1996 (8) TMI 100 - HC - Income Tax

Court Rules Tax Deducted at Source Absolves Petitioner, Illegal Denial of Credit

The court held that under section 205 of the Income-tax Act, the petitioner was not liable to pay tax if already deducted at source. The order denying ... Tax deduction at source - Winnings from lottery - Bar against direct demand on assessee - Assessee in default - Failure to deduct or pay - liability of deductorTax deduction at source - Bar against direct demand on assessee - Failure to deduct or pay - liability of deductor - Whether the assessee (petitioner) could be called upon to pay tax which had been deducted at source by the payer but not remitted to the Government - HELD THAT: - The Court examined sections 194B, 201 and 205 of the Income-tax Act, 1961 and held that once tax has been deducted at source by the person responsible for payment of lottery winnings, the liability to pay that portion of tax does not fall on the recipient assessee. Section 205 operates as a bar against making a direct demand on the assessee to the extent tax has been deducted under the relevant provisions, and section 201 addresses consequences where the deductor fails to pay but treats the deductor as an assessee in default. The certificate issued by the payer (Chandra Agencies) demonstrated that tax was deducted at source; therefore the Income-tax Officer's refusal to grant credit and effectively call upon the petitioner to discharge the tax was contrary to section 205. The Court quashed the assessment order insofar as it denied credit for the tax deducted at source. The judgment clarified that this decision does not preclude the revenue from pursuing recovery or other proceedings against the deductor who failed to remit the tax.The assessment order insofar as it refused credit for tax deducted at source and sought to make the petitioner directly liable is illegal and is quashed; the revenue may proceed against the deductor.Final Conclusion: Writ allowed; order denying credit for tax deducted at source in respect of lottery winnings quashed as contrary to section 205 of the Income-tax Act, 1961; proceedings, if any, against the deductor may be continued. Issues:- Challenge to order regarding tax deduction at source under section 194B of the Income-tax Act, 1961- Interpretation of section 205 of the Income-tax Act, 1961- Legal consequences of failure to deduct or pay tax under section 201- Application of section 194B regarding winnings from lottery or crossword puzzleAnalysis:The petitioner won two lottery prizes during the assessment year 1986-87, one for Rs. 10,50,000 and the other for Rs. 18,000. The person responsible for paying winnings from a lottery exceeding Rs. 1,000 was required to deduct income tax at the rates in force under section 194B of the Income-tax Act, 1961. In this case, Chandra Agencies made the payment to the petitioner but failed to remit the tax deducted at source to the income-tax authority. Consequently, the income-tax authority passed an order denying credit for the tax deduction due to the lack of evidence of payment to the government treasury.The petitioner challenged this order, arguing that section 205 of the Income-tax Act, 1961, prohibits demanding tax payment from the assessee if tax has already been deducted at source. Section 205, read with section 201, establishes consequences for failure to deduct or pay tax, deeming the defaulter an assessee in default. Moreover, section 194B mandates deduction of income tax on winnings exceeding Rs. 5,000 from lotteries or crossword puzzles at the time of payment.The court analyzed these provisions and held that under section 205, the petitioner cannot be held liable to pay tax if it has already been deducted at source by the paying entity. The certificate issued by Chandra Agencies confirmed the tax deduction, absolving the petitioner of any further tax liability. Consequently, the court deemed the order passed by the Income-tax Officer as illegal and contrary to section 205, quashing it. The authorities were directed to pursue Chandra Agencies for the tax deducted at source.In conclusion, the petition was disposed of with no costs awarded, affirming that the petitioner was not liable for the tax deducted at source as per the provisions of the Income-tax Act, 1961.