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Interest u/s.201(1A) is leviable even if the deductee had filed NIL return of income and had no tax liability

In case of Aayush NRI LEPL Health Care Pvt. Ltd. vs. Asst. Commissioner of Income Tax, ITAT held that interest u/s.201(1A) is leviable even if the deductee had filed NIL return of income and had no tax liability.
Aayush NRI LEPL Health Care Pvt. Ltd.
Asst. Commissioner of Income Tax
18th October 2017
  • The assessee had made payments without deducting tax u/s. 194J for A.Y. 2013-14 and A.Y. 2014-15. The AO treated the assessee as an assessee in default u/s. 201(1) and levied interest u/s. 201(1A). The CIT(A) noted that the deductee had filed return of income offering receipts from the assessee and thus held that assessee was not an assessee in default. However, the CIT(A) held that the assessee is liable for interest u/s. 201(1A) from the date on which such tax was deductible to the date of furnishing of return of income by the deductee.
  • Before ITAT, the assessee contended that the deductee had filed NIL return of income even after considering the amounts paid by the assessee. Further, since there was advance tax liability in the deductee’s case and since the interest u/s. 201(1A) is compensatory in nature, there was no loss to the revenue and therefore, interest u/s. 201(1A) should not be levied.
  • ITAT observed that proviso to Section 201(1A) which was inserted w.e.f. July 1, 2012, makes it very clear that even though the assessee is not deemed  to be an assessee in default under the first proviso to Section 201(1), the interest u/s. 201(1A) shall be payable from the date on which such tax is deductible to the date of furnishing of return of income by such a resident. ITAT held that the tax liability in the hands of the deductee has no relation or connection for charging the interest u/s. 201(1A).
  • ITAT held that the charging of interest from the date of the tax required to be deducted till the date of furnishing of return of income by the deductee was automatic and mandatory. ITAT noted that the interest paid u/s. 201(1A) was not compensatory but penal in nature.
Accordingly, ITAT upheld CIT(A)’s order regarding levy of interest.

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