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Bharat Sanchar Nigam Limited Office of GM (Telecom) Patel Nagar, Muzaffranagar (UP) Vs. Income Tax Officer (TDS and Survey), Muzaffarnagar
November, 19th 2014
                                                            I.T.A. No.: 258 to 260/Del/2011
                                           Assessment years: 2008-09, 2009-10 and 2010-11
                                                                                   Page 1 of 7


                  IN THE INCOME TAX APPELLATE TRIBUNAL
                            DELHI C BENCH, NEW DELHI

              [Coram: Pramod Kumar AM, and C. M. Garg JM]


                    I.T.A. No.: 258, 259 and 260/Del/2011
               Assessment years: 2008-09, 2009-10 and 2010-11

Bharat Sanchar Nigam Limited                                  .....................Appellant
Office of GM (Telecom)
Patel Nagar, Muzaffranagar (UP)


Vs.

Income Tax Officer
(TDS and Survey), Muzaffarnagar                               ...................Respondent


Appearances by:

K C Kaushik, for the appellant
Satpal Singh, for the respondent

                                   O R D E R

Per bench:



1.    These three appeals filed by the assessee are directed against the
consolidated order dated 27 th September, 2010,         passed by the ld. CIT(A),
Muzaffarnagar, in the matter of demands raised under section 201/201(1A)
read with section 194H of the Income Tax Act, 1961, for the Assessment Years
2008-09, 2009-10 & 2010-11.


2.    As the issues involved in these appeals are common and the grievances
arise on a common set of material facts, we deem it proper to dispose of all the
three appeals by way of this consolidated order.


3.    To adjudicate on these appeals, only few material facts need to be taken
note of. The A.O. (TDS) has raised the demands on the assessee, a Government
                                                               I.T.A. No.: 258 to 260/Del/2011
                                              Assessment years: 2008-09, 2009-10 and 2010-11
                                                                                      Page 2 of 7


Undertaking, on account of assessee's not having deducted tax at source in
respect of discount of recharge vouchers and prepaid SIM cards allowed to the
franchisees. The A.O. was of the view that the assessee was under an obligation
to deduct tax at source under section 194H of the Act in respect of the discount
so allowed to the franchisees. When assessee carried the grievance in appeal
before the ld. CIT(A), the ld. CIT(A) also confirmed the demands so raised under
section 201/201(1A) read with section 194H of the Income Tax Act, 1961. The
assessee is not satisfied and is in appeal before us.





4.       During the course of hearing before us, it was noticed that there is no
finding by the A.O. to the effect that the recipient of the money i.e. franchisees
have not paid the taxes on income embedded in the amounts in question. In this
background, we are of the considered view that the matter deserves to be sent
back to the file of A.O. for reconsideration in the light of following observations
made by the Co- ordinate Bench in due deference to Hon'ble Allahabad High
Court's judgement in the case of Jagran Prakashan Limited vs. DCIT (2012)
21 taxman.com 489 (All) , in the case of ICICI Bank Limited vs. DCIT, 156 TTJ
569 :-


         6.     It is, however, important to bear in mind the settled legal
         position that 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 by Hon'ble Supreme Court in the case of Hindustan Coca Cola
         Beverage Pvt. Ltd. Vs. CIT (293 ITR 226), the taxes cannot be
         recovered once again from the assessee in a situation in whi ch 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. Hon'ble jurisdictional High Court, in the case
         of Jagran Prakashan Ltd Vs DCIT [(2012) 21 taxmann.com 489 All]
         also has, inter alia, observed as follows:

               ...........it is clear that deductor cannot be treated an
               assessee in default till it is found that assessee has also
               failed to pay such tax directly. In the present case, the
               Income tax authorities had not adverted to the
               Explanation to Section 191 nor had applied their mind as
               to whether the assessee has also failed to pay such tax
               directly. Thus, to declare a deductor, who failed to deduct
                                                         I.T.A. No.: 258 to 260/Del/2011
                                        Assessment years: 2008-09, 2009-10 and 2010-11
                                                                                Page 3 of 7


       the tax at source as an assessee in default, condition
       precedent is that assessee has also failed to pay tax
       directly. The fact that assessee has failed to pay tax
       directly is thus, foundational and jurisdictional fact and
       only after finding that assessee has failed to pay tax
       directly, deductor can be deemed to be an assessee in
       default in respect of such tax.....

7.     It is thus clear that 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 liabili ty
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 Assessing Officer, who has al l the
powers to requisition the information from such paye rs 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. As a result of the judgment of Hon'ble Allahabad
High Court in Jagran Prakashan's cas e (supra), there is a paradigm
shift in the manner in which recovery provisions under section
201(1) can be invoked. As observed by Their Lordships, the provisions
of Section 201(1) cannot be invoked and the "tax deductor cannot be
treated an assessee in default till it is found that assessee has also
failed to pay such tax directly" . Once this finding about the non -
payment of taxes by the recipient is held to a condition precedent to
invoking Section 201(1), the onus is on the Assessing Officer to
demonstrate that the condition is satisfied. No doubt the assessee has
to submit all such information about the recipient as he is obliged to
maintain under the law, once this information is submitted is for the
Assessing Officer to ascertain whether or not the t axes have been
paid by the recipient of income. This approach, in our humble
understanding, is in consonance with the law la id down by Hon'ble
Allahabad High Court.

