Tuesday 19 March 2013

Whether when commission earned by assessee is in nature of salary as per Sec 192, assessee is required to pay advance tax as per Sec 208 when employer fails to deduct tax at source - NO: ITAT

THE issues before the Bench are - Whether when the commission earned by the assessee is in the nature of salary as per the provisions of Sec 192, the assessee is required to pay advance tax as per Sec 208 when the employer fails to deduct tax at source and Whether interest u/s 234B is leviable for non-payment of advance tax on such salary income. NO is the Tribunal's answer.
Facts of the case
Assessee, an individual, derives income from salary, house property and other sources. It was carrying on the activity of diagnostic services through his proprietary concern Vijaya Diagnostic Services till the end of FY 2004-05. It had entered into an agreement with Vijaya Diognostic Centre Pvt. Ltd. As per which the business of the proprietary concern was taken over by the company. It had filed its ROI declaring total income of Rs.81,42,230/-. Subsequently a search operation was conducted, during which it was found that huge amounts were debited as ‘commission paid’ and at the end of the years some amount was shown as outstanding. When the AO sought clarification, it was explained that the commission was paid to the assessee calculated at the rate of 2% of the total sales made by the company. It was also contended that the amount was not accrued during the year as the royalty payable to the assessee could be ascertained only when the company’s accounts were audited. When the AO found that no commission income was admitted by the assessee, he added the same as undisclosed income of the assessee for the assessment year. On appeal, CIT(A) had sustained the addition and observed that the company was all along treating the amount to be paid or payable to the appellant as commission only. In fact, the administrative head of the company had also confirmed that the amount paid to the appellant was commission @2% on the total receipts. It was also found that for the purpose of tax deduction and also in Form 16 the said payment was shown as commission. Since commission was part of the salary it was to be assessed on accrual basis or due basis. The amount was ascertainable from the accounts of the company. Hence the AO's order treating the amount credited to the appellant’s account by the company as commission and also assessing the same corresponding to the year in which the amount was debited to the P & L a/c of the company. Thus, CIT(A) had confirmed the addition made by the AO.
Before the HC, the AR with regard to levy of interest u/s 234 B and 234C, submitted that both sections 234B and section 234C referred to the liability to pay advance tax as per sec. 208. Section 208 in turn provides for computation of tax in accordance with the provision under Chapter XVII. The AR submitted that as per sec. 19(1)(d) while computing the advance tax payable had to be reduced by the tax deductible at source during the relevant financial year under any provision of the Act from any income. The AR submitted that when commission received by the assessee was treated as salary then section 192 applies and the assessee was not obliged to pay advance tax. The AR in the alternative submitted as per the agreement with the company the assessee was entitled to receive commission at the rate of 2% on the gross sales. As the quantification of the amount payable was made at the time of finalization of the account of the company the assessee did not know what amount he will get therefore he was not in a position to compute the advance tax. The AR submitted in such circumstances interest u/s 234B and 234C cannot be charged. On the other hand, the DR had supported the orders of the lower authorities and submitted that levy of interest u/s 234B and 234C was automatic and mandatory.
Held that:
++ from the order of the CIT (A), it is evident that the commission received from M/s. Vijaya Diagnostic Centre Pvt. Limited has been treated as part of salary. Section 234B of the Act provides that an assessee who is liable to pay advance-tax u/s 208 has failed to pay such tax or where the advance tax paid by the assessee is less than 90% of the assessed tax then the assessee shall be liable to pay interest of 1% for every month or part of the month. Section 208 of the Act imposes a liability for payment of advance-tax in a case where the tax payable during the financial year as computed in accordance with the provisions of Chapter XVII if exceeds Rs.10,000/-. Thus, the tax to be computed is in accordance with the provisions contained under Chapter XVII. Section 192 of the Act which comes under Chapter XVII provides that any person responsible for paying any income chargeable under the head ‘salaries’ shall at the at the time of payment deduct income-tax on the amount payable at the average rate of income-tax computed on the basis of rates in force for the financial year in which the payment is made on the estimated income of the assessee. A conjoint reading of the aforesaid provisions makes it clear that in case of an assessee who earns income under the head “salary” the burden is cast on the employer to deduct tax at source while making payment. If the employer does not deduct tax as per the provision then the assessee shall pay the tax directly. Therefore, there is no obligation on the part of the assessee to pay advance-tax on the salary income;
++ the payment of tax and interest has been separately dealt with under the Income-tax Act. When a regular assessment is made and the assessee is found liable to pay more tax than the advance tax paid by him including the tax deducted at source, his liability to pay interest would arise under section 220(2) of the Act only after an issuance of a notice under section 156 of the Act. The liability to pay the interest under section 234B of the Act arises only if the assessee who is liable to pay advance tax under section 208 of the Act has failed to pay such tax or where the advance tax paid by the assessee under the provisions of section 210 is less than 90 per cent of the assessed tax. Advance tax on the salary of an employee is not payable under section 208 of the Act by the said assessee inasmuch as the obligation to deduct the tax at source is upon the employer under section 192 of the Act. A statutory duty is imposed upon the employer to deduct the tax at source for paying any income chargeable under the head "Salaries" under section 192 of the Act. The assessee cannot foresee that the tax deductible under a statutory duty imposed upon the employer would not be so deducted. The employee assessee proceeds on an assumption that the deduction of tax at source has statutorily been made or would be made and a certificate to that effect would be issued to him. Consequently, the liability to pay interest in respect of such deductible amount is therefore clearly excluded to that extent. The statute has taken care of the liability to pay tax by the assessee under section 191 of the Act directly if the tax has not been deducted at source. The liability to pay interest under section 234B of the Act is different and distinct inasmuch as the interest could only be imposed on the person who had defaulted which in the present case is the employer for not making deduction of tax at source as required under section 192 of the Act. In aforesaid view of the matter, we respectfully follow the ratio laid down by the Full Bench of Hon’ble Uttarakhand High Court in case of DIT V/s. Maersk Co. Ltd., as well as the other decisions referred to hereinabove and hold that since the commission earned by the assessee is in the nature of salary subject to deduction of tax at source u/s 192, the assessee is not required to pay advance-tax u/s 208. Accordingly, no interest can be levied u/s 234B and 234C for nonpayment of advance-tax. Thus, ground raised by the assessee is allowed. In the result, the appeals filed by the assessee stand allowed in part.

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