No need for TDS remittance until earners identity is clear
- Publication:Economic Times Delhi; Date:Nov 30, 2006;
Section:Economy; Page Number:27
No need for TDS remittance until earner's identity is clear
M Padmakshan MUMBAI
YOU have no liability to pay TDS until you know the identity of
the person who receives the income. This is the upshot of a Mumbai
Income-tax Appellate Tribunal (ITAT) ruling.
The ITAT, the second appellate body on tax matters, passed this
order on an appeal filed by the Industrial Development Bank of India
(IDBI), which faced interest and penalty of over Rs 4 crore on
charges of defaulting on TDS remittance. IDBI did not remit TDS on
interest payable to its regular return bondholders, even though it
had claimed deduction on account of the same. The department did not
accept IDBI's reason for not remitting TDS.
IDBI took the stand that there was no way of knowing before
March 31, the last date for making advance tax payment, the identity
of the bondholders who were to be paid interest. The identity of the
bondholders could not be known earlier, because IDBI, for the
purpose of paying interest, takes into account only bondholders who
are registered with IDBI on May 15 of each year.
The ITAT held that IDBI has no liability to deduct tax at source
in relation to interest payable to its bondholders since it did not
know who were the bondholders until March 31, the last date for
paying advance tax each year.
In the relevant accounting year, IDBI made a provision of Rs
55.31 crore for interests accrued and claimed deduction in
computation of business income. Though deduction was claimed on
account of interest payable to the bondholders, IDBI did not remit
the tax payable from such interest payments.
Section 193 of the Income-tax Act and the explanation read with
it stipulate that TDS is payable as and when payment is made or
credited. Thus, the income-tax assessing officer held that IDBI was
required to deduct the tax at source from the credit to interest
payable account; since this was not done, interest and penalty was
levied on the bank. The concerned officer made an order levying tax
and penalty for three years aggregating to Rs 4.37 crore. The
assessment years in this case are 1994-95, 1995-96 and 1996-97.
IDBI counsel Dinesh Vyas argued that liability to tax deduction
at source is a vicarious liability and presupposes existence of a
principal liability in the hands of a person who is to receive the
income. He argued that while IDBI's liability to pay interest is
certain and provision has to be made as on March 31 upon the end of
the accounting year, the bond being freely transferable, it cannot
be ascertained as to who will be the registered bondholder as on May
15 every year. In this situation, IDBI will not know by the end of
the fiscal year that who will be entitled to receive the interest.
IDBI faced an interest and penalty of over Rs 4 crore on charges of
defaulting on TDS remittance
The bank had claimed deductions for TDS for interest payable on
bondholders whose payments were due on May 15