TMI Blog2016 (8) TMI 1240X X X X Extracts X X X X X X X X Extracts X X X X ..... rement of deduction of TDS under section 194A so as to attract action by the concerned authority under section 201 of the Act, 1961. In view of the above, demand of tax is patently illegal and without jurisdiction. Vires of section 201 challenged - Held that:- When commenced arguments, gave up this plea and stated that he is confining his challenge only to the validity of orders passed by the Income-tax Officer (TDS), impugned in writ petitions, and the same may be considered in the light of relevant provisions of the Act, 1961, and matter be decided accordingly. Hence, we have not looked into vires of section 201 since that plea has been given up. The Income-tax Officer (TDS) is required to find out whether there is any liability of interest on the amount of TDS deductible under section 194A but not deducted and then from the date on which such amount was deductible and the date when actual tax was paid, to compute the amount of interest payable by the petitioner. In this regard, he will have to pass a fresh order - Writ Tax Nos. 870 and 869 of 2006 - - - Dated:- 3-8-2016 - Sudhir Agarwal And Kaushal Jayendra Thaker, JJ. For the Petitioner : Dhruv Agarwal and Dev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 201(1) and (1A) of the Act, 1961, be not passed. The petitioner vide reply dated March 3, 2006 informed the Income-tax Officer (TDS) that no TDS was deductible under section 194A hence the GDA cannot be held to be an assessee in default under section 201(1). 7. The Income-tax Officer (TDS) thereafter passed orders dated April 5, 2006 in respect to both assessment years demanding the amount of TDS as tax, and, interest under section 201(1A) and also surcharge to the following effect : Sl. Assessment year Amount of Surcharge Amount of interest (Rs.) Total 1 2001-02 2,03,63,740 1,71,80,520 26,47,281 4,01,91,541 2 2002-03 1,66,24,683 3,32,496 99,90,446 2,69,47,625 8. The petitioner has also stated that in respect of assessment orders passed by the Assessing Officer for disputed period of assessment in respect to PNBHFL and LICHFL, tax on the amount of interest r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year by the person referred to in sub-section (1) to the account of, or to, the payee, does not exceed five thousand rupees : Provided that in respect of the income credited or paid in respect of- (a) time deposits with a banking company to which the Banking Regulation Act, 1949 (10 of 1949) applies (including any bank or banking institution referred to in section 51 of that Act) ; or (b) time deposits with a co-operative society engaged in carrying on the business of banking ; (c) deposits with a public company which is formed and registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes and which is eligible for deduction under clause (viii) of sub-section (1) of section 36, the aforesaid amount shall be computed with reference to the income credited or paid by a branch of the banking company or the co-operative society or the public company, as the case may be ; . . . (iii) to such income cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 1964), or the Interest-tax Act, 1974 (45 of 1974). Explanation.-For the purposes of clauses (i), (vii) and (viia), 'time deposits' means deposits (excluding recurring deposits) repayable on the expiry of fixed periods. (emphasis added) 13. Learned counsel for the Revenue submitted that PNBHFL and LICHFL are neither banking companies to which Banking Regulations Act, 1949 (hereinafter referred to as BRA, 1949 ) is applicable nor the Financial Corporation established by or under a Central, State or Provincial Act nor LIC Housing Finance Limited can be said to be LIC of India itself established under the Life Insurance Corporation Act, 1956, nor is a company carrying on business of insurance and both were not covered by any of the exception under sub-section (3), therefore, liability of deduction of tax under section 194A(1) was clear and unambiguous, still GDA made default in not deducting TDS on huge amount of interest paid to the aforesaid two companies hence it is an assessee in default under section 201(1) of the Act, 1961. 14. After going carefully through the provisions of section 194A(1) and (3), we are satisfied that neither PNBHFL nor LICHFL comes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fter it is deducted, the amount of the tax together with the amount of simple interest thereon referred to in sub-section (1A) shall be a charge upon all the assets of the person, or the company, as the case may be, referred to in sub-section (1). 202. The power to recover tax by deduction under sections 192 to 194, section 194A, section 194B, section 194BB, section 194C, section 194D, section 194E, section 194EE, section 194F, section 194G, section 194H, section 194-I, section 194J, section 194K, section 194L, section 195, section 196A, section 196B, section 196C and section 196D shall be without prejudice to any other mode of recovery. (emphasis added) 16. Section 200 requires a person, deducting any sum under section 194A and others, to pay the same within prescribed time to the credit of the Central Government or as the Board directs. Therefore, if TDS has been deducted, it is more serious matter, if amount of TDS is kept by person, who has deducted it and fails to deposit the same with the Income-tax Department. 