TDS on rental and professional fees: default affirmed for rent; legal fee relief remitted for verification of partial TDS payment.

Assessee failed to deduct TDS on rent and professional fees where obligation to deduct arose on credit or payment; absence of evidence that recipients declared or paid tax and lack of declarations by recipients led to treating the assessee as assessee in default for non-deduction on rental provisions, so TDS AOs default finding affirmed. For legal fees, part payment had TDS deducted while balance lacked deduction; matter remitted to TDS AO to verify whether TDS was deducted on the earlier payment, and if confirmed the assessee to be relieved for that amount. Appeal partly allowed for statistical purposes.

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Issues: (i) Whether the assessee is an "assessee in default" under section 201(1)/201(1A) of the Income-tax Act for not deducting TDS on provisions for rent and legal/consultation fees; (ii) Whether any relief is available to the assessee in respect of TDS liability on the portion of legal fees for which payment was made and TDS allegedly deducted.

Issue (i): Whether non-deduction of TDS on amounts credited as provisions for rent and legal/consultation fees attracts deeming provisions of section 201(1) and interest under section 201(1A) of the Income-tax Act.

Analysis: Section 194I and section 194J impose obligation to deduct TDS at the time of credit to the payee's account or at the time of payment, whichever is earlier. Section 201(1) deems a person to be an assessee in default for failure to deduct or pay TDS, subject to the proviso which sets out conditions (return filed by payee, inclusion in payee's return, tax paid by payee, and accountant's certificate). Disallowance under section 40(a)(ia) operates in a different domain and does not negate the statutory obligation to deduct TDS. No evidence was produced satisfying the proviso conditions or declarations that payees were below taxable limit; the assessee, being a bank, did not satisfactorily explain non-deduction on provisions made years earlier.

Conclusion: Against the Assessee.

Issue (ii): Whether the assessee is entitled to relief in respect of the portion of legal fees where payment of Rs. 3,91,000 was made on 24.08.2013 and TDS is claimed to have been deducted.

Analysis: The assessee admitted payment of Rs. 3,91,000 out of total provision for legal fees and asserted TDS was deducted on that payment. Verification of whether TDS was indeed deducted on that payment is factual and can affect the assessee's liability for the balance provision not paid. The matter requires verification by the TDS Assessing Officer of records relating to the payment and TDS deduction.

Conclusion: In favour of the Assessee for the portion where TDS, if proved, was deducted; otherwise against the Assessee for the unpaid portion.

Final Conclusion: The appeal is partly allowed and remitted for limited factual verification regarding TDS deduction on the admitted payment of Rs. 3,91,000; remaining claims on non-deduction on provisions are rejected for lack of proof of proviso conditions under section 201(1).

Ratio Decidendi: Failure to deduct TDS on amounts credited as provisions attracts deeming provisions of section 201(1) unless the assessee proves satisfaction of the specific conditions in the proviso to section 201(1); disallowance under section 40(a)(ia) does not obviate the obligation to deduct TDS.

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