Orders Analysis under section 201
by
Dr B Ramaswamy
Senior Standing Counsel Income Tax
Ministry of FINANCE, Government of India
(Additonal Government Pleader) (Puducherry Madras High Court )
SECTION 201 ANALYSIS
SECTION 201:
Section 201 of the Income Tax Act deals with the consequences of failing to deduct or pay tax. If a person, including a company's principal officer, fails to deduct or pay the required tax, they are deemed an assessee in default. However, exceptions exist if the payee has fulfilled certain conditions. No penalty is charged unless the Assessing Officer finds the failure unjustified.
The defaulter is also liable for simple interest on the unpaid tax amount. The interest is calculated from the date when the tax should have been deducted to the date of deduction, and then from the date of deduction to the actual payment date. The unpaid tax and interest become a charge on all assets of the defaulter. To prevent indefinite default status, there are time limitations. Orders deeming a person in default cannot be made after seven years from the payment or credit date. The section provides a structured framework for enforcing tax obligations, incorporating exceptions, interest calculations, and asset charges.
SCOPE OF SECTION 201:
1. Tax Deduction Obligation:
- Applies to individuals, including the principal officer of a company, obligated to deduct tax under the Income Tax Act.
2. Payment of Tax:
- Encompasses cases where the person fails to pay the deducted tax amount as required by the Act.
3. Applicability to Employers:
- Covers employers mentioned in sub-section 1A of section 192, ensuring compliance with tax deduction requirements.
4. Deemed Assessee in Default:
- Deems a person in default if there is a failure to deduct or pay tax, providing a legal basis for action by the income tax department.
5. Interest Liability:
- Imposes a liability to pay simple interest if there is a failure to deduct or pay tax, serving as a deterrent for timely compliance.
6. Charge on Assets:
- Declares that the amount of tax and interest becomes a charge upon all assets of the defaulting person or company, facilitating recovery.
7. Time Limitations:
- Sets time limitations on deeming a person as an assessee in default, preventing indefinite delays in taking action.
8. Penalty Provision:
- Includes provisions to waive penalties if the Assessing Officer is satisfied that the failure was due to good and sufficient reasons.
9. Interest Payment under Order:
- Specifies that if an order is made by the Assessing Officer for default, the interest is to be paid by the person according to such order.
**Scope of Section 201:**
Section 201 of the Income Tax Act addresses the consequences of failing to deduct or pay tax. It applies to individuals, including the principal officer of a company, who are obligated to deduct sums under the Act. If such individuals fail to deduct or pay the tax, they are deemed to be in default, subject to certain provisions.
The scope extends to cases where tax deduction is required under the Act, covering both the deductor's obligation to deduct tax and the subsequent payment of the deducted amount. The section encompasses provisions related to employers (mentioned in sub-section 1A of section 192) and ensures compliance with tax deduction requirements.
201.Consequences of failure to deduct or pay.
(1) Where any person, including the principal officer of a company,—
(a) who is required to deduct any sum in accordance with the provisions of this Act; or
(b) referred to in sub-section (1A) of section 192, being an employer,
does not deduct, or does not pay, or after so deducting fails to pay, the whole or any part of the tax, as required by or under this Act, then, such person, shall, without prejudice to any other consequences which he may incur, be deemed to be an assessee in default in respect of such tax:
Provided that any person, including the principal officer of a company, who fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid to a payee or on the sum credited to the account of a payee shall not be deemed to be an assessee in default in respect of such tax if such payee—
(i) has furnished his return of income under section 139;
(ii) has taken into account such sum for computing income in such return of income; and
(iii) has paid the tax due on the income declared by him in such return of income,
and the person furnishes a certificate to this effect from an accountant in such form as may be prescribed:
Provided further that no penalty shall be charged under section 221 from such person, unless the Assessing Officer is satisfied that such person, without good and sufficient reasons, has failed to deduct and pay such tax.
