NEW DELHI, AUG 20, 2007 : YOU are liable to deduct TDS. By a mistaken understanding, you deduct less TDS than what was required to be deducted. However the deductee pays the correct Income Tax. Can the Department demand the TDS again from you? Logic would say, NO, but logic and tax don’t always go together and you need the Supreme Court to tell you that on the same income, you cannot levy tax twice.
The appellant-assessee is engaged in the manufacture and sale of soft drinks. It entered into an agreement with M/s. Pradeep Oil Corporation for use of their premises for receipt, storage and dispatch of goods belonging to the appellant-company. There is no dispute that the appellant had paid the warehousing charges to M/s. Pradeep Oil Corporation on which tax was deducted under Section 194C of the Income Tax Act @ 2%.
The Assessing Officer vide order dated 30.3.2001 held the appellant to be ‘assessee in default’ for failure to deduct tax at source in respect of warehousing charges paid to M/s. Pradeep Oil Corporation. He rejected the plea of the assessee that the payments made by the appellant- company were in the nature of contractual payments on which tax was deducted under Section 194C of the Act at 2%. The Assessing Officer accordingly held that the warehousing charges were in the nature of rent as defined in Explanation to Section 194-I of the Act and, therefore, tax ought to have been deducted at 20% under the said provisions as against deduction of tax at 2% under Section 194C of the Act. The Assessing Officer having held the appellant to be ‘assessee in default’ for the shortfall in the amount of tax deducted at source levied interest under Section 201 (1A) of the Act on the amount of tax alleged to be short deducted. The Assessing Officer accordingly determined the amount of short deduction of tax and also levied interest payable thereon under Section 201 (1A) of the Act.
The appellant preferred an appeal against the order of the Assessing Officer before the Commissioner of Income Tax (Appeals) and thereafter before the Tribunal. The Tribunal also took the view that the appellant-assessee to be an ‘assessee in default’ in respect of the amount of short deduction of tax and also upheld the levy of interest under Section 201 (1A) of the Act. Next appeal was dismissed by the High Court on 21.5.2004.
The appellant then preferred miscellaneous application in the appeals that were already disposed of seeking rectification of the order of the Tribunal dated 12.7.2002. The appellant did not raise any dispute about it being the ‘assessee in default’ and also raised no objection as regards the levy of interest under Section 201 (1A) of the Act. The grievance of the appellant was that its alternative contention that the warehouser has been assessed on its income and the tax due has been recovered from it by the department and therefore, no further tax could have been collected from the appellant has not been considered by the Tribunal in its order dated 12.7.2002. The contention was that since the tax to be recovered by the department on the income has already been paid by the assessee, no further tax should be recovered from the appellant on the same income. The Tribunal vide its order dated 13.9.2004 allowed the application on the ground that the alternative contention of the appellant has not been considered while disposing of the appeal. The contention was specifically raised in Ground No. 7 of the memorandum of appeal. The Tribunal accordingly held, to that extent, there is a mistake apparent on the face of record and, therefore, constitutes a rectifiable mistake under Section 254 (2) of the Act. The Tribunal accordingly recalled its earlier order dated 12.7.2002 for the limited purpose of taking up the particular ground raised in Ground No. 7 in the memorandum of appeal. This order directing the reopening of the matter has attained its finality. The department did not challenge the said order.
The Tribunal upon rehearing the appeal held that though the appellant-assessee was rightly held to be an ‘assessee in default’, there could be no recovery of the tax alleged to be in default once again from the appellant considering that Pradeep Oil Corporation had already paid taxes on the amount received from the appellant.
The department conceded before the Tribunal that the recovery could not once again be made from the tax deductor where the payee included the income on which tax was alleged to have been short deducted in its taxable income and paid taxes thereon. There is no dispute whatsoever that Pradeep Oil Corporation had already paid the taxes due on its income received from the appellant and had received refund from the tax department.
But the High Court concluded that Tribunal could not have reopened the matter for any further hearing as the appeal filed by the appellant was dismissed by the High Court on 21.5.2004; the point based on Ground No. 7 was not taken up in the appeal preferred by the appellant in the High Court.
The matter is in the Supreme Court. The Apex Court observed,
1. the order passed by the Tribunal to reopen the matter for further hearing as regards ground No. 7 has attained its finality.
2. In the circumstances, the High Court could not have interfered with the final order passed by the Income-tax Appellate Tribunal.
3. The Board circular declares “no demand visualized under Section 201 (1) of t
he Income- tax Act should be enforced after the tax deductor has satisfied the officer-in-charge of TDS, that taxes due have been paid by the deductee-assessee. However, this will not alter the liability to charge interest under Section 201 (1A) of the Act till the date of payment of taxes by the deductee-assessee or the liability for penalty under Section 271C of the Income-tax Act.
4. In the instant case, the appellant had paid the interest under Section 201 (1A) of the Act and there is no dispute that the tax due had been paid by deductee- assessee (M/s Pradeep Oil Corporation) .
5. In the circumstances, it is not necessary to go in detail as to whether the Tribunal could have at all reopened the appeal to rectify the error apparent on the face of the record.
So the impugned order of the High Court is set aside.