Case Law Details
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 provisions are set out in Section 201(1) which seeks to make good any loss to revenue on account of lapse by the assessee tax deductor. However, the question of making good the loss of revenue arises only when there is indeed a loss of revenue and the loss of revenue can be there only when recipient had a liability to pay the tax and he has not paid tax. Therefore, recovery provisions under section 201(1) can be invoked only when loss to revenue is established, and that can only be established when it is demonstrated that the recipient of income has not paid due taxes thereof and the recipient of the amounts had the liability to tax. 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. The provisions to make good the short fall in collection of taxes may thus end up being invoked even when there is no shortfall in fact. On the other hand, 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. It is not the revenue’s case before us that, on the facts of this case, such an exercise by the Assessing Officer is not possible. It does put an additional burden on the Assessing Officer before he can invoke Section 201(1) but that’ show Hon’ble High Court has visualized the scheme of Act and that’s how, therefore, it meets the ends of justice.
As far as levy of interest under sect ion 201(1A) is concerned, this interest is admittedly a compensatory interest in nature and it seeks to compensate the revenue for delay in realization of taxes. Hon’ble Bombay High Court, in the case of Bennett Coleman & Co Ltd Vs ITO (157 ITR 812) has held so. Therefore, levy of interest under section 201(1A) is applicable whether or not the assessee was at fault.
However, since it is only compensatory in nature 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. However, in a case in which the recipient of income had no tax liability embedded in such payments, there will obviously be no question of delay in realization of taxes and the provisions of section 201(1A) will not come into play at all. The computation of interest is to be redone in the light of this legal position.
The matter thus stands restored to the file of the Assessing Officer for fresh adjudication in accordance with the law and in the light of our observations above. While doing so, the Assessing Officer will give a due and fair opportunity of hearing to the assessee and dispose of the matter by way of a speaking order. We direct so. As regards all other issues, on facts and in law, these issues will be required to be dealt with only in the event of there being a tax demand under section 201(1) and 201(1A) after implementing the above directions. These issues are left open for the time being as these issues are in fructuous at this stage.
INCOME TAX APPELLATE TRIBUNAL, AGRA
[ Coram : Bhavnesh Saini, JM, and Pramod Kumar, AM]
I.T.A. No.:448 to 454/Agra/2011 – Assessment year: 2001-02 to 2007-08
Allahabad Bank Vs. Income Tax Officer (TDS and Survey)
Date of pronouncing the order : June 20, 2014
ORDER
Pramod Kumar:
1. All these seven appeals call into question correctness of a common order dated 27th September, 2011, passed by the CIT(A) Ghaziabad, in the matter of tax withholding demands under section 201(1) and 201(1A) r.w.s. 194 A for the assessment years 2001-02 to 207-08. All these pertain to the same assessee, involve a common issue and were heard together. As a matter of convenience, therefore, all these appeals are being disposed of together by way of this consolidated order.
2. To adjudicate on these appeals, only a few material facts need to be taken note of. The assessee before us is branch of a nationalized bank, and it was subjected to a survey, for examining compliance with tax withholding obligations, by the income tax authorities. During the course of this survey, it was noticed that the assessee has not complied with tax deduction at source obligations inasmuch as taxes were not properly withheld in respect of interest on certain deposits placed by the customers with the assessee. It was in this backdrop that the demands under section 201(1), in respect of non deduction of tax at source, and under section 201(1A), in respect of delay in depositing the tax the assessee ought to have withheld, were raised on the assessee. Aggrieved, assessee carried the matter in appeal but without any success. The assessee is not satisfied and is in appeal before us.
3. There are many other factual aspects raised and discussed in the orders of the authorities below, but, for the reasons we will set out in a short while and bearing in mind that the impugned demands raised before us are under section 201, we see no need to deal with those aspects of the matter.
4. We have heard the rival contentions, perused the material on record and duly considered factual matrix of the case in the light of the applicable legal position.
