The assessee, a bank, - was held liable u/s 201(1) and 201(1A) r.w.s. 194 A - for failure to withholding TDS on interest paid by it to customers on deposits placed by them with the assessee.
The assessee claimed that it could not be treated as an assessee-in-default as no steps had been taken to determine whether the recipients of the interest had paid tax thereon.
HELD by the Tribunal allowing the appeal:
(i) A short deduction of tax at source, by itself does not result in a legally sustainable demand u/s 201(1) and u/s 201(1A).
As held in Hindustan Coca Cola Beverages vs. CIT 293 ITR 226, taxes cannot be recovered once again from the assessee in a situation in which the recipient of income has paid due taxes on income embedded in the payments from which tax withholding requirements were not fully or partly, complied with.
In Jagran Prakashan vs. DCIT 21 TM.com 489 (All) it was held that the deductor cannot be treated an assessee in default till it is found that assessee has also failed to pay such tax directly. Thus, to declare a deductor, who failed to deduct the tax at source as an assessee in default, condition precedent is that the recipient has also failed to pay tax directly;
(ii) S. 201(1) seeks to make good any loss to revenue on account of lapse by the assessee tax deductor.
However, the question of making good the loss of revenue arises only when there is indeed a loss of revenue and the loss of revenue can be there only when recipient had a liability to pay the tax and he has not paid tax;
(iii) The onus is on the revenue to demonstrate that the taxes have not been recovered from the person who had the primarily liability to pay tax, and it is only when the primary liability is not discharged that vicarious recovery liability can be invoked. Once all the details of the persons to whom payments have been made are on record, it is for the AO, who has all the powers to requisition the information from such payers and from the income tax authorities, to ascertain whether or not taxes have been paid by the persons in receipt of the amounts from which taxes have not been withheld;
LEVY OF INTEREST U/S 201(1A)
(iv) As regards the levy of interest u/s 201(1A), though the interest is compensatory in nature and is applicable whether or not the assessee was at fault, it is applicable for the period from the date on which tax was required to be deducted till the date when tax was eventually paid.
In a case in which the recipient of income had no tax liability embedded in such payments, there will obviously be no question of delay in realization of taxes and s. 201(1A) will not come into play at all.