2018 (9) TMI 531 - AT - Income Tax

Tribunal emphasizes mandatory interest on delayed tax remittance under Income Tax Act

The Tribunal partly allowed the Assessee's appeal, emphasizing the mandatory nature of interest u/s 201(1A) for delayed tax remittance. The Tribunal ... Interest under section 201(1A) of the Act - assessee in default under section 201(1) of the Act - TDS deduction liability of Third Party Administrators (TPAs) - compensatory nature of interest - recomputation of interest up to date of payment by deducteesShow cause notice under section 201(1) and 201(1A) - Sufficiency of issuance of show cause notices before charging interest under section 201(1A). - HELD THAT: - The Assessing Officer recorded that several show cause notices were issued during assessment proceedings and the assessee replied to them. The AO after examining the replies and evidence concluded that the assessee was not an 'assessee in default' under section 201(1) but still charged interest under section 201(1A). The Tribunal accepted the AO's factual recital that notices had been issued and replies received, and found the additional ground challenging absence of show cause notices to be without merit. [Paras 4]The additional ground alleging non-issuance of show cause notices is dismissed.Interest under section 201(1A) of the Act - assessee in default under section 201(1) of the Act - Whether interest under section 201(1A) can be levied where the assessee is held not to be an 'assessee in default' under section 201(1). - HELD THAT: - The Tribunal observed that section 201(1A) begins with a non obstante clause and operates independently of section 201(1). Interest under section 201(1A) is mandatory and compensatory in nature for delayed remittance of TDS. Given that the tax was required to be deducted by the assessee TPA on payments to hospitals, the Tribunal held that levy of interest under section 201(1A) was rightly imposed despite the AO's conclusion that the assessee was not an 'assessee in default' under section 201(1). [Paras 4]Interest under section 201(1A) was correctly levied and is not negated by a finding under section 201(1).Compensatory nature of interest - recomputation of interest up to date of payment by deductees - Period for computation of interest under section 201(1A): whether it runs up to filing of return by deductees or up to actual payment of tax by deductees. - HELD THAT: - Relying on the reasoning in the Karnataka High Court's order in respect of Medi Assist and recognising the compensatory character of section 201(1A) interest, the Tribunal held that interest should be computed only up to the date of actual payment of tax by the deductees and not up to the date of filing of their returns. Consequently, the Tribunal directed the Assessing Officer to recompute the interest under section 201(1A) accordingly. This direction requires fresh calculation limited to the date of actual remittance by deductees and is therefore a remand for recomputation. [Paras 4]Interest under section 201(1A) must be recomputed up to the date of actual payment by the deductees; the matter is remitted to the AO for recomputation.Final Conclusion: The appeal is partly allowed: the challenge to issuance of show cause notices is dismissed; the levy of interest under section 201(1A) is sustained as independent of section 201(1); however, interest is to be recomputed by the AO only up to the date of actual payment by the deductees (Assessment Year 2008-09). Issues:1. Levy of interest u/s 201(1A) of the Income Tax Act, 1961 on the Assessee.Analysis:The appeal before the Appellate Tribunal ITAT Kolkata centered around the issue of whether the Assessee could be charged with the levy of interest u/s 201(1A) of the Income Tax Act. The Assessee, a company functioning as a Third Party Administrator (TPA) for health insurance, made payments to hospitals without deducting TDS. The Assessing Officer (AO) charged interest u/s 201(1A) for the delay in tax remittance by the deductees, despite finding that the Assessee was not an 'assessee in default' u/s 201(1) of the Act. The AO relied on a decision of the Karnataka High Court regarding TPA's obligation to deduct tax at source. The Assessee contended that interest should only be charged until the date of actual tax remittance by deductees, not until the filing of the income tax return. The Tribunal directed the AO to recompute the interest accordingly.The Assessee raised an additional ground of appeal, arguing that show cause notices were not issued before charging interest u/s 201(1A). However, the Tribunal found that the AO had issued several show cause notices during assessment proceedings, and the Assessee had replied to them. The Tribunal dismissed this ground, affirming the charging of interest. The Assessee also argued that since it was not an 'assessee in default' u/s 201(1), interest u/s 201(1A) should not have been levied. The Tribunal clarified that interest u/s 201(1A) is mandatory and compensatory, independent of section 201(1), and directed the AO to recompute the interest up to the date of actual tax remittance by deductees.In conclusion, the Tribunal partly allowed the Assessee's appeal for statistical purposes, emphasizing the mandatory nature of interest u/s 201(1A) for delayed tax remittance by the Assessee. The judgment highlighted the importance of complying with TDS obligations and the specific calculation of interest under the Income Tax Act.