Case Law Details
CIT (TDS) Vs. Sahara India Commercial Corpn. Ltd. (Allahabad High Court)
It is an important aspect to be examined whether Recipient- Assessee has directly paid tax or has no liability of tax at all. Since this aspect was not examined by Assessing Authority, therefore, in our view, Tribunal has rightly remanded matter to Assessing Authority to examine this aspect. If Assessing Authority finds that Recipient- Assessee, i.e., SAL was not liable to pay any tax during relevant assessment year or has actually paid tax, assessee cannot be held to be “Assessee in Default” merely for the reason that it has failed to deduct tax or has short deducted tax and for that reason alone Assessing Authority cannot raise demand of tax from assessee.
FULL TEXT OF THE HIGH COURT ORDER / JUDGMENT
Heard Sri Alok Mathur, learned counsel for appellant and Sri Waseeq Uddin Ahmad, Advocate for respondent.
2. All these appeals filed under section 260-A of Income Tax Act, 1961 (hereinafter referred to as the “Act, 1961”) have arisen from common judgment and order dated 17-12-2014 passed by Income Tax Appellate Tribunal (hereinafter referred to as the “Tribunal”) and, therefore, as agreed by learned counsel for the parties have been heard together and are being decided by this common judgment.
3. In fact Tribunal decided three bunches of appeals pertaining to assessment years 2003-04 to 2007-08 by a common judgment in which questions relating to sections 201(1), 201(1A) and 271C of Act, 1961 were raised. In the present appeals we are concerned with that part of judgment which relates to section 201(1) of Act, 1961.
4. Following substantial questions of law have arisen in these appeals :–
“1. Whether the ITAT was justified in holding assessee, not liable for deduction of tax on the basis of judgment of Supreme Court in case of M/s. Hindustan Coca Cola Breweries (P) Ltd. The facts and circumstances of the case are different in case of Hindustan Coca Cola Breweries (P) Ltd. v. CIT. In that case there was already deduction of tax at source at 2% under section 194C while assessing officer held it to be at 20% under section 194. Hence issue was not of deduction or non-deduction but difference of rate of deduction. As per section 194C of Income Tax Act, 1961, liability of deduction of tax is on payment made by deductor to deductee. Positive or negative income is not a determining condition for applicability of TDS provisions.
2. Whether Tribunal was justified in restoring issue of applicability of section 201(1) of Income Tax Act, to the file of assessing officer for verification, whether or not deductee has returned losses for impugned years and not giving direction to verify whether or not deductee has paid taxes due on its assessed income.
3. Whether Tribunal was justified in confirming Commissioner (Appeals)’s order in holding that assessing officer’s order under section 201(1) of Income Tax Act, for financial years 2002-03 and 2003-04 was time barred relying upon judgment of Delhi High Court when the said time limit of four years was not prescribed in the statute and decision of Delhi High Court relied upon by Commissioner (Appeals) was not binding in the territory of Uttar Pradesh. Parliament would have prescribed any time limit if deemed fit and has since prescribed time limit of seven years for this purpose as per section 201(3) of Income Tax Act.”
5. Now before discussing issues raised in these appeals it would be appropriate to have a brief facts narration giving rise to present dispute.
6. Respondent- Assessee, M/s. Sahara India Commercial Corporation Ltd. (hereinafter referred to as the “assessee”) is engaged in business of real estate development, construction and media activities etc. It entered into business agreement with M/s. Sahara Airlines Ltd. (now known as M/s. Jet lite (India) Ltd.) (hereinafter referred to as the “SAL”) vide agreement dated 30-3-1995 for giving publicity to promote business and area of operation of assessee. As per agreement, SAL was required to display logo of assessee on both sides of air crafts, tickets, boarding passes, baggage tags, newspapers, hoardings, etc. Brochures of assessee are also to be distributed by SAL with its tickets. Under the said agreement, for assessment year 2007-08, assessee paid Rs. 400 crores to SAL. Assessee was supposed to deduct tax at source under section 194C on aforesaid payment made to SAL but as a matter of fact no such deduction was made. Assessing Authority, coming to know about this fault on the part of assessee, issued notice dated 8-5-2008 giving opportunity of hearing to Directors of assessee to explain reason of non deduction of tax at source. The representative of assessee did not accept of entering into an agreement for giving publicity to SAL. Against their passenger’s ticket sale and in return of subsidy which was provided to SAL, they were entrusted with the job of printing of logo, colour scheme etc. on boarding card, ticket, baggage tag on board their aircraft so that passengers traveling could know about Company. Hence, SAL has not undertaken any agreement for advertisement activity for and on behalf of Assessee- Company and, therefore, section 194C was not attracted.
