TaxTMI 
TaxTMI 
2024 (12) TMI 30
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....1) The learned Commissioner of Income Tax (Appeals) erred in confirming the levy of interest under Section 201(1A) of the Act in respect of the alleged late deduction of tax at source on salaries paid to floating staff members. The Appellant denies its hability to the levy of such interest and submits that the same be deleted. 2) The learned Commissioner of Income Tax (Appeals) failed to appreciate that the residential status of the floating staff members, who were deployed in foreign waters, could only be determined by the Appellant towards the end of the year. 3) The learned Commissioner of Income Tax (Appeals) erred in holding that Circular No.586 dated November 28, 1990, nowhere states that interest is not liable to be charged although the facility for adjustment of TDS is permitted within the financial year, by misinterpreting the provisions of Section 192(3) of the Act. 4) The learned Commissioner of Income Tax (Appeals) erred in disregarding the judgements of several High Courts and Tribunals relied upon by the Appellant, where on a similar issue, the interest levied on late deduction of salaries was deleted. 5) The learned Commissioner of....
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....ediately requested their internal Information Technology support team to check all the e-mails received from the Income Tax Department in the month of June 2022. On a verification of the Systems, the technical support team of the Company reported that there was no e-mail received in the regular mail box of the designated staff member but it was found that the e-mail sent by the National Faceless Appeal Centre on June 27, 2022, containing the Order passed under Section 250 of the Act was lying in the Spam folder of the designated staff member, due to which the Company had not received the order through the designated channel and was unfortunately unaware of the same. f). As per the discussions held with our consultants thereafter, it was decided to file an appeal to the Hon'ble Income Tax Appellate Tribunal against the Order passed by the learned CIT(A). Our consultants have therefore immediately drafted the Grounds of Appeal and informed us of the Affidavit which has been executed by the undersigned. I most earnestly request the Hon'ble Income Tax Appellate Tribunal to kindly condone the delay in the filing of the aforesaid appeal petition, as the same was....
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....ion of tax at source on salaries paid to floating staff members. Therefore, we have decided to adjudicate these grounds through the present consolidated order. 8. Ld. AR appearing on behalf of the assessee reiterated same arguments as were raised by him before the revenue authorities. The Ld. AR also relied upon the statement of facts filed along with the appeal memo which are at page 25 to 29 the same are reproduced herein below: Interest under Section 201(1A) of the Act The Assessing Officer has levied interest under Section 201(1A)(ii) of the Act @1.5% per month as in his opinion the Appellant has not followed the approach envisaged in sub-section (1) of Section 192 of the Act which requires an employer to estimate the salary income of the employee for the entire year and deduct monthly TDS on a pro-rata basis. The Appellant submits that the levy of interest under section 201(1A)(ii) is erroneous for the following reasons: 1) The Appellant is a shipping company. The Appellant's employees can be broadly divided into two categories. The first category is onshore staff and the second category is the floating staff. 2) The onshore staff of ....
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..... In the absence of clarity on the residential status, the Appellant has deducted TDS in a bonafide manner on a best estimate basis in respect of the floating staff. The final liability in respect of floating staff is determined only in the last quarter of the financial year and tax is deducted and deposited on the same by the end of the financial year. In fact, the Appellant discharges the entire TDS liability within the due date as prescribed by the Act. 8) The provisions of Section 192(3) of the Act read as under: "The person responsible for making the payment referred to in sub-section (1) or sub-section (1A) or sub-section (2) or sub-section (24) or sub-section(2B) may, at the time of making any deduction, increase or reduce the amount to be deducted under this section for the purpose of adjusting any excess or deficiency arising out of any previous deduction or failure to deduct during the financial year. 9 The Appellant submits that the object and purpose of subsection (3) of section 192 is that the person who is required to deduct tax at source in respect of salaries is permitted to make adjustments ie, any shortfall in deduction of TDS under sect....
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....o be resident in India, the shipping company or the other person responsible for making the payment, may increase the deduction so as to adjust any deficiency arising out of an earlier short deduction or nondeduction during the same financial year." 11) The Appellant submits that if there are bonafide reasons in deducting a lower tax in the earlier months of financial year and the same is made good immediately after noticing such shortfall, then section 192(3) would save the employer from the liability of making payment of interest. It is respectfully submitted that in the present case, on ascertaining the residential status of the employees, the entire TDS is duly deducted by the end of the financial year and the same is deposited by 5th April. 12) In this regard, the Appellant relies on the decision of the Uttarakhand High Court in the case of CIT v. Enron Expat Services Inc. reported in 330 ITR 496 wherein it was held as under: 4. It is true that sub-section (1) of section 192 of the Act contemplates deduction of income- tax at the time of payment and at the same time, section 201(14) deals with a situation when tax is not deducted, but sub-section (3)....
