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2009 (4) TMI 546 - AT - Income TaxTDS u/s 195 - “assessee in default” as per the provisions of section 201 [1] - AO held that the deductee has paid tax on other income and has not paid tax on the transactions on which tax was to be deducted. Therefore, he treated the assessee-in-default in terms of provisions of section 201(1) and 201(1A) - CIT(A) held that tax was not required to be deducted. HELD THAT:- It is seen that the credit was made on 1-4-2003 while the valuation report is dated 1-11-2003. Hence, on the date of credit, it was not known to the deductor that the amount paid will be resulting into loss. The deductor cannot make an assessment of income in the hands of the deductee. The deductee filed the return of income and since the transaction in question was between the associated concerned, therefore, as a result of transfer pricing adjustment, it was held that there was short-term capital gain. Hence, the transaction on which the deductor has not deducted tax at sources has resulted into assessment of income in the hands of the deductee. If the contention of the appellant is accepted that it was knowing that the transaction will result into loss in the hands of deductee and, hence, tax has not been deducted then every deductor may not deduct tax at source from payments like interest without collecting the appropriate declaration from the deductee that his income is below taxable limit. When the Act has provided that an assessee can make an application for no deduction or short deduction then such provision cannot be bypassed by merely stating that the deductor was aware that the transaction will result into loss. Hence, the deductor was liable to deduct tax as the transaction was to be considered for computation of income. The deductor was required to deduct the tax at source and, therefore, the deductor was an assessee-in-default since a deductee has filed the return and has disclosed the transaction in the return of income and that shows no tax was payable on such transaction. Therefore, the default will end on the date when the deductee has filed the return. Hence, the deductor will be liable to interest u/s 201(1A) up to 1-11-2004. However, there will be no deduction u/s 201 since the deductee has filed the return and has disclosed the transaction and no tax is payable as per the return on such transaction by the deductee. Hence, order of CIT(A) in cancelling the demand u/s 201 is upheld. However, it is held that the deductor will be liable to pay interest on the amount of tax to be deducted from the date of deduction till 1-11-2004. In the result, the appeal of the revenue is partly allowed.
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