Section 201

What a section 201 notice is

TDS — Assessee in Default. Treated as in default for failure to deduct or deposit TDS. It is a high-severity notice in the tds family under the Income Tax Act 1961.

If you ignore it: Demand, interest, and possible penalty follow.

Time to reply: this notice type carries no standard period. The date is printed on the notice itself and you must read it off the document. Check the payee-has-paid defence and the certificate route. Often a complete answer.

Under the Income Tax Act 2025: section 398. But read that as reference, not as the provision to cite. Under s.536(2) of the 2025 Act, a proceeding for any tax year beginning before 1 April 2026 stays under the Income Tax Act 1961 from the notice through to the appeal — so a notice arriving today for an earlier year is a 1961 Act matter, whatever today's date is.

Section 201 — the law in short

What the courts have decided on section 201, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• Bharti Cellular Ltd v ACIT Supreme CourtHelps taxpayer
  We sell prepaid SIMs and vouchers to distributors below list price. Is that margin commission under 194H?
  No. The Supreme Court held that the distributor buys the starter kits and recharge vouchers at a discount on a principal-to-principal basis, so the margin is a trade discount and not commission or brokerage; the operator has no obligation to deduct under s.194H.
• Palam Gas Service v CIT Supreme CourtHelps department
  I already paid my sub-contractors during the year and nothing was outstanding at 31 March — can section 40(a)(ia) still disallow the expense for not deducting TDS?
  Yes. The Supreme Court held on 3 May 2017 that the word "payable" in section 40(a)(ia) covers amounts actually paid as well as amounts still outstanding. Sections 194C and 200 require deduction at the time of credit or of payment, whichever is earlier, and payment over to the Government within the prescribed time; a person who ignores that obligation must bear the consequences the Act lays down, of which disallowance under section 40(a)(ia) is one. The view of the Punjab and Haryana, Madras and Calcutta High Courts was approved, and the Allahabad High Court's decision in CIT v. Vector Shipping Services (P) Ltd. was overruled.
• Vodafone International Holdings BV v Union of India Supreme CourtHelps taxpayerValidity unconfirmed
  I am buying the shares of a foreign holding company from another non-resident, and that company's subsidiaries hold shares in an Indian company — must I withhold tax under section 195?
  No, on the law as it stood. The Supreme Court held on 20 January 2012 that what was sold was a single share in a Cayman Islands company, which is property situated outside India, in an outright sale between two non-residents on a principal to principal basis. Shares are a bundle of rights and a transfer lock, stock and barrel cannot be broken into components — control premium, non-compete, brand licence, call options — and taxed piecemeal, particularly where the parties fixed one lump sum of US$11.08 billion with no split. The Revenue established no connection with section 9(1)(i), so section 195 did not apply.
• Vodafone Idea Ltd v ACIT (Delhi HC, 2026) High CourtHelps taxpayerValidity unconfirmed
  The Tribunal allowed my appeal, the Assessing Officer has passed the appeal effect order and worked out the refund, but the CPC will not pay because the portal shows an outstanding demand on my PAN and on my group TANs. Is that lawful?
  No. Once an appellate authority (or the Assessing Officer giving effect to its order) finds an amount refundable, that becomes a vested and crystallised right, and the Assessing Officer or the CPC cannot withhold a rupee of it except by an order actually passed under section 245. Where the Revenue could not produce any such order, the Delhi High Court held that refusing the refund because of demands standing against the assessee's PAN and sister TANs was untenable in law, arbitrary, and violative of Articles 14, 19(1)(g) and 300A, and directed payment of Rs 53,09,56,470 with interest under sections 244A and 244A(1A) by a fixed date, with a further 1 per cent per month if the date was missed.
• CIT v Dr Balabhai Nanavati Hospital High CourtCuts both waysValidity unconfirmed
  After a survey the TDS officer says my consultant doctors are employees and wants 192 instead of 194J. Is he right?
  Not on these facts, and only part of the case was decided. On the doctors the High Court found no substantial question of law: they are appointed on probation for qualification and specialisation, receive no fixed monthly remuneration, are free to practise at other hospitals, get no PF or ESIC and no perquisites, attend according to patients' needs, and the hospital exercises no real supervisory control; the doctors had also returned the receipts as business or professional income. The separate maintenance-contract question was not answered — the Tribunal's order on it was set aside and the matter sent back for a contract-by-contract finding, and the assessee-in-default question on that limb goes with it.
• CIT (TDS)-2 v Santur Builders Pvt Ltd High CourtHelps taxpayerValidity unconfirmed
  The AO says our EDC paid to HUDA was 'rent' and has raised a s.201 demand for not deducting under s.194-I. Is that right?
