2013 (9) TMI 766 - HC - Income Tax

Court Upholds ITAT Decision in Tax Appeal, Emphasizes Bonafide Belief in Deduction Decisions

The High Court upheld the decision of the Income Tax Appellate Tribunal (ITAT) in favor of the assessee, dismissing the Income Tax Appeal. The court ... Assessee in default u/s 201 for not deducting tax at source – TDS u/s 192 on conveyance allowance to employees - assessee was under bonafide belief that the conveyance allowance was exempt u/s 10 (14) – Held that:- If the tax has not been properly deducted or has not been properly paid after deducting, the person who is responsible is to be deemed to be an assessee in default in respect of the tax - Employer had to deduct tax from the salary paid to its employees on the basis of the estimated income of such employees - So long as the estimate made by the employer is bonafide, it cannot be faulted for not deducting tax – If it is found that the estimate made by the employer was malafide then, the provisions of section 201 can be rightly applied. In the present case, upto January, 1993 the assessee had been deducting tax at source on conveyance allowance paid to its staff. Thereafter on meeting held by the representatives of the assessee company with the Income-tax Officer (TDS), from which the assessee inferred that the conveyance allowance paid to its workmen was not to be included for calculating their taxable salaries. Consequently, the assessee obtained declarations from its employees that the amount received by the staff was actually spent on coming to office from residence and vice-versa, which were furnished to the revenue authorities during the course of proceedings - Inference can be drawn that advice came from the Income tax officer(TDS) from the letter written by the assessee-company to the said Income-tax Officer on 29th January, 1993 – Thus, action of the assessee, in not deducting tax at source from conveyance allowance paid to its workmen, was based on bonafide belief – Decided in favor of Assessee. Issues:1. Interpretation of Section 201 of the Income Tax Act regarding treatment of assessee as default.2. Application of Section 201(1A) for interest on non-deduction of tax.3. Evaluation of bonafide belief in not deducting tax on conveyance allowance.Analysis:Issue 1: Interpretation of Section 201 - Treatment of Assessee as DefaultThe case involved an Income Tax Appeal under Section 260-A of the Income Tax Act concerning the treatment of the respondent-assessee as a defaulting assessee for not deducting tax on conveyance allowance under Section 192(1) of the Act. The Assessing Officer (AO) had directed the assessee to pay interest under Section 201(1A) for the assessment year 1992-93. The key contention was whether the assessee should be deemed in default under Section 201 due to non-deduction of tax.Issue 2: Application of Section 201(1A) for Interest on Non-DeductionThe AO had imposed interest under Section 201(1A) on the assessee for not deducting tax on conveyance allowance, rejecting the explanation based on a bonafide belief. The Commissioner of Income Tax (Appeals) also did not accept the assessee's explanation. However, the Income Tax Appellate Tribunal (ITAT) allowed the appeal, emphasizing the bonafide belief of the assessee and that the non-deduction was based on reasonable grounds.Issue 3: Evaluation of Bonafide BeliefThe ITAT's decision was based on the assessee's belief that conveyance allowance was not taxable after discussions with the Income Tax Officer (TDS). The ITAT found the assessee's actions to be bonafide, considering the circumstances and the absence of malafide intent. The ITAT concluded that the assessee should not be treated as a defaulting assessee under Section 201. The judgment cited precedents emphasizing the relevance of bonafide belief in not deducting tax under Section 192.In conclusion, the High Court upheld the ITAT's decision, ruling in favor of the assessee and dismissing the Income Tax Appeal. The judgment highlighted the significance of bonafide belief in tax deduction decisions and the employer's responsibility under the Income Tax Act.