17. Here is not a case where TDS was deducted by GDA but not paid within time with the Income-tax Department. Here is a case where no TDS was deducted und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Then comes sub-section (1A) of section 201 which empowers the Income-tax Department to demand interest on the amount of such tax, i.e., tax which was deductible but not deducted or deducted but not deposited. The liability of interest is confined to the period on which date tax was deductible to the period when tax was/is actually paid. Meaning thereby if tax has actually been paid, may be by the assessee in default or by the assessee to whom interest was actually paid, but TDS was not deducted, the liability of interest under sub-section (1A) will be confined only to the period of the date of deduction of TDS or when it was deductible, and the date of actual payment of tax, irrespective of the fact, who has paid tax to the Department. The reason is quite obvious. Tax deducted at source is not a tax or income of person who is deducting tax at source while making payment. Deduction at source is only to secure tax payable to the Government. It is not a fresh levy. Income remains the same. There may be occasions when a person to whom payment is made, may be exempted from payment of tax. Deduction of tax at source is not a liability of tax under the Act. It is only a mode of recove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f tax, short deducted, when regular assessment of the employee was completed in respect of him. There was no jurisdiction under section 201 to demand further tax from the employer in respect of tax, short deducted, relating to such employer. This case has been followed and reiterated in CIT v. Life Insurance Corporation [1987] 166 ITR 191 (MP). 25. Similar view was taken by the Calcutta High Court in Grindlays Bank Ltd. v. CIT [1992] 193 ITR 457 (Cal) wherein the court said that if tax has been realised once, it cannot be realised again, but that does not mean that the assessee will not be liable for payment of interest or any legal consequence for its failure to deduct or to pay in accordance with law to the Revenue. 26. In CIT v. Dhanalakshmy Weaving Works [2000] 245 ITR 13 (Ker), the court read section 201 of the Act, 1961 in the manner that sub-section (1) talks of levy of penalty for non-deduction or failure in deposit of deducted TDS while sub-section (1A) deals with levy of interest. It also held that sub-section (1A) which talks of interest is mandatory provision and if there is default in deduction of TDS, interest shall be leviable. 27. Learned counsel for the Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and accordingly demanded an amount of tax which was deductible and interest under section 201(1A). In the appeal preferred by HCCBPL, the Commissioner upheld the view taken by the Assessing Officer that HCCBPL was assessee in default in respect of the amount of short deduction of tax and liable to pay interest under section 201(1A). Further appeal was dismissed by the High Court also. HCCBPL then submitted a rectification application before the Tribunal stating that it has no objection regarding levy of interest under section 201(1A) but since the warehouse owner namely M/s. Pradeep Oil Corporation was assessed on its income and tax due was recovered by the Revenue from it, therefore no further tax towards alleged shortage of TDS could have been demanded from HCCBPL and this aspect was not considered earlier hence there is a mistake. The Tribunal allowed this application of HCCBPL and held that the amount of tax was not leviable from M/s. Pradeep Corporation by Assessing Officer. The Revenue came in appeal before the High Court which was allowed by holding that the Tribunal could not have reopened the matter. The Supreme Court referring to Circular No. 275/201/95-IT(B) dated Ja ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n by the respondents that whatever tax was due on the amount of interest paid by GDA to PNBHFL and LICHFL, the same was paid by two recipient companies to the Revenue. The final assessment orders in respect thereto were also passed. Income of GDA on its own was not taxable during the relevant period by virtue of section 10(20A) though subsequently it has been omitted. 32. So far as the status of PNBHFL and LICHFL is concerned, there was some genuine doubt regarding their status. Both companies are public limited companies and subsidiaries of the Punjab National Bank and Life Insurance Corporation of India. This caused some doubt whether TDS was deductible or not. However, for the purpose of adjudication of dispute in the present writ petition, we have not given any leverage or advantage to the petitioner for alleged doubt and we have proceeded to decide the matter holding the petitioner defaulter by violating requirement of deduction of TDS under section 194A so as to attract action by the concerned authority under section 201 of the Act, 1961. 33. In view of the above, demand of tax is patently illegal and without jurisdiction. 34. Moreover, the Income-tax Officer (TDS) h ..... X X X X Extracts X X X X X X X X Extracts X X X X
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