By C. N. Vaze, Shailesh Kamdar, Jagdish T. Punjabi, Bhadresh Doshi Chartered Accountants
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S/s. 194I, 197, 201, 201(1A)–When certificate u/s. 197 has been issued and is valid till 31st March of the financial year, demand u/s. 201/201(1A) cannot be sustained for deduction of tax at a lower rate during the period before the issue of certificate.
Facts:
The assessee had on 01-04-2002 made a payment of advance rent to NESCO Ltd. after deduction of TDS @ 2% instead of 20% as provided u/s. 194I. NESCO Ltd. had on 1.4.2002 applied for issuance of certificate u/s 197 authorising the assessee to deduct TDS @ 2%. The certificate u/s. 197 authorising the payee to deduct TDS @ 2% u/s. 194I was granted on 23-04- 2002. This certificate was valid upto 31-03-2003. The tax so deducted by the assessee was deposited by the assessee to the Government Account on 06-05-2002.
The Assessing Officer levied tax u/s. 201(1) on the assessee for deducting tax u/s. 194I @ 2% instead of 20% on the ground that at the time of deduction of tax (i.e. at the time of payment of advance rent) the assessee did not have certificate u/s. 197. He also levied interest u/s. 201(1A).
Aggrieved, the assessee preferred an appeal to the CIT(A) who allowed the assessee’s appeal and quashed the demand raised by the AO.
Aggrieved, the revenue preferred an appeal to the Tribunal.
Held:
The Tribunal noted that the application for certificate u/s. 197 was made before the payment was made by the assessee. It also noted that the certificate was to remain in force till 31-03-2003 unless cancelled earlier. The Tribunal agreed with the finding of CIT(A) that such a breach, if at all, was only a venial breach or default. It held that such default could have been ascribed to the assessee only if no tax had been deducted in accordance with the provisions of section 201(1). Assessee can be deemed to be an assessee in default only in the case of non-payment of tax within the prescribed time. In the present case, tax having been deducted @ 2% and having been deposited before the prescribed date, by no stretch of imagination can the assessee be deemed to be an assessee in default. The Tribunal decided the issue in favour of the assessee.
The appeal filed by the revenue was dismissed.
