TMI Blog2001 (7) TMI 300X X X X Extracts X X X X X X X X Extracts X X X X ..... (TDS) was of the view that on the interest payment the appellant ought to have deducted tax at source as provided in section 194A of the Income-tax Act, 1961. According to the ITO(TDS), the appellant should have deducted tax of Rs.2,62,263 (23% of Rs.11,40,275) for the assessment year 1996-97 and Rs.18,79,920 (21.596 of Rs.87,43,817) for the assessment year 1997-98. But on the interest payment for both years, the appellant had not deducted tax under section 194A. The ITO(TDS) issued a show-cause notice on 6-2-1998 asking the appellant as to why they should not be treated as a defaulter as per section 201(1) of the Incometax Act, 1961. In the absence of any reply from the appellant the ITO(TDS) passed orders under section 201(1) on 10-3-1998 treating the appellant as an assessee in default and directed the payment of Rs.2,62,263 for the assessment year 1996-97 and Rs.18,79,920 for the assessment year 1997-98. The ITO(TDS) also charged interest under section 201 (1A) from the dates on which tax was deductible. For the assessment year 1996-97 interest levied under section 201(1A) was Rs.81,512 and for the assessment year 1997-98 Rs.3,18,997. Though the appellant took up the matter i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enue after deduction is for and on behalf of the recipient only. He also drew our attention to section 199 of the Act which provides for credit to be given for the tax deducted at source as a payment of tax on behalf of the person from whose income the deduction was made. It was the contention of the Id. counsel that once it was ascertained that tax had been paid by the deductee-assessee there was no need for the payer to make a payment of tax once again. In the present case according to him, the ITO(TDS) could not have enforced collection of tax from the appellant once it was found that GIC Housing Finance Ltd. had been assessed on the amount by way of interest paid by the appellant. Sri Devanathan also brought to our notice the Circular in F. No. 275/201/95-IT(B), dated 15-1-1991 issued by the CBDT on the subject of deduction of tax at source - consequence on failure to deduct. In the circular it is clarified that no demand visualised under section 201 (1) of the Act should be enforced after the tax deductor has satisfied the officer in charge of TDS that taxes have been paid by the deducteeassessee. Sri Devanathan added that before the ITO, TDS passed the orders the assessee cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad set aside the order passed by the ITO, TDS to verify whether taxes due had been paid by the deductee-assessee and if so, not to enforce the demand visualised under section 201 (1) of the Act. Arguing on the above lines, the Id. counsel made an earnest plea before us for setting aside the order passed by the CIT(A). 4. Per contra, Sri S. Ravi, the Id. Departmental Representative supported the order passed by the CIT(A) and submitted that there was no doubt about the obligation on the part of the appellant to deduct tax at source when payments by way of interest were made to GIC Housing Finance Ltd. The assessee had not complied with the requirement of law and in view of the default under section 194A, the law permitted the appellant to be deemed as an assessee in default in respect of the tax deductible at source. Drawing our attention to section 201 the Id. DR submitted that it was a consequence of the failure to deduct the tax at source or to pay it to the credit of the Government, that the person referred to in section 194 would be deemed to be an assessee in default. The deeming provision is applicable in respect of the tax payable under section 194A. It was the contention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) was left with no alternative but to treat the assessee as a defaulter under section 201(1). He urged us to uphold the order passed by the CIT(A) confirming the direction of the ITO(TDS) to pay the amount of tax which the assessee should have deducted from the interest payments to GIC Housing Finance Ltd. 5. Section 194A(1) provides that any person, not being an individual or a Hindu Undivided Family, who is responsible for paying to a resident any income by way of interest shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force. Sub-section (3) read with clause (iii)(b) provides that the provisions of sub-section (1) shall not apply in respect of such income credited or paid to any financial corporation established by or under a Central, State or Provincial Act. Though Sri Devanathan, the Id. counsel for the appellant submitted before us that GIC Housing Finance Ltd. was a financial institution promoted by the Central Government, we are not satisfied that this is a financial corporation established ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TR 278. The contention that there is no power or authority given to the