May 2023

Interest under section 201(1A) TDS Interest for delay in remitting tax deducted at source No liability for interest if tax is not deductible at source.

K. B. Bhujle, Advocate

9 Special Tahsildar, Land Acquisition (General) vs. GOI[2023] 451 ITR 484 (Ker)
Date of order: 15th September, 2022
Section 201(1A) of ITA 1961

Interest under section 201(1A) TDS Interest for delay in remitting tax deducted at source No liability for interest if tax is not deductible at source.

Special Tahsildar, Land Acquisition (General) paid compensation to persons from whom the land was acquired for establishing the Government Medical College and deducted tax at source from the compensation paid. The tax deducted in the month of January 2014 was paid to the credit of the Government only in the month of June 2014 and the reason for the delay was explained to be the fact that Tahsildar was deputed for election duty during the period January 2014 to May 2014 in connection with the General Elections. However, the AO levied interest under section 201(1A) of the Income-tax Act, 1961.

The Tahsildar filed a writ petition and challenged the demand for interest.

It was then contended on behalf of the Tahsildar that the liability to deduct tax and pay it to the Department is only in respect of sums for which the tax is required to be deducted at source. Since the lands which were the subject matter of acquisition were agricultural lands, which fell outside the definition of capital asset under section 2(14) of the Act, there was no question of deducting tax at source in respect of compensation paid to the land owners and therefore levy of interest under section 201(1A) was unwarranted.

The Department contended that levy of interest under section 201(1A) was statutory and the moment there was delay in payment of tax deducted, interest had to be levied.

The Kerala High Court allowed the writ petition and held as under:

i)    It is clear from a reading of section 201 of the Income-tax Act, 1961, that the liability to deduct tax arises only when it is required to be deducted under the provisions of the Act. In other words, where there is no liability to deduct tax at source, the mere fact that tax was deducted at source and paid to the Income-tax Department belatedly, cannot give rise to a claim for interest u/s. 201(1A) of the Act. Interest u/s. 201(1A) of the Act is obviously to compensate the Government for the delay in payment of taxes, which are rightfully due to the Government.

ii)    Since the Department itself had refunded the amount of tax deducted at source, it could not be said at this point of time that the land in question was not agricultural land falling outside the definition of capital asset u/s. 2(14).

iii)    The delay in remitting the amounts deducted as tax at source arose only on account of the fact that the Officer in question was deputed for election duty for the period from January 2014 to May 2014 in connection with the Lok Sabha Elections of 2014. Cum

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