7. Assessee’s representative relied on C.B.D.T. Circular No. 714, dt. 3-8-1995 in respect of meaning of term “advertising”, explained therein. Assessee’s Representative thus explained arrangement with regard to payment of subsidy towards passengers fair to SAL, in the nature of facilitation arrangement with them for branding reality project undertaken by Assessee- Company. Reliance was also placed on accounting entry made in the books of assessee as well as SAL. Assessee- Company debited aforesaid payment as :”Work in Progress” while in account of SAL the amount was credited under the head “Passenger Revenue”. Assessing Authority thereafter obtained copy of original agreement dated 30-3-1995, on 9-6-2008 through Representative of assessee and found payments by assessee to SAL in financial years 2002-03 to 2006-07 as under :–
| F. Y. | Voucher No. | Narration of the voucher as per General Ledger | Voucher date | Amount in Rs. |
| 2002-03 | 4000026JV | Being Adv. Exp. Debited for the month of April 2002 | 30-4-2002 | 215,873,250.00 |
| 2002-03 | 4000028JV | Being Adv. Exp. Debited for the month of May 2002 | 31-5-2002 | 278,333,550.00 |
| 2002-03 | 6000022JV | Being Adv. Exp. Debited for the month of June 2002 | 30-6-2002 | 243,605,550.00 |
| 2002-03 | 7000035JV | Being Adv. Exp. Debited for the month of July 2002 | 31-7-2002 | 212,978,250.00 |
| 2002-03 | 8000023JV | Being Adv. Exp. Debited for the month of August 2002 | 31-8-2002 | 213,039,300.00 |
| 2002-03 | 9000025JV | Being Adv. Exp. Debited for the month of Sept. 2002 | 30-9-2002 | 207,457,950.00 |
| 2002-03 | 10000042JV | Being Adv. Exp. Debited for the month of Oct. 2002 | 30-10-2002 | 251,906,700.00 |
| 2002-03 | 11000027JV | Being Adv. Exp. Debited for the month of Nov. 2002 | 30-11-2002 | 239,803,950.00 |
| 2002-03 | 12000049JV | Being Adv. Exp. Debited for the month of Dec. 2002 | 31-12-2002 | 271,206,000.00 |
| 2002-03 | 1000037JV | Being Adv. Exp. Debited for the month of Jan. 2003 | 31-1-2003 | 273,355,800.00 |
| 2002-03 | 2000031JV | Being Adv. Exp. Debited for the month of Feb. 2003 | 28-2-2003 | 227,501,250.00 |
| 2002-03 | 3000133JV | Being Adv. Exp. Debited for the month of Mar. 2003 | 31-3-2003 | 218,590,800.00 |
| 2,853,652,350.00 |
| F. Y. | Voucher No. | Narration of the voucher as per General Ledger | Voucher date | Amount in Rs. |
| 2003-04 | 4000166JV | Being Entry of Advertisement Passed for the month of April 2003 | 30-4-2003 | 196,091,250.00 |
| 2003-04 | 5000037JV | Being Entry of Advertisement Passed for the month of May 2003 | 31-5-2003 | 207,494,250.00 |
| 2003-04 | 6000055JV | Being Entry of Advertisement Passed for the month of June 2003 | 30-6-2003 | 185,564,100.00 |
| 2003-04 | 7000039JV | Being Entry of Advertisement Passed for the month of July 2003 | 31-7-2003 | 175,076,850.00 |
| 2003-04 | 8000024JV | Being Entry of Advertisement Passed for the month of August 2003 | 31-8-2003 | 163,371,900.00 |
| 2003-04 | 9000042JV | Being Entry of Advertisement Passed for the month of Sept. 2003 | 30-9-2003 | 194,034,300.00 |
| 2003-04 | 10000067JV | Being Entry of Advertisement Passed for the month of Oct. 2003 | 31-10-2003 | 221,721,000.00 |
| 2003-04 | 11000048JV | Being Entry of Advertisement Passed for the month of Nov. 2003 | 30-11-2003 | 229,422,900.00 |
| 2003-04 | 12000053JV | Being Entry of Advertisement Passed for the month of Dec. 2003 | 31-12-2003 | 246,533,850.00 |
| 2003-04 | 1000092JV | Being Entry of Advertisement Passed for the month of Jan. 2004 | 31-1-2004 | 266,269,800.00 |
| 2003-04 | 2000068JV | Being Entry of Advertisement Passed for the month of Fab. 2004 | 28-2-2003 | 258,448,050.00 |
| 2003-04 | 3000117JV | Being Entry of Advertisement Passed for the month of March 2004 | 31-3-2004 | 273,186,450.00 |
| 2003-04 | 3000120JV | Being Entry Passed for Advertisement from April-2003 to March-2004 | 31-3-2004 | 65,000,000.00 |
