1999 (9) TMI 13 - HC - Income Tax

Employer's failure to deduct TDS on employee allowances u/s192/s.201-good-faith belief accepted, default orders quashed, appeal dismissed

Whether the employer could be treated as an assessee deemed in default under s. 201(1) r/w s. 192 for non-deduction of TDS on certain employee allowances ... Appeal To High Court - deemed to be in default within the meaning of section 201(1) read with section 192 - Whether, the Income-tax Appellate Tribunal was right in law in holding that the assessee could not be held to be an assessee deemed to be in default u/s 201(1) and thereby cancelling the orders passed by the Assessing Officer under section 201(1) and 201(1A) of the Act ? - HELD THAT:- In our opinion, no substantial question of law can be said to have arisen in this case in respect of the order passed by the Income-tax Appellate Tribunal. Though our attention was invited by both learned counsel to several decisions of the Supreme Court, of this court as well as of other courts, in our view, it is not necessary to deal with them in the present case. It may be that the ambit and scope of the first part of section 201(1) and the proviso may be different. At the same time, however, it cannot be said that the Tribunal has committed an error of law in not considering the circumstances including the circumstance that even though notices were issued in 1993-94, the matter was not pursued further and that a rectification order was passed in favour of an employee. Ultimately, it cannot be gainsaid that the liability is of employees. Even in respect of an individual employee, when an order of rectification was made by the authorities and deduction was made, the Tribunal, in our opinion, cannot be said to be wrong in recording a finding that there was an honest and bona fide belief on the part of the assessee that regarding other allowances also, the case would not fall under section 201 if the amount was not deducted at source. It was stated at the Bar that from 1997-98, the company has started deducting the amount of tax at source from the amounts which are to be paid to its employees in respect of disputed allowances. Thus, we are of the view that by allowing the appeals and setting aside the orders passed by the authorities below, the Tribunal has not committed any error of law and no substantial question of law arises for consideration of this court. Appeals, therefore, deserve to be dismissed and are accordingly dismissed. Issues Involved:1. Whether the assessee could be held to be an assessee deemed to be in default u/s 201(1) and thereby cancelling the orders passed by the Assessing Officer u/s 201(1) and 201(1A) of the Income-tax Act, 1961.Summary:Issue 1: Assessee Deemed to be in Default u/s 201(1)The Revenue challenged the order of the Income-tax Appellate Tribunal, which held that the assessee, Gujarat Narmada Valley Fertilizers Company Limited, could not be deemed to be in default u/s 201(1) for not deducting tax at source on certain payments to employees. The Income-tax Officer (TDS) had found that payments such as vehicle allowance, cash canteen assistance, medical reimbursement, and others were made without proper reimbursement and accounting, thus violating section 192 of the Act. Consequently, the assessee was deemed to be in default for a tax amount of Rs. 2,36,45,731 and interest of Rs. 51,72,501 u/s 201(1A).The Commissioner of Income-tax (Appeals) upheld the tax liability but partly allowed the appeal regarding interest. The Tribunal, however, quashed the orders, noting that the assessee had a bona fide belief that the payments were not taxable based on past departmental actions and judicial decisions. The Tribunal found no mala fide intention on the part of the assessee.Revenue's Argument:The Revenue contended that the Tribunal erred in law by not properly construing sections 192, 200, and 201 read with sections 15, 16, and 17 of the Act. It argued that the employer's failure to deduct tax at source automatically made them a deemed defaulter u/s 201(1), irrespective of their intention. The first part of section 201(1) imposes liability for tax and interest, while the second part, dealing with penalties, considers the employer's intention.Assessee's Argument:The assessee argued that the employer's liability to deduct tax depends on whether the payments are taxable. Since the payments were not taxable, there was no obligation to deduct tax. The assessee also highlighted that past departmental actions indicated that such payments were not subject to tax, reinforcing their bona fide belief.Court's Decision:The court held that no substantial question of law arose from the Tribunal's order. The Tribunal's finding of a bona fide belief on the part of the assessee was a factual determination, not subject to challenge u/s 260A. The court emphasized that the liability to pay tax ultimately rests with the employees, and the Tribunal did not err in its judgment. The appeals were dismissed without costs.