TMI Blog2014 (1) TMI 1442X X X X Extracts X X X X X X X X Extracts X X X X ..... er can very well ascertain the related facts about payment of taxes on income of the recipient directly from the recipients of income - once recipient has paid the taxes on the receipts, the payer cannot be held to be the assessee in default and so far the levy of interest u/s 201(1A) is concerned, the interest is compensatory in nature and it is applicable for the period of the date on which tax was required to be deducted till the date when tax was eventually paid. Levy of interest under section 201(1A) is a compensatory interest in nature and it seeks to compensate the revenue for delay in realization of taxes – The judgement in Bennett Coleman & Co Ltd Vs 1TO [1984 (11) TMI 58 - BOMBAY High Court] followed – thus, levy of interest under section 201(1A) is applicable whether or not the assessee was at fault - it is only compensatory in nature it is applicable for the period of the date on which tax was required to be deducted till the date when tax was eventually paid - unless and until it is established that the recipients have not paid any tax on the receipts on which they are liable to pay the tax, the assessee cannot be held to be in default - So far as the chargeability ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned Commissioner of Income Tax (Appeals) erred in ignoring the fact of charging of TDS and interest even in such cases where TDS exemption forms were obtained and filed by the appellant. 5. Because the findings of the Learned Commissioner of Income Tax (Appeals) are arbitrary, illegal, unlawful, and contrary to the facts and circumstances of the case." 2. Though various grounds are raised but they all relate to the non deduction of TDS or short deduction of TDS for which assessee was declared to be in default u/s 201 of the I.T. Act and also for charging interest u/s 201(1A) of the Act. 3. The facts, in brief, borne out from the record, are that during the course of verification it has been gathered by the Assessing Officer that the assessee had not deducted tax at source u/s 193 of the I.T. Act, 1961 (hereinafter called the "Act") in financial years 2002-2003 and 2004-2005 while making payment of interest on SLR and non SLR bonds to the accounts of various payees. The assessee was required to show cause as to why he should not be treated as assessee deemed to be default in respect of taxes as well as liable to pay interest u/s 201(1A) of the Act on amount of such tax. After ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to these banks. However, no tax should be deducted where any certificate u/s 197 by the AO of the payee. Further, as per the provisions of section 197A, tax may not be deducted u/s 193, in the case of person (not being a company or a firm), if such person furnishes a declaration in writing in duplicate in Form No. 15H/15G and verified in the prescribed manner to the effect that the tax on his estimated total income of the previous year in which such income is to be included in computing his total income will be nil. The provisions of section 197A shall not apply where the amount of tax income credited or paid or likely to be credited or paid during the previous year in which such income is to be included exceeds the maximum amount which is not chargeable to income-tax. All these provisions of non deduction of tax are applicable on payment of interest to the said banks. There is no such exemption in the Act that tax would not be deducted where deduction under u/s 80P has to be allowed by the AO of the payee on the basis of claim made in the return of income. This deduction is available to specific assessees on specific nature of income. UPFC itself cannot know as to whom the dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the payment of interest made to Gramin and Cooperative Banks. The contentions of the assessee were examined by the CIT(A). Being not convinced with it, he dismissed the appeal. 5. Aggrieved, the assessee preferred appeal before the Tribunal. The assessee however, filed the written submissions and took a new stand that the assessee was comparatively in a better financial health up to the financial year 2001-2002 and it continued to regularly pay interest to all concerned on due dates after duly deducting and depositing the TDS. From the financial year 2003-2004, the assessee could not make payment of interest on due dates as its financial position deteriorated. It was further contended that it was decided by the Corporation assessee to approach all the bond holders for an appropriate reduction in the high interest coupon rates of these Bonds as the Corporation was unable to bear the high interest. Pending agreement of the bond holders for appropriate reduction in the interest rates, the Corporation did not make payment of interest to the bondholders and therefore, no TDS was also made and deposited. As the interest rates were not finalized with the bond holders, the Corporation c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act. 