Query 1]

I am a CA in service in WCL. Recently we have received a notice for short deduction of income tax from salary (TDS) in some cases (statement u/s 200A) for the financial year 2010-11 along with notice of demand u/s 156 from the IT Dept. We have taken the plea that no notice u/s 156 can be issued for the F.Y. 10-11, as the amendment to this effect is applicable from 1.7.2012 only. Similarly our alternate argument is that the statement u/s 200A must include excess TDS recoveries as well and could be for the net amount only. In some cases, excess TDS has been done from our end as well. We have issued Form 16 to the employees to enable them to pay tax on self assessment or claim refund as the case may be. Whether we could be treated as assessee in default even after the amendment in section 201 with effect from 01.07.2012 so as to attract penal provision? Whether the amendment in section 201 has retrospective effect? You are requested to kindly offer your considered opinion. [k.natarajan2007@rediffmail.com]


  1. It may be note that Section 156 has been amend so as to incorporate the following proviso only:

    “Provide that where any sum is determine 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 deem 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 treat 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.

  2. As far as the alternate argument that the demand u/s 156 should be for the net amount only is concern, it may be note that, after the TDS certificate is issue to the concern deduct,

    a] If excess TDS is do, the deduct claims the refund
    b] If short TDS is do, the Deductee is pay the Self Assessment Tax.
    As far as the first part (a) is concern, it is normally presume that after the Certificate is issue for the excess amount, it’s the deduct 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 is of the total amount of short deductions as is do by the Assessing Officer and could not be of the net amount.

  3. Provision related to Assessee in Default:
    Section 201(1) has also been amend 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/credit to a resident shall not be deem to be an assessee in default in respect of such tax if such resident-
    (i) has furnish his return of income under section 139;

    (ii) has taken into account such sum for computing income in such return of income; and
    (iii) 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 prescribe. Consequent amendment is do in section 201(1A) for charging of the interest when the assessee is not deem to be in default.
    The amendment is make applicable w.e.f 01.07.2012. As far as the retrospective application is concern, it may be note that there is another provision (section 191) which provides that person shall be deem to be assessee in default in respect of non/short deduction of tax only in cases where the payee has also fail to pay the tax directly. Effectively, the latest amendment as mention above is in line with the existing provision as contain in section 191 and the Deductor cannot be treat to be an assessee in default in respect of non/short deduction of tax if the payee has discharge his tax liability.

  4. It is very relevant here to note that even if the assessee is not treat 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 is waive by virtue of Section 273B. If the assessee proves that there was a reasonable cause for the say failure.


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