Real Time Case Study
This query is : Resolved
26 June 2009
Dear Sir / Madam,
Pl analyse the following interesting real case study and revert back with your precious opinion as soon as possible.
A co absorb "C division" of B co on Oct,08. Uptill Oct,08 B co deduct and paid TDS on Salary for all the employees of C division and from Nov,08 to March,09 A co does Deduction and payment of tds on salary.
Now the issue is B co has short deducted and short paid the tds on salary for employees of C division and that shortfall now need to be paid by A co but there is a change in the tds provisions with effect from 1st April,2009 vis notificaiton no 858(E) dated 25th March,09.
Questions are:
1.What A co is legally bound to do?
2.Whether shortfall of tds on salary can be paid by A co in June,09 as they aquired whole C division of B co,If not, when and how can the payment is made?
3.If so, what is way to make such payment and which legal provision will rule that ?
4.Does there is any Interest which need to be paid by A co?
5.Your comments and suggestions to this case which is really happend with the co?
Pl analyse the following interesting real case study and revert back with your precious opinion as soon as possible.
A co absorb "C division" of B co on Oct,08. Uptill Oct,08 B co deduct and paid TDS on Salary for all the employees of C division and from Nov,08 to March,09 A co does Deduction and payment of tds on salary.
Now the issue is B co has short deducted and short paid the tds on salary for employees of C division and that shortfall now need to be paid by A co but there is a change in the tds provisions with effect from 1st April,2009 vis notificaiton no 858(E) dated 25th March,09.
Questions are:
1.What A co is legally bound to do?
2.Whether shortfall of tds on salary can be paid by A co in June,09 as they aquired whole C division of B co,If not, when and how can the payment is made?
3.If so, what is way to make such payment and which legal provision will rule that ?
4.Does there is any Interest which need to be paid by A co?
5.Your comments and suggestions to this case which is really happend with the co?
26 June 2009
Hie, Udit
very interesting case to discuss with you. right
01. As u hv mentioned in ur para that A co. has purchased the the entire divison of B co. and the erstwhile co. has made short deduction of TDS the impact of which is who is going to pay the amount of TDS alongwith intt.
So it is well settled law that the person who has liability to pay will be held responsible to pay its debts Except: -
a) In case of Demerger
b) Amalgamation
c) COnversion of firm into co.
d) conversion of prop. into co.
e) sucession of business i.e. in case of death, inhertince business etc.
In all the above mentioned cases the successor will be held responsible for the act done but in your case it wont get attracted.
02. A co. is not bound to pay the amount of liability of B co.
03.In case of late payment or short deduction sec. 40(a)(ia) get attracted which clearly stated that in case of exp. incurred before March will have to be deposited by the assessee on or before 31st of March of the previous year and in case of march liability on or before return filling otherwise the entire of exp. will be disallowed and will be allowed in the year in which tds will be credited into the govt custody.
04. S far as interest part is concerned A co. will not be liable to pay any amount to the govt.
very interesting case to discuss with you. right
01. As u hv mentioned in ur para that A co. has purchased the the entire divison of B co. and the erstwhile co. has made short deduction of TDS the impact of which is who is going to pay the amount of TDS alongwith intt.
So it is well settled law that the person who has liability to pay will be held responsible to pay its debts Except: -
a) In case of Demerger
b) Amalgamation
c) COnversion of firm into co.
d) conversion of prop. into co.
e) sucession of business i.e. in case of death, inhertince business etc.
In all the above mentioned cases the successor will be held responsible for the act done but in your case it wont get attracted.
02. A co. is not bound to pay the amount of liability of B co.
03.In case of late payment or short deduction sec. 40(a)(ia) get attracted which clearly stated that in case of exp. incurred before March will have to be deposited by the assessee on or before 31st of March of the previous year and in case of march liability on or before return filling otherwise the entire of exp. will be disallowed and will be allowed in the year in which tds will be credited into the govt custody.
04. S far as interest part is concerned A co. will not be liable to pay any amount to the govt.
29 June 2009
Dear Mr Sanjeev Jain,
thnks for your kind response but the most interesting part is that A co is making payment of the short tds in this month of june, so now the questions are :
1.what is the last date for payment of tds on salary for fy 08-09 (for Apr-Feb & Mar) ?
