In Aayush NRI LEPL Health Care Pvt. Ltd v. ACIT, the ITAT Vishkhapatanam held that imposing interest under section 201(1A) of the Income Tax Act for default in deducting tax at source and not remitting the same to the Government is mandatory in nature.
Assessing Officer, in the present case, noted that the assessee has not deducted TDS under section 194J of the Income Tax Act for the payments made by it. consequently, he levied interest u/s 201 & 201(1A) of the Act for the failure to deduct the tax at source and non-remittance to Govt. account.
Assessee approached the appellate authorities contending that the levy of interest under section 201(1A) is not mandatory in nature.
On appeal, the first appellate authority relied on the decision of the Kolkata High Court in the case of Kanoi Properties Pvt. Ltd. Vs. CIT and dismissed the appeal.
Overruling the assessee’s contentions, the bench pointed out that a plain reading of the proviso to section 201(1A) of the Act makes it very clear that even though the assessee is not deemed to be assessee in default under first proviso to sub section (1), the interest under clause (i) shall be payable from the date on which such tax is deductible to the date of furnishing of return of income by such a resident. “Therefore, the tax liability in the hands of the deductee has no relation or connection for charging the interest u/s 201(1A) of the Act. Mere non-deduction of tax at source and non-remittance to Government of India account attracts the interest u/s 201(1A) of the Act and that is the reason for which the provision has been inserted to charge interest from the date of the tax deductible to the date of furnishing of return of income by the resident.”
The bench noted that after insertion of section u/s 201(1A), the charging of interest from the date of the tax required to be deducted till the date of furnishing of return of income by the deductee is automatic and mandatory.
It further noticed the Madras High Court decision in the case of CIT Vs. Chennai Properties & Investments Ltd. (1999) in which it was observed that the interest paid u/s 201(1A) of the Act is not compensatory but penal in nature.
Read the full text of the Order below.
