S.a.a.ispahani Trust15,Nungambakkm High Roadchennai 34 v. The Income Tax Officert.d.s.ward Ii (2)Chennai 34

IN THE HIGH COURT OF JUDICATURE AT MADRAS THE HONOURABLE MRS.JUSTICE R.BANUMATHIANDTHE HONOURABLE MR.JUSTICE K.RAVICHANDRABAABU Tax Case (Appeal) Nos. 69 and 70 of 2013 M.P.No.1 of 2013 S.A.A.Ispahani Trust15,Nungambakkm High RoadChennai 34. .... Appellant/Appellant Versus The Income Tax OfficerT.D.S.Ward II (2)Chennai 34. ... Respondent/REspondent Prayer: Appeals filed against the order of the Income Tax AppellateTribunal "B" Bench, Chennai dated 3.8.2011, in I.T.A Nos. 1046 &1047/Mds/2010, under Section 260A of the Income Tax Act, 1961 for theassessment years 2003-04 against the common order of theCommissioner of Income Tax (Appeals)-IV, Chennai dated 15/4/2010 inAppeal No.CIT(A)-IV/ChE/632 & 631/06-07 against the order of theProceedings of the Income Tax Officer, TDS Circle II(2) Chennai-34dated 05/11/2004 made in TAN No.CHESO655OF/II(2) against theproceedings of the Income Tax Officer, TDS Circle 11(2) Chennai-34dated 26/2/2004 made in TAN No.CHESO655OF/II(2). For Appellant: Mr.R.Venkatanarayanan for M/s.Subbaraya Aiyar For Respondent: Mr.J.Narayanasamy Standing Counsel for I.T. The assessee is on appeal against the order of the Income TaxAppellate Tribunal in respect of the assessment year 2003-2004. 2. The following are the reframed substantial questions of lawraised in T.C.(A) No. 69 of 2013 :- https://hcservices.ecourts.gov.in/hcservices/ 1. Whether on the facts and in thecircumstances of the case, the Tribunal was right inlaw in holding the assessee to be in default underSection 201(1) ignoring the CBDT CircularNo.275/201/95-IT(B) dated 29.1.1997 and the Hon'bleSupreme Court decision reported in 293 ITR 226clarifying that recovery could not once again bemade from deductor where the payee included theincome on which tax was alleged to have been shortdeducted in its taxable income and paid taxesthereon ? 2. Whether on the facts and in thecircumstances of the case, the Tribunal was rightin law in holding that the assessee ought to havededucted tax on the entire payments made toM/s.Tamil Nadu Real Estates Ltd., and not only onthe remuneration paid to them ? 3. The following are the reframed substantial questions oflaw raised in T.C.(A) No. 70 of 2013 :- 1. Whether on the facts and in thecircumstances of the case, the Tribunal ought tohave appreciated that interest under Section 201(1A)has to be determined year to year on the basis ofamount payable for that year till the date therecipient has made arrangement for payment of tax orfiled the return of income for that year ? 2. Whether on the facts and in thecircumstances of the case, the Tribunal was rightin law in upholding the levy of interest underSection 201(1A) without considering the taxesalready deducted and paid earlier ? 4. In both the Tax Case Appeals the facts are common inrespect of the same assessment year 2003-2004. In T.C.(A).No.69 of2013, the assessee questions the order of the Tribunal holding themas "assessee in default" under Section 201(1) of the Income Tax Act.In T.C.(A).No. 70 of 2013, the assessee questions the levy ofinterest under Section 201(1A) of the Income Tax Act. 5. The following are short facts, as projected by theassessee, in these appeals. 2. Whether on the facts and in thecircumstances of the case, the Tribunal was rightin law in upholding the levy of interest underSection 201(1A) without considering the taxesalready deducted and paid earlier ? 4. In both the Tax Case Appeals the facts are common inrespect of the same assessment year 2003-2004. In T.C.(A).No.69 of2013, the assessee questions the order of the Tribunal holding themas "assessee in default" under Section 201(1) of the Income Tax Act.In T.C.(A).No. 70 of 2013, the assessee questions the levy ofinterest under Section 201(1A) of the Income Tax Act. 5. The following are short facts, as projected by theassessee, in these appeals. The assessee, a public charitable Trust, owned a propertyand in order to develop the same by putting up a multistoriedbuilding, it had entered into an agreement on 1.11.1994 with oneM/s.Tamil Nadu Real Estates Ltd., (shortly, TNREL) for constructingthe building. As per the said agreement , TNREL is the ProjectManager to construct the building and the assessee will reimburse thecost of construction by selling 55,000 sq.ft of built up area.Subsequently, the terms of the agreement were modified and approvedby both the assessee and TNREL on 17.5.1995 and 31.5.1995respectively in their Board meetings . As per the terms of themodified agreement, the assessee would construct the building withtechnical assistance from TNREL, who would also incur the expenseson behalf of the assessee and get them reimbursed from theassessee. 