By TIOL News Service

NEW DELHI, AUG 04, 2017: THE ISSUE BEFORE THE COURT IS - Whether provision for levy of interest u/s 201(1) & (1A) upon short deduction / non deduction of tax, is penal in nature. NO is the verdict.

Facts of the case:

The Revenue preferred the present appeal challenging the order, whereby the ITAT had held that Sections 201(1) & (IA) of Income Tax Act, were penal in nature and that sufficient cause was a relevant consideration while holding the assessee as an assessee in default.

On appeal, the HC held that,

++ the counsel for Revenue has drawn the attention of this Court to the decision of the Supreme Court in Commissioner of Income Tax v. M/s Eli Lilly & Company (India) - 2009-TIOL-45-SC-IT in which it was held that interest u/s 201(1A) of Income Tax Act is a compensatory measure for withholding the tax which ought to have gone to the exchequer. It has further been observed that the object underlying Section 201(1) is to recover the tax. In the case of short deduction, the object is to recover the shortfall. It is seen that the impugned order of the ITAT which holds that Section 201 (1) and 201 (1A) are 'penal' in nature is plainly contrary to the above decision of the Supreme Court. Accordingly, this question is answered in negative.

(See 2017-TIOL-1481-HC-DEL-IT)