Section 201 — Consequences of Failure to Deduct or Pay Tax

Section 201 of the Income-tax Act, 1961 deals with the consequences faced by a person who is required to deduct tax at source (TDS) but fails to do so, or after deducting, fails to pay the tax to the government. This section is significant as it ensures compliance with TDS provisions, which are crucial for the timely collection of taxes. The statutory test under this section involves determining whether the deductor has failed in their obligation to deduct or pay the tax. If found in default, the deductor is deemed an assessee in default and is liable to pay interest on the amount of tax not deducted or paid. Additionally, penalties may be imposed under other sections. The burden of proof lies on the deductor to demonstrate compliance with TDS provisions. In practice, this section is significant as it enforces the responsibility of tax collection at the source, ensuring that the government receives tax revenue on time.

Common Litigation Flashpoints

1. Whether the deductor is liable for interest on late payment of TDS
2. Determination of 'assessee in default' status
3. Applicability of penalties for non-deduction or non-payment
4. Disputes over the calculation of interest and penalties

Judgments on Section 201 — Consequences of Failure to Deduct or Pay Tax

• Engineering Analysis Centre of Excellence Private Limited vs The Commissioner of Income Tax & Anr. — SC,
  Payments for software do not constitute 'royalty' under Section 9(1)(vi) of the Income Tax Act, and thus, no tax is deductible at source under Section 195.
• Commissioner of Income Tax, Bangalore vs Infosys Technologies Ltd. — SC,
  A benefit must be made taxable by law before it can be regarded as income.