2014 (11) TMI 637 - AT - Income Tax

Tribunal remands case on tax liability for franchisees, emphasizes payment verification

Bharat Sanchar Nigam Limited Versus Income Tax Officer (TDS and Survey)

The Tribunal remanded the case back to the Assessing Officer for reconsideration, emphasizing the need to determine if the franchisees had paid the taxes ... Discount of recharge vouchers and prepaid SIM cards allowed to the franchisees – TDS not deducted u/s 194H – order u/s 201/201(1A) - Held that:- A short deduction of tax at source, by itself does not result in a legally sustainable demand u/s 201(1) and u/s 201(1A) – in Hindustan Coca Cola Beverage Pvt. Ltd. Vs. CIT [2007 (8) TMI 12 - SUPREME COURT OF INDIA] it has been held that the taxes cannot be recovered once again from the assessee in a situation in which the recipient of income has paid due taxes on income embedded in the payments from which tax withholding requirements were not fully or partly, complied with - the onus is on the revenue to demonstrate that the taxes have not been recovered from the person who had the primarily liability to pay tax, and it is only when the primary liability is not discharged that vicarious recovery liability can be invoked - recovery provisions u/s 201(1) can be invoked only when loss to revenue is established, and that can only be established when it is demonstrated that the recipient of income has not paid due. In the absence of the statutory powers to requisition any information from the recipient of income, the assessee is indeed not always able to obtain the same - The provisions to make good the short fall in collection of taxes may thus end up being invoked even when there is no shortfall in fact - once assessee furnishes the requisite basic information, the AO can very well ascertain the related facts about payment of taxes on income of the recipient directly from the recipients of income - the proviso is clarificatory in nature though it was inserted by the Finance Act, 2007 w.e.f. 01.06.2007 - The nature of the amendment and the purpose which it seeks to achieve make it abundantly clear that it is a clarificatory amendment and would be applicable even in respect of assessment years prior to insertion of the amendment – thus, the matter is remitted back to the AO for fresh adjudication – Decided in favour of assessee. Issues Involved:1. Non-deduction of tax at source on discount of recharge vouchers and prepaid SIM cards.2. Application of Section 194H of the Income Tax Act, 1961.3. Liability under Section 201/201(1A) for non-deduction of tax.4. Clarificatory nature of the proviso to Section 194H.5. Onus of proving tax payment by the recipient.6. Levy of interest under Section 201(1A).Detailed Analysis:1. Non-deduction of Tax at Source:The primary issue revolves around the assessee, a Government Undertaking, not deducting tax at source on discounts allowed to franchisees for recharge vouchers and prepaid SIM cards. The Assessing Officer (A.O.) raised demands under Section 201/201(1A) read with Section 194H, asserting that tax should have been deducted at source.2. Application of Section 194H:The A.O. and the Commissioner of Income Tax (Appeals) [CIT(A)] held that the assessee was obligated to deduct tax under Section 194H. The assessee contested this, leading to the appeal. The Tribunal noted that the A.O. did not find whether the franchisees had paid taxes on the discounts received.3. Liability under Section 201/201(1A):The Tribunal emphasized that a short deduction of tax does not automatically result in a sustainable demand under Section 201(1) and Section 201(1A). Citing the Supreme Court's decision in Hindustan Coca Cola Beverage Pvt. Ltd. vs. CIT, it was noted that taxes cannot be recovered again from the assessee if the recipient has paid the due taxes.4. Clarificatory Nature of the Proviso to Section 194H:The Tribunal referred to the proviso inserted to Section 194H by the Finance Act, 2007, which exempts Bharat Sanchar Nigam Limited (BSNL) and Mahanagar Telephone Nigam Limited (MTNL) from deducting tax on commissions to public call office franchisees. The Tribunal found that this proviso, though effective from 1st June 2007, was clarificatory and applicable to prior periods.5. Onus of Proving Tax Payment by the Recipient:The Tribunal highlighted that the onus is on the revenue to prove that taxes have not been paid by the recipient. It is only when the primary liability is not discharged that the vicarious liability of the deductor can be invoked. The Tribunal cited the Allahabad High Court's judgment in Jagran Prakashan Limited vs. DCIT, which established that a deductor cannot be deemed in default until it is shown that the recipient has not paid the tax.6. Levy of Interest under Section 201(1A):Interest under Section 201(1A) is compensatory for the delay in tax payment. The Tribunal noted that if the recipient had no tax liability, the provisions of Section 201(1A) would not apply. The interest computation must be redone considering this legal position.Conclusion:The Tribunal remanded the matter back to the A.O. for fresh adjudication, directing the A.O. to reconsider the case in light of the above observations and judicial precedents. The A.O. is to ascertain if the franchisees have paid the taxes due and if not, only then can the assessee be held liable under Section 201(1). The Tribunal also noted the clarificatory nature of the proviso to Section 194H, which exempts BSNL and MTNL from TDS obligations for periods even before the proviso's insertion. The appeals were allowed for statistical purposes, and the A.O. was instructed to provide a fair hearing and issue a speaking order.Pronouncement:The judgment was pronounced in the open court on 18th November 2014.