TDS recovery can be made at any time from Defaulter
Q ; When can TDS recovery be made from TDS defaulter ?
TDS recovery be made from TDS defaulter at any time if payee does not pay due taxes
Where deductor fails to deduct tax at source, after deductee’s tax liability is determined and found payable after considering self-assessment tax paid under section 140A, that TDS – to that extent, could be recovered by Revenue from deductor at any time;
Interest liability on TDS, which is sought to be collected per section201(1A) follows, being compensatory, i.e., is consequential or concomitant.
However, where there is no such outstanding demand, i.e., of determined tax liability of deductee, it is not possible to subscribe to view that TDS could be collected or recovered at any time, i.e., without any time limitation
IN THE ITAT PATNA BENCH
Branch Manager, Muzaffarpur Central Co-operative Bank Ltd.
Income-tax Officer (TDS), Muzaffarpur
AND SANJAY ARORA, ACCOUNTANT MEMBER
IT APPEAL NOS. 111 TO 114 (PAT.) OF 2012
[ASSESSMENT YEARS 2001-02 TO 2004-05]
JULY 22, 2015
Sanjeev Kr. Anwar, Adv. for the Appellant. Suman Kr. Mishra, Jr. S.C. for the Respondent.
Samav Arora, Accountant Member- This is a set of four Appeals by the Assessee arising out of a common Order dated 29.05.2012 for the assessment years (A.Ys.) 2001-02 to 2004-05 (even as only the first four years were posted for hearing and, accordingly, heard) by the Commissioner of Income Tax (Appeals)-I, Patna (‘CIT(A)’ for short). The same raising common issues, were heard together, and are being disposed of per a common, consolidated order, i.e., as was the case by the first appellate authority.
2. The facts of the case in brief are that there was a survey u/s.133A of the Income Tax Act, 1961 (‘the Act’ hereinafter) at the assessee’s business premises on 06.02.2008, continuing up to 07.02.2008. It was during the course thereof found that tax at source had not been, as required u/s.194A, deducted on the interest credited/paid by the assessee to the some depositors, i.e., for the relevant years. Form 15H, i.e., a declaration by the depositor that no tax is payable in respect of the interest allowed, precluding deduction of tax at source (TDS), had not been obtained from the deductees, nor filed, as required, with the Office of the concerned Commissioner of Income Tax, much less within the time stipulated there-for. There were in fact several deficiencies therein, rendering them unacceptable, viz. not dated; not verified; date of submission not filled up, etc. He, accordingly, worked out the assessee’s liability toward TDS (u/s. 201(1)) and toward interest for the non deposit of the TDS to the credit of the Central Government (u/s. 201(1A)), reckoning the latter from the day following the expiry of the relevant previous year to July, 2008, i.e., as under, vide orders u/ss.201(1) and 201(1A) dated 31.07.2008:
|F.Y.||Amount of interest credit/paid whichever is earlier (`)||Rate of TDS||Income tax deductible at source u/s.194A||Amount of interest u/s. 201(1A)||Period of default (months)||From 1st April to July’08||Total Amount|
|2000-01||5,22,985||10%||52,299||57,529||88||1st April ’01||1,09,828|
|2001-02||6,96,021||10||69,602||66,122||76||1st April ’02||1,35,724|
|2002-03||8,95,621||10||89,562||58,663||64||1st April ’03||1,48,225|
|2003-04||8,21,243||10||82,124||42,704||52||1st April ’04||1,24,828|
The ld. CIT(A), in appeal, held that there is no bar in terms of time limit for the levy of tax u/s.201(1) or for the charge of interest u/s.201(1A) under the Act. Imposing a time limit of four years or six years, as had been done by the Tribunal or the Hon’ble High Courts per the several decisions cited before him, would not be proper considering that the law had cast a specific obligation on the payer of income and, further, consciously not provided for any time limit in its respect. He, accordingly, held as under:-
‘After considering the facts, it is. observed that in the case of CIT v. M/s Ell Lilly and Company (India) (P) Ltd., 178 Taxman 505, the Apex Court has observed that sub-section 1 and sub-section 1A of Section 201 of the I.T. Act, operate in independent spheres and one is not dependent upon the other i.e. provisions of one sub section can be applied irrespective of the other sub section. In view of this decision and decision in the case of Hindustan Coca Cola Beverage 293 ITR 226 (Supreme Court), it is directed that demand of tax shall not be raised against the appellant in those cases where the appellant furnishes information before the A.D. regarding filing of returns and payments of taxes by such deductees. The A.D. shall not hold the appellant as assessee in default in respect of payments made to these concerns or discounts allowed in respect of tax required to be deducted. However, interest under section 201(1A) of the I.T. Act, 1961 shall be charged from the due date of payment of TDS till the date of payments of taxes by such deductors/date of filing of returns by such deductees. Accordingly, this ground of the appeal of the appellant is partly allowed as above.’