| 2,682,214,700.00 |
| F. Year | Voucher No. | Narration of the voucher as per General Ledger | Voucher date | Amount in Rs. |
| 2004-05 | 3000201JV | Being Entry of WIP of SAL PASS in SICCL | 31-3-2005 | 2,787,243,925.00 |
| F. Y. | Voucher No. | Narration of the voucher as per General Ledger | Voucher date | Amount in Rs. |
| 2005-06 | 4000056JV | Being Amount for the month of April, 2005 | 30-4-2005 | 274,412,050.00 |
| 2005-06 | 5000070JV | Being Amount for the month of May, 2005 | 31-5-2005 | 296,933,650.00 |
| 2005-06 | 6000089JV | Being Amount for the month of June, 2005 | 30-6-2005 | 322,441,825.00 |
| 2005-06 | 7000078JV | Being Amount for the month of July, 2005 | 31-7-2005 | 381,741,875.00 |
| 2005-06 | 8000077JV | Being Amount for the month of August, 2005 | 31-8-2005 | 410,256,200.00 |
| 2005-06 | 9000110JV | Being Amount Debited for the month of Sept., 2005 | 30-9-2005 | 409,817,050.00 |
| 2005-06 | 10000085JV | Being Amount Debited for the month of Oct., 2005 | 31-10-2005 | 472,970,725.00 |
| 2005-06 | 11000076JV | Being Amount Debited for the month of Nov., 2005 | 30-11-2005 | 422,854,850.00 |
| 2005-06 | 12000088JV | Being Amount Debited for the month of Dec., 2005 | 31-12-2005 | 514,731,000.00 |
| 2005-06 | 1000093JV | Being Amount Debited for the month of Jan., 2006 | 31-1-2006 | 316,517,275.00 |
| 2005-06 | 3000119JV | Being Amount Transferred SAL | 31-3-2006 | 1,132,281,875.00 |
| 4,954,958,375.00 |
| F. Year | Voucher No. | Narration of the voucher as per General Ledger | Voucher date | Amount in Rs. |
| 2006-07 | 3000167JV | Being Entry of Brand Promotion made | 31-3-2007 | 4,000,000,000.00 |
8. Since entries specifically mentioned expenditure towards advertisement, Assessing Authority found stand taken by assessee’s Representative incorrect, hence assessee was required to prove that payments were not made in respect of advertisement and tax at source was not deductable under section 194C. Ultimately, Assessing Authority vide order dated 17-10-2008 held assessee, defaulter in compliance of section 194C and hence is liable to be treated as “Assessee in Default” under section 201 of Act, 1961. Having said so, it held that assessee is liable to pay entire amount of tax which it had failed to deduct from payments made to SAL and determined its liability of payment of such tax to Revenue for financial years 2002-03 to 2006-07, as under :–
| F.Y. | Payment | Rate % | Amount of TDS | Rate of S.C. | Amount of Surcharge | Rate of E. Cess | Amount of E. Cess | Total Amount of TDS default |
| 2002-03 | Rs. 285.37 Crores | 1.00 | 28536523 | 5.00 | 1426826 | – | – | 29963349 |
| 2003-04 | Rs. 268.22 Crores | 1.00 | 26822147 | 2.50 | 670554 | – | – | 27492701 |
| 2004-05 | Rs. 278.72 Crores | 1.00 | 27872439 | 2.50 | 696811 | 2.00 | 571385 | 29140635 |
| 2005-06 | Rs. 495.40 Crores | 1.00 | 49449584 | 10.00 | 4954958 | 2.00 | 1090090 | 55594632 |
| 2006-07 | Rs. 400.00 Crores | 1.00 | 40000000 | 10.00 | 4000000 | 2.00 | 880000 | 44880000 |
| 172780693 | 11749149 | 2541475 | 187071317 |
9. Aggrieved thereto, assessee filed appeal before Commissioner (Appeals)-III, Lucknow (hereinafter referred to as the “Commissioner (Appeals)”). Various appeals in respect of assessment years 2003-04 to 2007-08 were taken together and decided by a common order dated 26-6-2009. With respect to applicability of section 201 assessee raised one of the ground of limitation in respect of orders pertaining to assessment years 2003-04 and 2004-05. Second ground was applicability of section 194C in the light of agreement dated 30-3-1995 and third ground was that “Assessee in Default” cannot be made responsible for payment of tax but only on the amount of tax it had failed to deduct tax at source, at the best liability would have been towards interest and penalty.
