TMI Blog2016 (8) TMI 1474X X X X Extracts X X X X X X X X Extracts X X X X ..... the Respondent : Shri Sallong Yaden, Addl. CIT ORDER Per Shri M. Balaganesh, AM: This appeal by assessee is arising out of order of CIT(A)-I, Kolkata vide appeal No. 22/CIT(A)-I/C-57/2010-11 dated 03.08.2013. Assessment was framed by DCIT, Circle-57, Kolkata u/s.201(1)/201(1A) read with section 194I of the Income tax Act, 1961 (hereinafter referred to as the Act ) for AY 2004-05 vide his order dated 29.03.2010. 2. The only issue to be decided in this appeal is as to whether the interest u/s 201(1A) of the Act could be charged in the facts and circumstances of the case. 3. The brief facts of this issue is that the assessee is a domestic company registered under the Companies Act, 1956 and has a petrochemicals plant at Haldia District, Midnapore, West Bengal for the manufacture and sale of petrochemical products. During the assessment year 2004-05, the assessee entered into an agreement with its subsidiary company M/s. Haldia Riverside Estates Limited (hereinafter referred to as HREL ) for the purpose of residential accommodation of the employees of the assessee. Under the aforesaid agreement, the assessee paid a sum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n for the A.Y. 04-05 on 28.10.2004 declaring a loss of ₹ 6,57,05,480/-. The issue regarding non-liability of deductor to deduct tax when the payee was not liable to Income Tax was clarified by the Central Board of Direct Taxes in its circular No. 275 dt. 29.01.1997 which stated that no demand visualized u/s 201(1) of the Act should be enforced after the tax depositor satisfied the Officer-in-Charge of the TDS that taxes due have been paid by the deductee assessee. It further clarified that it would not alter the liability to charge interest u/s 201(1A) of the Act till the date of payment of taxes by the deductee assessee or the liability for penalty u/s 271C of the I. T. Act. In the instant case the deductee had not paid any tax as it filed a loss return and there was no tax liability. But the fact remains that the assessee deductor, could not have any prior knowledge about such loss return to be filed by the deductee, and as such it was liable to deduct tax at source while making payment to HREL. In reality also HPCL, the deductor, deducted tax at source on the purported rent payment to HREL as per its own statement dt. 23.10.2008, and deposited the same with the Government. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he upheld the order of the ld AO. 5. Aggrieved, the assessee is in appeal before us on the following grounds:- 1. That the Ld. CIT(A)-1 erred in law and facts in upholding the levy of interest of ₹ 7,88,598/- u/s. 201(1A) of the Act on purported failure of the Appellant to deduct tax at source even when the deductee was not liable to pay Income Tax on account of losses. 2. That the Ld. CIT(A)-1 erred in law and facts in upholding the order treating the Appellant as assessee in default u/s. 201(1) of the Act. 3. That the proceedings initiated and the impugned order is barred by limitation. 6. We have heard the rival submissions and perused the materials available on record including the paper book filed by the assessee. The ld AR argued that there was no liability to deduct tax at source on the payments made to its subsidiary company in as much as the subsidiary company had incurred huge losses which is quite evident from the Assessment order of the subsidiary company i.e. M/s Haldia Riverside Estates Ltd u/s 143(3) dated 22.12.2006 for the Asst Year 2004-05. From the said order it could be seen that there would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e safely concluded that there is no tax that is effectively due to be paid to the Government. Hence the assessee could not be treated as assessee in default in the facts and circumstances of the case. We find that the interest charged in terms of section 201(1A) of the Act is only compensatory in nature and is collected from the payer by treating the payer assessee as assessee in default for depriving the Government of its legitimate dues. We find that this interest is to be calculated from the due date of deduction / payment of expenses warranting TDS till the date of deduction / payment, as the case may be, at the respective interest rates. Admittedly, this interest is calculated on the tax that is due to be paid. When there is no tax due to be paid , then there cannot be any charging of interest u/s 201(1A) of the Act. We find that section 201(1A) of the Act specifies interest has to be paid on the amount of such tax as per section 201(1) of the Act. Such tax specified in section 201(1) of the Act should admittedly be tax due to the Government . As already held that there is no tax due to the Government from the side of the payee (subsidiary company) in view of subsisting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n deducted in accordance with the provisions of this Chapter, income-tax shall be payable by the assessee direct. [Explanation.-For the removal of doubts, it is hereby declared that if 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 after so deducting fails to pay, or does not pay, the whole or any part of the tax, as required by or under this Act, and where the assessee has also failed to pay such tax directly, then, such person shall, without prejudice to any other consequences which he may incur, be deemed to be an assessee in default within the meaning of sub-section (1) of section 201, in respect of such tax.] Hence, it could be safely concluded from the aforesaid reading of the provisions of section 191 of the Act, that it is only when tax is not paid both by the deductor and the deductee, that the deductor be treated as assessee in default and he shall remain so until the tax is paid either by him or by the deductee. In the instant case, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch 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 the recipient directly from the recipients of income. It is not the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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