3. Before us, the assessee cited decisions by the Hon’ble High Court, as under, while the Revenue relied on the decision inCIT v. H. M. T. Ltd.  340 ITR 219 (P & H), both the parties limiting their arguments to the legal issue of the application or otherwise of the time limit for framing assessment, i.e., for want of a more appropriate word, u/ss. 201(1) and 201(1A), i.e., in terms of a reasonable period, considering that no time limit had been provided by the statute:
|i.||CIT v. NHK Japan Broadcasting Corporation Ltd.  305 ITR 137 (Del);|
|ii.||CIT v. Hutchison Essar Telecom Ltd.  323 ITR 230 (Del.); and|
|iii.||CIT v. Sutlej Jal Vidyut Nigam Ltd.  345 ITR 552 (HP).|
On the Bench specifically requiring the parties to spell out the difference between the two set of decisions, both rendered relying on the decisions by the Hon’ble Apex Court, it was pointed out by them that the decision in H. M. T. Ltd. (supra) was following the decision in Hindustan Times Ltd. v. Union of India  AIR 1998 SC 688, which is qua recovery under the Employees Provident Fund, while the decisions in favour of the assessee are based on the decisions rendered under the taxing statutes. The Bench, at this stage, pointed out that the relevant provisions fall under Chapter XVII of the Act, titled ‘Collection and Recovery of Tax’. Further, the very fact that the Hon’ble Courts had applied these decisions in the context of time limit for initiating proceedings u/ss. 201(1) and 201(1A) under the Act, itself implies the applicability of the principles involved.
4. We have heard the parties, and perused the material on record, giving our careful consideration to the matter.
4.1 We may, at the outset, clarify that the Revenue had also filed appeals for the relevant years against the impugned order (in ITA Nos. 121 to 124/Pat/2012), which stand decided by us vide order dated 24.04.2015 (copy on record). This, though admittedly not the proper course, so that cross appeals ought to have been heard together, we may emphatically clarify is due to the factum of these being cross appeals being not brought to the notice of the Bench during hearing. The tribunal decided the matter; the Revenue challenging the decision by the ld. CIT(A) on merits; thus:
‘6. On consideration of the rival submissions in the light of the material available on record, we find the order of the Id CIT(A) to be on all fours inasmuch as while issuing these directions, the Id CIT(A) has followed the decision of the Hon’ble Supreme Court in the case of “Hindustan Coca Cola Beverage“, 293 ITR 226 (SC) and that in the case of “CITv. LLI Lilly and Company (India) (P) Ltd.”, 178 Taxman (SC) 505. The Hon’ble Supreme Court has held that sections 201 (1) and 201(1A) of the I.T. Act, 1961 operate in independent spheres and the one is not dependant upon the other and the provisions of one sub-section can be applied irrespective of the other sub-section. It is this law, as settled by the Hon’ble Supreme Court, which stands irrefuted by the department. Therefore, the grievance of the department is rejected and the order of the ld. CIT(A) is confirmed.
7. Our above observations shall apply equal to all other cases, the facts and circumstances in all these cases being, mutatis mutandis, in parimateria.’
The decision by the tribunal, as can thus be readily seen, is on the merits of the impugned demand, raised per orders u/ss. 201(1) and 201(1A). It was, therefore, all the more incumbent on the parties, particularly the assessee, who had preferred appeals before the tribunal raising a legal issue, to have brought the fact of it being in appeal to the notice of the Bench, as the demand/s under reference would not survive if the orders, in pursuance to which it is made, are held as time barred, as contended and, thus, legally not valid.
4.2 We shall begin by reviewing the judicial precedents, with a view to ascertain or cull out their ratio or the legal principle/s underlying the same. This is as the applicability or otherwise of a particular decision could be determined only after ascertaining its’ ratio, which alone has precedent value. This is particularly considering that the decisions relied upon are based on the decisions by the Apex Court. Further, where faced with contrary decisions by the Hon’ble High Courts, none of which is by the jurisdictional high court, the tribunal is bound to Act in accordance with its judicial conscious [CITv. Thana Electricity Supply Ltd.  206 ITR 727 (Bom) and Mahindra & Mahindra Ltd. v. DCIT  313 ITR (AT) 263 (Mum)(SB)].
