appellant are deployed within Indian waters as well as in foreign waters. It may be noted that the Appellant has duly deducted TDS on salaries of employees for the period when the vessel was in Indian waters. 4) In respect of the period when the vessels were deployed in foreign waters, the Appellant was unable to determine at the start of the financial year as to which of the floating staff would be non-resident and which staff would become resident during the Financial Year on account of their stay in Indian waters or on Indian soil (on account of leave, break in service, etc.). 5) Furthermore, many of the employees are contractual employees who take up employment with the company generally for 60 days at a time. In such cases, the employees declare that they are non-resid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, but also authorizes adjustment in case of total failure to deduct tax during the financial year. Sub- section (3), therefore, makes it abundantly clear that if there is a failure to deduct tax in a financial year, the same can be deducted by way of adjustment during the financial year. In those circumstances, the obligation to deduct tax at the time of payment, which is the mandate of subsection (1) of section 192, extends up to the end of the financial year by virtue of the provisions contained in sub-section (3) of section 192. 10) In this regard, attention is also drawn to Circular No.586 dated 28-11-1990, the relevant extract whereof is reproduced hereunder: Circular: No. 586, dated 28-11-1990 Clarification regarding liability to income-tax in India and deduction of tax at source of members of the crew of foreign going Indian ship 4. Under section 192 of the Income-tax Act, persons responsible for paying salary and other incomes chargeable under Income-tax Act under the head Salaries are required to deduct income-tax from such income at the time of payment. For this purpose, the amount of tax to be deducted is computed at the average rate of income-tax arrived at by applying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to make adjustments. Subsection (3) does not stop while authorising adjustment in case of excess or deficient deduction, but also authorises adjustment in case of total failure to deduct during the financial year. Subsection (3). therefore, makes it abundantly clear that if there is a failure to deduct in a financial year, the same can be deducted by way of adjustment during the financial year. In those circumstances, the obligation to deduct at the time of payment, which is the mandate of sub- section (1) of section 192, stands extended up to the end of the financial year by virtue of the provisions contained in sub-section (3) of section 192 of the Act. The right to adjust, granted by sub-section (3) does not extend beyond the financial year. 5. The learned counsel for the appellants submitted that in view of the pronouncement as above, the provisions of section 201(14) of the Act would become otiose. We do not think so. Section 201(1A) applies only when during the financial year whole or any part of the tax deductible has not been deducted. We accordingly, conclude the matter and answer the question, as above, in favour of the assessee, while dismissing the appeal. 13) There are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lies on the following decisions where on a similar issue the interest on late deduction of TDS on salaries was deleted: a) Vinsons vs. Third ITO (89 ITD 267) (Mumbai) b) Hero Honda Motors Ltd. vs. ITO (112 Taxman 154) (Delhi Trib.) c) ITO vs. Asian Hotels Ltd. (41 TTJ 28) (Delhi Trib.) d) Executive Engineer, T.L.C. Division, A.P. State Electricity Board v. ITO (20 ITD 318) (Hyd.) e) ITO v. Cadila Laboratories Pvt. Ltd. (56 TTJ 156) (Ahmedabad Trib.) In view of what is stated in the foregoing, the Appellant is not liable for the levy of interest under section 201(1A) of the Act as it has deducted tax at source in accordance with the provisions of Section 192 of the Act, Erroneous Rate of Interest The Assessing Officer has erroneously computed the interest under Section 201(1A) of the Act @1.5% p.m. as against the rate of 1% p.m. on the alleged deferment in the payment of the tax deducted at source. The provisions of Section 201(1A) of the Act read as under: (1A) Without prejudice to the provisions of sub-section (1), if any such person, principal officer or company as is referred to in that sub-section does not deduct the whole or any part of the tax or after deducting fails to pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act is not paid within the stipulated period. The provisions of Section 220(2) of the Act are not applicable to the Appellant as no order or notice of demand was issued in respect of the aforesaid Assessment Year. In view of what is stated in the foregoing, Appellant denies its liability to the levy of interest under Section 220(2) of the Act, and submits that the same be deleted. 9. The Ld. DR relied upon the orders passed by the revenue authorities. 10. We have heard the counsels of both the parties and perused the material placed on record, judgments cited by the parties and also orders passed by the revenue authorities. 11. The entire controversy in the present appeal is with regard to levy of interest by the AO u/s 201(1A) of the Act @ 1.5 pm. As per AO the assessee has not followed the approach envisaged in sub-section (1) of section 192 of the Income Tax Act which mandates an employer to estimate salary income of the employee for the entire year and deduct monthly TDS on prorate basis. 