2016 (2) TMI 116 - AT - Income Tax

Appellate Tribunal emphasizes tax liability on interest income, remands issue for fresh adjudication

The Appellate Tribunal partially allowed the assessee bank's appeals for statistical purposes, emphasizing the recipient's liability to pay tax on ... TDS u/s 194A - non deduction of tds on interest by assessee bank - CIT(A) holding the assessee bank as “Assessee in Default” under sec. 201(1) and raising demand - Held that:- It is not in dispute that the recipient of interest income i.e. Visvesvaraya Technological University has filed its return of income and has included the interest paid by the assessee as its income in the said return of income. As per sec. 4 of the Income Tax Act, it is the recipient of interest who is liable to pay tax. We find that no material has been brought before us to show that in pursuance to any assessment made in the case of Visvesvaraya Technological University any tax was determined by the Department as payable by Visvesvaraya Technological University and which had become unrecoverable from Visvesvaraya Technological University. However, we find force in the argument of the Departmental Representative, the issue requires to be set aside to the file of the Assessing Officer for verification of additional evidence filed by the assessee in Form 26A and thereafter adjudicate afresh after taking into consideration the decision of the Hon‟ble Supreme Court in the case of Hindustan Coca Cola Beverage P. Ltd. (2007 (8) TMI 12 - SUPREME COURT OF INDIA ) and the observations made hereinabove and after allowing reasonable opportunity of hearing to the assessee. - Decided in favour of assessee for statistical purpose. Issues Involved:- Appeal against the order of Commissioner of Income Tax (Appeals) holding the assessee bank as 'Assessee in Default' under sec. 201(1) and raising demands for three assessment years.Analysis:1. Common Issue of Default Status Confirmation:The primary issue in this case was the confirmation by the Commissioner of Income Tax (Appeals) of the Assessing Officer's order holding the assessee bank as 'Assessee in Default' under sec. 201(1) for not deducting TDS on interest payments exceeding Rs. 10,000 to Visvesvaraya Technological University. The Assessing Officer determined the amounts payable under sec. 201(1)/(1A) for three assessment years, totaling to Rs. 2,38,735/-, Rs. 2,81,260/-, and Rs. 3,11,602/- respectively.2. Contentions and Arguments:The assessee argued that Visvesvaraya Technological University was exempt from filing returns under sec. 139 of the Income Tax Act, supported by a letter from the university. However, the Assessing Officer cited a High Court order stating the university was not entitled to exemption, leading to the default status. The assessee appealed, citing provisions for relief under sec. 201(1) and submitting Form 26A.3. Appellate Tribunal's Decision:The Appellate Tribunal noted that the recipient university had filed returns but had not paid tax on the interest income. It emphasized that TDS facilitates tax collection from the income recipient and is not an independent tax. The Tribunal found merit in the additional evidence submitted by the assessee in Form 26A and decided to remand the issue to the Assessing Officer for verification and fresh adjudication. The Tribunal allowed the appeal for statistical purposes for all the years under consideration.4. Legal Principles and Observations:The Tribunal highlighted that the recipient's liability to pay tax on interest income is crucial, and TDS aims to aid in collecting this tax. It stressed that unless the tax due from the recipient cannot be recovered, the payer cannot be deemed an 'Assessee in Default.' The decision to remand the issue for verification of evidence and fresh consideration was influenced by the lack of proof regarding the unrecoverability of tax from the recipient.In conclusion, the Appellate Tribunal partially allowed the appeals of the assessee for statistical purposes, emphasizing the importance of recipient liability in tax matters and the need for proper verification of evidence before deeming a payer as in default.