4.3 We may spell out the ratio of the cited decisions, as under:
|(1)||NHK Japan Broadcasting Corporation Ltd. (supra):|
|(a)||the concept (or date) of knowledge (by the Department) cannot be imported under the scheme of the Act, and is of no consequence;|
|(b)||the admission of liability does not restore legality to the proceedings or confer jurisdiction, which has to be as per the law. It cannot, at any rate, put the assessee in a condition worse than he would be if he had chosen to contest the liability;|
|(c)||for the purpose of sections 201(1) and 201(1A), it is the date of the initiation of the proceedings, or the exercise of the jurisdiction, that is relevant, and not of completion of the said proceedings, so that the decision in the case of Bharat Steel Tubes Ltd. v. State of Haryana  70 STC 122 (SC), which is in respect of completion of assessment under the Punjab General Sales Tax Act, 1948/ Haryana General Sales Tax Act, 1973, which does not prescribe any time limitation for the purpose, would not apply;|
|(d)||a reasonable time period, which therefore ought to operate, in-as-much as the liability cannot be allowed to hang on the head for all the time, is to be prescribed considering the provisions of the relevant Act, i.e., the nature of the statute, the rights and liabilities there-under and other relevant factors, as held by the Apex Court in State of Punjab v. Bhatinda District Co-op. Milk Producer Union Ltd.  9 RC 637 (11 SC 363).|
|The Hon’ble High Court, accordingly, upheld a time limit of four years, i.e., as stipulated by the tribunal, even as in its view a period of three years (from the end of the relevant previous year), was a reasonable period.|
|(2)||Hutchison Essar Telecom Ltd. (supra) and Sutlej Jal Vidyut Nigam Ltd. (supra):|
|The Hon’ble High Courts, per these decisions, endorsed, following the decision in NHK Japan Broadcasting Corporation Ltd. (supra), the concept of exercise of the statutory power within a reasonable period, i.e., as advocated by the Apex Court in Bhatinda District Co-op. Milk Producer Union Ltd. (supra).|
|(3)||H. M. T. Ltd. (supra):|
|Applying the principles laid down in Hindustan Times Ltd. (supra), the Hon’ble High Court held that the delay and laches cannot annul the proceedings where no time limitation in their respect was consciously provided by the Act, noting omission of section 231 of the Act, which specifically provided for a time limit for the commencement of the recovery proceedings under Chapter XVII of the Act (by Direct Tax Laws (Amendment) Act, 1987, w.e.f. 01.04.1989). Support was also drawn by it from the other decisions by the Apex Court. The demand raised in the case of Hindustan Times Ltd. case (supra) was qua the Employees Provident Fund (EPF), for which no time limit has consciously been provided by law, even as the Legislature had, it was noted by the Hon’ble Court, made several amendments to the Employees Provident Fund and Miscellaneous Provisions Act, 1952 over a period of 30 years (refer pg. 222 of the reports). There was, accordingly, no time limitation for recovery of arrears. The recovery is not by suit, so that the provisions of the Indian Limitation Act, 1963 are not attracted. The defaulter held the funds in trust, which are due to a trust fund.|
The legal principles in the matter are, thus, as can be readily seen, stated by the Apex Court in Bharat Steel Tubes Ltd.(supra); Bhatinda District Co-op. Milk Producer Union Ltd. (supra); and Hindustan Times Ltd. (supra). A reasonable period shall govern the exercise of the statutory power. What is reasonable would depend on the facts of the case, which has been further clarified as depending upon the nature of the statute, the rights and liabilities there-under, and other relevant factors. The Legislature has however consciously omitted section 231, which specifically provided for a time period for the commencement of recovery proceedings, so that there is a conscious attempt on its part to remove any legal bar as to time, and which therefore has to be respected. The said removal, or the absence of the provision stipulating a time limit for the period of recovery, i.e., the commencement of recovery proceedings under the Act, is, thus, in agreement with the clear and settled principle of law enunciated by the Apex Court per its various decisions referred to in HMT Ltd. (supra), including and not limited to Hindustan Times Ltd. (supra). Even otherwise, the principle of casus omissus cannot be lightly inferred, as explained in, among others, Padmasundara Rao (Decd.) v. State of Tamil Nadu  255 ITR 147 (SC). Continuing further, again, without doubt, the charge of tax and the crystallization of the tax liability in its respect is upon occurring of the taxable event, and has nothing to do with its