2012 (2) TMI 684 - AT - Income Tax

Tribunal affirms bank's liability for TDS shortfall on interest payments to official liquidator

The Chief Manager Bank of Baroda Patna Versus ACIT, TDS Circle Patna

The Tribunal upheld the Ld. CIT(A)'s order, dismissing the appellant's appeal. It affirmed the liability of the appellant bank for the TDS shortfall on ... - Issues involved:The judgment deals with the issues of charging interest u/s 201(1A) of the Income-tax Act on account of short deduction of tax at source in respect of non-deduction of TDS on interest paid to Bihar State Housing Board and on deposits made by the official liquidator appointed by the Hon'ble High Court Patna for the company Rohtas Industries Limited.Issue 1: Failure to deduct TDS on interest paid to official liquidatorThe appellant contested the order of the Ld. CIT(A) regarding the failure to deduct TDS on interest paid to the official liquidator of Rohtas Industries Limited. The appellant argued that the official liquidator, being appointed by the Hon'ble High Court, was not liable to pay tax under the Act. Additionally, it was contended that the funds deposited by the official liquidator did not belong to him, and the interest earned was solely to safeguard against further losses to the company in liquidation.The Ld. CIT(A) rejected the appellant's contentions, citing precedents that companies in liquidation are also liable for tax payments. It was held that the interest paid to the official liquidator constituted income of the company in liquidation, and since the funds were related to a taxable entity, TDS should have been deducted. The Ld. CIT(A) further emphasized that the official liquidator is considered the principal officer under the Income-tax Act and has a statutory duty to comply with tax obligations.Issue 2: Legal proceedings against the company in liquidationThe appellant argued that the assessing officer should have obtained permission from the Company Court before initiating proceedings for the recovery of TDS and interest from the appellant bank. Reference was made to the requirement under section 446 of the Companies Act, which mandates permission from the Company Court for legal actions against a company in liquidation.The Tribunal analyzed the provisions of the Companies Act and the Income-tax Act, highlighting that the official liquidator, upon appointment, is deemed the principal officer of the winding-up company and is obligated to comply with tax laws. It was noted that the appellant bank failed to deduct TDS on interest payments to the official liquidator, resulting in the bank being in default and liable for the shortfall of TDS. The Tribunal dismissed the appellant's argument regarding the necessity of permission from the Company Court, affirming the assessing officer's authority to initiate proceedings for TDS non-compliance.Conclusion:The Tribunal upheld the order of the Ld. CIT(A) and dismissed the appeal of the appellant, affirming the liability of the appellant bank for the shortfall of TDS on interest payments to the official liquidator. The judgment emphasized the statutory duty of the official liquidator to comply with tax provisions and the appellant bank's obligation to deduct TDS as per the Income-tax Act.