Reliance on payee's return can negate deductor default; interest runs only until payee's filing and fees must be reassessed.

Where a payee has declared the receipt in a filed income tax return and paid tax, the deductor is not automatically an assessee in default for nondeduction; the payer's non default status depends on verification of the payee's return, taxes paid and any prescribed certificate, and if established the addition under the deeming provision must be deleted. Interest for delayed deduction is computed only until the date the payee filed the return if the payer is not held in default. Fees for failure to file a TDS return shall be re examined if no deduction or return obligation existed.

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Issues: (i) Whether the assessee is an "assessee in default" under section 201(1) and liable to interest under section 201(1A) of the Income-tax Act, 1961 for non-deposit of TDS where the payee has included the income in its return and paid tax; (ii) Whether fees under section 234E of the Income-tax Act, 1961 were rightly levied where TDS return was not required to be filed.

Issue (i): Whether the assessee is an assessee in default under section 201(1) and liable to interest under section 201(1A) despite the payee having offered the income to tax and paid the tax.

Analysis: The Tribunal examined section 201(1) and section 201(1A) together with the proviso to section 201(1) as amended, and the settled law that if the payee has furnished return, taken the sum into income and paid tax thereon, recovery from the deductor is not maintainable. The Tribunal directed verification by the Assessing Officer of the payee's return, taxes paid and compliance with the proviso conditions; interest under section 201(1A) is payable from date tax was deductible to date of the payee's return filing where the payer is not deemed in default under section 201(1).

Conclusion: The ground is allowed for statistical purposes and the issue is restored to the file of the Assessing Officer for verification; if the payee has duly filed return and paid tax, the addition under section 201(1) shall be deleted. Liability for interest under section 201(1A) shall be determined in accordance with law and verification.

Issue (ii): Whether fees under section 234E were rightly levied where TDS was not required to be deducted and no TDS return was required to be filed.

Analysis: The cross-objection was consequential to the decision on issue (i). The Tribunal directed the Assessing Officer to re-examine chargeability of fee under section 234E in light of the finding that the assessee may not be an assessee in default.

Conclusion: The cross-objection is allowed for statistical purposes and the Assessing Officer is directed to re-examine the levy of section 234E.

Final Conclusion: The Revenue's appeal is partly allowed and the cross-objection is allowed for statistical purposes; the Assessing Officer is directed to verify the payee's return and taxes paid and to re-determine liability under sections 201(1), 201(1A) and 234E accordingly.

Ratio Decidendi: If the payee has furnished a return under section 139, taken the sum into account in that return and paid the tax thereon (and the payer furnishes the prescribed accountant's certificate), the payer shall not be deemed an assessee in default under section 201(1) of the Income-tax Act, 1961; interest under section 201(1A) is then computed up to the date of the payee's return filing.

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