2.Is any penlty also to be paid ?
3.Does there is any change in procedure or formalities due to introduction of new notificaiton no 858(E) dated 25th March,09 by CBDT ?
4.Whether shortfall can be paid in June09 by A co ?
5.If yes, Who will claim deduction (A or B C0)
6.Can A co claim it back from B Co ?
Please guide for above particulars.
Thanking you in advance.
thnks for your kind response but the most interesting part is that A co is making payment of the short tds in this month of june, so now the questions are :
1.what is the last date for payment of tds on salary for fy 08-09 (for Apr-Feb & Mar) ?
2.Is any penlty also to be paid ?
3.Does there is any change in procedure or formalities due to introduction of new notificaiton no 858(E) dated 25th March,09 by CBDT ?
4.Whether shortfall can be paid in June09 by A co ?
5.If yes, Who will claim deduction (A or B C0)
6.Can A co claim it back from B Co ?
Please guide for above particulars.
Thanking you in advance.
20 July 2025
This is a complex TDS (Tax Deducted at Source) case involving transfer of a division and change in TDS provisions. Let me analyze each question step-by-step based on the facts and the legal framework applicable around FY 2008-09 and the notification no. 858(E) dated 25 March 2009.
Facts Recap:
Company B Co had a division "C division".
On Oct 2008, A Co absorbed C division.
B Co deducted and paid TDS on salary for C division employees till Oct 2008.
From Nov 2008 to Mar 2009, A Co deducted and paid TDS on salary.
B Co had short deducted and short paid TDS for C division employees.
Shortfall TDS now needs to be paid by A Co.
Notification no 858(E) dated 25 Mar 2009 changed TDS provisions effective 1 Apr 2009.
Question-wise Analysis:
1. What is A Co legally bound to do?
Since A Co has absorbed the division and is now the employer (from Nov 2008 onward), it is legally responsible for deducting, depositing, and reporting TDS on salary paid from Nov 2008.
For the shortfall in TDS for Apr-Oct 2008, which was B Co’s responsibility, A Co is not automatically liable to pay it, but practically they may need to coordinate.
If A Co is required to pay shortfall on behalf of B Co, it should ensure compliance under the Income Tax Act, Section 200 & 201, which deal with TDS liability and consequences of default.
2. Can shortfall of TDS on salary be paid by A Co in June 2009 since they acquired C division?
Shortfall TDS should ideally be paid by the deductor responsible for that period, i.e., B Co for Apr-Oct 2008.
However, if B Co fails or refuses, A Co may pay the shortfall to ensure employees do not face disallowance or notices.
Payment of shortfall after due dates will attract interest and possibly penalty.
June 2009 is after the due date for FY 08-09 TDS deposit, but late payment with interest is allowed.
Under Section 201(1A), interest for late deposit is charged at 1% per month or part thereof.
3. What is the way to make such payment and which legal provision will govern it?
Payment can be made via challan under TDS provisions (Challan No. ITNS 281).
Section 201 governs consequences of failure to deduct or deposit TDS.
The deductor (A Co) making the payment must intimate the Income Tax Department to update their TDS records.
Separate TDS returns should be filed for the respective periods.
If shortfall relates to B Co’s period, A Co should maintain proper documentation of the transaction and payments made on behalf of B Co.
4. Is there any interest payable by A Co?
Yes, interest under Section 201(1A) is payable on the shortfall amount from the due date of deposit till the actual date of payment.
Interest is 1% per month or part of a month.
Penalty under Section 271C may also apply but can be waived under certain conditions.
5. Comments and suggestions on this real case:
Question Suggested Answer
1. Last date for payment of TDS on salary for FY 08-09 7th April 2009 for March 2009 salary (monthly deposit due by 7th next month)
2. Is any penalty applicable? Penalty under Section 271C can be levied, but waiver possible if rectified timely.
3. Changes due to Notification no. 858(E) dated 25 March 2009 Changed TDS return filing and payment procedure from 1 April 2009 onwards. New forms and timelines introduced.
