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2012 (12) TMI 641 - AT - Income TaxTDS u/s 194A - payment of interest by the partner to the partnership firm - held that:- The Act does not provide exemption to the interest paid/credited by a partner to his firm. - the Act treats a partner and a firm as different 'Person', - the position of legal relationship between a partner and his firm loses its importance/significance under the Income tax Act. - the position of legal relationship as prevailing under the Partnership Act should not be applied in abstract, only to the provisions of sec. 194A of the Act. - Decided against the assessee. Assessee in default - interest and penalty u/s 201(1) and 201(1A) - held that:- Let us consider about exigibility of interest u/s 201(1A) of the Act under the peculiar conditions prevailing in the instant cases, wherein the recipient of interest viz., the partnership firms have declared losses even after accounting for the interest paid by the assessees herein. Even if the assessees herein deduct and remit the TDS amount on the interest paid to the partnership firms, the same is liable to be refunded to the said partnership firms, as there is no tax liability in their respective hands. Under this situation, can it be said that the Government is deprived of the funds due to it or any loss is caused to the Government. It may be noted that the prevailing rate of interest chargeable/payable u/s 201(1A)/244A are different, i.e., the rate of interest payable u/s 244A is lesser than the interest chargeable u/s 201(1A) of the Act. Due to this disparity, a question may arise as to the correctness of the view taken by us in the preceding paragraphs. In our view, the rate of interest is prescribed by the Government on the basis of various factors. The main principle considered by us is that pronounced by the Hon'ble Courts, viz., that, interest is compensatory in nature for depriving funds belonging to the revenue/assessee. Hence the disparity in the rate of interest shall not have any effect on the said principle. On the issue of levy of interest u/s 201(1A) matter restored to DCIT(TDS) to verify whether or not the recipients of the interest income, viz., the partnership firms were liable to pay tax on that income and then take appropriate decision about the chargeability of interest u/s 201(1A) of the Act in the hands of the assessees herein in accordance with the principles discussed by us in the preceding paragraphs.
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