6. The Assessing Officer proceeded that the assessee hadacted upon the terms of the agreement dated 1.11.1994 and thereforethey should have deducted the tax at source at 2% on the entire costof construction. Thus, the Assessing Officer raised a demand underSection 201(1) and also charged interest under Section 201(1A) . 7. Aggrieved by the order passed by the Assessing Officer,the assessee preferred an appeal before the Commissioner of IncomeTax (Appeals), who in turn confirmed the order of the AssessingOfficer, by holding that the entire payments/ reimbursements toTNREL is covered by Section 194C of the Act. The assessee filedfurther appeal before the Income Tax Appellate Tribunal. The Tribunalalso confirmed the order of the first appellate authority.Therefore, the present appeals are preferred before this Court. 8. Though the assessee had raised several grounds on meritsand questioned the order of the authorities below in holding theassessee as defaulter under Section 201(1) of the Income Tax Act,the learned counsel appearing for the appellant/ assessee confinedhis submission by relying on the decision of the Hon'ble SupremeCourt reported in (2007) 293 ITR 226 (SC) (Hindustan Coca ColaBeverage P.Ltd.,Vs. Commissioner of Income Tax ) to contend thatthe assessee cannot be directed to pay the tax when the recipientviz., TNREL has paid the tax on the income. The learned counselthus submitted that the authorities below failed to apply the saiddecision of the Apex Court and consequently, the order in directingthe assessee to pay the TDS amount to the tune of Rs.47,33,656/- andthe interest under Section 201(1A) amounting to Rs. 35,68,182/-are not justifiable and the same are liable to be set aside. 9. Per contra, the learned counsel appearing for the Revenuesubmitted that the assessee has been held as "assessee in default"for not deducting the tax at source when they made payment to TNREL.Consequently, the levy of interest was also made under Section 201(1A) of the Act. However, he does not dispute the applicability ofthe decision reported in (2007) 293 ITR 226 (SC) (Hindustan CocaCola Beverage P.Ltd.,Vs. Commissioner of Income Tax ) to the factsand circumstances of the case. 10. We heard the learned counsel appearing for both sides. 9. Per contra, the learned counsel appearing for the Revenuesubmitted that the assessee has been held as "assessee in default"for not deducting the tax at source when they made payment to TNREL.Consequently, the levy of interest was also made under Section 201(1A) of the Act. However, he does not dispute the applicability ofthe decision reported in (2007) 293 ITR 226 (SC) (Hindustan CocaCola Beverage P.Ltd.,Vs. Commissioner of Income Tax ) to the factsand circumstances of the case. 10. We heard the learned counsel appearing for both sides. 11. The Tribunal found that the assessee is obliged underSection 194C to deduct tax at source on contract payments as andwhen such payments exceed Rs.20,000/- and to pay such TDS to theGovernment account within one week from the last date of the month inwhich deduction is made. It is also found by the Tribunal that itis a clear case where the assessee has failed to deduct tax onthe entire contract payments made to the contractor and the assesseehas also failed to produce any evidence for the taxes alreadydeducted as contended by them . Therefore, the Tribunal found thatthe assessee is in default under Section 201(1) and also liable topay interest under Section 201(1A) from the day on which the tax wasrequired to be paid under Section 194C upto the date of actualpayment. These factual findings rendered by all the authoritiesbelow in holding that the assessee is in default under Section 201(1) of the Income Tax Act do not warrant any interference by thisCourt. On the other hand, as already stated supra, the learnedcounsel for the assessee wanted this Court to follow the decision ofthis court reported in (2007) 293 ITR 226 (SC) (Hindustan Coca ColaBeverage P.Ltd.,Vs. Commissioner of Income Tax ) and to grant therelief to the assessee as per the law laid down therein. 