subsequent assessment following the prescribed procedure, as explained by the Hon’ble Apex Court in many a decision, viz. CIT v. Shelly Products  261 ITR 367 (SC). The charge in respect of tax deductible at source is attracted u/s.4(2) of the Act, upon occurring of the taxable event, i.e., the payment or credit, as the case may be, of any sum specified in Chapter XVII-B (Sections 194A to 196D). The said charge of tax would, thus, not abate with time, and the tax due (which becomes payable within a defined period of the taxable event), cannot be held as not payable or recoverable by the Central Government, to whose credit the same is to be paid, upon non action by it toward recovery, i.e., for a particular period of time. In other words, the tax liability (qua TDS) shall not get extinguished upon lapse of certain period of time, which may be considered as ‘reasonable’. There is no debtor-creditor relationship between the State and the subject qua a tax liability, for the Limitation Act to apply, i.e., in the absence of any provision as to time limit in respect of a particular sum per the Act itself, which, in fact, stands specifically removed, and which position has been allowed to obtain even after over two decades. No time limitation would, thus, ordinarily obtain. The recovery of what is due or stands crystallized could be affected at any time, where there is no time limit statutorily provided. There could, thus, be no time limitation, where none stands provided, toward recovery as per TDs provisions under Chapter XVII-B. Section 201(1), it may be appreciated, is not a charging section or toward a levy of tax – which is in the instant case per sections 4(2) r/w section 194A, but only qua its recovery.
At the same time, we cannot but help notice that the TDS liability of the deductor, though recoverable from him and in respect of which he can be, following the due process of law, deemed to be in default, is not to his own account, but is only toward the tax liability of the deductee, and has to be necessarily adjusted against the latter’s tax liability. That the same is without prejudice to the charge of tax on his (deductee’s) income, who is in any case liable toward the same and obliged therefore to make direct payment in the event of failure to deduct and/or deposit TDS by the payer, is patent from the combined reading of sections 4(1), 190 and 191 of the Act. This introduces a complexity to the matter. The tax, under Article 265 of the Constitution of India, can only be levied or recovered under the authority of law. The tax in the form of TDS, so collected, is that levied (by law) on the deductee. That is, collection of tax could only be of that levied, which, where of TDS, is of another, i.e., the deductee. Collection of tax can even otherwise be neither in vacuum nor independent or de hors that levied, i.e., is rendered without any legal basis in the absence of the latter. The concept of knowledge cannot be either a limiting or a facilitation factor, i.e., of any relevance.
We, accordingly, observe no dichotomy between the two different decisions relied upon by the opposing sides, notwithstanding there being presented as so before us. The question, therefore, boils down to as to which of the two principles is validly applicable in the facts and circumstances of the case.
4.4 The levy of tax under the Act is u/s.4 thereof. The same requires determination of income, which is to be in terms of the relevant provisions of the law, and following the procedure of assessment laid down under Chapter XIV of the Act. The same, per section 139, requires the deductee to furnish the return of income, and vide section 140A to pay self-assessment tax along with, reckoning the same by taking into account all the taxes already paid, including the tax deducted at source. The assessee’s return is, though, not binding on the Revenue, which may subject it to verification and assess his income in accordance with the law, following the prescribed procedure. As such, it is only where the determination has, following the said procedure, been already made and, further, found payable, upon considering the payment u/s. 140A, raising notice of demand u/s. 156, which outstands for recovery, that TDS – to that extent, could be collected or recovered by the Revenue from the deductor, i.e., at any time, adjusting the same against the deductees’ tax liability (to that extent). The Revenue is in such a case required to show that some determined tax is payable by the deductee on income assessable for the year, tax at source on which has not been deducted, or after deduction, paid (also see section 199). The interest liability on TDS, which is sought to be collected per section 201(1A) follows, being compensatory, i.e., is consequential or concomitant.