10. Question relating to limitation was answered in favour of assessee relying on NHK Japan Broadcasting Corp. v. DCIT, 101 TTJ 292 (Delhi) and Commissioner (Appeals) held that assessment having not been made within four years it was barred by limitation. With respect to applicability of section 194C, Commissioner (Appeals) construed agreement in the manner that transactions therein are not in the nature of advertisement, hence this question was also answered in favour of assessee holding that it is not in default in non-deduction of tax or short deduction of tax. Coming to third question, again Commissioner (Appeals) relied on Supreme Court’s decision in Hindustan Coca Cola Breweries (P) Ltd. v. CIT, 293 ITR 226 and Instruction No. 275/201/95-IT(B), date 29-1-1997 issued by Central Board of Direct Taxes, and held, that from “Assessee in Default”, under section 201, Revenue cannot raise demand to pay amount of tax since, that is the liability of “Recipient- Assessee” and not “Assessee in Default”. Commissioner (Appeals) held that “Assessee in Default” in case of such default may be liable to pay interest under section 201(1A) but tax cannot be demanded. Consequently, appeals were allowed against demand of tax raised by Assessing Authority.
11. Revenue then came in appeal before Tribunal and by the judgment assailed in these appeals, all the appeals preferred by Revenue have been dismissed.
12. On the question of demand of tax under section 201(1) for the fault of non-deduction of tax under section 194C, Tribunal has held that, Recipient- Assessee, i.e., SAL, if has filed its returns for relevant years declaring loss in all such years and there being no tax liability of Recipient- Assessee, present assessee cannot be said to be an “Assessee in Default” and section 201(1) would not be attracted. However, this aspect having not been gone into by Assessing Authority, Tribunal has remanded matter to Assessing Authority to look into this aspect.
13. At the outset, learned counsel for appellant admitted that in appeals before this Court only Questions-1 and 2 with respect to applicability of section 201(1) and validity of demand of tax raised by Assessing Authority has arisen and Question-3 relating to limitation does not arise. Therefore, we proceed to examine Questions-1 and 2; only, whether assessee in question can be said to be an “Assessee in Default” under section 201(1) and Revenue can raise demand of tax which assessee has failed to deduct.
14. Learned counsel for the parties did not dispute that transaction in question in respect whereto assessee made payment to SAL was held as payment for advertisement by Tribunal. On this aspect matter has attained finality since that has not been disputed by assessee by filing any appeal.
15. The liability to pay interest under section 201(1A) is subject to condition that a person is declared an “Assessee in Default” and not otherwise. This is the view expressed by Supreme Court in CIT, New Delhi v. Eli Lilly and Co. (India) (P) Ltd., 2009 (15) SCC 1 following in I.T.C. Limited, Gurgaon v. CIT (TDS), Delhi, 2016 (384) ITR 14 (SC).
16. In Hindustan Coca Cola Breweries (P) Ltd. (supra) the assessee paid warehousing charges to its owner M/s. Pradeep Oil Corporation and also deducted tax under section 194C. The Assessing Authority however held that deduction of tax should have been at the rate of 20% and not 2% and due to this shortfall in the amount of tax deducted by assessee, it was an “Assessee in Default” under section 201 and hence liable to pay interest as also amount of deficit tax. Assessee did not raise any dispute of it being treated as “Assessee in Default” and also towards liability of interest. It however disputed demand of tax on the ground that warehousing was assessed on its income and tax dues was recovered from it by Revenue, therefore, no further tax can be collected from assessee. Supreme Court referring to Circular No. 275/201/95-IT(B), dt. 29-1-1997 issued by Central Board of Direct Taxes, said that no demand visualize under section 201(1) of Act, 1961 should be enforced after the tax deductor has satisfied officer in charge of TDS that tax dues has been paid by assessee.
17. The only question is validity of demand of tax not deducted or short deducted by assessee under section 194C, whether the same can be realized or demanded from “Assessee in Default”.
18. We find that the questions raised in these appeals stand answered by a Division Bench judgment of this Court in Jagran Prakashan Ltd. v. Dy. CIT (TDS), 2012 (345) ITR 288 wherein question no. 7 was formulated as under :–
“7.Whether against a deductor who fails to deduct the tax at source, the liability of payment of tax can also be fastened against the deductor under section 201 apart from liability of interest and penalty?”
