2014 (2) TMI 1164 - AT - Income Tax

Non deduction of TDS - Vicarious liability - Held that - Departmental Representative did not have much to say beyond placing her reliance on the orders of the authorities below and contending that on merit of the case the assessee ought to have deducted tax at source. That plea of hers is not relevant in the context in as much as TDS liability is only a vicarious liability. In the circumstances in which principal liability is discharged vicarious liability does not survive. In any event the issue also seems to be covered on merits in favour of the assessee by decision of Hon ble Punjab & Haryana High Court in the case of CIT vs. Bharat Sanchar Nigam Limited (2013 (3) TMI 199 - PUNJAB & HARYANA HIGH COURT). During the course of remanded proceeding s the Assessing Officer shall examine this aspect of the matter as well. - Decided in favour of assessee.

Summary

Issues:
Consolidated order on demands raised under section 201/201(1A) read with section 194H of the Income Tax Act for the Assessment Years 2008-09, 2009-10 & 2010-11.

Analysis:
The appeals were time-barred, but the assessee sought condonation of delay, which was granted, and the appeals were admitted for consideration on merits. The demands were raised on the assessee, a Government Undertaking, for not deducting tax at source on discount of recharge vouchers given to franchisees. The Assessing Officer (A.O.) and the CIT(A) upheld the demands under section 201/201(1A) read with section 194H. However, during the hearing, it was noted that there was no finding by the A.O. that the franchisees had not paid taxes on the income embedded in the amounts. The matter was referred back to the A.O. for reconsideration based on legal observations emphasizing that recovery provisions can only be invoked if the recipient of income has not paid the due taxes directly.

The judgment highlighted that a short deduction of tax at source does not automatically lead to a legally sustainable demand under section 201(1) and 201(1A). It emphasized that the onus is on the revenue to prove that taxes were not recovered from the person with the primary tax liability before invoking recovery provisions. The judgment discussed the different consequences of non-deduction of tax at source, including penal provisions, interest provisions, and recovery provisions. It stressed that recovery provisions can only be invoked when there is a loss of revenue due to non-payment of taxes by the recipient of income.

Regarding the levy of interest under section 201(1A), it was clarified that it is compensatory in nature and applicable regardless of fault, but only for the period until the tax was eventually paid. If the recipient had no tax liability, interest provisions do not apply. The matter was remanded to the A.O. for fresh adjudication, with directions to provide a fair opportunity of hearing to the assessee and issue a speaking order.

The judgment concluded by allowing all three appeals for statistical purposes and remitting the matter back to the A.O. for de novo adjudication in line with the legal observations provided.