IN THE ITAT GUWAHATI BENCH
Income-tax officer,TDS-2, Guwahati
AND RAJENDRA, ACCOUNTANT MEMBER
IT APPEAL NO. 73 (GAU) OF 2012
[ASSESSMENT YEAR 2009-10]
JANUARY 27, 2015
Sunil Sharma and Manoj Sharma for the Appellant. I. Kitto Zimomi, DR for the Respondent.
Rajendra, Accountant Member – Challenging the order, dated 01-02-2012, of the CIT (A), Guwahati, the Assessee has raised the following grounds of appeal :
1. For that on the facts and in the circumstances of the case, the Ld. CIT(A) was not justified in confirming the appellant as “assessee in default’ within the meaning of section 201(1) of the Income Tax Act, 1961 and in upholding the appellant as liable to pay Tax to the tune of Rs. 2,19,620/- including interest of Rs. 19,960/charged u/s.201(1A) of the Income Tax Act 1961, without going into the records and totally ignoring the relevant case law and CBDT‘s Circular cited by your appellant.
2. The appellant further craves the leave to put in additional grounds of appeal, if at the time of hearing.
During the course of hearing before us, it was submitted on behalf of the that there was dealy of one day in filing the appeal, that because of miscommunication between the office of the CA of the assessee and the assessee, the appeal got delayed by one day. Considering the facts and circumstances of the case, we are condoning the delay.
The effective ground of appeal is treating the assessee as an ‘assessee in default’ (A-I-D) and in holding it liable to pay further tax of Rs. 2,19,620/- u/s.201(1) including interest of Rs. 19,960/-u/s. 201(1A) of the Act.
2. Brief facts of the case are that the assessee-firm made a payment of Rs. l4,93,925/- to Bhikam Chand Betala (BCB) as interest on unsecured loan during the previous year 2008-09, but no deduction of tax at source was made by the assessee. It was asked by the lTO-TDS(AO) to explain why he should not be treated as an A-I-D. In reply, the assessee submitted that the payee had furnished a declaration in Form I5G and had requested it not to deduct tax at source, that it was under bona fide belief that the provisions of section 197A relating to non-deduction of tax in certain cases apply to the instant case, that the assessee stated that the payee’s ‘income is below taxable limit and there is unabsorbed business loss’.
The AO found that the income credited/paid to the payee exceeded the maximum amount which is not chargeable to income-tax and therefore, the provisions of section 197A relating to non-deduction in certain cases did not apply to the instant case. He held that the assessee was required to deduct tax source u/s. 194A, that there was an omission on the part of the assessee to deduct tax at source, that Rs. 2,95,127/- was paid/credited to Arihant Auto Finance (AAF) without tax deduction on the basis of Form No. 15 G, it was similar to the interest of Rs. 14,93,925/- paid/credited to BCB. He treated assessee as an A-I-D and held him liable to pay further tax of Rs. 2,19,620/- u/s. 201(1) including interest of Rs. 19,960/- u/s. 201(1A).
3. Aggrieved by the order of the AO, the assessee preferred an appeal before the first Appellate Authority(FAA). It was submitted before him that it had borrowed money from the family members/relatives of the partners, that it had paid interest on the borrowed sums and deducted and paid tax as per the provision of the Act, that in two cases namely AAF and BCB Form No. 15G were received by it, that on basis of such forms tax was not deducted at the time of crediting the interest, that it was under bona fide belief that tax was not to be deducted as per the provisions of section 197A of the Act, that default was because of ignorance of law, that revenue did not suffer any loss.