5. In our considered view, it is 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. CIT (293 ITR 226), the taxes cannot be recovered once again from the assessee in a situation in which the recipient of income has paid due taxes on income embedded in the payments from which tax withholding requirements were not fully or partly, complied with. Hon’ble jurisdictional High Court, in the case of Jagran Prakashan Ltd Vs DCIT [(2012) 21 taxmann.com 489 All] also has, inter alia, observed as follows:
…………. it is clear that deductor cannot be treated an assessee in default till it is found that assessee has also failed to pay such tax directly. In the present case, the Income tax authorities had not adverted to the Explanation to Section 191 nor had applied their mind as to whether the assessee has also failed to pay such tax directly. Thus, to declare a deductor, who failed to deduct the tax at source as an assessee in default, condition precedent is that assessee has also failed to pay tax directly. The fact that assessee has failed to pay tax directly is thus, foundational and jurisdictional fact and only after finding that assessee has failed to pay tax directly, deductor can be deemed to be an assessee in default in respect of such tax …..
6. It is thus clear that the onus is on the revenue to demonstrate that the taxes have not been recovered from the person who had the primarily liability to pay tax, and it is only when the primary liability is not discharged that vicarious recovery liability can be invoked. Once all the details of the persons to whom payments have been made are on record, it is for the Assessing Officer, who has all the powers to requisition the information from such payers and from the income tax authorities, to ascertain whether or not taxes have been paid by the persons in receipt of the amounts from which taxes have not been withheld. As a result of the judgment of Hon’ble Allahabad High Court in Jagran Prakashan’s case (supra), there is a paradigm shift in the manner in which recovery provisions under section 201(1) can be invoked. As observed by Their Lordships, the provisions of Section 201(1) cannot be invoked and the “tax deductor cannot be treated an assessee in default till it is found that assessee has also failed to pay such tax directly”. Once this finding about the non-payment of taxes by the recipient is held to a condition precedent to invoking Section 201(1), the onus is on the Assessing Officer 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 submit ted, 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 la id down by Hon’ble Allahabad High Court.
7. It is also 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 provisions are set out in Section 201(1) which seeks to make good any loss to revenue on account of lapse by the assessee tax deductor. However, the question of making good the loss of revenue arises only when there is indeed a loss of revenue and the loss of revenue can be there only when recipient had a liability to pay the tax and he has not paid tax. Therefore, recovery provisions under section 201(1) can be invoked only when loss to revenue is established, and that can only be established when it is demonstrated that the recipient of income has not paid due taxes thereof and the recipient of the amounts had the liability to tax. 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. The provisions to make good the short fall in collection of taxes may thus end up being invoked even when there is no shortfall in fact. On the other hand, 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. It is not the revenue’s case before us that, on the facts of this case, such an exercise by the Assessing Officer is not possible. It does put an additional burden on the Assessing Officer before he can invoke Section 201(1) but that’ show Hon’ble High Court has visualized the scheme of Act and that’s how, therefore, it meets the ends of justice.
8. As far as levy of interest under sect ion 201(1A) is concerned, this interest is admittedly a compensatory interest in nature and it seeks to compensate the revenue for delay in realization of taxes. Hon’ble Bombay High Court, in the case of Bennett Coleman & Co Ltd Vs ITO (157 ITR 812) has held so. Therefore, levy of interest under section 201(1A) is applicable whether or not the assessee was at fault.
9. However, since it is only compensatory in nature 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. However, in a case in which the recipient of income had no tax liability embedded in such payments, there will obviously be no question of delay in realization of taxes and the provisions of section 201(1A) will not come into play at all. The computation of interest is to be redone in the light of this legal position.
10. The matter thus stands restored to the file of the Assessing Officer for fresh adjudication in accordance with the law and in the light of our observations above. While doing so, the Assessing Officer will give a due and fair opportunity of hearing to the assessee and dispose of the matter by way of a speaking order. We direct so. As regards all other issues, on facts and in law, these issues will be required to be dealt with only in the event of there being a tax demand under section 201(1) and 201(1A) after implementing the above directions. These issues are left open for the time being as these issues are in fructuous at this stage.
11. In the result, the appeal is allowed for statistical purposes in the terms indicated above. Pronounced in the open court today on 20th day of June, 2014.
The article is very relavent as the banks or the authority to deduct TDS may fail to deduct TDS and credit to IT dept.,. Blindly penalising them is un-scientific. It may so happen the assessee having come to know his income is indeed taxable may pay it to the IT dept as advance tax or SAtax. This serves the purpose of collecting the tax. It is a historic juegement and clips the wings of the IT Dept if they prefer to blindly penalise the TDS deductor for the default.