Tribunal Upholds Order Requiring Tax Deduction at Source for State Govt Department

The tribunal upheld the order dated 21/3/2013 under sections 201(1) & 201(1A) of the Income Tax Act, 1961 for AYs 2010-11 to 2012-13, requiring the Assessee, a State Government department, to deduct tax at source on payments to societies for the Public Distribution System. Despite the Assessee's argument on the recipient societies' tax exemption, the tribunal held that TDS must be deducted unless proven otherwise. The appeals were dismissed, affirming the Assessee's obligation to deduct TDS, with the tribunal emphasizing the lack of merit in the Assessee's reliance on a specific judgment.

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Issues:
Maintainability of the order/s u/s. 201 & 201(1A) for failure to deduct tax at source and interest thereon.

Analysis:

1. The appeals by the Assessee contested the order dated 21/3/2013 under sections 201(1) & 201(1A) of the Income Tax Act, 1961 for AYs 2010-11 to 2012-13. The appeals raised identical issues regarding the maintainability of the orders for failure to deduct tax at source and interest thereon. The appeals were heard together and disposed of through a common order.

2. The Assessee, a Department of the State Government, procures food grains directly from farmers organized in societies for the Public Distribution System. The tax deduction at source on various payments made to these societies, including commissions and charges, was the main contention. The CIT(A) upheld the TDS liability, emphasizing that even if the income of the recipient is exempt, the liability to deduct TDS cannot be diluted. The Assessee followed a hybrid system of accounting, leading to confusion in financial affairs.

3. The Assessee pressed Ground 9 before the tribunal, arguing that the CIT(A) failed to examine if the recipient's income was exempt from tax. However, none of the societies claimed exemption under section 80P. The tribunal noted that without proof of exemption, the liability to deduct TDS remains. The tribunal cited legal precedents to support the position that TDS is required unless the payee's income is unconditionally exempt from tax.

4. As the Assessee's liability to deduct tax at source was evident and admitted, the tribunal upheld the impugned order, dismissing the appeals. The tribunal emphasized that the Assessee's reliance on a specific judgment was unfounded and without merit. Therefore, the appeals were dismissed, affirming the Assessee's obligation to deduct tax at source on the payments made to the societies.

5. The tribunal pronounced the order on June 15, 2022, dismissing the Assessee's appeals challenging the TDS liability and interest under sections 201(1) & 201(1A) of the Income Tax Act, 1961 for the assessment years 2010-11 to 2012-13.

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