After considering the submissions of the assessee and the order of the AO, the FAA held that the assessee had failed to take note of the provisions of section 197A(1B) of the Act, that order u/s. 201(1) and 201 (1A) were not penalty orders, that the provisions of those sections were mandatory in nature, that there is no scope of not levying the interest even if omission to deduct the tax occurs due to circumstances beyond the control of the deductor, that there was no room for any discretion on the part of the AO to consider the circumstances leading to the default and taking a lenient view in appropriate cases, the assessee had not proved that the deductee had included the amount received from the deductor in his return of income, that the onus of proving that the deductee had included the amount received from the deductor in his return of income lied on the assessee. He also held that circular No. 275/201195-1T(B) dated 29/1/1997 and the decision of the Supreme Court in the case of Hindustan Coca Cola Beverages (P.) Ltd. v. CIT  293 ITR 226 , relied upon the assessee, were of no help. He further held that Circular dated 29/01/1997 had expressly puts the onus in this regard on the assessee, that it had failed to prove that the deductee included the amount received from the deductor in his return of income, it could not be said that the decision of the Supreme Court in the case of Hindustan Coca Cola Beverages (P.) Ltd.(supra) was applicable. Finally, he upheld the order of the AO.
4. Before us, the Authorised Representative (AR) contended that the assessee was under bonafide belief that it had not to deduct tax at sources before making payment to two above referred parties, that both of them had filed form no. 15G. He referred to the submissions made by the assessee before the AO and the FAA. He relied upon the case of Hindustan Coca Cola Beverages (P.) Ltd. (supra). The Departmental Representative(DR) supported the order of the FAA.
5. We have heard the rival submissions and perused the material before us. Before proceeding further, we would like to deliberate upon a few cases dealing with TDS provisions as well as sections 201(1) and 201(1A) of the Act. In the case of Chennai Metropolitan Water Supply and Sewerage Board Hon’ble Madras High Court has held that the assessee has a duty to deduct tax at source, even in a case where the recipient is a loss-making entity CIT v. Chennai Metropalitian Water Supply & Sewerage Board  348 ITR 530 In the matter of Jagran Prakashan Ltd. v. Dy. CIT  345 ITR 288 Hon’ble AP High Court has held as under :
“A deductor who fails to deduct Income-tax at source shall be deemed to be an assessee in default only when the assessee has also failed to pay such tax directly. Thus, there is no occasion to treat the deductor as an assessee in default unless the assessee has not paid the tax directly. The fact that the assessee has failed to pay tax directly is thus, a foundational and jurisdictional fact and only after finding that the assessee has failed to pay tax directly, can the deductor be deemed to be an assessee in default in respect of such tax.”
The Hon’ble Kerala High Court in the case of CIT v. Meat Products of India Ltd.  224 ITR 1 has discussed the issue of TDS provisions and section 201(1) as follow :
“A person responsible for deduction of tax at source in terms of section 195 of the Income-tax Act. 1961, is deemed to be in default if he does not either deduct the tax at source or having deducted it does not pay it as required by section 200 within the time prescribed under rule 30 of the Income-tax Rules, 1962. Section 201 further shows that the failure of such a person makes him an assessee in default, although he would not, but for the default, be an assessee in respect of the sum referred to in section 195 of the Act. It is his failure to discharge his statutory obligation that visits him with the liability of “an assessee in default”. This liability is cast upon him under the aforesaid provisions not because of any order or notice of demand but because of the operation of the statute itself. This is quite unlike a regular assessment under which the tax becomes payable only upon service of a notice of demand under section 156 of the Act. As soon as such failure occurs, the liability arises once and for all, there is no further requirement of computation or assessment.”