12. A perusal of the said order of the Hon'ble Supreme Courtin Hindustan Coca Cola Beverage case would show that the assesseetherein was held "as assessee in default" under Section 201(1) ofthe Act and also levied interest under Section 201(1-A). Theassessee therein contended that the recipient therein has beenassessed on their income and the tax due has been recovered fromthem by the Department and therefore no further tax could have beencollected from the assessee therein. The said contention wasaccepted by the Tribunal. It was held that though the assesseetherein was held to be as assessee in default, there could be norecovery of the tax alleged to be in default once again from theassessee therein considering the fact that the recipient had alreadypaid the tax on the amount received from the assessee. The said orderof the Tribunal was challenged before the High Court which in turninterfered with the same. Further appeal came up before the Hon'bleSupreme Court. In the said appeal, the Apex Court found that the Tribunal came to the right conclusion that the tax once again couldnot be recovered from the appellant therein since the tax hasalready been paid by the recipient of the income. The Apex Courtalso relied on the circular issued by the Central Board of DirectTaxes in Circular No. 275/201/95-IT (B) dated 29.1.1997 wherein itis declared that no demand visualised under Section 201(1) of theIncome Tax Act should be enforced after the tax deductor hassatisfied the Revenue that taxes due have paid by the deductee-assessee. While holding so, the Apex Court however pointed out thatsuch position will not alter the liability to charge interest underSection 201(1A) till the date of payment of taxes by the deducteeassessee. Tribunal came to the right conclusion that the tax once again couldnot be recovered from the appellant therein since the tax hasalready been paid by the recipient of the income. The Apex Courtalso relied on the circular issued by the Central Board of DirectTaxes in Circular No. 275/201/95-IT (B) dated 29.1.1997 wherein itis declared that no demand visualised under Section 201(1) of theIncome Tax Act should be enforced after the tax deductor hassatisfied the Revenue that taxes due have paid by the deductee-assessee. While holding so, the Apex Court however pointed out thatsuch position will not alter the liability to charge interest underSection 201(1A) till the date of payment of taxes by the deducteeassessee. 13. Going by the said decision, what emerges is that the eventhough the appellant herein is held as assessee in default, taxcannot be recovered from them , if the same has been paid by therecipient viz., TNREL. However, it would not absolve theirliability to pay interest under Section 201(1A) from the date ofits liability till the date of actual payment made by therecipient. There are no findings rendered by the authorities belowwith regard to the payment of tax by the recipient and its quantum.Therefore, the matter requires to be remitted back to the AssessingOfficer to re-work the quantum of liability as well as the interestin the light of the decision made by the Hon'ble Supreme Courtreported in (2007) 293 ITR 226 (SC) (Hindustan Coca Cola BeverageP.Ltd.,Vs. Commissioner of Income Tax ). 14. It is needless to say that the Assessing Officer shouldfind out as to what extent the recipient had paid the tax. If theentire tax amount as claimed from the assessee herein has beenpaid by the recipient, then there cannot be any further demand ofthe same from the assessee. On the other hand, if the recipient hadonly paid part of the tax amount, then rest of the same shall berecovered from the assessee. Insofar as the interest demand isconcerned, the assessee is liable to pay the interest from the dateof its liability till the date of actual payment made by therecipient.Accordingly, the Assessing Officer is directed to re-compute the liability of the assessee and pass fresh orders . Thequestions of law raised in both the appeals are answered accordingly.The Tax Case Appeals are disposed of accordingly. Consequently, theconnected M.P is closed. No costs. Sd/- Asst. Registrar //True Copy// krr To 1. The Income Tax Appellate Tribunal 'B' Bench, Chennai 2. The Commissioner of Income -Tax (Appeals)-IV, Chennai 3. The Income Tax Officer, TDS Ward II(2), Chennai 34. 3. The Income Tax Officer, TDS Ward II(2), Chennai 34. + one cc to Mr. R.Vijaya Raghavan, Advocate sr.20410 + one cc to Mr.J.Narayanasamy, Advocate sr.20412 in Tax Case (Appeal) Nos.69 and 70 of 2013Nos.69 and 70 of 2013 VSN RR 23/04/2013RR 23/04/2013