19. Aforesaid question was answered by Court by observing as under :–
“The main issue to be answered is as to whether in event, the person who is responsible to deduct tax at source fails to deduct the tax at source, what are the consequences? Whether the tax which was required to be deducted at source by such deductor, can also be recovered from the deductor or recovery can confine only to interest and penalty. The Income Tax Act is an integrated Act delineating a scheme for payment of income tax. For interpreting provisions of section 201 of the Act, other related provisions have to be looked into to find out the scheme of section 201.
Sections 190 and 191 of Chapter XVII under which chapter section 201 also falls need a closure scrutiny. Section 190(1) provides that tax on income shall be payable by deduction or collection at source or by advance payment. Sub-section (2) of section 190 starts with a negative injunction i.e. “nothing in this section shall prejudice the charge of tax on such income under the provisions of sub-section (1) of section 4.” Sub-section (1) of section 4 as noted above, provides that charge of the income tax shall be on the income of a person. Sub-section (2) of section 190 clearly mandates that despite of mode and manner of collection and recovery of tax i.e., by deduction or collection at source as envisaged under section 190(1), the charge of payment of income tax is on a person, whose income is to be taxed.
Section 191 provides that in the case of income in respect of which provision is not made under this Chapter for deducting income tax at source and where income tax has not been deducted in accordance with the provision of this chapter, income tax shall be payable by the assessee direct. Thus, both the conditions i.e. (i) in the case of income in respect of which provision is not made under chapter XVII for deducting income tax at the time of payment and (ii) in case where income tax has not been deducted in accordance with the provisions of Chapter XVII, the Income tax is payable by the assessee direct. Section 191 thus re-enforces that primarily the liability of payment of income tax is on the person, whose income is to be taxed as delineated under sub-section (1) of section 4 and sub-section (2) of section 190. The explanation to section 191 provides that where a deductor who was required to deduct income tax at source does not deduct or after deduction does not pay and where the assessee has also failed to pay such tax directly then such person shall without prejudice to any other consequence be deemed to be an assessee in default within the meaning of sub-section (1) of section 201 in respect of such tax. The explanation to section 191 thus has to be read into section 201(1).
Sub-section (1) of section 201 provides that where deductor does not deduct or does not pay after deduction such person shall without prejudice to any other consequences which he may incur, be deemed to be an assessee in default in respect of such tax. The language of the explanation to section 191 and sub-section (1) of section 201 is almost similar except with one difference. In Explanation to section 201, the deductor shall be deemed to be an assessee in default where the assessee has also failed to pay such tax directly, whereas in sub-section (1) of section 201, the above condition is not mentioned. While interpreting the provisions of section 191 and sub-section (1) of section 201, a harmonious construction has to be adopted and such interpretation is to be put which gives meaning and purpose to both the provisions. Explanation to section 191 specifically mentions “…………..be deemed to be an assessee in default within the meaning of sub-section (1) of section 201 in respect of such tax.” The above meaning thus has to be read in sub-section (1) of section 201, which has been specifically provided for. Not repeating the said condition again in section 201(1) is inconsequential. Thus, deductor who fails to deduct income tax at source shall be deemed to be an assessee in default only when the assessee has also failed to pay such tax directly. Thus, it flows that there is no occasion to treat the deductor as an assessee in default unless the assessee has not paid the tax directly.”
20. In view of the law laid down above, it is an important aspect to be examined whether Recipient- Assessee has directly paid tax or has no liability of tax at all. Since this aspect was not examined by Assessing Authority, therefore, in our view, Tribunal has rightly remanded matter to Assessing Authority to examine this aspect. If Assessing Authority finds that Recipient- Assessee, i.e., SAL was not liable to pay any tax during relevant assessment year or has actually paid tax, assessee cannot be held to be “Assessee in Default” merely for the reason that it has failed to deduct tax or has short deducted tax and for that reason alone Assessing Authority cannot raise demand of tax from assessee. We find that similar question has also been considered recently by this Court in Ghaziabad Development Authority v. Union of India (Writ Tax No. 870 of 2006), decided on 3-8-2016.
21. Questions-1 and 2, therefore, are answered against Revenue and we confirm the view taken by Tribunal.
22. All the appeals are dismissed.
OFFHAND
The view the court has taken may come to the rescue, also of those who have failed to deduct tax at source u/s 194 IA, if regard be had to the special facts and circumstances in a given case.
Attention may be invited, for necessary clues, to the two write-ups published on this website, –
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(Also published in 2013 KLJ Parts 7 (July) and 8 (August), respectively)