S. 195 — Interest payable for failure to deduct tax at source only on sum not paid and not on sum deductible

Mrs. Meena S. Patil v. ACIT (Intl. Taxation)

The assessee purchased immovable property in Bangalore,
paying a sum of Rs.25,00,000 on March 05, 2001 and the balance sale
consideration of Rs.75,00,000 at the time of registration of the sale deed,
i.e., October 23, 2001, but failed to deduct TDS on such payments made. The
seller paid an advance tax of Rs.4,25,126 and filed a return on July 18, 2002,
in which long-term capital gains of Rs.16,80,782 were disclosed in respect of
the property purchased by the assessee. The seller filed a revised return on
March 23, 2003, declaring an income of Rs.62,28,370 and also paid interest
u/s.234B and u/s.234C of the Income-tax Act, 1961. The total amount paid was
Rs.10,30,674. The assessee received an order S. 201(1A), by which liability of
interest of Rs.75,560 was imposed. The assessee filed an appeal and the
Commissioner (Appeals) by order dated March 31, 2004, cancelled the order
u/s.201(1A). The Assessing Officer passed a fresh order u/s.201(1A) on October
20, 2004, by which a demand of Rs.4,78,640 of interest up to October 31, 2004
was raised. The assessee filed an appeal against this order which was dismissed
by the Commissioner (Appeals).

On appeal to the ITAT, the Tribunal held the following on
various grounds of appeal :

As per the assessee, the AO was not competent to pass an
order u/s.201(1A) in October, 2004, especially when the earlier order was
cancelled by CIT(A) vide order in March, 2004.

While placing reliance on Ashok & Co. v. CIT, (1992)
195 ITR 786 (Karn.) and VLS Finance Ltd. v. CIT, (2007) 289 ITR 286
(Del.), it was held that CIT(A), by order dated 31st March 2004, cancelled the
order as according to him the principles of natural justice were not followed
and it was unnecessary to mention that the order may be remanded. Thus, the AO
was competent to pass a fresh order.

The applicability of S. 195 — Held that the agreement of sale
of the property clearly mentioned that the sellers were non-resident as the
address mentioned in the agreement showed that they were residing abroad. There
was no evidence to suggest that the assessee was in a belief that the sellers
were residents. Hence, the assessee was liable to deduct tax u/s.195.

Period for which interest u/s.201(1A) is to be levied and the
amount on which it has to be levied — Held that interest u/s.201(1A) can be
charged only up to the date of payment of tax by payee. Further, the total tax
payable by seller was Rs.12,74,629 of which Rs.4,25,126 was paid in advance, and
hence the tax payable was only 8,49,503. However, the total tax deductible at
the rates in force was 19,38,000.

Held that when the Revenue was not paying any interest to the
deductee on the amount so deductible by charging interest from the deductor,
then it was not justifiable to charge interest from the deductor. Interest was
chargeable on the amount of tax actually paid. The wording in S. 201(1A) is that
interest to be charged on such tax which was not paid. Accordingly interest
u/s.201(1A) was chargeable on the sum of Rs.8,49,503 from the date on which the
tax was deductible.