Interest Not Leviable For Belatedly Deducting TDS If There Is No Liability: Kerala High Court

The Kerala High Court has held that where there is no liability to deduct TDS, the mere fact that TDS was so deducted and paid to the Income Tax Department belatedly, cannot give rise to a claim for interest under Section 201(1A) of the Income Tax Act.

The single bench of Justice Gopinath P. has observed that the delay in remitting the amounts deducted as TDS arose only on account of the fact that the officer in question was deputed for election duty for the period from January 2014 to May 2014 in connection with the Lok Sabha Election of 2014.

The Special Tahsildar Land Acquisition (General), Malappuram, has filed the petition assailing the demand for payment of interest under Section 201(1A) of the Income Tax Act. The interest was demanded on account of the delayed remittance of TDS deducted from compensation paid to persons from whom land was acquired for the purposes of establishing the Government Medical College at Manjeri.

The amounts were deducted in the month of January 2014, and the amounts were to be paid over to the Income Tax Department on or before 07.02.2014. The payments were made only on June 30, 2014.

The petitioner contended that the officer then holding the charge of Special Tahsildar Land Acquisition (General), Malappuram, was deputed for election duty during the period from January 2014 to May 2014 in connection with the general elections to the Lok Sabha, 2014.

The petitioner contended that Section 201 clearly indicates that the liability to deduct tax and to pay it to the Income Tax Department is only in respect of sums for which the provisions of the Act require a tax to be deducted at source. The lands, which were the subject matter of acquisition, were agricultural lands excluded from the definition of capital assets under Section 2(14) of the Income Tax Act. Since the lands fell outside the definition of a capital asset, there was no question of deducting any TDS in respect of compensation paid to the land owners. In respect of the landowners in question, the Income Tax Department itself had effected a refund of the amounts paid as TDS.

The department contended that the levy of interest is statutory, and it is clear from a reading of sub-section (1A) of Section 201 that the moment there is delay in payment of tax deducted, interest has to be levied.

The court held that the liability to deduct tax arises only when it is required to be deducted under the provisions of the Income Tax Act.

"Interest under sub-section (1A) of Section 201 is obviously to compensate the government/Income Tax Department for the delay in payment of taxes, which are rightfully due to the government," the court stated.

The court held that the levy of interest under sub-section (1A) of Section 201 was wholly unwarranted. The Department was under no obligation to pay interest from a date prior to the date on which it actually received the amounts of TDS.

Case Title: Special Tahsildar Versus Union Of India

Citation: WP(C) No. 20430 Of 2021

Citation: 2022 LiveLaw(Ker) 601

Date: 15.09.2022

Counsel For Petitioner: Senior Government Pleader Thushara James

Counsel For Respondent: Standing Counsel Christopher Abraham

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