1982 (9) TMI 53 - HC - Income Tax

Section 201 applies only when employer fails to deduct or pay tax; honest estimation alone not culpable under ss.192,200,201

HC held that s.201 is attracted only where an employer fails to deduct or, having deducted, fails to pay tax; an incorrect estimate of employees' ... Valuation of perquisites relating to accommodation and furniture - Jurisdiction of the Income Tax Officer (ITO) u/s 201 - liability of the employer to deduct income tax - correctness of the estimated chargeable income of each employee - assessee in default in terms of section 201(1) - HELD THAT:- The provisions of s. 201 of the Act are attracted in the case of an employer only when that employer does not deduct or, after deducting, fails to pay the tax as required by the Act. While forming this opinion, the employer is undoubtedly expected to act honestly and fairly. But if it is found that the estimate made by the employer is incorrect, this fact alone, without anything more, would not inevitably lead to the inference that the employer has not acted honestly and fairly. Unless that inference can be reasonably raised against an employer, no fault can be found with him. It cannot be held that he has not deducted tax on the estimated income of the employee. In the instant case, the Tribunal has found as stated in the statement of the case, that the ITO (TDS), made some controversial additions, such as valuation of perquisites relating to accommodation and furniture. The ITO disallowed the claim for exemption of leave travel concession and reduced the standard deduction to Rs. 1,000 on the ground that the employee was in receipt of conveyance allowance. That the estimate made by the employer was not honest and fair has not been found by the ITO or by the Tribunal. In point of fact, the finding of the Commissioner (Appeals) that the estimate was bona fide has not been set aside by the Tribunal. The employer deducted tax from the salary of the employees on the salary income honestly estimated by it and has also paid that tax, as required by s. 200 of the Act. As the employer has thus deducted and paid tax, as required by ss. 192 and 200 of the Act, the employer cannot be held to be an assessee in default in respect of the tax. Our answer to question No. 2, reframed by us is, therefore, in the negative and against the Dept. In this view of the matter counsel for the parties agreed that it would not be necessary to answer question No. 1. Reference answered accordingly. Issues involved:The judgment involves issues related to the jurisdiction of the Income Tax Officer (ITO) u/s 201 of the Income Tax Act, 1961, powers of the ITO to determine chargeable income u/s 206, correctness of interest chargeable u/s 201(1A), and liability of the employer to deduct income tax.Jurisdiction of ITO u/s 201:The Income Tax Appellate Tribunal referred questions regarding the jurisdiction of the ITO, Salaries Circle (TDS), Bhopal, u/s 201 of the Income Tax Act, 1961. The Tribunal held that the ITO had jurisdiction to proceed against the assessee under s. 201 of the Act. It was established that if the salary income of any employee was not correctly estimated by the employer, the ITO could demand additional tax from the employer under the provisions of s. 201 of the Act.Powers of ITO u/s 206:The Tribunal also considered the powers of the ITO, Salaries Circle (TDS), Bhopal, to adjudicate and determine the correctness of the estimated chargeable income of each employee for whom the return was filed u/s 206 of the Act. The Tribunal upheld the ITO's authority to demand extra tax and interest under s. 201(1A) from the assessee based on recomputed chargeable income of employees.Correctness of Interest u/s 201(1A):Regarding the correctness of interest chargeable u/s 201(1A) of the Income Tax Act, the Tribunal found that interest was correctly leviable in the circumstances of the case. The Tribunal upheld the order of the ITO, Salaries Circle (TDS), Bhopal, directing to charge interest u/s 201(1A) based on recomputation of chargeable income of employees.Liability of Employer to Deduct Income Tax:The liability of an employer to deduct income tax on the amount of salary payable to employees was analyzed. The Tribunal clarified that the employer's obligation is to deduct tax on the estimated income of the employee, and to pay the sum deducted to the Central Govt. within the prescribed time. The Tribunal emphasized that unless it is found that the estimate made by the employer was incorrect due to dishonesty or unfairness, the employer cannot be held as an assessee in default u/s 201(1) of the Act.Conclusion:The High Court upheld the Tribunal's findings on the jurisdiction of the ITO u/s 201, powers of the ITO u/s 206, correctness of interest u/s 201(1A), and the liability of the employer to deduct income tax. The Court ruled against the Department on the questions referred, emphasizing the importance of fair and honest estimation by the employer in fulfilling tax obligations under the Income Tax Act, 1961.