Facts of the Case

The petitioner, M/s United Airlines, filed a writ petition challenging an order dated 24 March 2000 passed by the Commissioner of Income Tax under Section 264 of the Income-tax Act.

The Commissioner, while considering the revision petition, observed that if the taxes had already been paid by the payee, the same could not be recovered again from the payer. However, the Commissioner directed the Assessing Officer to conduct necessary inquiries through the jurisdictional authorities to verify whether the payments made by the petitioner had been duly accounted for in the assessment of the recipient, namely the Airport Authority of India.

The Commissioner further left open the question regarding the petitioner’s liability to pay interest under Section 201(1A) of the Act and directed verification of the relevant facts before determination of such liability.

Issues Involved

  1. Whether tax could be recovered from the payer when the payee had already discharged the tax liability on the relevant income.
  2. Whether liability to pay interest under Section 201(1A) survives even when the tax has been paid by the recipient of income.
  3. Whether the Assessing Officer was required to verify the factual position before quantifying interest liability.

Petitioner’s Arguments

The petitioner contended that once the payee had paid tax on the income received, no tax demand could be raised or recovered again from the payer.

It was further argued that the liability regarding interest under Section 201(1A) required proper determination after examining the factual position concerning payment of taxes by the recipient.

The petitioner sought appropriate relief against the demand and challenged the order passed under Section 264.

Respondent’s Arguments

The Revenue maintained that verification was necessary to determine whether the income had actually been offered to tax and whether the taxes had been duly paid by the payee.

The Revenue also relied upon Section 201(1A), which provides for levy of interest where tax deductible at source is either not deducted or, after deduction, not paid within the prescribed time.

Accordingly, the authorities contended that the issue of interest liability had to be examined independently in accordance with the statutory provisions.

Court Order / Findings

The Delhi High Court examined the impugned order and found that the Commissioner had already granted substantial relief by observing that if taxes had been paid by the payee, the same could not be recovered from the payer.

The Court held that the petitioner could have no grievance against that part of the Commissioner’s order.

With regard to interest under Section 201(1A), the Court observed that such liability exists only up to the date on which the tax is actually paid. The statutory provision specifically contemplates payment of interest from the date on which tax was deductible to the date on which the tax is ultimately paid.

The Court directed the Assessing Officer to:

  • Verify whether taxes had in fact been paid by the payee.
  • Recalculate and quantify interest, if any, in accordance with Section 201(1A).
  • Provide an opportunity of hearing to the assessee.
  • Determine whether any liability for interest survived after considering all relevant facts.

The Court further directed that until the Assessing Officer decided these issues, the amount in dispute should not be recovered from the petitioner.

Accordingly, the writ petition was disposed of with the above observations.

Important Clarification

The Delhi High Court did not completely absolve the assessee from liability under Section 201(1A).

The Court clarified that:

  • Recovery of tax itself may not be permissible if the payee has already paid tax on the income.
  • However, liability for interest under Section 201(1A) may still arise and must be computed up to the date of actual payment of tax.
  • The determination of interest liability requires factual verification by the Assessing Officer.

Thus, payment of tax by the recipient does not automatically eliminate liability for statutory interest under Section 201(1A).

Sections Involved

  • Section 201(1) of the Income-tax Act, 1961 – Consequences of Failure to Deduct or Pay Tax at Source
  • Section 201(1A) of the Income-tax Act, 1961 – Interest for Failure to Deduct or Pay Tax
  • Section 264 of the Income-tax Act, 1961 – Revision by Commissioner of Income Tax
  • Provisions relating to Tax Deducted at Source (TDS)

Link to download the order -

https://delhihighcourt.nic.in/app/case_number_pdf/2006:DHC:1429-DB/MK13022006CW54542000_151726.pdf

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