7. Having given a thoughtful consideration to the rival submissions and from a careful perusal of the material available on record and the judgments referred to by the parties, we find that the assessee is a State Government Public Sector, engaged in the financing business. The interest was payable on SLR and non SLR bonds to various cooperative societies and Gramin banks besides others. An argument was raised that the assessee is not required to deduct TDS on SLR and non SLR Bonds being the Government securities but this argument was demolished by CIT(A) by giving a categorical finding that the assessee appellant is not a Government body rather it is a separate entity in the form of a Corporation and it cannot be considered as Department as per law. He further held that in case the SLR and non SLR Bonds of the appellant are being considered as Government Bond, the same would have found place in the proviso to section 193 of the Act. Before us, this issue was not agitated by the learned Counsel for the assessee. Through its written submissions a new argument was raised with regard to financial position of the assessee. On account of financial constraints the assessee cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y itself does not result in a legally sustainable demand u/s 201(1) and u/s 201(1A). As held by Hon'ble Supreme Court in the case of Hindustan Coca Cola Beverage Pvt. Ltd. Vs. CIT (293 ITR 226), the taxes cannot be recovered once again from the assessee in a situation in which the recipient of income has paid due taxes on income embedded in the payments from which tax withholding requirements were not fully or partly, complied with. Hon'ble jurisdictional High Court, in the case of Jagran Prakashan Ltd Vs DCIT [ (2012) 21 taxmann.com 489 All] also has, inter alia, observed as follows:- ...........it is clear that deductor cannot be treated an assessee in default till it is found that assessee has also failed to pay such tax directly. In the present case, the Income tax authorities had not adverted to the Explanation to Section 191 nor had applied their mind as to whether the assessee has also failed to pay such tax directly. Thus, to declare a deductor, who failed to deduct the tax at source as an assessee in default, condition precedent is that assessee has also failed to pay tax directly. The fact that assessee has failed to pay tax directly is thus, foundational and jurisdicti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A). These provisions provide that for any delay in recovery of such taxes is to be compensated by the levy of interest. As far as recovery provisions are concerned, these provisions are set out in Section 201(1) which seeks to make good any loss to revenue on account of lapse by the assessee tax deductor. However, the question of making good the loss of revenue arises only when there is indeed a loss of revenue and the loss of revenue can be there only when recipient of income has not paid tax. Therefore, recovery provisions under section 201(1) can be invoked only when loss to revenue is established, and that can only be established when it is demonstrated that the recipient of income has not paid due taxes thereon. In the absence of the statutory powers to requisition any information from the recipient of income, the assessee is indeed not always able to obtain the same. The provisions to make good the shortfall in collection of taxes may thus end up being invoked even when there is no shortfall in fact. On the other hand, once assessee furnishes the requisite basic information, the Assessing Officer can very well ascertain the related facts about payment of taxes on income of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pts by the recipients. Unless and until it is established that the recipients have not paid any tax on the receipts on which they are liable to pay the tax, the assessee cannot be held to be in default. So far as the chargeability of interest is concerned, it is to be charged as per the guidelines laid down in the aforesaid orders of the Tribunal i.e. from the date on which the tax was required to be deducted till the date of payment. Therefore, the matter is to be remanded to adjudicate the issue afresh in terms indicated above. Once the matter is being remanded back to the Assessing Officer, he may also examine the another aspect raised by the assessee with regard to the financial constraints for non deduction of TDS and its impact on the liability for deduction of TDS u/s 193 of the Act. Needless to mention here, the Assessing Officer shall afford the proper opportunity of being heard to the assessee while adjudicating the issue in dispute. Accordingly, we set aside the order of CIT(A) and remand it to Assessing Officer for fresh adjudication in terms indicated above. 10. In the result, the appeal of the assessee is allowed for statistical purposes. (Order pronounced in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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