  No. External Development Charges paid to the Haryana authority are not rent, so s.194-I is not attracted and a s.201(1)/201(1A) order built on s.194-I cannot stand. The Delhi High Court dismissed the Revenue's appeal, holding the point squarely covered by its own earlier decision in DLF Homes Panchkula. It also refused to let the Revenue rescue the order by switching to s.194C at the appeal stage, because s.194C was never the case the AO made.
• Puri Constructions Pvt Ltd v Addl CIT High CourtHelps departmentValidity unconfirmed
  I paid External Development Charges to HUDA/HSVP because the Town and Country Planning Department told me to. I have no contract with HUDA. Does s.194C still oblige me to deduct tax at source?
  Yes. The Delhi High Court rejected the developers' challenge and held that EDC payments fall within s.194C. The privity argument does not work: s.194C looks for a contract under which the contractor carries out work, not for a contract between the payer and the payee. Nor does s.196 rescue the developer, because HSVP is a legal entity distinct from the Government of Haryana. This is a different question from the one decided in DLF Homes Panchkula, which held EDC is not 'rent' under s.194-I. The two decisions sit side by side and do not conflict.
• CIT v Lalitpur Power Generation Co Ltd High CourtHelps taxpayerValidity unconfirmed
  My plant erection contract includes testing and commissioning. Can the AO carve that out and demand 194J?
  No. Where testing and commissioning form part of an indivisible contract for setting up a thermal power plant, the payments fall under s.194C as work; the consideration cannot be fragmented to create a fees-for-technical-services component under s.194J.
• DLF Homes Panchkula Pvt Ltd v JCIT High CourtHelps taxpayer
  Are External Development Charges paid to HUDA 'rent' under s.194-I? And if the AO picked the wrong section, can the department switch sections on appeal?
  EDC paid to the Haryana authority under the statutory licensing scheme is not rent, so s.194-I is not attracted. The Revenue did not even try to defend the Assessing Officer's reasoning; it asked instead for a remand so the officer could apply s.194C. The Court refused. An order under s.201 stands or falls on the reasoning the officer actually gave, and the reasoning here was fundamentally flawed. The s.201(1) and 201(1A) demands were set aside.
• PCIT v Future First Info Services P Ltd High CourtHelps taxpayerHigh Courts differ
  The AO says I short-deducted TDS on director remuneration. Can he disallow the payment under 40(a)(ia)?
  No. The Delhi High Court held that where there is short deduction of tax at source, disallowance cannot be made under s.40(a)(ia) and the correct course open to the officer is to invoke s.201.
• Hosmat Hospital P Ltd v ACIT High CourtCuts both ways
  I engage salaried doctors, in-house consultants and visiting consultants. Can the officer treat them all alike?
  No — but you get a rehearing, not a finding. The Karnataka High Court set aside the Tribunal order treating the hospital as an assessee in default and remitted the matter, holding that the AO must reconsider the question with attention to the hospital's incentive policy and the returns the doctors actually filed.
• CIT v Biocon Ltd High CourtHelps taxpayerValidity unconfirmed
  My company issued shares to employees under an ESOP at below market price. Can we deduct the discount, even though no cash went out?
  Yes, on this decision. The Karnataka High Court held that the discount on issue of shares under an employees stock option plan - the difference between the market price on the date of grant and the offer price - is allowable under section 37(1). Section 37(1) permits deduction of expenditure laid out or expended and does not require a payout, nor does it envisage expenditure in cash; expenditure includes a loss. Because the options vest at 25 per cent a year, the liability arises in the accounting year and only its quantification is deferred, so it is an ascertained and not a contingent liability. The Revenue's appeal was dismissed.
• Tirunelveli District Central Co-op Bank v JCIT High CourtHelps taxpayerPartly overruled — read this first
  Must I deduct under 194N on cash withdrawals that are not the account holder's income?
  No. Section 194N requires a sum to be deducted 'as income-tax', and income-tax is a levy on income — where no income results, there is no levy, and the TDS machinery is not itself a charging provision. The bank must be allowed to lead evidence that the payee bore no tax liability on the sum withdrawn.
• CIT v Media World Wide P Ltd High CourtHelps taxpayerValidity unconfirmed
  I pay uplinking and bandwidth charges for my channel. Is that 194C work or 194J technical services?
  S.194C. The Court held first that no technical service was rendered at all: a standard, automated facility that anyone may use on payment of the prescribed fee is not a service rendered to the payer, whatever equipment is involved. Only then did it turn to s.194C, whose inclusive definition of 'work' specifically includes broadcasting and telecasting. Tax was rightly deducted under s.194C and there was no short deduction.
• Pr CIT v Bharat Heavy Electricals Ltd High CourtHelps taxpayer