4. Can shortfall be paid in June 2009 by A Co? Yes, with interest and penalty for late payment, as explained above.
5. Who claims deduction (A Co or B Co)? Deductor at the time of salary payment claims TDS credit (B Co for Apr-Oct 08, A Co for Nov 08-Mar 09).
6. Can A Co claim the shortfall amount back from B Co? Yes, through mutual agreement or legal recourse as it was B Co’s liability for that period.
Additional Notes:
It is advisable for A Co to obtain a written agreement or indemnity from B Co for amounts paid on their behalf.
Employee TDS credits should not be affected, so prompt payment and proper TDS return filings are important.
Consultation with a tax professional or legal advisor for detailed compliance and to avoid litigation is recommended.
Facts Recap:
Company B Co had a division "C division".
On Oct 2008, A Co absorbed C division.
B Co deducted and paid TDS on salary for C division employees till Oct 2008.
From Nov 2008 to Mar 2009, A Co deducted and paid TDS on salary.
B Co had short deducted and short paid TDS for C division employees.
Shortfall TDS now needs to be paid by A Co.
Notification no 858(E) dated 25 Mar 2009 changed TDS provisions effective 1 Apr 2009.
Question-wise Analysis:
1. What is A Co legally bound to do?
Since A Co has absorbed the division and is now the employer (from Nov 2008 onward), it is legally responsible for deducting, depositing, and reporting TDS on salary paid from Nov 2008.
For the shortfall in TDS for Apr-Oct 2008, which was B Co’s responsibility, A Co is not automatically liable to pay it, but practically they may need to coordinate.
If A Co is required to pay shortfall on behalf of B Co, it should ensure compliance under the Income Tax Act, Section 200 & 201, which deal with TDS liability and consequences of default.
2. Can shortfall of TDS on salary be paid by A Co in June 2009 since they acquired C division?
Shortfall TDS should ideally be paid by the deductor responsible for that period, i.e., B Co for Apr-Oct 2008.
However, if B Co fails or refuses, A Co may pay the shortfall to ensure employees do not face disallowance or notices.
Payment of shortfall after due dates will attract interest and possibly penalty.
June 2009 is after the due date for FY 08-09 TDS deposit, but late payment with interest is allowed.
Under Section 201(1A), interest for late deposit is charged at 1% per month or part thereof.
3. What is the way to make such payment and which legal provision will govern it?
Payment can be made via challan under TDS provisions (Challan No. ITNS 281).
Section 201 governs consequences of failure to deduct or deposit TDS.
The deductor (A Co) making the payment must intimate the Income Tax Department to update their TDS records.
Separate TDS returns should be filed for the respective periods.
If shortfall relates to B Co’s period, A Co should maintain proper documentation of the transaction and payments made on behalf of B Co.
4. Is there any interest payable by A Co?
Yes, interest under Section 201(1A) is payable on the shortfall amount from the due date of deposit till the actual date of payment.
Interest is 1% per month or part of a month.
Penalty under Section 271C may also apply but can be waived under certain conditions.
5. Comments and suggestions on this real case:
Question Suggested Answer
1. Last date for payment of TDS on salary for FY 08-09 7th April 2009 for March 2009 salary (monthly deposit due by 7th next month)
2. Is any penalty applicable? Penalty under Section 271C can be levied, but waiver possible if rectified timely.
3. Changes due to Notification no. 858(E) dated 25 March 2009 Changed TDS return filing and payment procedure from 1 April 2009 onwards. New forms and timelines introduced.
4. Can shortfall be paid in June 2009 by A Co? Yes, with interest and penalty for late payment, as explained above.
5. Who claims deduction (A Co or B Co)? Deductor at the time of salary payment claims TDS credit (B Co for Apr-Oct 08, A Co for Nov 08-Mar 09).
6. Can A Co claim the shortfall amount back from B Co? Yes, through mutual agreement or legal recourse as it was B Co’s liability for that period.
Additional Notes:
It is advisable for A Co to obtain a written agreement or indemnity from B Co for amounts paid on their behalf.
Employee TDS credits should not be affected, so prompt payment and proper TDS return filings are important.
Consultation with a tax professional or legal advisor for detailed compliance and to avoid litigation is recommended.
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