Section 391 — Direct payment. Successor to s.191 of the 1961 Act.
Section 391 is in Chapter XIX — Collection and Recovery of Tax, which runs from section 390 to section 430.
Sub-section (1) makes income-tax on any income payable directly by the assessee where there is no provision in Chapter XIX to deduct income-tax on that income at the time of payment, or where income-tax has not been deducted as that Chapter requires.
Sub-section (2) deals with income of the nature specified in section 17(1)(d) where the specified security or sweat equity shares are allotted or transferred, directly or indirectly, by the current employer which is an eligible start-up referred to in section 140: direct payment for the purposes of sub-section (1) is then to be made in accordance with section 289(3).
Sub-section (3) provides that where any person, including the principal officer of a company, who is required to deduct any sum under the Act, or who is referred to in section 392(2)(a) being an employer, does not deduct, or after deducting fails to pay, or does not pay, the whole or part of the tax, and the assessee has also failed to pay such tax directly, that person shall — apart from any other consequences he may incur — be deemed an assessee in default within the meaning of section 398(1) in respect of such tax.
Deduction at source is a collection mechanism, not the charge, so where it does not apply or has not been operated the tax must still reach the exchequer, and sub-section (1) says who pays it. Sub-section (3) allocates responsibility when both sides have failed, and does so only once the assessee has also failed to pay, so the same tax is not collected twice.
The primary liability never leaves the assessee: sub-section (1)(b) makes the tax payable directly by him precisely because it was not deducted, so a demand cannot be answered by pointing to the payer's failure. The deductor's exposure under sub-section (3) is conditional, and the condition is easy to miss — he is deemed in default only "where the assessee has also failed to pay such tax directly", though any other consequences are preserved. Sub-section (3) covers three distinct failures: not deducting, deducting and failing to pay, and not paying. For a start-up equity perquisite, sub-section (2) creates no separate charge but routes the direct payment through section 289(3).
A company pays a sum on which the Chapter required deduction of Rs. 4 lakh and deducts nothing. The recipient is liable to pay that tax directly under sub-section (1)(b). If the recipient also fails to pay it, the company and its principal officer are deemed assessees in default within the meaning of section 398(1) in respect of the Rs. 4 lakh. If the recipient has in fact paid, the deeming does not arise.
An assessee meets sub-section (1) as a demand for tax on income that bore no deduction. A deductor meets sub-section (3) as an order treating him, or the company's principal officer, as an assessee in default within the meaning of section 398(1).
The income-tax on any income shall be payable directly by the assessee if—
and where the assessee has also failed to pay such tax directly, then, such person shall, apart from any other consequences that he may incur, be deemed to be an assessee in default within the meaning of section 398(1), in respect of such tax
See the full 1961 to 2025 concordance.
See the circulars index.
