AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2024 (12) TMI 30
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....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 Income Tax (Appeals) erred in confirming the levy of interest under Section 220....
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....me 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 neither willful nor intentional, and as there was sufficient cause for the same. I hereby confirm that the statements in this Af....
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....idated 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 the Appellant is the office staff which handles accounts, finance, HR, and legal matters from the Appellant's office in Mumbai. They are the staff which is permanently stat....
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....aff 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 section 192 in the initial months of the year can be made good in the later months or in the last month of the financial year. Sub- section (3) not only authorizes adjustment in case of excess or deficient deduction, but also authorizes....
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....1) 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) of section 192 is a part of section 192 required to be read with sub-section (1) thereof, for nothing has been expressed in the Act to treat sub- section (3) as a separate provision. The object and purpose of sub-section (3) is to permit the person obliged to deduct to mak....
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....he 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 income of the employee. 14. This very issue based on identical facts has been decided in favour of the Appellant by the learned Commissioner of Income Tax (Appeals)-59, Mumbai, in the case of Greatship (India) Ltd. vide the Order dated May 19, 2015, for the Assessment Year 2010-11. 15) The Appellant f....
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.... 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 not paid within the period limited under sub-section (1), the assessee shall be liable to pay simple interest at one per cent for every month or part of a month comprised in the period commencing from the day immediately following the end of the period mentioned in sub-section (1) and ending with the day on which the amount is paid." It is respectfully submitted that Section 220(2) of the Act is applicable only where the amount specifi....
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....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 residential status of such staff members at the start of the year or even midyear, as the actual status becomes apparent only towards the end of the year. Thus, under the above discussed circumstances as per the assessee, it was unable to follow 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 prorata bases and therefore i....
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....ction 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 the financial year in which the payment is made on the estimated income of the person to whom salary is paid. Since, as explained above, in the case of members of crew of foreign-going Indian ships, who are not likely to be in India for a period or periods exceeding 182 days in a year, income which accrues or arises outside India and is also received outside India is not liable to tax in India, the shipping companies and other persons responsible for paying salary to such members of crew may t....
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....sition 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 undue burden of payment of interest for no fault of him. From this analysis, it is apparent that on mere short deduction of tax at source from the salaries paid to the employees, section 201(1A) cannot be invoked unless the total tax deducted by the end of the year is less than the tax deductible on the salary paid to the employee in that year. In the instant case, the assessee has reasonably estimated the income and in view of the workers insistence and other circumstances, there is a short deduction ....
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....hen 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 to deduct during the financial year" will have no meaning. 22. In our view if there are bonafide reasons in deducting a lower tax in earlier months of financial year and the same is made get immediately after noticing such shortfall, then in the eventuality section 192 sub-section (3) would save the employer from the liability of making payment of interest. Thus, to meet such eventualities sub-section (3) provides for adjustment of excess or deficiency arising out of the any previous months or failure to deduct in the financi....