12. To adjudicate the controversy in question, it is necessary to evaluate the factual as well as legal aspect of the present case. 13. As per the facts of the present case the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the residential status of the floating staff becomes clear. In this regard, it was further submitted by Ld. AR that the assessee keeps track of the number of days each of the floating staff has spent in India. In the absence of clarity of the residential status the assessee has deducted TDS in a bonafied manner on a best estimate basis in respect of the floating staff and the final liability in respect of floating staff is determined only in the last quarter of the financial year and tax is deducted and deposited on the same by the end of the financial year. Even otherwise as per Ld. Ld.AR, the appellant discharges the entire TDS liability with the due date as prescribed by the Act. 16. Before we proceed, further we would like to evaluate the provisions section 192 sub-clause 3 of the Act which reads as under; The person responsible for making the payment referred to in sub-section (1) or sub-section (1A) or sub-section (2) or sub-section (2A) or sub-section(2B) may, at the time of making any deduction, increase or reduce the amount to be deducted under this section for the purpose of Aadjusting any excess or deficiency arising out of any previous deduction or failure to deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s tax and deduct only so much of tax as would be chargeable on the estimated income liable to tax in India. If the shipping company or other person responsible for paying to such members of crew subsequently finds that any person who was earlier considered as not likely to be resident in India and deduction of tax at source was made on that basis is now likely to be resident in India, the shipping company or the other person responsible for making the payment, may increase the deduction so as to adjust any deficiency arising out of an earlier short deduction or nondeduction during the same financial year. 19. The Ld. AR also relied upon the decision in the case of Coordinate Bench of the ITAT, Mumbai in the case of Vinsons Vs. ITO reported in [2004] 89 TDS 267 (Mum), wherein it was held as under: 4. We have carefully considered the rival submissions and perused the record. Section 192(1) of the Income-tax Act, 1961 speaks of deduction of tax at source on the amount payable at the average rate of income tax computed on the basis of the rates in force for the financial year in which the payment is made, on the estimated income of the assessee under this head for that financial year. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onths. 5. Therefore, in our considered opinion, interest is not chargeable for mere short deduction in the initial months. In the result, the appeals filed by the assessee are allowed. 20. And also the decision of Uttarakhand High Court in the case of CIT VS. Enron Expat Services Inc. reported in [2010] 194 taxman 70. wherein it was held as under: 4. It is true that sub-section (1) of section 192 of the Act contemplates deduction of income-tax at the time of payment and at the same time, section 201(1A) deals with a situation when tax is not deducted, but sub- section (3) of section 192 is a part of section 192 required to be read with sub-section (1) thereof, for nothing has been expressed in the Act to treat sub-section (3) as a separate provision. The object and purpose of sub- section (3) is to permit the person obliged to deduct to make adjustments. Subsection (3) does not stop while authorising adjustment in case of excess or deficient deduction, but also authorises adjustment in case of total failure to deduct during the financial year. Subsection (3), therefore, makes it abundantly clear that if there is a failure to deduct in a financial year, the same can be deducted by w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be put to undue burden of payment of interest for no fault of him. From this analysis, it is apparent that on mere short deduction of tax at source from the salaries paid to the employees, Sec. 201(1A) cannot be invoked, unless the total tax deducted by the end of the year is less than the tax deductable from the salary paid to the employee in that year. Since, in the instance case the assessee has reasonably estimated the income and in view of the above circumstances there was a short deduction of tax at the beginning of financial year which is adjusted in the later months. Therefore in our considered view interest is not chargeable for mere short deduction in the initial months. Thus these grounds raised by the assessee are allowed. Ground No.5 23 This ground raised by the assessee relates to challenging the in confirming the levy of interest u/s 220 sub-clause (2) of the Act. 24. We have heard the counsels of both the parties and perused the material placed on record and the orders passed by the revenue authorities. From the records, we noticed that AO has levied interest u/s 220 sub-clause (2) of the Act, whereas the provisions of Sec. 220 sub-clause (2) of the Act which reads ..... X X X X Extracts X X X X X X X X Extracts X X X X
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