However, where there is no such outstanding demand, i.e., of determined tax liability of the deductee, it is not possible to subscribe to the view that TDS could be collected or recovered at any time, i.e., without any time limitation. This is as the recovery through TDS is only toward the deductee’s tax liability, which could be recovered only upon determination following the process of law. The law, per section 149, provides for a time limit for the issue of notice u/s.148, toward bringing any income that has escaped assessment, to tax. The same, for the years under reference, is set at a maximum of six years from the end of the relevant assessment year. This, then, would become a reasonable period up to which tax recovery proceedings qua TDS could be initiated, i.e., where there is no outstanding tax demand against the deductee for the relevant year. This is as the proceedings in the case of the deductee, against whose tax liability the said TDS would stand to be adjusted, could in law be initiated only up to that time limit. Two, as afore-discussed, i.e., the tax deduction in the case of the deductor and the tax liability in the case of the deductee, are not independent of each other and, in fact, go hand in hand. Tax collection/recovery could only be of that levied/leviable. The principle stands also explained and is well settled per the decisions by the Apex Court, as in the case of Hindustan Coca Cola Beverage P. Ltd. v. CIT  293 ITR 226 (SC). However, it is open for the deductor to exhibit that, notwithstanding the non-deduction of tax at source on the income chargeable to tax for the year, the same can yet not be recovered in view of the tax on the relevant income having been paid or otherwise recovered by the Revenue. That is, though the orders u/ss. 201(1) and 201(1A) would in such a case, i.e., initiation of proceedings in its respect within six years from the relevant assessment year, is valid, actual recovery shall abate on the satisfaction of the tax liability on the corresponding income.
5. In sum, we find that there is no contradiction and, rather, scope for application of both the set of decisions relied upon by the opposing sides before us, i.e., depending on the facts of the case, proving, as it were, the dicta by the Apex Court inBharat Steel Tubes Ltd. (supra) that it all depends on the facts of the case and, further, toward which therefore the scheme of the relevant statute, the rights and liabilities there-under and other relevant factors are to be considered, as explained by it in Bhatinda District Co-op. Milk Producer Union Ltd. (supra). Order u/s. 201(1) is not toward levy of any tax, but only toward its recovery, with the interest u/s. 201(1A) being, as is well settled, compensatory. In our view, therefore, where the tax stands determined and is outstanding against the deductee, i.e., against whose tax liability the tax deductible is to be adjusted, the same is only a recovery of the tax levied and no time limit, in view of the conscious omission of any time limit being prescribed in its respect by the Act, would obtain. Where not so, the recovery would be subject to it being initiated within a reasonable period which, in our view, is a period up to which the tax could be assessed in the hands of the deductee – the tax deductible being only on his behalf and against his tax liability. The same, accordingly, is fixed at six years from the end of the relevant assessment year, i.e., up to which time assessment proceedings could under law be initiated against the impugned income. The assessee is though, at any rate, entitled to show that no tax liability against the corresponding income is outstanding, so that the tax could not be recovered. This would also harmonize the two sets of decision. We may, further, clarify that we have consciously limited our discussion to the decisions by the higher courts of law, in preference to that by the tribunal, also relied upon before us, in view of the issue being legal, so that the former would in any case prevail. In fact, the decisions by the tribunal are in turn based on the decisions by the Hon’ble Apex Court and High Courts, which stand considered and referred to by us. Further, the decision in the case of State of Gujarat v. Patil Raghav Natha  2 SCC 187, which has also been relied upon by the tribunal in some cases, stands also considered by the Hon’ble High Court in HMT Ltd. (supra).
Coming back to the facts of the present case, the Revenue has not brought on record any outstanding demand on the deductee/s, so that time limitation of six years from the end of the relevant assessment year shall obtain, i.e., for the purpose of initiation of recovery proceedings. Further, for all the years, the proceedings were initiated on 15.02.2008, following a survey u/s.133A concluding on 07.02.2008, by extending opportunity to the assessee to explain its case qua non deduction of tax at source, which was in fact followed by similar opportunity on 22.02.2008, 27.02.2008, 03.03.2008 and 07.03.2008 (refer para 1 of the order u/s.201(1) and 201(1A) of the Act dated 31.07.2008 for all the years). These dates fall within a period of six years from the end of the relevant year for all the years under reference. Accordingly, none of the impugned initiations suffers from the legal infirmity of being barred by time. The assessee’s case, accordingly, fails for all the years. On the merits of the demand raised, on which no arguments were made and, consequently, not urged or responded to by the other side as well, the matter stands squarely covered by the decision by the co-ordinate Bench in the assessee’s case (to which both of us are incidentally a party), confirming the impugned order. It is, however, as afore-stated, open for the assessee to lead evidence before the Assessing Officer (A.O.) as to the satisfaction of the tax demand on the interest income in the hands of the deductee/s, to which extent therefore no recovery can in law be effected. The recovery of interest demand u/s. 201(1A) would again follow the prescription of the tribunal’s order, rendered following the decision in the case of Hindustan Coca Cola Beverage (supra) and CIT v. ELI Lilly and Company (India) (P.) Ltd.  178 Taxman 505. We decide accordingly.
6. In the result, the assessee’s appeals are disposed of on the above said terms.