TMI Blog2016 (12) TMI 1534X X X X Extracts X X X X X X X X Extracts X X X X ..... even if the deductee assessee has paid the tax dues, it would not alter the liability to charge interest under Section 201(1A) till the date of payment of taxes by the deductee assessee. It is further held that the same would not even affect the liability for penalty under Section 271C. Thus, even prior to the amendment on 1st July, 2012, the liability to pay interest under Section 201 (1A) was there even in cases where the deductee assessee had paid the tax dues. The language of Section 201 is clear and unqualified. It indeed does not permit an assessee to decide for itself what the liability of the deductee assessee is or is likely to be. That is a matter for the assessing officer who assesses the returns of the deductee assessee. It is in fact not even possible for him to do so. He cannot ascertain with any degree of certainty as to the financial position of the deductee assessee. A view to the contrary would enable an assessee to prolong the matter indefinitely. If accepted, it may even entitle the assessee to contend that it is not liable to pay interest till the finalisation of the assessment of the deductee assessee. This could never have been contemplated by the Legisla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dmitted on the following substantial question of law as framed by us: - Whether a person who fails to deduct at source under section 194C is not liable to pay interest under section 201(1A) if the payee of such amounts has files a nil return or a return showing a loss? The Tribunal answered this question in the affirmative in favour of the assessee/respondent. We have overruled the order answering the question in the negative in favour of the Revenue/Appellant. 3. The question arises in the following facts. The assessee is a Board established under Section 18 of the Punjab Infrastructure (Development and Regulation) Act, 2002 (Punjab Act) and for the purposes of that Act. It is wholly controlled and managed by the Government of Punjab. The agreements which are the subject matter of this appeal have not been produced. That, however, need not detain the decision in the appeal. The facts stated in the orders of the authorities under the Income Tax Act, 1961 and the appeal are sufficient for the decision of the appeal. Suffice it to state that the assessee entered into a contract with a party for achieving its objects under the Punjab Act under various models such as the B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rise in some of these appeals. We will deal with these questions in separate judgments against which also appeals are before us. 7. If we answer the questions of law in favour of the assessee, the entire matter ends there. If, however, we answer the question in favour of the Revenue, as we have, it would be necessary to remit the matter to the Tribunal to decide the assessee's main contention that the provisions of Section 194C are not applicable to the case at all. We refrain from answering that question in this appeal as in our view, it ought to be decided by the Tribunal in the first instance. There is a possibility of questions of fact arising. For instance, it would be necessary to consider whether the assessee was merely a nodal agency for the Government of Punjab or whether it was acting on its own on a principle to principle basis with the concessionaire. The answer to this issue may not depend only upon the terms of the agreement. 8. We will, therefore, proceed to answer the question raised in this appeal on the basis that Section 194C of the Act applies to the case requiring the assessee to deduct tax at source. 9. It would be convenient to set out Section 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny part of the tax or after deducting fails to pay the tax as required by or under this Act, he or it shall be liable to pay simple interest at one per cent for every month or part of a month on the amount of such tax from the date on which such tax was deductible to the date on which such tax is actually paid and such interest shall be paid before furnishing the statement in accordance with the provisions of sub-section (3) of section 200 ............................................... (B) Section 201 as applicable to the assessment year 2011-12, insofar as it is relevant, reads as under: - Consequences of failure to deduct or pay. 201. [(1) Where any person, including the principal officer of a company- (a) who is required to deduct any sum in accordance with the provisions of this Act; or (b) referred to in sub-section (1A) of section 192, being an employer, does not deduct, or does not pay, or after so deducting fails to pay, the whole or any part of the tax, as required by or under this Act, then, such person, shall, without prejudice to any other consequences which he may incur, be deemed to be an assessee in default in respect of such tax: Provide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, however, contended that the first proviso to sub section (1) is clarificatory in nature and, therefore, has retrospective effect whereas the proviso to sub section (1A) is prospective in nature and, therefore, operates only with effect from 01.07.2012. The submission was sought to be supported on the basis of the memorandum of Finance Bill, 2012, the relevant part whereof reads as under: - E. RATIONALIZATION OF TAX DEDUCTION AT SOURCE (TDS) AND TAX COLLECTION AT SOURCE (TCS) PROVISIONS I. Deemed date of payment of tax by the resident payee Under the existing provisions of Chapter XVII-B of the Income-tax Act, a person is required to deduct tax on certain specified payments at the specified rates if the payment exceeds specified threshold. In case of non-deduction of tax in accordance with the provisions of this Chapter, he is deemed to be an assessee in default under section 201(1) in respect of the amount of such non-deduction. However, section 191 of the Act provides that a person shall be deemed to be assessee in default in respect of non/short deduction of tax only in cases where the payee has also failed to pay the tax directly. Therefore, the deductor canno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion (1A) does not. As the amendment of 2009 is with effect from 01.07.2010, a question may arise in a given case whether it applies only from the next assessment year i.e. From 01.04.2011 or whether it applies to the assessment year 2010-11 only from 01.07.2010 and prior to that i.e. From 01.04.2009 to 30.06.2010 the unamended provisions applies. The issue, however, does not affect the result of this appeal. 11. Even if the proviso to sub section (1) is not retrospective, it would make no difference to the assessee's case in view of the judgment of the Supreme Court in Hindustan Coca Cola Beverage P. Ltd. vs. Commissioner of Income Tax [2007] 293 ITR 226 (SC) . The supreme Court held as follows:- 10. Be that as it may, Circular No. 275/201/95-IT(B) dated 29.01.1997 issued by the Central Board of Direct Taxes, in our considered opinion, should put an end to the controversy. The circular declares no demand visualized under Section 201(1) of the Income Tax Act should be enforced after the tax deductor has satisfied the officer in charge of TDS, that taxes due have been paid by the deductee assessee. However, this will not alter the liability to charge interest under Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade in respect of which tax is required to be deducted at source, the State promptly receives the amount so required to be deducted. The provision providing for penalty is to ensure that persons who are required to deduct tax at source in fact comply with that provision and remit the amount of tax to the Government. The person who pays the interest at the time interest is paid, is not in any way concerned with the extent of the liability for tax of the recipients except in cases where the recipients furnish the requisite declaration or certificate to show that the recipient's income is below the taxable limit. No such declaration was filed with the assessee by either of the two sister concerns. 