Interest for non deduction of TDS every Month on salaries

CIT v. Enron Expat Services Inc. [2011] (330 ITR 496) (Uttarakhand)

Facts:

• The assessee paid salary to its employees during the relevant assessment year (“AY”) but did not deduct tax in each month

• The assessing officer (“AO”) imposed interest on the assessee under section 201(1A) of the Income-tax Act (“ITA”)

• The CIT(A) upheld the order of the AO. However, the Tribunal held in favour of the assessee

Issue: Is the assessee an “assessee in default” u/s 201 because it did not deduct tax in each month?

Decision:

• Subsection (3) to section 195 of the ITA states that the person responsible for making payment under subsection (1), (1A), (2) , (2A) and (2B) may at the time of making any deduction, increase or reduce the amount to be deducted for the purpose of adjusting any excess or deficiency arising out of any previous deduction or failure to deduct tax during the financial year

• Subsection (3) 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

• Accordingly, the mandate to deduct tax u/s 192 stands extended to the end of the financial year.

• Accordingly, the assessee is not an assessee in default.

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2. Corrigendum to Circular No. 1/2010 related to deduction of tax on salaries
3. S.192 TDS on Salary Provisions for A.Y. 2011-12
4. Netting of Interest receipt not allowed for Calculating deduction u/s. 80HHC: Bombay HC
5. Unrealised loss on outstanding interest rate swaps would be allowable as business deduction