Section 201 of Income-Tax Act, 1961

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Section 201 of Income-Tax Act, 1961 deals with Consequences and failure to pay

Contents

From the Act

(1) If any such person and in the cases referred to in section 194, the principal officer and the company of which he is the principal officer does not deduct or after deducting fails to pay the tax as required by or under this Act, he or it shall, without prejudice to any other consequences which he or it may incur, be deemed to be an assessee in default in respect of the tax:

Provided that no penalty shall be charged under section 221 from such person, principal officer or company unless the [Assessing] Officer is satisfied that such person or principal officer or company, as the case may be, has [without good and sufficient reasons] failed to deduct and pay the 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 subsection does not deduct 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 at [fifteen] per cent per annum on the amount of such tax from the date on which such tax was deductible to the date on which such tax is actually paid.]

(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).]

Recent Cases / Related Cases / Case Laws

  • February 2012: Delhi: Proviso to section 201(1) is to be applied only to negate possibility of imposition of penalty under section 221 and it would not absolve an assessee from being considered as an assessee in default - [2012] 18 LNIN 21
  • May 2011: Cal.: In a case where section 201(1) is attracted there is no need of giving any notice under section 156 and if any such notice is given the same should be held to be redundant - [2011] 11-103
  • Mittal Steel Ltd. v. Asstt. CIT [1999] 240 ITR 707 (Kar.): Provision is constitutionally valid - Section 201 is a penal provision to treat a person as an assessee-in-default if there is a failure to deduct the tax or to pay the tax after it is deducted. Sufficient safeguards have been provided in the section itself, and as such it cannot be considered that the provisions are ultra vires the Constitution.
  • Provision enacts a three-fold punishment - Section 201 enacts a three-fold punishment for a person, including a company, bound to deduct tax at source and defaulting to do so deduct tax or, after having deducted, defaulting in making payment thereof to the credit of the Central Government. Firstly, the defaulter is treated as an assessee-in-default and is liable to pay a penalty under section 221. Secondly, he is liable to pay interest on the amount of such tax from the date on which such tax is deductible to the date when such tax is actually paid. The third consequence is that it creates a statutory charge upon all assets of the defaulter for the amount of tax deducted and not paid, plus the amount of interest leviable under section 201(1A) - Martin & Harris (P.) Ltd. v. CIT [1994] 73 Taxman 555 (Cal.).
  • Law as on date of default will apply - Under section 201(1) liability arises immediately upon each default and can be comput­ed with reference to the law as it then stood - Bennet Coleman & Co. Ltd. v. V.P. Damle, Third ITO [1986] 157 ITR 812 (Bom.).
  • Payment of interest is mandatory and cannot be waived - Section 201(1A) makes the payment of simple interest mandatory. The pay­ment of interest under that provision is not a penal provision. There is therefore no question of waiver of such interest on the basis that the default was not intentional or on any other basis - Bennet Coleman & Co. Ltd. v. V.P. Damle, Third ITO (supra). [See also CIT v. Dhana­lakshmy Weaving Works [2000] 245 ITR 13 (Ker.)/CIT v. K.K. Engg. Co. [2001] 116 Taxman 390 (Ker.)/CIT v. Assam Small Industries Development Corporation Ltd. [1996] 219 ITR 324/88 Taxman 1 (Gauhati)/CIT v. Prem Nath Motors (P.) Ltd. [2002] 120 Taxman 584 (Delhi).
  • Where payee has paid tax due as advance tax interest is not leviable on payer - Where the assessee-society failed to deduct tax at source on an interest payment made to a building contractor, but the said contractor had already paid tax on the related income by way of advance tax and his assessment had also become final, no interest could be levied under section 201(1A) on the assessee. The liability of the assessee to deduct tax at source and pay the tax to the Revenue is not independent of the liability of the contractor to pay the tax - CIT v. Rishikesh Apartments Co-op. Housing Society Ltd. [2002] 253 ITR 310 (Guj.).
  • Reason or excuse must be fair, and not absurd, irrational or ridiculous - Reasonable cause or excuse is that which is fair, not absurd, not irrational and not ridiculous. A cause which is reasonable within the meaning of sections 276B and 278AA may not be sufficient and good reason within the meaning of sections 201 and 221 as sufficient reason would mean a substantial reason or a reason of good standard, and good reason would mean a reason which is adequate, reliable and sound. A cause may be reasonable but the same may not necessarily be good and sufficient - Banwar­ilal Satyanarain v. State of Bihar [1989] 179 ITR 387 (Pat.).
  • Employer cannot be treated as defaulter for any shortfall in de­duction - There is nothing in section 201 to treat the employer as the defaulter where there is a shortfall in the deduction of tax at source. The expression ‘as required by or under the Act’ grammatically refers only to the duty to pay the tax that is deducted and cannot refer to the duty to deduct the tax. Since this is a penal section, it has to be strictly construed and it cannot be assumed that there is a duty to deduct the tax strictly in accordance with the computation under the Act, and if there is any shortfall due to any difference of opinion as to the taxabil­ity of any item, the employer can be declared to be an assessee-in-default - P.V. Rajagopal v. Union of India [1998] 233 ITR 678 (AP).
  • If employer’s estimate is honest, he cannot be penalised for short deduction - In the absence of a finding that the estimate of the employees’ income by the employer was not fair or honesty, the ITO could not proceed under section 201 - Gwalior Rayon Silk Co. Ltd. v. CIT [1983] 140 ITR 832 (MP).
  • Date of issue of dividend warrants is relevant - Interest under section 201(1A) for belated remittance of tax deducted at source on dividend must be calculated with reference to date of issue of dividend warrants, and not with reference to date of declaration of dividend - CIT v. Hindustan General Industries Ltd. [2001] 247 ITR 51 (Delhi).

Other related Sections from the Act

  • Section 202: Deduction only one mode of recovery
  • Section 203: Certificate for tax deducted
  • Section 204: Meaning of "person responsible for paying"
  • Section 205: Bar against direct demand on assessee

Sections of the Indian Income Tax Act, 1961


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