TDS deductor default liability turns on employee tax liability and proof of negligence, not an incorrect estimate alone.

A deductor bank was considered in relation to leave travel concession payments made to employees without TDS, and the Tribunal examined whether it could be treated as an assessee in default under section 201(1) with interest under section 201(1A). It noted that the primary tax liability rested with the employee, while the deductor's role under the TDS provisions was to collect tax at source as an aid to recovery. On the facts, the Revenue had employee details but had not shown effective action against the employees or material indicating negligence or mala fides by the bank. An incorrect estimate alone was held insufficient to fasten default liability on the deductor, and the demand was set aside.

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Issues: Whether the deductor bank could be treated as an assessee in default under section 201(1) of the Income-tax Act, 1961, and be saddled with demand and interest under section 201(1A) in respect of leave travel concession payments made to employees without TDS.

Analysis: The Tribunal held that the primary liability to pay tax on the income lay on the employee under section 4, and the deductor's obligation under sections 190, 191(1), 201(1) and 201(1A) was to collect tax at source as an aid to recovery. It noted that the Revenue had the beneficiary details but had not demonstrated effective action against the employees, nor brought material to show negligence or mala fides on the part of the bank. The Tribunal relied on the principle that the employer is not required to step into the shoes of the Assessing Officer to determine the employee's actual tax liability, and that an incorrect estimate by itself does not automatically render the deductor liable as an assessee in default.

Conclusion: The demand and consequential finding of default against the bank were set aside, and the appeal succeeded on the substantive issue.

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