Issue as to when deductee (receipient of income) has already paid necessary taxes on amount received from deductor, can department once again recover tax from deductor on same income by treating deductor to be assessee-in-default for shortfall in its amount of tax deducted at source?
SUPREME COURT OF INDIA
Hindustan
Coca Cola Beverage (P.) Ltd.
vs.
Commissioner
of Income-tax
S.H. KAPADIA AND
B. SUDERSHAN REDDY, JJ.
CIVIL APPEAL NO.
3765 OF 2007
AUGUST 16, 2007
Section 201 of the Income-tax Act, 1961 -
Deduction of tax at source - Consequence of failure to deduct or pay - Whether
where deductee, recipient of income, has already paid taxes on amount received
from deductor, department once again cannot recover tax from deductor on same
income by treating deductor to be assessee-in-default for shortfall in its
amount of tax deducted at source - Held, yes
Circulars and Notifications : Circular No. 275/201/95-IT(B) , dated
29-1-1997
JUDGMENT
B.
Sudershan Reddy, J. - Leave granted.
2. This appeal by
Special Leave preferred by the appellant-assessee is directed against the
judgment of Delhi High Court dated 11-10-2006 in ITA No. 478 of 2005.
3. Briefly stated
the facts are as follows :
4. The
appellant-assessee is engaged in the manufacture and sale of soft drinks. The
appellant-assessee entered into an agreement with M/s. Pradeep Oil Corporation
for use of their premises for receipt, storage and dispatch of goods belonging
to the appellant-company. There is no dispute that the appellant had paid the
warehousing charges to M/s. Pradeep Oil Corporation on which tax was deducted
under section 194C of the Income-tax Act, 1961 (for short ‘the Act’) @ 2 per
cent. The Assessing Officer vide order dated 30-3-2001 held the
appellant to be ‘assessee-in-default’ for failure to deduct tax at source in
respect of warehousing charges paid to M/s. Pradeep Oil Corporation. The
Assessing Officer rejected the plea of the assessee that the payments made by the
appellant-company were in the nature of contractual payments on which tax was
deducted under section 194C of the Act at 2 per cent. The Assessing Officer
accordingly held that the warehousing charges were in the nature of rent as
defined in Explanation to section 194-I of the Act and, therefore, tax
ought to have been deducted at 20 per cent under the said provisions as against
deduction of tax at 2 per cent under section 194C of the Act. The Assessing
Officer having held the appellant to be ‘assessee-in-default’ for the shortfall
in the amount of tax deducted at source levied interest under section 201(1A)
of the Act on the amount of tax alleged to be short deducted. The Assessing
Officer accordingly determined the amount of short deduction of tax and also
levied interest payable thereon under section 201(1A) of the Act.
5. The appellant
preferred an appeal against the order of the Assessing Officer before the
Commissioner of Income-tax (Appeals) and thereafter before the Tribunal. The
Tribunal also took the view that the appellant-assessee to be an
‘assessee-in-default’ in respect of the amount of short deduction of tax and
also upheld the levy of interest under section 201(1A) of the Act. The further
appeal preferred by the appellant-assessee was dismissed by the High Court on
21-5-2004.
6. The appellant
thereafter preferred miscellaneous application in the appeals that were already
disposed of seeking rectification of the order of the Tribunal dated 12-7-2002.
Be it noted, the appellant did not raise any dispute about it being the
‘assessee-in-default’ and also raised no objection as regards the levy of
interest under section 201(1A) of the Act. The grievance of the appellant was
that its alternative contention that the warehouser has been assessed on its income
and the tax due has been recovered from it by the department and, therefore, no
further tax could have been collected from the appellant has not been
considered by the Tribunal in its order dated 12-7-2002. The contention was
that since the tax to be recovered by the department on the income has already
been paid by the assessee, no further tax should be recovered from the
appellant on the same income. The Tribunal vide its order dated
13-9-2004 allowed the application of the appellant on the ground that the
alternative contention of the appellant has not been considered while disposing
of the appeal. The contention was specifically raised in Ground No. 7 of the
memorandum of appeal preferred by the appellant. The Tribunal accordingly held,
to that extent, there is a mistake apparent on the face of record and,
therefore, constitutes a rectifiable mistake under section 254(2) of the Act.
The Tribunal accordingly recalled its earlier order dated 12-7-2002 for the
limited purpose of taking up the particular ground raised in Ground No. 7 in
the memorandum of appeal. This order directing the reopening of the matter has
attained its finality. The department did not challenge the said order.
7. The Tribunal
upon rehearing the appeal held that though the appellant-assessee was rightly
held to be an ‘assessee-in-default’, there could be no recovery of the tax
alleged to be in default once again from the appellant considering that Pradeep
Oil Corporation had already paid taxes on the amount received from the appellant.
It is required to note that the department conceded before the Tribunal that
the recovery could not once again be made from the tax deductor where the payee
included the income on which tax was alleged to have been short deducted in its
taxable income and paid taxes thereon. There is no dispute whatsoever that
Pradeep Oil Corporation had already paid the taxes due on its income received
from the appellant and had received refund from the tax department. The
Tribunal came to the right conclusion that the tax once again could not be
recovered from the appellant (deductor-assessee) since the tax has already been
paid by the recipient of income.
8. The High Court
interfered with the order passed by the Tribunal on the ground that the order
dated 12-7-2002 of the Income-tax Appellate Tribunal has attained its finality
since the appeal filed against the same by the appellant was dismissed by the
High Court on 21-5-2004; the point based on Ground No. 7 was not taken up in
the appeal preferred by the appellant in the High Court. The High Court further
held that the Income-tax Appellate Tribunal’s order dated 12-7-2002 got itself
merged into the order passed by it on 21-5-2004 dismissing the appeal of the
appellant herein. The High Court came to the conclusion that the Tribunal could
not have reopened the matter for any further hearing.
9. We have already
noticed that the order passed by the Tribunal to reopen the matter for further
hearing as regards Ground No. 7 has attained its finality. In the
circumstances, the High Court could not have interfered with the final order
passed by the Income-tax Appellate Tribunal.
10. Be that as it
may, the Circular No. 275/201/95-IT(B), dated 29-1-1997 issued by the Central
Board of Direct Taxes, in our considered opinion, should put an end to the
controversy. The circular declares "no demand visualized under section
201(1) of the Income-tax Act should be enforced after the tax deductor has
satisfied the officer-in-charge of TDS, that taxes due have been paid by the
deductee-assessee. However, this will not alter the liability to charge
interest under section 201(1A) of the Act till the date of payment of taxes by
the deductee-assessee or the liability for penalty under section 271C of the
Income-tax Act."
11. In the instant
case, the appellant had paid the interest under section 201(1A) of the Act and
there is no dispute that the tax due had been paid by deductee-assessee (M/s.
Pradeep Oil Corporation). It is not disputed before us that the circular is
applicable to the facts situation on hand.
12. In the
circumstances, it is not necessary to go in detail as to whether the Tribunal
could have at all reopened the appeal to rectify the error apparent on the face
of the record. We do not wish to express any firm view on this aspect.
13. The impugned judgment of
the High Court is, accordingly, set aside. The appeal is allowed with no order
as to costs.
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