Direct Payment

Section 391 — - DIRECT PAYMENT

Section 391 of the Income-tax Act, 2025 is the substantive equivalent of section 191 of the Income-tax Act, 1961. It establishes the residual rule that where TDS has not been deducted (or where an income falls outside the deduction net), the assessee is liable to pay the income-tax directly. Sub-section (2) preserves the doctrine of "assessee in default" introduced after the Hindustan Coca-Cola Beverages line of cases.

STATUTORY ARCHITECTURE

Section 391 occupies a residual position in Chapter XIX. The Chapter's primary collection mechanisms are TDS (s. 393), TCS (s. 394) and advance tax (ss. 403-411). When all three have failed -- because the income falls outside the deductible categories, or because the deductor failed to deduct, or the threshold was not crossed -- s. 391 ensures that the assessee remains personally liable for the tax on the income.

SUB-SECTION (1) -- PRIMARY LIABILITY

Sub-section (1) provides that where TDS is not deductible under the Act, or, in any case where TDS has not actually been deducted, the income-tax shall be payable by the assessee direct. The phrase "in any case where income-tax has not been deducted" was the genesis of substantial litigation in Hindustan Coca-Cola Beverages (P) Ltd. v. CIT (2007) 293 ITR 226 (SC), where the Supreme Court held that once the recipient has paid the tax, the deductor cannot be held as assessee in default for the same tax (CBDT Circular No. 275/201/95-IT(B), dt. 29-1-1997).

SUB-SECTION (2) -- ASSESSEE IN DEFAULT

Sub-section (2) creates the technical fiction that an assessee who fails to pay the tax direct (where it is so payable) is deemed to be an assessee in default. Combined with s. 401 (bar against direct demand), this produces a coherent allocation of primary and secondary liability: deductor primarily liable to deduct and pay (s. 393 r/w s. 398); but where deductor fails AND assessee also fails, the assessee becomes the assessee in default.

INTERPLAY WITH s. 398 (CONSEQUENCES OF FAILURE)

Section 398 is the consequences provision (1961 ss. 201, 201(1A), 234E equivalents). Where the deductor fails to deduct, s. 398 makes the deductor an assessee in default UNLESS the deductee files return and pays tax (proviso analogous to first proviso to s. 201). Section 391 is the symmetric provision -- it creates assessee primary liability where deductor's mechanism has not engaged.

PRACTITIONER PLANNING NOTES

• Where the deductor has failed to deduct TDS, advise the deductee to compute and pay tax via advance tax / self-assessment under s. 391 r/w s. 411 -- this insulates the deductor from s. 398 default by virtue of the s. 398 proviso (assessee filed return / paid tax).
• For non-resident payees on foreign income (where deductor's TDS may not apply), s. 391 is the operative charging mechanism for direct payment; co-read with s. 207 (non-residents not having permanent establishment).
• In assessment proceedings, s. 391 is the fallback if AO finds TDS shortfall -- always check whether deductee has paid the tax direct (Form 26AS / AIS / TIS); if yes, raise the Hindustan Coca-Cola defence.
• Document evidence trail -- where the assessee paid direct, retain challan + computation showing inclusion of the income in the return; this is the audit trail to defeat any subsequent s. 398 demand on the deductor.
• In partner / firm cases, where firm fails to deduct on remuneration / interest paid to partner, the partner pays direct on his return -- s. 391 covers; firm escapes s. 398.

CASE-LAW DIGEST

• Hindustan Coca-Cola Beverages (P) Ltd. v. CIT (2007) 293 ITR 226 (SC) -- foundational; deductor not in default if deductee has paid tax.
• CIT v. Eli Lilly & Co. (India) (P) Ltd. (2009) 312 ITR 225 (SC) -- liability of deductor for foreign payments where deductee assesseable in India.
• GE India Technology Centre (P) Ltd. v. CIT (2010) 327 ITR 456 (SC) -- TDS only required where the sum is chargeable to tax in India in deductee's hands.

CROSS-REFERENCES

• s. 393 -- TDS framework (deductor's primary obligation).
• s. 398 -- consequences of failure to deduct/collect (deductor 'assessee in default').
• s. 401 -- bar against direct demand on deductee where TDS deducted.
• s. 411 -- assessee in default for advance tax.
• s. 423 -- interest for default in furnishing return.
• CBDT Circular No. 275/201/95-IT(B), dt. 29-1-1997 -- foundational instruction.