Consequences of failure to deduct or pay [Section 201] under Miscellaneous Provisions :
(1) The following persons shall be deemed to be an assessee in default if they do not deduct the whole or any part of the tax or after deducting fails to pay the tax –
(i) any person including the principal officer of a company, who is required to deduct any sum in accordance with the provisions of the Act; and
(ii) an employer paying tax on non-monetary perquisites under section 192(1A).
(2) However, any person (including the principal officer of the company) who fails to deduct the whole or any part of the tax on the amount credited or payment made to a resident payee shall not be deemed to be an assessee-in-default in respect of such tax if such resident payee –
(i) has furnished 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 payer furnishes a certificate to this effect from an accountant in such form as may be prescribed.
(3) Further, no penalty shall be charged under section 221 from such person unless the Assessing Officer is satisfied that such person has failed to deduct and pay the tax without good and sufficient reasons.
(4) A person deemed to be an assessee-in-default under section 201(1), for failure to deduct tax or to pay the tax after deduction, is liable to pay simple interest @ 1% for every month or part of month on the amount of such tax from the date on which tax was deductible to the d ate on which such tax was actually deducted and simple interest @ 1½% for every month or part of month from the date on which tax was deducted to the date on which such tax is actually paid [Section 201(1A)].
Illustration
An amount of Rs 40,000 was paid to Mr. X on 1.7.2015 towards fees for professional services without deduction of tax at source. Subsequently, another payment of Rs 50,000 was due to Mr. X on 28.2.2016, from which tax@10% (amounting to Rs 9,000) on the entire amount of Rs 90,000 was deducted. However, this tax of Rs 9,000 was deposited only on 22.6.2016. Compute the interest chargeable under section 201(1A).
Solution
Interest under section 201(1A) would be computed as follows –
| Particulars | Rs |
| 1% on tax deductible but not deducted i.e., 1% on Rs 4,000 for 8 months | 320 |
| 1½% on tax deducted but not deposited i.e. 1½% on Rs 9,000 for 4 months | 540 |
| 860 |
(5) Such interest should be paid before furnishing the statements in accordance with section 200(3).
(6) Where the payer fails to deduct the whole or any part of the tax on the amount credited or payment made to a resident and is not deemed to be an assessee-in-default under section 201(1) on account of payment of taxes by such resident payee, interest under section 201(1A)(i) i.e., @1% p.m. or part of month, shall be payable by the payer from the date on which such tax was deductible to the date of furnishing of return of income by such resident payee. The date of deduction and payment of taxes by the payer shall be deemed to be the date on which return of income has been furnished by the resident payee.
(7) Where the tax has not been paid after it is deducted, the amount of the tax together with the amount of simple interest thereon shall be a charge upon all the assets of the person or the company, as the case may be.
(8) No order under section 201(1), deeming a person to be an assessee-in-default for failure to deduct the whole or any part of the tax from a person resident in India, shall be passed at any time after the expiry of seven years from the end of the financial year in which the payment is made or credit is given.
(9) Further, the exclusions from the time limit, as specified in Explanation 1 to section 153, would also apply to the above time limit for passing an order deeming a person to be an assessee-in-default. Also, the time limit would not apply to an order passed consequent to the direction contained in an order of the Commissioner under sections 263 and 264, Commissioner (Appeals) under section 250, Appellate Tribunal under section 254, Supreme Court/National Tax Tribunal under section 260 and Supreme Court under section 262. Thus, the time limit would be extended where effect is to be given to various appellate proceedings or where proceedings are stayed.
(10) Section 201(1) deems a person to be an assessee-in-default if he –
(i) does not deduct tax; or
(ii) does not pay; or
(iii) after so deducting fails to pay
the whole or any part of the tax, as required by or under this Act.
Thus, section 201(1) contemplates three types of defaults. The default contemplated in (ii) is covered by the default contemplated in (iii). However, the time limit has been specified only for passing of orders relating to default contemplated in (i) above. There is no time limit specified in respect of the other defaults.
(11) Therefore, no time-limits have been prescribed for the order under section 201(1) where –
(i) the deductor has deducted but not deposited the tax deducted at source, as this would be a case of defalcation of government dues,
(ii) the employer has failed to pay the tax wholly or partly, under sub-section (1A) of section 192, as the employee would not have paid tax on such perquisites,
(iii) the deductee is a non-resident as it may not be administratively possible to recover the tax from the non-resident.