Finally, we would like to refer to the case of CIT v. Ramesh Enterprises  250 ITR 464 delivered by the Hon’ble High Court of Madras. In that matter the assessee had borrowed monies from two of its sister concerns and paid interest to those concerns without deducting tax at source under section 194A of the Act, although no declaration or certificate was filed by such sister concerns that their income was below the taxable limit. The AO passed an order under section 201(1A) of the Act for non-deduction of tax at source. In the appellate proceedings the Tribunal decided the issue in favour of the assessee. Deciding the case, the Hon’ble Court held as under:
“The provision of section 201(1A) of the Income-tax Act, 1961, requiring deduction of tax on interest payment does not make the duty to effect deduction, contingent upon the assessee’s valuation of the likely liability for tax of the recipient of interest payment. It is only in cases where the recipient of interest is in a position to file any certificate or declaration to show that the person’s total income is below the taxable limit that the tax on the interest payment made to such person is not to be deducted. In all other cases, it must be deducted as required under section 195 of the Act. The provision requiring deduction of tax at source on interest payment is applicable to all persons paying such interest and it is not left to the individual assessee to decide the extent of compliance that it will make with regard to the obligation imposed by the statutory provision that the Tribunal was clearly in error in accepting the case pleaded for the assessee that it had no duty to deduct and pay tax at source on the ground that one of its sister concerns had filed a loss return and the other sister concern had claimed refund. The concern which had filed the loss’ return was at the time of assessment found liable to pay tax and the concern which had claimed refund at the time of original assessment was found not entitled to the refund, though such refund was directed in appeal. The Tribunal was, therefore, in error in cancelling the penalty that had been levied on the assessee under section 201(1A) of the Act. “
From above it is clear that provisions of section 201(1) have to be interpreted in the manner they have been incorporated in the Act. A general rule in this regard can be told in simple language that deduct tax at source in case of doubt. In the case before us the assessee had paid interest amount to two parties without deducting taxes. In our opinion sub-section (1B) of section 197A (inserted w.e.f 01/06/2002) has overriding effect over sub-section (1A) for those cases where ‘the aggregate of the amounts of such incomes credited or paid or likely to be credited or paid during the previous year in which such income is to be included exceeded the maximum amount which is not chargeable to income-tax’. In other words, if such income i.e.income of the nature referred in sections 193, 194A and 194K exceeds the thresh hold of a particular sum during a particular year, the provisions of sub-section (1A) of section 197A shall not apply and the declaration in Form 15G becomes immaterial. It is clear that the assessee failed in its statutory obligation and therefore, it is an A-I-D for the amount of tax not deducted U/S.194A on payment of interest.
Now we would like to discuss the contention of the assessee that the payee’s ‘income is below taxable limit and there is unabsorbed business loss’. We are of the opinion that persons who are bound under the Act to make tax deduction at source are not concerned with the ultimate result of assessment. Besides, the deductors of tax at source are not supposed to step into the shoes of an AO, as an AO is not authorised to take over the role of a business while deciding the issue of incurring of an expenditure for running his business. Roles of both the parties are defined and nobody should cross the Laxman Rekha. The provisions of the Act envisage that wherever deductibility arises, the deductor may not deduct tax only in two conditions firstly, where the case falls under the purview of section 197A and secondly, where AO authorises him to do so by issuing a certificate u/s. 197 (read with Rule 28AA) on an application made by the payee/deductee. In no other circumstances the payer of interest can justify upon deduction of tax by taking shelter of ultimate tax effects of the payee. In the case before us, the assessee was not able to demonstrate that either of the two conditions existed in the matter under appeal. We further find that the FAA has given a categorical finding of fact that the assessee had failed to prove that the deductee included the amount received from the deductor in his return of income. In these circumstances, we are of the opinion that the order of the FAA does not suffer from any legal or factual infirmity.
As far as charging of interest u/s.201(1A) is concerned, we would like to state that in the case of Dhanalakshmy Weaving Works, Hon’ble Kerala High Court has elaborately discussed the issue as under:
” . . . the levy of interest is a compensatory measure for withholding tax which ought to have gone to the exchequer. Section 201(1A) of the Income-tax Act, 1961, makes it clear that the levy of interest is mandatory. It is true that use of the expression is not always determinative of the fact whether a provision is directory or mandatory in nature, but the context in which expression is used in section 201(1A) makes it clear that the levy is mandatory. The purpose of the levy is to claim compensation on the amount which ought to have been deducted and deposited and has not been done. The ultimate liability for tax being not there (since the firm which received the interest from the assessee had paid tax on such interest) did not dilute the requirements for the non-compliance of which interest is levied under section 201(1A).” (245ITR13)
In view of the above, we confirm the order of the FAA and decide effective ground of appeal against the assessee.