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Income Tax Appellate Tribunal, “A” BENCH, PUNE
Before: SHRI D. KARUNAKARA RAO, AM & SHRI VIKAS AWASTHY, JM
आदेश / ORDER
PER VIKAS AWASTHY, JM :
This appeal has been filed by the assessee against the order of Commissioner of Income Tax (Appeals)-3, Nashik dated 30-03-2016 for the assessment year 2014-15 confirming additions made by the Assessing Officer u/s. 201(1) and 201(1A) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”).
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Shri Nimesh Thar appearing on behalf of the assessee submitted that the Assessing Officer invoked the provisions of section 201(1) and 201(1A) of the Act for non-deduction of tax at source on payments made to Housing Development and Infrastructure Limited (HDIL) during Q1, Q2, Q3 and Q4 of Financial Year 2013-14. The ld. AR submitted that the assessee has deducted tax at source while making payments and has deposited the same to the Government exchequer within the specified time and has also filed return of income for each quarter within the time prescribed under the provisions of the Act. The Assessing Officer has invoked the provisions of section 201(1) only in respect of interest payment Rs.32,19,06,372/- paid to HDIL, parent company of assessee. Admittedly, the aforesaid interest payments were made without deduction of tax at source. During the assessment proceedings it was explained that the parent company HDIL had paid tax on the aforesaid interest income earned from the assessee and hence, there is no escapement of tax on account of non- deduction of tax at source. The Assessing Officer vide order dated 09-02- 2015 passed u/s. 201(1) and 201(1A) made addition of TDS deductible and the interest thereon u/s. 201(1) and 201(1A) of the Act.
2.1 Aggrieved against the said order, the assessee filed appeal before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) after appreciating the facts granted partial relief to the assessee i.e. to the extent of TDS deductible. However, the Commissioner of Income Tax (Appeals) upheld charging of interest u/s. 201(1A) of the Act. The ld. AR submitted that HDIL had filed return of income for the assessment year 2014-15 and has claimed refund as no tax was payable by the HDIL. In support of his contentions the ld. AR referred to the computation of income and return of income filed by HDIL at pages 15 to 29 of the paper book. The ld. AR submitted that no interest is chargeable u/s. 201(1A) where no
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TDS is to be deductible. In support his contentions the ld. AR placed reliance on the decision of Kolkata Bench of Tribunal in the case of Haldia Petrochemicals Ltd. Vs. Deputy Commissioner of Income Tax in ITA No. 66/Kol/2014 for assessment year 2004-05 decided on 03-08-2016.
On the other hand Ms. Shabana Parveen representing the Department vehemently defended the impugned order and prayed for dismissing the appeal of assessee. The ld. DR submitted that charging of interest u/s. 201(1A) is mandatory. The Commissioner of Income Tax (Appeals) rejected the contentions of assessee for deleting the interest u/s. 201(1A) by placing reliance on the decision of Hon’ble Karnataka High Court in the case of Karnataka Urban Infrastructure Development & Finance Corporation Vs. Commissioner of Income Tax & Anr. reported as 308 ITR 297.
We have heard the submissions made by representatives of rival sides and have perused the orders of authorities below. The solitary issue pleaded before us by the assessee is whether interest u/s. 201(1A) is leviable where no tax is deductible or payee has no tax liability.
