TaxTMI 
TaxTMI 
2007 (8) TMI 395
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....ile complete details of payment and interest of Rs. 22,14,293. The assessee company replied in detail vide letters dt. 18th Dec, 2000 and dt. 18th July, 2001. The AO was of the opinion that the assessee company was liable to deduct tax at source (TDS) and to pay the same to the account of the Central Government in respect of following payments : Payee Nature of Payment Amount of TDS M/s A.R. Enterprises Contractual 1,47,134 M/s Mutual Finance (P.) Interest 3,65,754 M/s Mewar Polytex Ltd. Interest 1,25,019 Actually, the assessee company had neither deducted TDS on the above payments and so the question of deposit in the Government account did not rise. 3. In the original assessment made under section 143(3) the AO had charged interest of Rs. 2,79,081 under s. 201(1A) upto the date of assessment order. The assessee contended that all the above payees had already deposited (paid) enough tax and for the relevant current year all of them were entitled to refund from the IT Department. It was also submitted that all of these payees were running into losses. The assessee company also produced the computation of their total incomes for the ....
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....o play. The TDS made in accordance with ss. 192 to 196D and paid to the Central Government is treated as a payment of tax by the recipient and credit of the same is given for the amount of tax so deducted, at the time of assessment of the relevant year, as per the provisions of s. 199. A failure to deduct such tax and to pay the same to the Government treasury makes the deductor (the payer) as an assessee in default as per s. 201 of the Act. The assessee in default is also liable to pay interest in accordance with the provisions of sub-s. (1A) of s. 201. If the concerned person fails to deduct and pay the tax (TDS) as required under the Act, he is liable to pay interest from the date on which such tax was deductible to the date on which such tax is actually paid. 6. In the given case the piquant question raised on behalf of the assessee is that the Act is silent about such cases where the tax is not "actually paid" as it is not to be paid or already paid and refund was due to the recipient (of payments), in that case this machinery provision become inoperative. The forceful contention of the learned Authorised Representative is that the law makers in their wisdom thought it proper....
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.... this case and as such the provisions of s. 201(1A) would become non-operational, meaning thereby that no interest shall be charged at all. In that eventuality, the question of charging interest upto framing of assessment orders in the hands of the recipients would not arise because 'no tax dues' are found against them and as such there was no loss of revenue. The interest cannot be charged for the sake of charging of interest only, it has to be charged in accordance with a provision. The provisions of s. 201(1A) lay down the end-point as "till the payment of tax", which was already paid by the payees even before these payments were paid to them. 8. We may mention the exact position of assessments in the case of recipients. The clear cut facts, which emerge, are that the assessments for all the three payees, as mentioned above, were completed before 28th Feb., 2002. The returns for the relevant assessment years in the cases of M/s A.R. Enterprises and M/s Mutal Finance Ltd. were processed under s. 143(1)(a) on 3rd Feb., 1997 and 31st March, 1997 determining refund of Rs. 42,805 and loss of Rs. 8,01,600, respectively. In the case of M/s Mewar Plytex the assessment under s. ....
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....01] 167 CTR (Ker) 209 : [2001] 249 ITR 447 (Ker) has held that levy of interest is automatic on the failure to pay the amount of tax by the due date. This Court did not admit the plea that the component of taxes paid by the recipient by way of advance tax and self-assessment tax, and even held that the date of such payments was not relevant to decide the issue under s. 201(1A) of the Act. 12. But the decision of the same High Court in the case of CIT v. Dhanalakshmy Weaving Works [2000] 160 CTR (Ker) 374 : [2000] 245 ITR 13 (Ker) the High Court held that the levy of interest is compensatory. The purpose of the levy is to claim compensation on the amount which ought to have been deducted and deposited and has not been so deducted and deposited. 13. In yet another case, the Hon'ble Kerala High Court held that not deducting tax and also not including the same in the total income of the employee and the assessment of the employee was completed; and the amount was not found to be includible in the employee's income. Employer cannot be deemed to be an assessee in default. The Hon'ble High Court has held thus : "The provisions of sections 192 and 201 and connected sections ....
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....t to conclude that, in all eventualities, come what may, interest under s. 201(1A) is to be charged from the deductpr. 15. In case we rush through the catena of judicial pronouncements, we would find that the 'rigours' of sub-s. (1A) of s. 201, are also not so rigid. The charging of interest is mandatory but consequential. Almost all the Hon'ble High Courts have categorically held that the charging of interest under s. 201(1A) is mandatory and compensatory in nature. Before, we cite the decisions of different High Courts, we cite the decision of the Hon'ble Supreme Court of India, who has held that the charging of interest is a procedural matter providing machinery for the recovery of tax which is compensatory in nature. We may refer the case of Karimtharuvi Tea Estate Ltd. v. State of Kerala [1966] 60 ITR 262 (SC), inter alia. The relevant decisions of the Hon'ble High Courts are given under : (1) CIT v. Prem Nath Motors (P.) Ltd. [2001] 170 CTR (Del) 424 : [2002] 253 ITR 705 (Del); (2) Bennet Coleman & Co. Ltd. v. Mrs. V.P. Damle, ITO [1985] 47 CTR (Bom) 342 : [1986] 157 ITR 812 (Bom); (3) Grindlays Bank Ltd. v. CIT [1991] 94 CTR (Cal) 46 : [1992] 193 ITR....
