2012 (6) TMI 507 - HC - Income Tax

Appellant's Interest Liability Upheld for Failure to Collect Tax: Clarification on Section 206C(7)

The High Court upheld the interest liability of the appellant under section 206C(7) of the Income Tax Act, 1961, for failing to collect tax at source from ... Interest u/s 206C(7) - Tax collected at source paid by deductees (Contractors) - Evidence placed on record in reply to SCN - Held that:- Considering the provision contained in section 206C(7) and Circular dated 29.01.1997 it is clear that even if the deductees (Contractors) pay tax, the liability of the deductor (appellant) with regard to charging of interest will continue till the date of payment of taxes by the deductees (contractors)- if the person responsible for collecting tax does not collect the tax or after collecting the tax fails to pay it as required under this section, he shall be liable to pay simple interest at the rate of one per cent per month or part thereof on the amount of such tax from the date on which such tax was collectible to the date on which the tax was actually paid - no substantial question of law is involved - against assessee. Issues:1. Interpretation of section 206C(7) of the Income Tax Act, 1961 regarding the liability to pay interest on tax not collected by the deductor.2. Determination of whether interest is leviable on the tax liability of the deductee or the tax amount not collected by the deductor.Issue 1: Interpretation of section 206C(7) of the Income Tax Act, 1961The High Court considered the appeal against the order of the Income Tax Appellate Tribunal (Tribunal) regarding the liability of the appellant to pay interest on tax not collected from contractors. The appellant had awarded a toll collection contract and failed to deduct tax collected at source (TCS) from the license fees. The Assessing Officer raised a demand for the uncollected tax amount and interest. The Commissioner (Appeals) partly allowed the appeal, deleting the tax demand but upholding the interest liability under section 206C(7) of the Act. The Tribunal affirmed the interest liability based on a 1997 Circular stating that interest continues until the deductees (contractors) pay their taxes. The appellant challenged this decision.Issue 2: Determination of interest liabilityThe High Court analyzed the provision of section 206C(7) of the Act, which mandates simple interest at a specified rate if the person responsible for tax collection fails to collect or pay the tax. The Court emphasized that interest is payable on the tax amount not collected by the deductor, not on the tax liability of the deductees (contractors). The Court rejected the argument that interest should only be levied on the tax liability of the deductee, affirming that interest is applicable on the uncollected tax amount as per the clear language of the statute.In conclusion, the High Court dismissed the appeal, finding no error in the orders of the lower authorities. The Court held that interest is to be paid on the tax amount not collected by the appellant, in accordance with the provisions of section 206C(7) of the Income Tax Act, 1961. The Court determined that no substantial question of law was involved in the appeal, leading to the dismissal of the appeal in limine.