September 2019

INTEREST U/S 201(1A) WHERE PAYEE IS INCURRING LOSSES

Pradip Kapasi|Gautam Nayak|Bhadresh Doshi
Chartered Accountants

ISSUE FOR CONSIDERATION

Section 201(1) of the Income-tax Act, 1961 provides that where any person, who is required to deduct any sum in accordance with the provisions of the Act, does not deduct, or does not pay, or after so deducting fails to pay the whole or any part of the tax as required under the Act, then he is deemed to be an assessee in default in respect of such tax. The proviso to this section, inserted with effect from 1st July, 2012, provides that such a person shall not be regarded as an assessee in default if the payee has furnished his return of income u/s 139, has taken into account the relevant sum (on which tax was deductible or was deducted) for computing his income in such return of income, and has paid the tax due on the income declared by him in such return of income and has furnished a certificate to this effect from an accountant in form 26A prescribed under rule 31ACB. An amendment by the Finance Act (No. 2) 2019, not relevant for our discussion, has been made to apply the proviso to the case of a payee, irrespective of his residential status.

 

Sub-section (1A) of section 201, without prejudice to section 201(1), provides for payment of interest at the prescribed rate for the prescribed period by the person who has been deemed to be in default; however, in case of a person who has been saved under the proviso as aforesaid with effect from 1st July, 2012 such interest shall be paid from the date on which such tax was deductible by him to the date of furnishing of the return of income by the payee.

 

A question has arisen before the High Courts as to whether any interest u/s 201(1A) is payable by the payer on failure to deduct tax at source, in a case where the payee has filed a return of income declaring a loss. While the Madras, Gujarat and Punjab and Haryana High Courts have taken the view that interest is payable even in such cases, the Allahabad High Court has taken a contrary view, that no interest is payable in such a case.

 

DECISION IN SAHARA INDIA COMMERCIAL CORPN. LTD. CASE

The issue came up before the Allahabad High Court in the cases of CIT (TDS) vs. Sahara India Commercial Corporation Ltd. (ITA Nos. 58, 60, 63, 68 and 69 of 2015 dated 18th January, 2017).

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