ITO, TDS to demand the tax from the assessee cannot be, therefore, accepted because the appellant had already become a defaulter under section 201, on account of the failure to deduct tax at source. It was not by the order under section 201, the demand was created on the appellant. In the order under section 201 the ITO, TDS has only quantified the amount of tax to be paid by the appellant. In view of the decision of the Kerala High Court cited above, we do not accept the contention of the Id. counsel that the order passed by the ITO, TDS was without the authority of law. 7. At the same time, we find force in the contention of Sri Devanathan that if the deductee-assessee has paid the tax no further demand could be raised on the payer in respect of the same amount of tax. It was his claim that GIC Housing Finance Ltd. had paid the tax on the interest paid by the appellant which had been included in their total income for the respective assessment years. 8. The provisions of sections 194A, 201 and connected sections of the Income-tax Act regarding deduction of tax at source and payment to the Revenue lay down ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act should be enforced after the tax deductor has satisfied the ITO, TDS that taxes have been paid by the deducteeassessee, the ITO, TDS can enforce the demand only if the taxes had not been paid by the deductee-assessee. In this context Sri Devanathan, the Id. counsel for the appellant drew our attention to the letter date 30-1-2001 in which the ITO, TDS mentions about the assessment of M/s. GIC Housing Finance Ltd. by the Addl. CIT, Special Range XXXVI, Mumbai. By that letter the ITO, TDS, Chennai informed the Tax Recovery Officer 1(1), City Cir. III, Chennai as under: "M/s. GIC Housing Finance Ltd. is assessed at Mumbai. The Addl. Commissioner of Income-tax, Special Range 36, Mumbai the Assessing Officer has confirmed vide his letter dated 17-1-2001 that GICF Ltd. has filed the returns of income for the assessment years 1996-97 and 1997-98 declaring total income of Rs.11,37,54,570 and Rs.10,74,84,280 respectively, which includes the interest income due from M/s. Crescent Housing Pvt, Ltd., Chennai for which no tax has been deducted. A letter dated 25-1-2001 was issued to the Addl. Commissioner of Income-tax, Special Range 36, Mumbai to confirm the nature of payment made by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder this Act, he shall be liable to pay a simple interest at 15% p.a. on the amount of such tax from the date on which such tax was deductible to the date on which the tax is actually paid. The ITO, TDS has levied interest on the amount which the appellant would have deducted as tax under section 194A but not deducted and paid to the Government. In other words, interest has been charged under section 201(1A) on the same amounts which were quantified as payable by the appellant under section 201(1) of the Act. The CIT(A) confirmed the levy of interest on the view that the appellant ought to have deducted the tax in accordance with the provisions of section 194A and that in case of default interest was rightly charged for the period from the date on which the tax was deductible. 10. Before us, the Id. counsel submitted that in view of the fact that the appellant was not liable to pay the tax under section 201(1) there could have been no liability to pay interest. According to him, when there was no obligation on the part of the appellant to deduct tax on the interest payment to GIC Housing Finance Ltd. there was no justification for charging interest. As interest was compensatory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pensatory measure for with-holding tax which ought to have gone to the exchequer. Section 201(1A) of the Income-tax Act, 1961, makes it clear that the levy of interest is mandatory. It is true that the use of the expression 'shall' is not always determinative of the fact whether a provision is directory or mandatory in nature, but the context in which expression 'shall' is used in section 201(1A) makes it clear that the levy is mandatory. The purpose of the levy is to claim compensation on the amount which ought to have been deducted and deposited and has not been done. The ultimate liability for tax being not there (since the firm which received the interest from the assessee had paid tax on such interest) did not dilute the requirements for the non-compliance of which interest is levied under section 201(1A)." In the case of CIT v. K.K. Engg. Co. [2001] 249 ITR 447 2 (Ker.) also it was held that the liability for interest stipulated under section 201(1A) accrues automatically on failure to pay the amount of tax by the due date. 12. In view of the above decisions we hold that the appellant was liable to pay interest under section 201(lA) on the amount which was deductible as t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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