2007 (8) TMI 12 - SC - Income Tax

Circular 275/201/95-IT(B) bars enforcement of section 201(1) demand when deductee proves tax paid; interest under 201(1A) and penalty under 271C remain

M/s. Hindustan Coca Cola Beverage Pvt. Ltd Versus Commissioner of Income Tax

The SC held that Circular No. 275/201/95-IT(B) bars enforcement of a demand under section 201(1) once the tax-deductor satisfies the officer that the ... Levy of interest under Section 201(1A) - Warehousing charges - Assessee in default - failure to deduct tax at source - Applicability of Circular No. 275/201/95-IT(B) - whether warehousing charges are in the nature of renting and TDS is deductible u/s 194C - HELD THAT:- Be that as it may, the circular No. 275/201/95-IT(B) dated 29.1.1997 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 Section 201 (1A) of the Act till the date of payment of taxes by the deductee-assessee or the liability for penalty under Section 271C of the Income-tax Act.' In the instant case, the appellant had paid the interest under Section 201 (1A) of the Act and there is no dispute that the tax due had been paid by deductee-assessee (M/s Pradeep Oil Corporation). It is not disputed before us that the circular is applicable to the facts situation on hand. Issues:1. Whether the appellant-assessee was rightly held to be an 'assessee in default' for failure to deduct tax at source on warehousing chargesRs.2. Whether the levy of interest under Section 201(1A) of the Income Tax Act was justifiedRs.3. Whether the Tribunal had the authority to reopen the appeal for further hearing based on the appellant's alternative contentionRs.4. Whether the High Court's interference with the Tribunal's order was validRs.5. Whether Circular No. 275/201/95-IT(B) issued by the Central Board of Direct Taxes applies to the case and settles the controversyRs.Analysis:1. The appellant-assessee, engaged in manufacturing and selling soft drinks, entered into an agreement with M/s. Pradeep Oil Corporation for warehousing services. The Assessing Officer held the appellant as an 'assessee in default' for not deducting tax on warehousing charges under Section 194C of the Income Tax Act. The Assessing Officer considered the charges as rent, requiring tax deduction at 20% under Section 194-I. The Tribunal and High Court upheld this decision, but later, the Tribunal reopened the matter to consider the appellant's contention that Pradeep Oil Corporation had already paid taxes on the income.2. The Assessing Officer levied interest under Section 201(1A) on the alleged short deduction of tax. The Tribunal initially upheld this, but upon rehearing, it concluded that tax could not be recovered again from the appellant since Pradeep Oil Corporation had already paid taxes on the income. The High Court, however, interfered with the Tribunal's decision, leading to the appeal before the Supreme Court.3. The Tribunal's decision to reopen the appeal for further hearing, based on the appellant's alternative contention, was challenged. The Supreme Court noted that the order to reopen had attained finality, and the High Court had no authority to interfere with it.4. The High Court's interference with the Tribunal's order was deemed invalid by the Supreme Court, as the Tribunal's decision to reopen the matter had already been finalized.5. The Supreme Court referred to Circular No. 275/201/95-IT(B), stating that no demand under Section 201(1) should be enforced once the tax deductor proves that taxes have been paid by the deductee. In this case, the appellant had paid interest under Section 201(1A), and it was acknowledged that the tax due had been paid by Pradeep Oil Corporation. The Court found the circular applicable and settled the controversy, setting aside the High Court's judgment and allowing the appeal.