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....ably lead to the inference that the employer has not acted honestly and fairly. Unless that inference can be reasonably raised against an employer, no fault can be found with him. It cannot be held that he has not deducted tax on the estimated income of the employee. The Delhi High Court in the case of CIT v. Delhi Public School (247 CTR 317) has held that when TDS has been deducted on "estimated income" of the employee, the employer was not expected to step into the shoes of the Assessing Officer and determine the actual income. Furthermore, under Section 191 of the Act the liability to pay the tax was that of the employee, and that while forming this opinion the employer was undoubtedly expected to act honestly and fairly and, therefore, if it is found that the estimate made by the employer is incorrect, this fact alone, without anything more, would not inevitably lead to the inference that the employer has not acted honestly and fairly as held in the decision of Gwalior Rayon Silk Co. Ltd. (supra). Unless that inference can be reasonably raised against an employer, no fault can be found against him and it cannot be held that he has not deducted tax on the estimated inco....
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....the provisions of Section 201(1A) of the Act were applicable to the Appellant, it is respectfully submitted that the company has not deducted monthly TDS on a pro-rata basis and hence would be liable to pay interest in accordance with the provisions of Section 201(1A)(i) of the Act @1% per month or part of a month on the amount of such tax from the date on which such tax was deductible to the date on which such tax is deducted. The Appellant has clearly not committed a default envisaged under Section 201(1A)(ii) of the Act as there is no instance in which tax was deducted and the payment of the same was delayed. In view of what is stated in the foregoing, it is respectfully submitted that the interest has been erroneously levied @1.5% per month in accordance with the provisions of Section 201(1A)(ii) of the Act instead of the correct rate of 1% per month in accordance with the provisions of Section 201(1A)(i) of the Act. Interest under Section 220(2) of the Act The Assessing Officer has erroneously levied interest under provisions of Section 220(2) of the Act read as under: "(2) If the amount specified in any notice of demand under section 156 is....
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....see are deployed within Indian waters as well as foreign waters and the assessee has duly deducted TDS on salaries of employees for the period when the vessel was in Indian waters. However, in respect of period when the vessels were deployed in foreign waters, then the assessee was unable to determine at the start of financial year as to which of the floating staff would be non-resident and which staff become resident during the financial year on account of their stay in Indian water or on Indian soil. 14. Apart from this many of the employees of the assessee are contractual employees to take up employment for 60 days at a time. In such cases, the employees declare that they are non-residents, and if the vessel on which such employees are deployed, continues to work outside India, then the employees remains a non-resident. In this way the salary earned outside Indian water by non-resident employee is not liable to tax in India and as such salaries do not accrue or arise in India nor are such salaries deemed to accrue or arise in India as the salaries of the floating staff are paid outside India. 15. In this way, as per assessee, it was virtually impossible to determine the re....
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....ure to deduct tax during the financial year. Sub- section (3), therefore, makes it abundantly clear that if there is a failure to deduct tax in a financial year, the same can be deducted by way of adjustment during the financial year. In those circumstances, the obligation to deduct tax at the time of payment, which is the mandate of sub-section (1) of section 192, extends up to the end of the financial year by virtue of the provisions contained in sub-section (3) of section 192. 18. Our attention was further drawn to Circular No. 586 dated 18.11.2022 and the relevant extract thereof is reproduced hereunder; "Circular: No. 586, dated 28-11-1990 Clarification regarding liability to income-tax in India and deduction of tax at source of members of the crew of foreign going Indian ship 4. Under section 192 of the Income-tax Act, persons responsible for paying salary and other incomes chargeable under Income-tax Act under the head "Salaries" are required to deduct income-tax from such income at the time of payment. For this purpose, the amount of tax to be deducted is computed at the average rate of income-tax arrived at by applying the rates in force for t....
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....d to pay annual tax of Rs 30,000 based on the salary come earned in the month of April of the financial year. The employer has to deduct, according to the revenue authorities, tax at the rate of Rs. 2,500 per month. If, in the month of December the employee gets arrears of salary: bonus etc. which doubles the tax liability, the employer would be liable to deduct Rs. 5,000 towards tax every month as against Rs. 2,500 deducted earlier. Neither the assessee nor the employer could have anticipated this position in the month of April. The only recourse is to deduct higher tax from the month of December onwards so as to cover up the deficiency. Under these circumstances, can it be said that the employer is a defaulter and failed to deduct the tax, as to charge interest at the rate of 15% on the alleged short deduction, Rs. 2,500 per month? In our considered opinion, that could not have been the intention of the Legislature To meet such eventualities sub-section (3) provides for adjustment of excess or deficiency arising out of any previous months or failure to deduct during the financial year. Any other interpretation would render section 192(3) nugatory and an employer would be put to u....
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....ion 201(1A) applies only when during the financial year whole or any part of the tax deductible has not been deducted. We accordingly, conclude the matter and answer the question, as above, in favour of the assessee, while dismissing the appeal. 21. After having considered the factual as well as legal proposition as discussed by us above, we are of the view that if there are bonafied reasons in deducting lower tax in the earlier months of financial year and the same is made good immediately after noticing such shortfall, then in that eventuality section 192 Sub-Clause (3) would save the employer from the liability of making payment of interest. As in the present case on ascertaining the financial status of the employer the entire TDS is duly deducted by the end of the financial year and the same was also deposited in time. Thus a co-joint reading of Sec. 192(1) and 192(3) of the Income Tax Act makes it further clear that TDS installments of each month need not necessarily be accurate, as otherwise the expression "increase or reduce the amount to be deducted under this section for the purpose of adjusting any excess or deficiency arising out of any previous deduction or failure t....