8.     It is important to bear in mind that the lapse on account of
non-deduction of tax at source is to be visited with three different
consequences ­ penal provisions, interest provisions and recovery
provisions. The penal provisions in respect of such a lapse are set out
in Section 271 C. So far as penal provisions are concerned, the
penalty is for lapse on the part of the assessee and it has nothing to
do with whether or not the taxes were ultimately recovered through
other means. The provisions regarding interest in delay in depositing
the taxes are set out in Section 201(1A). These provision s provide
that for any delay in recovery of such taxes is to be compensated by
the levy of interest. As far as recovery provisions are concerned, these
provisions are set out in Section 201(1) which 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
                                                              I.T.A. No.: 258 to 260/Del/2011
                                             Assessment years: 2008-09, 2009-10 and 2010-11
                                                                                     Page 4 of 7


      when there is indeed a loss of revenue and the loss of revenue can be
      there only when recipient of income has not paid tax. Therefore,
      recover y provisions under section 201(1) can be invoked only when
      loss to revenue is established, and that can only be established when
      it is demonstrated that the recipient of income has not paid due taxes
      thereon. In the absence of the statutory powers to requisition any
      information from the recipient of income, the assessee is indeed not
      always able to obtain the same. The provisions to make good the
      short fall in collection of taxes may thus end up being invoked even
      when there is no shortfall in fact. On the other hand, once assessee
      furnishes the requisite basic information, the Assessing Officer can
      very well ascertain the related facts about payment of taxes on
      income of the recipient directly from the recipients of income. I t is
      not the revenue's case before us that, on the facts of this case, such
      an exercise by the Assessing Officer is not possible. It does put an
      additional burden on the Assessing Officer before he can invoke
      Section 201(1) but that' show Hon'ble High Court has visualized the
      scheme of Act and that 's how, therefore, it meets the en d o f justice.

      9.     As far as levy of interest under sect ion 201(1A) is concerned,
      this interest is admittedly a compensatory interest in nature and it
      seeks to compensate the revenue for delay in realization of taxes.
      H on'ble Bombay High Court, in the case of Bennett Coleman & Co Ltd
      Vs ITO (157 ITR 812) has held so. Therefore, levy of interest under
      section 201(1A) is applicable whether or not the assessee was at
      fault. However, since it is only compensatory in nature it is
      applicable for the period of the date on which tax was required to be
      deducted till the date when tax was eventually paid. However, 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 the provisions of section 201(1A) will not
      come into play at all. The computation of interest is to be redone in
      the light of this legal position.

      10.    The matter thus stands restored to the file of the Assessi ng
      Officer for fresh adjudication in accordance with the law and in the
      light of our observations above. While doing so, the Assessing Officer
      will give a due and fair opportunity of hearing to the assessee and
      dispose of the matter by way of a speaking or der. We direct so."

5.    Learned Departmental Representative did not have much to say beyond
placing his reliance on the orders of the authorities below and contending that
on merit of the case the assessee ought to have deducted tax at source. That
plea of hers is not relevant in the above context in as much as TDS liability is
                                                               I.T.A. No.: 258 to 260/Del/2011
                                              Assessment years: 2008-09, 2009-10 and 2010-11
                                                                                      Page 5 of 7


only a vicarious liability. In the circumstances in which principal liability is
discharged, vicarious liability does not survive.


6.    In any event, the issue also seems to be covered, on merits, in favour of
the assessee by decision of Hon'ble Punjab & Haryana High Court in the case of
CIT vs. Bharat Sanchar Nigam Limited (95 DTR 253) wherein Their Lordships
have, inter alia, observed as followed:


      The assessee, a Government of India undertaking, has paid commission to
      STD/PCO franchises during the years under consideration without
      deduction of tax. The Assessing Officer found that the assessee has violated
      the mandate of Section 194H of the Act by not deducting tax at source.
      Consequently, the Assessing Officer made the assessee liable to pay the
      amount of tax as well as interest thereon. Such order was affirmed by the
      Commissioner of Income Tax (Appeals).

      The Tribunal examined the proviso inserted to Section 194H vide Finance
      Act, 2007 w.e.f. 01.06.2007. The said proviso reads as under:

             "194H. xx xx

             Provided also that no deduction shall be made under this section on
             any commission or brokerage payable by Bharat Sanchar Nigam
             Limited or Mahanagar Telephone Nigam Limited to their public call
             office franchisees."