The facts narrated by the assessee above are not in dispute. The assessee has made interest payment of Rs.32,19,06,372/- to its parent company HDIL without deducting tax at source. HDIL in its return of income has reflected the interest income from the assessee. The Commissioner of Income Tax (Appeals) after examining the facts deleted the addition made u/s. 201(1) of the Act. However, in respect of charging of interest u/s. 201(1A) the Commissioner of Income Tax (Appeals) refused to grant relief on the ground that charging of interest is mandatory and hence, can neither be waived nor reduced. The Commissioner of Income
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Tax (Appeals) placed reliance on the decision rendered in the case of Karnataka Urban Infrastructure Development & Finance Corporation Vs. Commissioner of Income Tax & Anr. (supra) to come to such a conclusion. On the contrary, the assessee placed reliance on the decision of Kolkata Bench of Tribunal in the case of Haldia Petrochemicals Ltd. Vs. Deputy Commissioner of Income Tax (supra). The issue before Tribunal was whether the interest u/s. 201(1) and 201(1A) can be charged where there is no tax liability in the hands of the payee. The Tribunal after considering various decisions and examining the facts of the case held as under : “6. We have heard the rival submissions and perused the materials available on record including the paper book filed by the assessee. The ld AR argued that there was no liability to deduct tax at source on the payments made to its subsidiary company in as much as the subsidiary company had incurred huge losses which is quite evident from the Assessment order of the subsidiary company i.e. M/s Haldia Riverside Estates Ltd u/s 143(3) dated 22.12.2006 for the Asst Year 2004-05. From the said order it could be seen that there would be no resultant tax payable by the subsidiary company. In response to this, the ld DR vehemently supported the orders of the lower authorities. We find that the TDS provisions mandates deduction of tax at source on the payments made by assessee to parties if it falls within the deductible limits prescribed u/s 194I of the Act. The purpose of TDS is to ensure that the Government is not deprived of its due taxes in time. Moreover, recovery of taxes through TDS is one of the tax collection mechanism formulated by the Government. If the payer (assessee herein) fails to deduct tax at source in respect of certain eligible payments , then the payer assessee could be treated as „assessee in default‟ and the said tax could be recovered from the payer assessee on behalf of the payee. But in the instant case, there is no resultant tax liability in the hands of the payee due to huge losses. In such circumstances, normally it is expected that the payee should approach the TDS officer by preferring an application in Form No. 13 seeking for lower / nil deduction certificate u/s 197(1) of the Act. In the instant case, section 197(1) certificate has been obtained by the payee only from 1.7.2003 wherein the deductors have been directed to deduct 1% TDS on payments made to payees in respect of payments not exceeding Rs. 409.34 lakhs and hence the ld AO held that the assessee had violated the TDS provisions in respect of payments made upto 30.6.03 and for payments made in excess of Rs. 409.34 lakhs, tax at the rate of 20% should have been deducted. We hold that mere failure to obtain section 197(1) certificate by the payee for the entire payments and for the entire period would not automatically cast a TDS obligation on the payer and make the payer „assessee in default‟ when it is certain from the records in the form of assessment order of the payee that there is no resultant tax liability for the payee.”
We observe that the facts in the instant case are close to the facts in the case of Haldia Petrochemicals Ltd. Vs. Deputy Commissioner of Income Tax (supra). Thus, following the decision in the aforesaid case, interest
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u/s. 201(1A) cannot be charged where there is no tax liability in the hands of the payee. Accordingly, the impugned order is modified and interest charged u/s. 201(1A) is deleted.
As regards the principle laid down in the case of Karnataka Urban Infrastructure Development & Finance Corporation Vs. Commissioner of Income Tax & Anr. (supra) there is no dispute. However, the said principle cannot be applied in the facts of the present case.
In the result, appeal of the assessee is allowed.
Order pronounced on Wednesday, the 04th day of September, 2019.
Sd/- Sd/- (डी. करुणाकरा राव/D. Karunakara Rao) (ववकास अवस्थी / Vikas Awasthy) ऱेखा सदस्य / ACCOUNTANT MEMBER न्याययक सदस्य / JUDICIAL MEMBER ऩुणे / Pune; ददनाांक / Dated : 04th September, 2019 RK आदेश की प्रयिलऱवऩ अग्रेवषि / Copy of the Order forwarded to : अऩीऱाथी / The Appellant. 1. प्रत्यथी / The Respondent. 2. आयकर आयुक्त (अऩीऱ) / The CIT(A)-3, Nashik 3. 4. The CIT, TDS, Pune ववभागीय प्रयतयनधध, आयकर अऩीऱीय अधधकरण, “ए” बेंच, 5. ऩुणे / DR, ITAT, “A” Bench, Pune. गाडड फ़ाइऱ / Guard File. 6. //सत्यावऩत प्रयत // True Copy// आदेशानुसार / BY ORDER,
यनजी सधचव / Private Secretary, आयकर अऩीऱीय अधधकरण, ऩुणे / ITAT, Pune