Section 221

Section 221 — the law in short

What the courts have decided on section 221, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• State Bank of India v Assistant Commissioner of Income Tax Supreme CourtHelps department
  My client is an employer facing a s.201 order for not deducting on LTC where the employees' itineraries included a foreign leg but the reimbursement was limited to the domestic shortest-route fare. Is the bona fide estimate defence available?
  No. The Supreme Court held that the moment an employee undertakes travel with a foreign leg it is not travel within India and the payment is outside s.10(5), so the employer was bound to deduct under s.192(1) and was rightly held an assessee in default. It rejected the argument that the reimbursement having been confined to the shortest domestic route saved the exemption, and it rejected the bona fide mistake defence because the employer had the complete travel details before it when settling the bills.
• Associated Cement Company Ltd v CIT Supreme CourtHelps departmentNo later treatment found
  My contract is only for loading bags, not a works contract, and much of what I pay is reimbursement of the contractor's wage bill. Must I still deduct under section 194C on the whole sum?
  Yes. The Supreme Court held that any work in section 194C(1) means any work, not a works contract, which is a term with a special connotation in tax law. The sub-clause itself includes supply of labour, which shows the wider intention. The deduction is of a percentage of the sum credited or paid, not of the contractor's income component; the words on income comprised therein show only that what is deducted is tax at source. And nothing in the sub-section allows the payer to exclude amounts paid to the contractor by way of reimbursement of wages he has paid his workers.
• Sree Metaliks Limited v Union of India High CourtHelps taxpayer
  We deposited the TDS late, with interest, and the Department accepted it — then launched a s.276B prosecution against the company and its directors. Can the complaint be quashed?
  On this judgment, yes, where the delay is explained. The Orissa High Court quashed a s.276B read with s.278B prosecution for delays of between 15 and 394 days in FY 2019-20, holding the delay well explained by the company's insolvency resolution process and the COVID-19 restrictions, and noting that the prosecution had been launched only after the Department had received the TDS along with interest. It followed the Jharkhand High Court in Dev Multicom and its own earlier decision in D.N. Homes.
• Jindal Stainless Ltd v DCIT High CourtHelps taxpayer
  My appeal is pending. Can the department take my whole refund against the disputed demand, or only twenty per cent of it?
  Ordinarily only twenty per cent. Where an appeal against the demand is pending before the Commissioner (Appeals), the Board's Office Memorandum of 29 February 2016 as amended on 31 July 2017 permits adjustment of not more than twenty per cent of the disputed demand. Anything above that can be retained only if the case falls within the narrow exception in para 4B(a), and the department has to show that it does.
• 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.
• Maheshwari Agro Industries v Union of India High CourtHelps taxpayer
  My assessment is many times my returned income, the Assessing Officer has refused stay and attached my bank account. Can the Commissioner (Appeals) stay the demand while my appeal is pending?
  Yes. The Rajasthan High Court held that the first appellate authority - the Commissioner (Appeals) or Deputy Commissioner (Appeals) - has inherent, implied and ancillary power to stay recovery of a disputed demand while an appeal under section 246 or 246A is pending, even though the Act confers no express power. It followed ITO v. M.K. Mohammed Kunhi. It also held that section 220(6) is not a stay power at all but a discretion not to treat the assessee as in default, and that on a high-pitched assessment - in the spirit of CBDT Instruction No.95 of 1969, where the assessed income is twice the returned income or more - that discretion should ordinarily be exercised in the assessee's favour.
• Prakash v ITO High CourtHelps departmentNo later treatment found
  I paid for the new house but it's in my son's name. Can I still claim 54F?
  No, on this view. The court held that ownership and domain over the new asset must run to the assessee from the sale of the original asset through to the purchase or construction; where the son became the owner, the assessee had no right over the property and section 54F was refused.
• 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.
• Statutory position — s.206C(6A) first proviso, Form 27BA, and the two interest rates in s.206C(7) from 1 April 2025 CBDT Circulars & InstructionsCuts both ways
  I did not collect TCS but my buyer has filed his return and paid the tax. Am I still an assessee in default, and what interest do I owe?
  The first proviso to s.206C(6A) says a person responsible for collecting tax under sub-section (1) or sub-section (1C) who fails to collect is not to be deemed an assessee in default if the buyer or licensee or lessee has furnished his return of income under s.139, has taken the amount into account in computing income in that return, and has paid the tax due on the income declared — and the collector furnishes a certificate to that effect from an accountant in the prescribed form. Rule 37J prescribes that certificate as Form 27BA, to be furnished to the Director General of Income-tax (Systems) or his authorised person in the procedures, formats and standards that officer specifies.
• Statutory position — s.201: who is deemed an assessee in default, the Form 26A escape that covers non-deduction only, one per cent and one and one-half per cent for two different periods, and the six-year limit from 1 April 2025 CBDT Circulars & InstructionsCuts both waysSuperseded by amendment
  The TDS officer has passed an order under section 201 treating me as an assessee in default and has added interest under section 201(1A). Who exactly is in default, what gets me out of it, which interest rate runs for which period, and how far back can he go?
  Section 201(1) deems a person who does not deduct, does not pay, or after deducting fails to pay the whole or any part of the tax to be an assessee in default in respect of that tax. Its first proviso takes him out of that deeming, but only for a failure to deduct, and only if the payee has furnished his return under section 139, has taken the sum into account in computing income in that return and has paid the tax due on the income declared — and the deductor furnishes a certificate to that effect from an accountant, which rule 31ACB requires in Form 26A. Interest under section 201(1A) runs at two rates for two different periods: one per cent for every month or part of a month from the date the tax was deductible to the date it was deducted, and one and one-half per cent for every month or part of a month from the date it was deducted to the date it was actually paid. Where the first proviso to section 201(1) rescues the deductor from the tax, the proviso to section 201(1A) still charges the one per cent, from the date the tax was deductible to the date the payee furnished his return. Since 1 April 2025 an order under section 201(1) for a failure to deduct cannot be made after six years from the end of the financial year in which payment is made or credit is given, or two years from the end of the financial year in which a correction statement is delivered under the first proviso to section 200(3), whichever is later; until 31 March 2025 the figure was seven years and the limit protected only a failure to deduct from a person resident in India. Section 201 governs a default on a sum paid or credited up to 31 March 2026; where the earlier of credit or payment falls on or after 1 April 2026, the consequences provision is section 398 of the Income-tax Act, 2025.

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.