SUPREME COURT OF INDIA
Commissioner of Income tax, New Delhi
Eli Lilly & Co. (India) (P.) Ltd.
S.H. KAPADIA AND AFTAB ALAM, JJ.
CIVIL APPEAL NOS. 5114 OF 2007 AND OTHERS
MARCH 25, 2009
A perusal of section 201(1) and section 201(1A) shows that both these provisions are without prejudice to each other. It means that the provisions of both the sub-sections are to be considered independently without affecting the rights mentioned in either of the sub-sections. Further, interest under section 201(1A) is compensatory measure for withholding the tax which ought to have gone to the exchequer. The levy of interest is mandatory and the absence of liability for tax will not dilute the default. The liability of deducting tax at source is in the nature of a vicarious liability, which pre-supposes existence of primary liability. The said liability is a vicarious liability and the principal liability is of the person who is taxable. A bare reading of section 201(1) shows that interest under section 201(1A) read with section 201(1) can only be levied when a person is declared as an assessee-in-default.
For computation of interest under section 201(1A), there are three elements.
One is the quantum on which interest has to be levied.
Second is the rate at which interest has to be charged.
Third is the period for which interest has to be charged.
The rate of interest is provided in the 1961 Act. The quantum on which interest has to be paid is indicated by section 201(1A) itself. Sub-section (1A) specifies “on the amount of such tax” which is mentioned in sub-section (1) wherein, it is the amount of tax in respect of which the assessee has been declared in default.
The object underlying section 201(1) is to recover the tax. In the case of short deduction, the object is to recover the shortfall. As far as the period of default is concerned, the period starts from the date of deductibility till the date of actual payment of tax.
Therefore, the levy of interest has to be restricted for the above stated period only. It may be clarified that the date of payment by the concerned employee can be treated as the date of actual payment.