Tax deduction at source liability turns on deductee payment; deductor must prove the defence to avoid recovery.

Section 201 demand for tax not deducted at source can be avoided only if the deductor shows that the deductee has already paid the tax or offered the income to tax. The Court treated section 191 and the CBDT circular as confirming that recovery from the deductor should not be enforced once that fact is established, though interest under section 201(1A) may continue until the deductee's payment date. It also held that the deductee's payment or taxability is a defence for the assessee to prove, and the assessing officer is not required to investigate it first. The challenge therefore failed and proceedings under section 201 were upheld.

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Issues: Whether the Assessing Officer had jurisdiction to demand tax not deducted at source by an order under sections 201(1) and 201(1A) of the Income-tax Act, 1961 when the deductee had allegedly not offered the amount to tax or paid tax thereon.

Analysis: The question turned on the effect of section 191 and the settled position that no demand under section 201(1) should be enforced once the tax deductor satisfies the officer that the deductee has paid the taxes due. The Court relied on the Supreme Court's view that the CBDT circular removes the controversy regarding recovery of tax from the deductor, while preserving liability for interest under section 201(1A) until the date of payment by the deductee. The Court further held that whether the payee had offered the amount to tax or paid tax was a defence available to the assessee, and the burden of proving that defence lay on the assessee rather than on the assessing officer to investigate it first.

Conclusion: The Assessing Officer was entitled to proceed under section 201, and the assessee's challenge failed.

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