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....resh demands were raised and the assessee paid the taxes as assessed. The Revenue invoked s. 220(2) of the IT Act, 1961 and demanded interest in respect of the assessed tax for the period commencing with the refund of the taxes consequent on the first appellate order till the taxes were finally paid after the disposal of the references. On a writ petition, the assessee contended that it was not at all at default because the assessee paid the taxes in compliance with those demands and the original demands did not survive consequent on the order of the appellate authority and hence this was not a case where the assessee failed to comply with the demand notices issued. The Revenue contended that the order of assessment, the appellate orders and the order made on the references resulting in the consequential order are only different steps in the same proceeding and the ultimate order relates back to the original order itself and that, further, in view of s. 3 of the Taxation Laws (Continuation and Validation of Recovery Proceedings) Act, 1964 the original demand notices were revived by operation of law and due effect had to be given to such revival. The assessee contended that the oper....
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....e decision of the Delhi Bench given in the case of ITO v. Sood Enterprises [1992] 41 ITD 234 (Del) that in a case where payee has already paid tax leaving nothing for the payer and it thus happened to be on time, interest under s. 201(1A) cannot be charged. 18. Thus, it is established by now that the charging of interest under s. 201(1A) is mandatory, compensatory and consequential as well, but not penal in nature. That is why the legislature in its wisdom did not mention the period upto which such interest is chargeable. But, it is certain that the interest is chargeable from the date on which the tax is due for deduction. The starting point has been envisaged in the Act but not the end-point. The 'benchmark' of the end-point is to be decided after taking into consideration various factors. The interest is chargeable, on the amount of tax to be deducted. In case the chargeable tax at source increases or decreases, the interest amount varies accordingly. But in a case where the tax was not payable at all, then in that case how an interest can be charged. The word 'compensatory' clearly suggests this conclusion. In case the tax is not payable at all, where is the qu....
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.... the amount received by it from the assessee society. As the assessee society had not deducted the tax at source, in the process of assessment of the income of the assessee society for the asst. yrs. 1974-75 to 1977-78, the AC) charged interest under the provisions of s. 201(1A) of the Act, on the tax which was deductible by the assessee society from the amount which was paid to the contractor. It was the case of the assessee that though no tax was deducted from the amount payable to the contractor, the contractor had already paid tax and, therefore, interest under the provisions of s. 201(1A) could not have been levied by the Revenue on the assessee but the said argument of the assessee did not find favour with the AO." We would like to reproduce the major part of this decision to understand the ratio of this decision : "We have heard Mr. Akil Qureshi, the learned advocate, appearing for the Revenue, and Mr. Bhargav Karia, the learned advocate appearing for the respondent assessee. Mr. Akil Qureshi, the learned advocate, appearing for the Revenue, has submitted that as per the provisions of s. 194C of the Act, the assessee was duty-bound to deduct income-tax from the amount whi....
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....ocates at length and have also perused the relevant provisions and judgments cited by them. If one looks at the provisions of the Act which pertain to imposition of tax, it is very clear that as per the provisions of s. 4 of the Act, which is the charging section, the tax is to be paid on the income of the assessee and as per the provisions of the Act, the said tax can also be deducted at source. The portion of the tax which was payable by Ravi Builder was to be paid by the assessee by deducting tax at source under the provisions of s. 194C of the Act. When the assessee was supposed to deduct tax at source and pay the same to the Revenue, the assessee had to pay the same on behalf of Ravi Builder, one who was in fact liable to pay the tax on the income which was earned from the amount which was paid by the assessee to Ravi Builder. According to the provisions of s. 190 of the Act, in certain cases, as provided under Chapter XVII of the Act, the tax is to be paid by deduction at source. The said amount is to be deducted by way of tax by the person who has to make payment to the concerned person and as per the provisions of s. 199 of the Act, whenever any person who deducts tax befo....
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..... Thus, it can very well be seen that the facts of the case which has been relied upon by Mr. Qureshi cannot help the Revenue for the reason that in the said case it was not known whether the person on whose behalf the tax was to be paid to the Revenue had in fact paid the tax payable by him. In the instant case, the contractor, viz., Ravi Builder, had admittedly paid the amount of tax payable by it and thus no loss of whatsoever nature had been caused to the Revenue on account of non-deduction of tax at source by the assessee." In these facts it was held by the Hon'ble Court that : "From the legal provisions discussed hereinabove, it is crystal clear that in the instant case Ravi Builder, on whose behalf the tax was to be paid by the assessee, had duly paid its tax and was not required to pay any tax to the Revenue in respect of the income earned by it for the assessee. If the tax was duly paid and that too at the time when it had become due, it would not be proper on the part of the Revenue to levy any interest under s. 201(1A) of the Act especially when Ravi Builder had paid more amount of tax by way of advance tax than what was payable by it. As the amount of tax payable ....