No interest U/s. 201(1A) if deductee returned losses for relevant year

Question about liability of interest under Section 201(1A) has also been considered by this Court in Writ Tax No. 870 of 2006 (Ghaziabad Development Authority Vs. Union of India and others), decided on 03.08.2016 wherein it has been held that it is compensatory and if recipient ­Assessee has already paid tax or not liable to pay any tax whatsoever, obviously no interest under Section 201(1A) of Act, 1961 could have been recovered from alleged Assessee in default for the reason that interest could have been charged for the period when TDS fell due and actual amount of tax is paid by recipient ­Assessee. If there is no liability of payment of tax by recipient ­Assessee, the question of deduction of tax by Assessee in default would not arise and the question of payment of tax by such recipient ­Assessee also would not arise. In such case interest also could not have been charged. Hence, on the question of liability of interest, Tribunal has rightly observed that this aspect shall be examined by Assessing Officer and thereafter he shall pass a fresh order.

Relevant Extract of the Judgment

3. The substantial question of law raised in these appeals is as under:

“Whether the Tribunal was justified in holding that deductor is not liable for interest under Section 201 (1A) of Income Tax Act, 1961 if the deductee has returned losses for relevant years and it will not make any difference if the assessment of the deductee was completed at positive income. The final demand position is to be seen on finality of the appellate proceedings which ultimately becomes the taxes due from deductee and if the deductee has not challenged the addition made by AO then demand on assessed income becomes finally the taxes due from deductee. Therefore, if finally assessed income of deductee is positive and tax demand is created on it thhen deductor has to pay interest under Section 201(1A) till the demand is not paid by the deductee.”

4. In all these appeals, question relates to liability of interest of Assessee under Section 201(1A) of Income Tax Act, 1961 (hereinafter referred to as the “Act, 1961”). On this aspect, Tribunal has recorded its finding as under:

“Before the lower authorities, except contentions of the assessee, no evidence was placed to substantiate that the recipient, M/s Sahara Airlines Ltd. has suffered loss in all the impugned assessment years. Though it was specifically claimed before us that the recipient had filed all its returns for these years declaring loss in all the impugned assessment years, but no evidence was placed.

Therefore, it cannot be conclusively held that the recipient had filed all its returns for these years declaring loss in all the impugned assessment years and there was no tax liability on the receipts at any point of time. Thus, this fact requires verification by the Assessing Officer. If it is established that the recipient had filed all its returns for these years declaring loss in all the impugned assessment years, interest under Section 201 (1A) of the Act cannot be charged against the assessee. It may be that against loss declared by the recipient in its return, ultimately the assessment was completed at a positive income but in that situation also, that demand is on account of different between the returned income and assessed income and not because of non deduction of TDS by the assessee and hence it will not alter the situation particularly if that assessee has challenged the addition in his hands in appeal. Accordingly the order of the ld. CIT(A) on this issue is set aside and the matter is restored to the file of the Assessing Officer for verification and adjudication of the issue in terms indicated above after affording an opportunity of being heard to the assessee. If it is found that in the return of income filed for these years by the deductee, it has included the impugned amount in its receipts and there is loss as per return, no demand can be raised u/s 201 (1A) on the present assessee.”

5. Question about liability of interest under Section 201(1A) has also been considered by this Court in Writ Tax No. 870 of 2006 (Ghaziabad Development Authority Vs. Union of India and others), decided on 03.08.2016 wherein it has been held that it is compensatory and if recipient ­Assessee has already paid tax or not liable to pay any tax whatsoever, obviously no interest under Section 201(1A) of Act, 1961 could have been recovered from alleged Assessee in default for the reason that interest could have been charged for the period when TDS fell due and actual amount of tax is paid by recipient ­Assessee. If there is no liability of payment of tax by recipient ­Assessee, the question of deduction of tax by Assessee in default would not arise and the question of payment of tax by such recipient ­Assessee also would not arise. In such case interest also could not have been charged. Hence, on the question of liability of interest, Tribunal has rightly observed that this aspect shall be examined by Assessing Officer and thereafter he shall pass a fresh order.

6. We confirm the view taken by Tribunal and answer the question formulated above accordingly. Let this matter be examined by Assessing Officer afresh in the light of directions given by Tribunal as quoted above.