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I-T - When assessee has failed to deduct tax at source and even deductee has not paid tax on payment received as it filed loss return, assessee certainly cannot escape from consequences of Ss 201(1) & 40(a)(ia): HC

By TIOL News Service

ERNAKULAM, MARCH 21, 2018: THE issue is - Whether when the assessee has failed to deduct tax at source and even the deductee has not paid tax on the payment received as it filed loss return, the assessee cannot escape from the consequences of Ss 201(1) & 40(a)(ia). YES is the verdict.

Facts of the case

The Assessee, a charitable educational institution, paid lease rent to one Kerala State Co-operative Hospital Complex and Centre for Advanced Medical Services Ltd. However, according to the AO, the Assessee did not deduct TDS. Therefore, the AO disallowed the expenditure of rent paid by treating the Assessee as assessee in default u/s 201(1) and accordingly, made additions. On Assessee's appeal, both the FAA and the Tribunal upheld the decision of the AO.

After hearing the parties, the High Court held that,

++ as per the first proviso to Section 201(1), when a resident, who receives any sum from an assessee, has furnished his return of income under Section 139 and taken into account such sum for computing income, as also paid the tax due on the income declared by him in such return of income; then assessee would stand absolved from being treated as an assessee in default, despite the fact that the assessee had failed to deduct at source, the whole or any part of the tax in accordance with the provisions of Chapter-XVII-B. When an assessee has failed to deduct tax by virtue of the proviso to Section 201(1), he is not treated as an assessee in default, only when the person from whom tax was to be deducted has paid the tax. The cumulative effect of the second proviso to Section 40(a)(ia) and the first proviso to Section 201(1) would be that on payment of tax by the resident receiver, the assessee who failed to deduct tax under Chapter-XVII-B on any sum paid to the resident receiver, would not be considered as an assessee in default and the additions under Section 40(a)(ia) would also not have to be made in the case of that assessee;

++ however, to avail of the beneficial provisos under Sections 40(a)(ia) & 201(1), there should be (i) return of income under Section 139(ii), with computation of income including such amounts received, as also (ii) payment of tax on such income. Only if all the three conditions are satisfied, would the beneficial provision be applicable to an assessee who failed to deduct tax at source. In the present case, admittedly, resident-receiver to whom the assessee paid or credited the lease rent has filed a return belatedly and not paid any tax due on the income declared. When there is no tax paid on the income declared; even if for reason of a loss return, there cannot be any claim raised by the assessee in default to absolve him from the consequences flowing from Sections 201(1) and 40(a)(ia). He will then be treated as an 'assessee in default' and would be liable to pay the amount of TDS with interest as also subject to the expenses being disallowed.

(See 2018-TIOL-494-HC-KERALA-IT)


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