TaxTMI 
TaxTMI 
2016 (8) TMI 1474
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....products. During the assessment year 2004-05, the assessee entered into an agreement with its subsidiary company M/s. Haldia Riverside Estates Limited (hereinafter referred to as 'HREL') for the purpose of residential accommodation of the employees of the assessee. Under the aforesaid agreement, the assessee paid a sum of Rs. 8,89,74,146/- during the assessment year to HREL under the following heads: Particulars Amount (Rs.) Rent 3,97,05,637.00 License Fees 3,60,00,000.00 Infrastructure Charges reimbursed 1,25,85,093.00 Other Recoveries 6,83,416.00 Total: 8,89,74,146.00 The assessee deducted tax of Rs. 4,06,982/- @ 1.025% (including surcharge) on the rent element at a lower rate, on the basis of a certificate issued by the ACIT, Cir.-7, Kolkata authorizing HPCL, the deductor through an order dt. 01.07.2003 to deduct tax at a lower rate of 1%. It was submitted that HREL, the Deductee, was assessed to NIL tax for the year in question by the ACIT, Cir.-7, Kolkata on a total loss of Rs. 2,82,83,400/-. According to the deductor, following the principle laid down in the case of Hindusthan Coca Cola Beverage (P) Ltd., Vs. CIT (2007) 293 ITR 226 (SC),....
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....le to deduct tax at source from the total payment made to HREL amounting to Rs. 8,89,74,146/- at the applicable rates. However, by applying CBDT Circular No.275 dt. 29.01.1997, demand visualized u/s 201 (1) of the Act is not enforceable, as the deductor has proved at this stage that there was no tax due to be paid by the deductee for the relevant year. HPCL will, however, be liable to pay interest to be charged u/s 201(1A) of the Act till the date of filing the Income Tax Return by HREL, as prior to that date, it was not possible to know that HREL had no liability to tax. In actual, an amount of Rs. 4,06,982/- was deducted by HPCL as TDS. Amount of interest payable u/s. 201(1A) would thus be arrived at after deducting the amount of TDS actually deducted and deposited from the amount of TDS which should have been done and taking into account the period between the date of payment to date of filing the return by the deductee ( i.e. 28.10.2004) and charged interest u/s 201(1A) of the Act to the tune of Rs. 7,88,598/-. 4. Before the ld CITA , the assessee submitted that it cannot be treated as 'assessee in default' as it was having full knowledge of the affairs of the deductee and t....
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....the ld DR vehemently supported the orders of the lower authorities. We find that the TDS provisions mandates deduction of tax at source on the payments made by assessee to parties if it falls within the deductible limits prescribed u/s 194I of the Act. The purpose of TDS is to ensure that the Government is not deprived of its due taxes in time. Moreover, recovery of taxes through TDS is one of the tax collection mechanism formulated by the Government. If the payer (assessee herein) fails to deduct tax at source in respect of certain eligible payments , then the payer assessee could be treated as 'assessee in default' and the said tax could be recovered from the payer assessee on behalf of the payee. But in the instant case, there is no resultant tax liability in the hands of the payee due to huge losses. In such circumstances, normally it is expected that the payee should approach the TDS officer by preferring an application in Form No. 13 seeking for lower / nil deduction certificate u/s 197(1) of the Act. In the instant case, section 197(1) certificate has been obtained by the payee only from 1.7.2003 wherein the deductors have been directed to deduct 1% TDS on payments made to p....
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....onspicuously absent in the instant case. The revenue had not controverted the fact that the subsidiary company does not have any tax liability pursuant to the assessment framed on it by the income tax department u/s 143(3) of the Act which is also part of the paper book filed by the assessee. 6.2. The primary conditions to be satisfied before treating the payer assessee as 'assessee in default' are as below:- (a) There should be a payment made by the payer assessee to the payee which would be treated as income in the hands of the payee. In the instant case, the payee had duly shown the amounts received from the payer assessee as its income in its returns. (b) The payment made by the payer should fall within the eligible payments warranting deduction of tax at source. In the instant case, certain payments definitely fall within the ambit of eligible payments warranting deduction of tax at source but the same has not been fully complied by the payer. In fact the assessee had deducted tax at source and remitted the same to the Central Government for part of the period and for part of the amounts as stated in the assessment order. (c) The payee has n....
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.... u/s 201(1A) of the Act cannot be computed on the assessee. The computation mechanism itself fails in the instant case. 6.4. We find that the Co-ordinate Bench of this tribunal in the case of Ramakrishna Vedanta Math vs ITO reported in (2003) 55 SOT 417 (Kol) wherein it was held that :- 8. The plea is indeed well taken. Learned Counsel is quite right in his submission that, as a result, of the judgement of the Hon'ble Allahabad High Court in Jagran Prakashan Ltd vs DCIT reported in (2012) 21 taxmann.com 489 (All) and in the absence of anything contrary thereto from Hon'ble Jurisdictional High Court , there is a paradigm shift in the manner in which recovery provisions under section 201(1) can be invoked. As observed by Their Lordships, the provisions of section 201(1) cannot be invoked and the ' tax deductor cannot be treated an assessee in default till it is found that assessee has also failed to pay such tax directly'. Once this finding about the non payment of taxes by the recipient is held to a condition precedent to invoking section 201(1), the onus is on the Assessing Officer to demonstrate that the condition is satisfied. No doubt the assessee has to submit all s....
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....ke section 201(1) but that's how Hon'ble High Court has visualized the scheme of Act and that's how , therefore, it meets the end of justice. In the instant case, it is proved beyond doubt that the deductee does not have any liability to pay tax as could be evident from the scrutiny assessment order u/s 143(3) of the Act for the Asst Year 2004-05 enclosed in pages 50 to 52 of the paper book. This fact was also placed by the assessee before the ld AO and he had also noted the same in the assessment order. 6.5. We hold in the instant case, there is no tax due to the exchequer and accordingly there is no question of compensating the same by way of interest. We find that this aspect is also dealt by the Hon'ble Supreme Court in the case of CIT s Eli Lilly & Company (India) (P) Ltd & Ors reported in (2009) 312 ITR 225 (SC), wherein it was held as below:- "34. From the above analyses two conclusions flow. Firstly, it cannot be stated as a broad proposition that the TDS provisions which are in the nature of machinery provisions to enable collection and recovery of tax are independent of the charging provisions which determine the assessability in the hands of the employee-a....