10 Section 201(1)/201(1A) r.w.s 191- Before treating the payer as an assessee in default u/s. 201(1), since the ITO(TDS) did not requisition information from the recipients of income to ascertain whether or not taxes have been paid by them, there is violation of mandate of explanation to section 191 and thus invocation of jurisdiction u/s. 201(1)/(1A) is void.

Aligarh Muslim University vs. ITO

(2017) 158 DTR (Agra) (Trib) 19

ITA No: 191/Agra/2016

A.Y.:2015-16 Date of Order: 15^th May, 2017

FACTS

The assessee/deductor university paid salary to its employees after deducting tax u/s. 192. The ITO (TDS) noticed that the assessee was allowing exemption u/s. 10(10AA)(i) on the payment of leave salary at the time of retirement/superannuation to its employees, considering them as employees of Central Government. The Assessing Officer treated the assessee as an assessee in default u/s. 201/201(1A) for short deduction of tax due to allowing the exemption u/s. 10(10AA)(i) beyond the maximum limit of Rs. 3 lakh.

On appeal to the CIT(A), the CIT(A) directed the ITO(TDS) to allow the assessee to adduce evidence that the deductees had themselves paid due tax on their leave salary and then, to recompute the amounts in respect of which the assessee would be an assessee in default u/s. 201(1).

The assessee preferred an appeal to the Tribunal and argued that in order to declare the assessee as assessee in default, the condition precedent is that the payee had failed to pay tax directly and it is only after the finding that the payee had failed to pay tax directly, that the assessee could be deemed to be an assessee in default in respect of such tax.

HELD

A bare perusal of the Explanation to section 191 itself makes it clear that it is only when the employer fails to deduct the tax and the employee has also failed to pay tax directly, that the employer can be deemed to be an assessee in default. In other words, in order to treat the employer as an assessee in default, it is a pre-requisite that it be ascertained that employee has also not paid the tax due.

The CIT (A) has stated that before him, no evidence was produced to show as to which of the employees of the University had paid due taxes in respect of leave salary income on which TDS was not made properly and that it was therefore, that he was unable to quantify the relief that can be allowed in respect of such employees.

The Tribunal held that it was not within the purview of the CIT(A) to fill in the lacuna of the ITO (TDS). In fact, it was for the ITO (TDS) to ascertain the position, as prescribed by the Explanation to section 191, that is, as to whether the deductee had failed to pay the due tax directly, and only thereafter to initiate proceedings to deem the assessee as an assessee in default u/s. 201(1) of the Act. As observed by the Allahabad High Court in the case of Jagran Prakashan Ltd vs. DCIT reported in 345 ITR 288, this is a foundational and jurisdictional matter and therefore, the Appellate Authorities cannot place themselves in the position of the ITO (TDS) to ratify a jurisdiction wrongly assumed.

The only prerequisite was that the details of the persons to whom payments were made, should be available on record. And once that is so, i.e., the assessee has submitted the requisite details to the ITO (TDS), it is for the ITO (TDS), to ascertain, prior to invoking section 201(1) of the Act, as to whether or not the due taxes have been paid by the recipient of the income.

The show cause notice issued to the University contains the names of 237 persons with full details of payments made to them by the University. Therefore, it is amply clear that at the time of issuance of notice dated 02.03.2015, u/s. 201/201(1A) to the University, the ITO (TDS) was in possession of the requisite details of the recipients of the income. As such, the legislative mandate of the Explanation to section 191 of the Act was violated by the ITO (TDS), by not requisitioning, before issuing the show cause notice to the University, information from the recipients of the income, as to whether or not the taxes had been paid by them, nor seeking such information from the concerned Income-tax Authorities.

As observed, this is a foundational jurisdictional defect going to the root of the matter. Violation of the mandate of the Explanation to section 191 is prejudicial to the invocation of the jurisdiction of the ITO (TDS) under sections 201/201(1A). In absence of such compliance, the invocation of the jurisdiction is null and void ab initio.

As a consequence, the order under appeal no longer survives and it is cancelled.