8. They could not have filed any such declaration, having regard to the substantial amount received by them as income during these assessment years, on which they have been assessed to tax. 9. The fact that the recipients pay advance tax is not an excuse for not deducting the tax at source. It is for the recipients of the interest payment to claim refund of the amount after such refund is found to be due after the assessment is made. We are in respectful agreement with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as contended that as the recipient i.e. the deductee assessee was a loss-making entity, the question of payment of interest did not arise. The contention was negated on the basis of the judgment in Commissioner of Income Tax vs. Ramesh Enterprises . Paragraphs 15 to 18 of the judgment, read as under: - 15. As far as the present case is concerned, while the assessee had short deducted the tax under Section 195 of the Income Tax Act, it did not make good the shortfall on the ground that the payee company was a loss making company and had filed a return so. In the circumstances, the question of it further making a deduction and remitting to the State did not arise. The Circular referred to recognises the fact that once the payee remits the differential tax, the question of further recovery of the self-same sum from the payer did not arise and till the payment made by the dedutee assessee, interest would be charged. 16. Applying the said circular herein, with no liability thus arisen at the hands of the payee, the terminal point as regards the calculation of interest necessarily has to be given a meaningful interpretation. Given the fact that the interest levy is an automatic o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dgment insofar as it holds that the terminal point has to be taken as a date on which the payee/deductee should have filed returns. Thus, even before and de hors the amendment of 1st July, 2012, the assessee would be liable to pay interest under Section 201(1A). 16. The amendment which introduced inter-alia the first proviso to Section 201(1) is of no assistance to the assessee either. We would apply the ratio of the judgment in Commissioner of Income Tax vs. Chennai Metropolitan Water Supply and Sewerage Board to the proviso to sub section (1A) of Section 201. 17. Mr. Goyal's reliance upon Section 197 of the Act is well founded. Section 197 reads as under: - Certificate for deduction at lower rate. 197. (1) Subject to rules made under sub-section (2A), where, in the case of any income of any person or sum payable to any person, income-tax is required to be deducted at the time of credit or, as the case may be, at the time of payment at the rates in force under the provisions of section 194C, the Assessing Officer is satisfied that the total income of the recipient justifies the deduction of incometax at any lower rates or no deduction of income-tax, as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad seconded four expatriates etc. to the respondent who was, therefore, the tax deductor assessee. The AO held the respondent to be an assessee in default under Section 201 for failure to deduct tax at source from out of the home salary paid by the foreign company outside India to the four expatriates. The question was whether the TDS provisions were applicable to payments made abroad by the foreign company which payments were made for income chargeable under the head 'salary' and which are made to the expatriates who have rendered services in India. The Supreme Court held as follows: - 88. From the above analyses two conclusions flow. Firstly, it cannot be stated as a broad proposition that the TDS provisions which are in the nature of machinery provisions to enable collection and recovery of tax are independent of the charging provisions which determine the assessability in the hands of the assessee employee. Secondly, whether the home salary payment made by the foreign company in foreign currency abroad can be held to be deemed to accrue or arise in India would depend upon the in-depth examination of the facts in each case. If the home salary/special allowance pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -A), there are three elements. One is the quantum on which interest has to be levied. Second is the rate at which interest has to be charged. Third is the period for which interest has to be charged. The rate of interest is provided in the 1961 Act. The quantum on which interest has to be paid is indicated by Section 201(1-A) itself. Sub-section (1-A) specifies on the amount of such tax which is mentioned in subsection (1) wherein, it is the amount of tax in respect of which the assessee has been declared in default. It would be convenient, however, to reproduce paragraph 92 as well. It reads as under: - 92. The object underlying Section 201(1) is to recover the tax. In the case of short deduction, the object is to recover the shortfall. As far as the period of default is concerned, the period starts from the date of deductibility till the date of actual payment of tax. Therefore, the levy of interest has to be restricted for the abovestated period only. It may be clarified that the date of payment by the employee concerned can be treated as the date of actual payment. It is true that in the first sentence of paragraph 91 the Supreme Court held that interest unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sub section (1) shall not be deemed to be assessees in default in respect of the interest on such tax. 22. That the Legislature drew a distinction in section 201 between tax and interest is also clear from the definition of the word 'tax' in Section 2(43), which reads as under: - Definitions . 2. ... ... ... ( 43 ) tax in relation to the assessment year commencing on the 1st day of April, 1965, and any subsequent assessment year means income-tax chargeable under the provisions of this Act, and in relation to any other assessment year income-tax and super-tax chargeable under the provisions of this Act prior to the aforesaid date and in relation to the assessment year commencing on the 1st day of April, 2006, and any subsequent assessment year includes the fringe benefit tax payable under section 115WA. The definition of tax under Section 2(43) does not include interest. Even otherwise, considering the language of Section 201, it would have made no difference for tax and interest are provided for and dealt with separately. Thus, the liability of a person to pay interest under sub section (1A) as the main part stood prior to the amendment by Finance Act, 201 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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