Employer deducting Tax on a bonafide estimate cannot be held assessee in default u/s 201(1) as TDS is a tentative deduction subject to regular assessment in the hands of the payee/recipient.
ABCAUS Case Law Citation:
ABCAUS 2942 (2019) (05) ITAT
Important Case Laws Cited/relied upon by the parties
Mafatlal Industries Vs Union of India (1997) 5 SCC 536
Ram Kanwar Rana
Karnataka Power Transmission Corporation Limited (2019) 102 taxmann.com 245
Indian Institute of Science vs. DCIT
ACIT Vs. lnfosys BPO Ltd. 150 ITD 132/53 CCH 602 (Bang)
The assessee was a University established under an Act passed by the State Legislature. The Assessing Officer during the course of enquiry noticed that the assessee was discharging the TDS liability on the payments made to employee on the Death cum Retirement Gratuity (DCRG), Commutation of Pension and leave salary after allowing exemption provided u/s. 10(10)(iii), 10(10A)(ii) and 10(10AA)(ii) of the Act.
The Assessing Officer rejected the arguments of the assessee that the assessee was covered under the definition of “State”. According to him, section 192(2A) of the Income Tax Act, for TDS purposes, has clearly mentioned an employee of the University separately from a Government servant. This according to the Revenue clearly emphasised the legislative intention to treat the University as a separate entity than State or local authorities.
The Assessing Officer observed that the Income Tax Act clearly distinguishes a University from State Government or Central Government as is evident from section 10(10C) of the Income tax Act.
Therefore, the Assessing Officer was of the view that TDS was to be made on taxable portion of the payment of DCRG, Commutation of pension & leave salary.
Accordingly, the Assessing Officer passed the order u/s 201(1) and 201(1A) of the Act treating the assessee as “assessee in default” and raising the demand.
On appeal, the CIT(A) held that the assessee is to be treated as “State” for the purpose of application of TDS provisions.
The Tribunal observed that number of decision provided that the assessee was covered under the expression ‘State’. The Tribunal opined that the employees of the assessee were found to be holding civil posts under the State Government, therefore, the provisions of section 10(10)(i), 10(10A) and 10(10AA) of the Act are fully attracted. Once the assessee falls under the above provisions of the Act, the same could not be subject to TDS.
Accordingly, the Tribunal confirmed the order of the CIT(A) and dismissed the appeals of the Revenue.
The assessee had also filed corss objections and submitted that the provisions of section 201(1) and 201(1A) of the Act were not attracted in the present case because non-deduction of tax at source by the university was based on a bonafide estimate of the tax liability of its employees.
It was stated that the obligation of the employer u/s 192 is only to deduct tax on the estimated income of the Assessee under the head salaries for that financial year. If the estimate is made bonafide and tax is deducted on such bonafide estimate then there can be no proceedings u/s 201(1) and 201(1A), treating the person responsible for deducting tax at the time of payment as assessee in default.
It was contended that Section 192 of the Act uses the word” estimate” and therefore the statutory intention is that it should be an approximation.
It was further submitted that the primary liability of the payee to pay tax remains and Section 191 confirms this. It was submitted that in a situation of honest difference of opinion, it is not the deductor that is to be proceeded against but the payees of the sums. Hence, it was submitted that no tax can be recovered from the employer on account of short deduction of tax at source under section 192 if a bonafide estimate of salary taxable in the hands of the employee is made by the employer and the tax assessment of the employee has become invalid.
The assessee placed reliance on a number of judgments of the Tribunal wherein the appellate authorities had taken a view that if tax is deducted based on a bonafide estimate or if there is no observation that the estimate is not honest or fair, the deductor cannot be held to be assessee in default u/s. 201(1). It was also held that deduction of tax at source by an employer is always a tentative deduction of income-tax subject to regular assessment in the hands of the payee/recipient.
The Tribunal observed that various case laws cited by the assessee supported the contentions of the assessee. In the said decisions, it was held that if tax is deducted based on a bonafide estimate or if there is no observation that the estimate is not honest or fair, the deductor cannot be held to be assessee in default u/s. 201(1).
The Tribunal opined that deduction of tax at source by an employer is always a tentative deduction of income-tax subject to regular assessment in the hands of the payee/recipient.
Accordingly, it allowed the Cross Objections filed by the assessee.
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