2012 (7) TMI 43 - AT - Income Tax

ITAT directs reassessment for interest levy under Section 201(1A) based on recipient's tax liability

Madhya Pradesh Madhya Kshetra Vidyut Vitaran Company Limited, Bhopal. Versus ACIT, (TDS), BHOPAL

The ITAT allowed the appeals, directing reconsideration by the Assessing Officer in light of a Coordinate Bench decision and Supreme Court ruling. It ... Levy of interest u/s 201(1A) for non deduction/delay in deposit of TDS - assessee contested that since the recipient of income had duly paid tax on its entire income including the income received by assessee, there was no reason to deduct tax on the income paid by assessee - Held that:- Considering the submission of assessee that Recipient of income has no liability of taxes and all the assessments of recipient of income have been made u/s 143(3)and “NIL” tax liability was assessed therefore, where there is no liability to pay any tax, there shall be no actual payment, resultantly, no interest is payable u/s 201(1A) - As decided in M/s. Hindustan Coca Cola Beverage Pvt. Ltd versus CIT [2007 (8) TMI 12 (SC)] no demand visualized u/s 201(1) be enforced after the tax deductor has satisfied the office in charge of TDS that taxed due have been paid by the deductee assessee - restore the matter back to the file of AO for deciding afresh to find out if the Recipient of income have no tax liability as per assessment framed u/s 143(3)- in favour of assessee for statistical purposes. Issues:- Levying of interest u/s 201(1A) of the Income-tax Act, 1961 on the amount of TDS.- Interpretation of provisions regarding tax deduction at source and liability for interest under Section 201(1A).- Applicability of Circular No. 275/101/95IT(B) and its impact on interest liability under Section 201(1A).Analysis:1. The appeals were filed against the order of CIT(A) for the assessment years 2005-06 to 2007-08 regarding the levying of interest u/s 201(1A) on the TDS amount. The crux of the issue was the applicability of interest under Section 201(1A) of the Income-tax Act, 1961. The Assessing Officer held the assessee liable for interest on payments made to TRANSCO for wheeling charges and SLDC charges. The CIT(A) confirmed this chargeability, leading to the appeal before the ITAT.2. The authorized representative argued that since the recipient of income had paid tax on the entire income, including the amount received from the assessee, there was no justification for deducting tax on the income paid by the assessee. Reference was made to judgments from various ITAT benches and High Courts to support this argument.3. The ITAT analyzed a similar case decided by a Coordinate Bench where it was held that no interest u/s 201(1A) was leviable on the assessee. The key observation was that if the recipient of income had no tax liability and had received a refund of tax, there was no loss of revenue to the department due to non-deduction of TDS. The ITAT emphasized that the purpose of the Act was to compensate for delayed tax payments, and in this case, the recipient had no tax liability, thereby justifying the non-levy of interest.4. The ITAT noted that the CBDT circular clarified that where the deductee assessee had paid the tax, demand under Section 201 was not envisaged. However, the liability for interest under Section 201(1A) remained until the deductee assessee paid the taxes. The ITAT emphasized that if the deductee assessee had no tax liability, no interest liability under Section 201(1A) would arise.5. Consequently, the ITAT allowed the appeal, directing the matter to be reconsidered by the Assessing Officer in light of the decision of the Coordinate Bench and the Supreme Court's ruling. The Assessing Officer was instructed to determine if the recipient of income had no tax liability as per the assessment under Section 143(3), in which case no interest should be levied on the assessee for non-deduction or delay in TDS deposit. Other arguments regarding the technical nature of services and the applicability of different sections of the Income-tax Act were not deliberated upon as the main issue was decided in favor of the assessee.6. Ultimately, the ITAT allowed the appeals of the assessee for statistical purposes, emphasizing the importance of assessing the recipient's tax liability before levying interest under Section 201(1A).This detailed analysis highlights the key arguments, judicial interpretations, and the reasoning behind the ITAT's decision in the judgment.