The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT), rued that Section 201 Income Tax Act, 1961 is not to punish or prosecute assessee for his lapses for TDS responsibilities, thereby granting relief to ICICI Securities Ltd.
The assessee, ICICI Securities Limited sold 15,39,100 shares of Ranbaxy, held by the ICICI Bank on behalf of BNY, and sent the remittances aggregating to Rs 94 crores to Bank of New York (BNY).
The Assessing Office then proceeded to compute the tax liability on the non-deduction of tax at source, @43.26%, on the payments plus grossing up amount under section 195A, which aggregated to Rs 135 crores and computed the tax withholding liability of 58 crores.
The Assessing Officer has even observed that as the payment is made on ITNS 280, which is appliable for taxes on income- unlike ITNS 281 which relates to the taxes deducted or collected at source, it is a payment of advance tax.
The CIT(A) has not disputed this position either but added that section 201 of the Income Tax Act does not exempt TDS to be made on the payment made to non-residents, even if non-residents paid advance tax and filed the return of income taking into consideration the profit/income earned on transaction
What essentially follows is so far as the provisions of Section 201 of the Income Tax Act are concerned, “the tax-deductor has to make good the shortfall in a tax deduction, and the tax-deductor also has to compensate the revenue by way of interest for the period of late realization of this tax to the revenue authorities.
The Bench comprising Pramod Kumar (Vice President) and Amit Shukla (Judicial Member) observed that “Provisions of Section 201 of the Income Tax Act are not to punish or prosecute an assessee for his lapses in respect to tax deduction at source responsibilities; there is a separate set of provisions for that purpose, e.g. under section 271C and 276B, and the provisions of section 201 of the Income Tax Act are merely compensatory in nature.”
“In this light, when we see the facts of this case, neither is there a shortfall in the collection of revenue on account of a lapse in a tax deduction, nor is there any delay in the realization of taxes, and the admitted facts on record clearly evidence that. The time gap between the date of the transaction and the payment of advance tax by BNY Mellon is well within the permitted time for depositing the tax at source.”
“There is thus no occasion to invoke the provisions of vicarious liability under section 201 of the Income Tax Act on the facts of this case. For this short reason alone, the impugned demands under section 201 r.w.s 195 deserves to be quashed” the Tribunal noted.
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