  Our erection and commissioning contractor uses its own engineers. Should we deduct under 194J, not 194C?
  No. Payments for construction, erection and commissioning of a plant do not become fees for technical services merely because the contractor deploys technical personnel to perform its contract; deduction under s.194C is correct.
• Ghaziabad Development Authority v Union of India High CourtCuts both ways
  I failed to deduct TDS and the department has raised a demand on me for the tax itself plus surcharge under section 201. Can it do that?
  No, not on this judgment. The Allahabad High Court held that section 201 by itself imposes only interest under sub-section (1A) and penalty under sub-section (1); it carries no provision letting an income-tax authority demand the amount of TDS, or the tax, from a person who failed to deduct, unless the case answers section 201(2), where tax was deducted but not paid over. Surcharge on a TDS amount was struck down as well, tax deductible at source being different from tax on total income. What survives is interest under section 201(1A), from the date the tax was deductible to the date the tax was actually paid.
• Jagran Prakashan Ltd v DCIT (TDS) High CourtHelps taxpayerValidity unconfirmed
  I publish a newspaper and allow accredited advertising agencies the standard 15 per cent trade discount. The TDS officer says that is commission under section 194H and has raised a demand on me. Is that right?
  No, on the reasoning available in this judgment. The Allahabad High Court held that section 194H applies only where the recipient acts on behalf of the payer, and here there was no agreement between the newspaper and the advertising agencies and no agency had ever been appointed. The Kerala decision in Director, Prasar Bharati, on which the department relied, turned on a written agency agreement containing an express clause about withholding tax, and was held to be inapplicable. The Delhi High Court had already decided the same question against the department in Living Media India, and the Supreme Court had dismissed the department's special leave petition against it on 11 December 2009.
• Yashpal Sahni v Rekha Hajarnavis, ACIT High CourtHelps taxpayer
  My employer deducted TDS from my salary, never paid it to the Government and never gave me a Form 16. The Department is now recovering that tax from me. Can it?
  No. The Bombay High Court held that section 205 bars a direct demand on the assessee to the extent tax has been deducted at source, and the bar operates the moment deduction is established. Whether the deductor paid the money over, and whether a Form 16 was issued, are both irrelevant to the bar. The Act gives the Department complete machinery against the deductor - section 201 default, interest, a charge on its assets, penalty under section 221 and prosecution under section 276B - and that is the only route open. Rs 17,89,587 recovered by attaching the employee's bank account was ordered refunded with interest at six per cent.
• Anusuya Alva v DCIT High CourtHelps taxpayer
  My tenant deducted tax from my rent but never paid it over or gave me a Form 16A. The department is now recovering it from me - can it?
  No. The Karnataka High Court quashed the demand to that extent. Section 205 bars a direct demand on the assessee to the extent tax has been deducted from her income, and the section says nothing about the deducted tax having been remitted. The word deduct in section 205 cannot be read as deducted and remitted. The person deducting acts as an agent of the Revenue under a statutory compulsion the payee cannot resist, so his default cannot be visited on her. The Revenue must recover from the deductor, and was restrained from enforcing the demand against the landlord by any coercive method.
• CIT v Shivpal Singh Chaudhary High CourtHelps taxpayerValidity unconfirmed
  The relief where the payee has paid the tax came in from 2013. Can I use it for an earlier year?
  Yes. The Punjab & Haryana High Court held the second proviso to s.40(a)(ia) declaratory and curative, and therefore retrospective from 1 April 2005, so where the resident payee has offered the income in its return and paid tax, no disallowance can be made.
• Madhu Transport Co P Ltd v ITO ITATHelps taxpayerValidity unconfirmed
  I never filed Form 26A, but my payee did include the amount in its return and pay tax. Is the s.40(a)(ia) disallowance still good?
  No, on these facts. The Tribunal deleted the disallowance where the recipient had offered the interest in its return and paid tax on it, applying Hindustan Coca-Cola, and held that the absence of Form 26A could not defeat the claim for a year before rule 31ACB and Form 26A existed at all.
• Meridian Telesoft Ltd v ACIT ITATHelps taxpayerValidity unconfirmed
  What proof do I need that my payee declared the income and paid tax, to get the disallowance deleted?
  A chartered accountant's certificate showing the payee included the amount in its return and paid tax on it was accepted as sufficient. Once the payer is not deemed an assessee in default under the first proviso to s.201(1), s.40(a)(ia) is deemed to have been complied with and the disallowance goes.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.