(1A) Without prejudice to the provisions of sub-section (1), if any such person, principal officer or company as is referred to in that sub-section does not deduct the whole or any part of the tax or after deducting fails to pay the tax as required by or under this Act, he or it shall be liable to pay simple interest,—
(i) at one per cent for every month or part of a month on the amount of such tax from the date on which such tax was deductible to the date on which such tax is deducted; and
(ii) at one and one-half per cent for every month or part of a month on the amount of such tax from the date on which such tax was deducted to the date on which such tax is actually paid,
and such interest shall be paid before furnishing the statement in accordance with the provisions of sub-section (3) of section 200:
Provided that in case any person, including the principal officer of a company fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid to a payee or on the sum credited to the account of a payee but is not deemed to be an assessee in default under the first proviso to sub-section (1), the interest under clause (i) shall be payable from the date on which such tax was deductible to the date of furnishing of return of income by such payee:
Provided further that where an order is made by the Assessing Officer for the default under sub-section (1), the interest shall be paid by the person in accordance with such order.]
(2) Where the tax has not been paid as aforesaid after it is deducted, the amount of the tax together with the amount of simple interest thereon referred to in sub-section (1A) shall be a charge upon all the assets of the person, or the company, as the case may be, referred to in sub-section (1).
(3) No order shall be made under sub-section (1) deeming a person to be an assessee in default for failure to deduct the whole or any part of the tax from a person resident in India, at any time after the expiry of seven years from the end of the financial year in which payment is made or credit is given or two years from the end of the financial year in which the correction statement is delivered under the proviso to sub-section (3) of section 200, whichever is later.
(4) The provisions of sub-clause (ii) of sub-section (3) of section 153 and of Explanation 1 to section 153 shall, so far as may, apply to the time limit prescribed in sub-section (3).
Explanation.—For the purposes of this section, the expression "accountant" shall have the meaning assigned to it in the Explanation to sub-section (2) of section 288.
ASPECTS FAVORING THE INCOME TAX DEPARTMENT:
1. Deemed Assessee in Default:The section deems a person failing to deduct or pay tax as an assessee in default, providing a legal basis for the income tax department to take action against the defaulter.
2. Interest Liability: In case of failure to deduct or pay tax, the defaulting person, principal officer, or company is liable to pay simple interest. This provision acts as a deterrent and ensures timely compliance with tax obligations.
3. Charge on Assets: Unpaid tax and interest become a charge upon all assets of the person or company in default. This empowers the income tax department to recover the outstanding amount from the defaulter's assets.
4. Time Limitations:The section imposes time limitations on deeming a person as an assessee in default, preventing indefinite delays. It sets a maximum period after which such orders cannot be made, ensuring timely actions by the income tax authorities.
5. Penalty Provision:The section includes provisions to waive penalties if the Assessing Officer is satisfied that the failure to deduct and pay tax was due to good and sufficient reasons. This discretion allows for fair consideration of circumstances.
6. Interest Payment under Order: If an order is made by the Assessing Officer for default under sub-section (1), the interest is to be paid by the person in accordance with such order. This provision reinforces the authority of the Assessing Officer.
MADRAS HC ORDER:
1. W.P.Nos.18271, 18275, 18276, 18277 and 18279 of 2023
M/s.Thiruvannamalai District Central Vs. Income Tax Officer
The petitioner challenges Assessment Orders dated 27.03.2023 under Section 201 of the Income Tax Act, preceding Show Cause Notices dated 14.11.2022 for the Assessment Years 2016-2017 to 2020-2021. The petitioner, a Cooperative Bank, asserts that it provided details related to Form No.15G and Form No.15H in response to a summons after a survey on 24.08.2022. The petitioner claims no interest payment exceeding specified limits and argues against tax deduction for depositors with submitted forms. The Assessing Officer issued impugned orders due to the petitioner's non-cooperation, leading to these writ petitions.The petitioner cites factors, including government incentive distribution, for non-participation in hearings. The respondent contends the petitioner's non-cooperation led to the Assessment Orders and suggests an alternative remedy through an appeal under Section 151 of the IT Act.
The court acknowledges the petitioner's partial submission of details but notes the lack of a full response to Show Cause Notices. The impugned Assessment Orders are set aside, and the cases are remitted to the respondent for a fresh order within three months. The petitioner is directed to cooperate, file a reply to Show Cause Notices within thirty days, and no further adjournments are allowed. The impugned orders are treated as corrigendum to the Show Cause Notices. The writ petitions are disposed of with no costs.
2. Writ Petition Nos.15324, 15327, 15328, 15329, 15330 and 15335 of 2023
M/s.Thiruvannamalai Co-op Urban Bank Ltd -Vs- Income Tax Officer, TDS.