      The Tribunal granted the benefit of such amendment to the assessee
      holding the same to be clarificatory in nature. Such order of the Tribunal is
      based upon the Income Tax Appellate Tribunal, Pune Bench in ITA No.71 to
      77/PN/2009 for the assessment year 2002-2003 and 2008-09 in respect of
      the assessee herein. Considering the circular dated 12.03.2008 and the
      instructions dated 08.05.2009, the Tribunal has recorded the following
      findings:

             "7. While the aforesaid amendment was stated to be prospective i.e.
             with effect from 1 st June, 2007, it cannot be inferred that so far as
             prior period is concerned, the stand taken by the Central Board of
             Direct Taxes is that recoveries for non deduction under Section 194H
             r.w.s. 201 are to be made for the same. The above extracts from the
             Board circular would show that the amendment in the Section 194H
             was brought about because, as admitted by the CBDT itself, very few
             of the recipients had a tax liability. It is well settled in law that a tax
             withholding liability is a vicarious liability, as a part of tax collection
             mechanism, in the sense that when there is no primary liability of the
                                                       I.T.A. No.: 258 to 260/Del/2011
                                      Assessment years: 2008-09, 2009-10 and 2010-11
                                                                              Page 6 of 7





      taxpayer, proxy liability of the tax deductor also does not survive. In
      a situation like the one, we are in seisin of, in which the CBDT itself
      accepts that there is hardly any primary tax liability of the recipients
      of income. It is highly contentious an issue whether or not vicarious
      tax withholding liability can be invoked. As a matter of fact, the
      Central Board of Taxes has taken a stand that the demands are not to
      be enforced on BSNL and MTNL offices except in the cases where
      taxes have been deducted at source but not paid over to the revenue
      8. The stand taken by the authorities below is thus contrary to the
      stand taken by the Central Board of Direct Taxes. While authorities
      below have taken a stand that the prospective amendment in Section
      194 H, by itself, demonstrates that the taxes were required to be
      deducted at source in respect of PCO commission for earlier years,
      the Central Board of Direct Taxes is of the view that except in cases
      where BSNL or MTNL has deducted the taxes, but not paid over the
      same to the treasury, demands are not to be enforced till the matter
      is sorted out by the Board. When such is the stand taken by the CBDT
      itself, it cannot be said that in view of the insertion of proviso to
      Section 194H with effect from 1 st June, 22007. It is beyond doubt or
      controversy that so far as the period prior to this amendment is
      concerned, the tax deduction at source requirements under Section
      194H applied on payments of commission to PCO franchisees.
      Learned Commissioner (Appeals) did not, therefore, have any good
      reasons to disregard the binding judicial precedent. It cannot be
      open to a subordinate or coordinate judicial forum to disregard the
      decision of this Tribunal, in assessee's own case, merely on the
      ground that the later amendment in law, with effect from 1 st June,
      2007, must be inferred to be clarifying the position prior to the said
      amendment. The distinction made out by the learned CIT(A),
      therefore, does not meet our approval. Having regard to the
      discussions about the impact of CBDT circulars, we may also add that
      it is only elementary that the circulars issued by the Central Board of
      Direct Taxes are binding on the assessee only to the limited extent of
      these circulars being beneficial in nature. In other words, an assessee
      cannot be saddled with a liability only on the ground that the
      circular issued by the CBDT holds so. Such a liability has to be
      supported by the clear provisions of statute. Revenue thus cannot
      derive any support from reliance on the circulars passed by the
      CBDT."

Such order was followed by Pune Bench of the Tribunal in the assessment
years 2006-07 and 2007-08 vide order dated 07.12.2011 as well. Similar
view was taken by New Delhi Bench of the Tribunal in respect of assessee's
own case for the assessment year 2002-03 in ITA No.3996/D/2004.

We do not find that any substantial question of law arises for considerat ion,
inter alia, for the reason that the Central Board of Direct Taxes vide
                                                                    I.T.A. No.: 258 to 260/Del/2011
                                                   Assessment years: 2008-09, 2009-10 and 2010-11
                                                                                           Page 7 of 7


        circular dated 12.03.2008 has taken a stand that the demands are not to be
        enforced on BSNL and MTNL offices except in the cases where taxes have
        been deducted at source but not paid over to the revenue. The proviso is
        clarificatory in nature though it was inserted by the Finance Act, 2007 w.e.f.
        01.06.2007. The nature of the amendment and the purpose which it seeks to
        achieve make it abundantly clear that it is a clarificatory amen dment and
        would be applicable even in respect of assessment years prior to insertion of
        the said amendment.

7.      During the course of remanded proceedings the Assessing Officer shall
examine the matter afresh, inter alia, in the light of this guidance, as i ndeed any
other judicial precedents as may be available, from Hon'ble Courts above.


8.      In view of the above discussion and also bearing in mind the entirety of
the case, we remit the matter to the file of A.O. to adjudicate the issue de novo in
the light of the above discussion


9.      In the result, all the three appeals are allowed for statistical purposes in
the terms indicated above. Pronounced in the open court today on 18 th day of
November, 2014.

Sd/xx                                                                                        Sd/xx
C M Garg                                                                    Pramod Kumar
(Judicial Member)                                                      (Accountant Member)

New Delhi, the 18 th day of November, 2014

Copies to :   (1)    The appellant                           (2)      The respondent
              (3)    Commissioner                            (4)      DRP
              (5)    Departmental Representative
              (6)    Guard File
                                                                                        By order etc

                                                                              Assistant Registrar
                                                                   Income Tax Appellate Tribunal
                                                                        Delhi benches, New Delhi

 
 
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