TDS Deductor is not treated as Assessee in default if Deductee has paid the Tax

It may be noted that Section 156 has been amended so as to incorporate the following proviso only:

“Provided that where any sum is determined to be payable by the assessee or by the Deductor under sub- section (1) of section 143 or sub-section (1) of section 200A, the intimation under those section shall be deemed to be a notice of demand for the purpose of this section.”

The insertion of the proviso has served only one purpose – that is, of treating the intimation itself as a notice of demand. Forgetting the amendment/proviso, the first part of the section itself empowers the Assessing Officer to issue a notice of demand where any interest, tax, penalty etc is due from the assessee and it has nothing to do with the amendment. In short, even though the Intimation may not be treated as Notice of demand for the purpose of section 156, there is nothing to bar the Assessing Officer from issuing the Demand Notice u/s 156.

As far as the alternate argument that the demand u/s 156 should be for the net amount only is concerned, it may be noted that, after the TDS certificate is issued to the concerned deductees,

• If excess TDS is done, the deductee claims the refund
• If short TDS is done, the Deductee should pay the Self Assessment Tax.

As far as the first part (a) is concerned, it is normally presumed that after the Certificate is issued for the excess amount, it’s the deductee only who is eligible to claim the amount and not the Deductor. As a result of this, the alternate plea that the demand should be for the net amount only looks improper and illogical. I am of the opinion that the demand should be of the total amount of short deductions as is done by the Assessing Officer and could not be of the net amount.

Provision related to Assessee in Default:
Section 201(1) has also been amended by inserting a proviso w.e.f 01.07.2012 so as to provide that any person who fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid/credited to a resident shall not be deemed to be an assessee in default in respect of such tax if such resident-

1. has furnished his return of income under section 139;
2. has taken into account such sum for computing income in such return of income; and
3. has paid the tax due on the income declared by him in such return of income,

and the person furnishes a certificate to this effect from an accountant in such form as may be prescribed. Consequent amendment has also been done in section 201(1A) for charging of the interest when the assessee is not deemed to be in default.

The amendment has been made applicable w.e.f 01.07.2012. As far as the retrospective application is concerned, it may be noted that there is another provision (section 191) which provides that person shall be deemed to be assessee in default in respect of non/short deduction of tax only in cases where the payee has also failed to pay the tax directly. Effectively, the latest amendment as mentioned above is in line with the existing provision as contained in section 191 and the Deductor cannot be treated to be an assessee in default in respect of non/short deduction of tax if the payee has discharged his tax liability.

It is very relevant here to note that even if the assessee is not treated to be an assessee in default as a result of above amendment, there is no consequential amendment in the penalty provision as contained in section 271C. Effectively, even after the above amendment, penal provision u/s 271C would be applicable. Further, penalty u/s 217C can be waived by virtue of Section 273B if the assessee proves that there was a reasonable cause for the said failure.