The writ petitions seek a Writ of Certiorari to quash orders passed under Section 201 of the Income Tax Act, 1961, claiming them to be illegal and not in accordance with the law. The petitioner, a Cooperative Society, underwent a survey by the Income Tax Department, following which it was questioned about the non-deduction of TDS under Section 194A for interest payments exceeding Rs.10,000. The petitioner asserts that, despite submitting required details on 16.03.2023, the impugned orders were passed without due consideration. The court, after reviewing the orders, notes the petitioner's admission of incomplete details but observes that relevant information was furnished. The court sets aside the impugned orders, directing the Department to conduct a fresh inquiry, considering the details provided by the petitioner on 16.03.2023. The Department is instructed to seek additional information if necessary, and the process should be completed within six weeks. The petitioner is urged to cooperate fully. The writ petitions are disposed of with no costs, and connected miscellaneous petitions are closed.
The income tax department is facing challenges related to non-cooperation from taxpayers and incomplete submission of required details during assessment proceedings. In both cases presented, the petitioners, a Cooperative Bank and a Cooperative Society, contested the Assessment Orders under Section 201 of the Income Tax Act, 1961, alleging that the orders were illegal and not in accordance with the law.
CHALLENGES FACED BY THE REVENUE:
1. Non-Cooperation: The first case (W.P.Nos.18271, 18275, 18276, 18277 and 18279 of 2023) involves a Cooperative Bank that claimed non-participation in hearings due to various factors, including the distribution of government incentives. The petitioner's non-cooperation led to the issuance of Assessment Orders.
2. Incomplete Submission of Details: The second case (W.P.Nos.15324, 15327, 15328, 15329, 15330 and 15335 of 2023) highlights a Cooperative Society that admitted to incomplete details but argued that the impugned orders were passed without due consideration.
SOLUTION TO PROBLEMS:
1. Enhanced Communication and Cooperation:The income tax department could improve communication with taxpayers to ensure better understanding and cooperation during assessment proceedings. Clear communication about the importance of providing complete details and attending hearings may mitigate instances of non-cooperation.
2. Educational Initiatives: Conducting educational initiatives to inform taxpayers, especially cooperative entities, about the importance of timely and accurate submission of required details could help prevent disputes. Providing guidance on the consequences of non-compliance may encourage voluntary compliance.
3. Streamlined Processes: The income tax department could streamline its processes for collecting necessary information, making it more accessible and understandable for taxpayers. Simplifying compliance procedures might reduce the likelihood of incomplete submissions.
4. Flexible Hearing Schedules: Recognizing the practical challenges faced by taxpayers, such as the distribution of government incentives, the income tax department could consider more flexible hearing schedules or alternative modes of interaction to accommodate genuine difficulties faced by taxpayers.
5. Prompt Resolution: Ensuring prompt resolution of cases by the income tax department, as seen in the court's directive for a fresh inquiry within a specified period, could contribute to quicker dispute resolution and reduce the burden on both taxpayers and the department.
CONCLUSION:
In conclusion, the Madras High Court's scrutiny of cases involving Section 201 of the Income Tax Act reveals challenges faced by the income tax department, particularly in instances of non-cooperation from taxpayers and incomplete submission of required details during assessment proceedings. The court's acknowledgment of partial submissions and admissions of incomplete details by the petitioners underscores the need for effective communication and streamlined processes.
To address these challenges, it is imperative for the income tax department to prioritize enhanced communication strategies, fostering a better understanding between tax authorities and taxpayers. Educational initiatives and clear guidance on compliance procedures can contribute to greater awareness, encouraging voluntary adherence to tax obligations. Moreover, the court's emphasis on prompt resolution and time-bound actions underscores the importance of expeditious handling of tax-related matters. This not only ensures a fair and timely resolution but also reduces the burden on both taxpayers and the income tax department.
The directive for a fresh inquiry, coupled with a reminder to taxpayers to fully cooperate, serves as a practical solution. Flexibility in hearing schedules and alternative modes of interaction, especially considering practical challenges faced by taxpayers, could further contribute to a more collaborative and efficient tax assessment process. In essence, a balanced approach that combines effective communication, education, streamlined processes, and prompt resolution can help address the challenges faced by the income tax department, fostering a more compliant and cooperative taxpayer ecosystem. As tax regulations continue to evolve, adapting strategies that enhance transparency and ease of compliance becomes increasingly vital for the effective functioning of the tax administration system.
Comment: