2000 (9) TMI 208 - AT - Income Tax

Summary

Issues Involved:
1. Whether the assessee can be deemed to be in default under Section 201(1) of the Income Tax Act.
2. Whether interest is chargeable under Section 201(1A) of the Income Tax Act.
3. Determination of the period for which interest is chargeable under Section 201(1A) of the Income Tax Act.

Issue-Wise Detailed Analysis:

1. Default under Section 201(1) of the Income Tax Act:
The primary issue revolves around whether the assessee, a textile manufacturer, can be deemed to be in default for not deducting tax at source as required under Section 194C of the Act. The Assessing Officer (AO) held the assessee as a deemed defaulter for failing to deduct tax at source on payments made for job work, amounting to Rs. 1,02,01,292, and directed the assessee to pay Rs. 2,28,508 under Section 201(1). The assessee contended that there was no contract necessitating tax deduction and that payments below Rs. 10,000 per contract should be excluded. The CIT(A) accepted the assessee's contention that defaults made good by recipients before initiating proceedings under Section 201(1) should not lead to recovery from the assessee. The matter was remanded to the AO to verify if the tax was paid by recipients before 28th March 1994.

2. Interest Chargeable under Section 201(1A) of the Income Tax Act:
The CIT(A) observed that interest under Section 201(1A) is chargeable independently of the default under Section 201(1). The CIT(A) interpreted that the interest is chargeable from the date of default to the date of payment by either the deductor or the recipient. The Tribunal upheld that interest is compensatory and chargeable till the date of tax payment by the recipient. The Tribunal disagreed with the Delhi Bench's interpretation in Salwan Construction Co. and followed the Rajasthan High Court's decision in Rathi Gum Industries, holding that interest is chargeable even if the recipient has paid the tax.

3. Period for Charging Interest under Section 201(1A) of the Income Tax Act:
The Tribunal concluded that interest under Section 201(1A) should be charged from the date of default to the date of payment by the recipient or up to 31st March 1993, whichever is earlier. The Tribunal rejected the Revenue's plea to charge interest till the date of passing the order under Section 201(1A), emphasizing that interest should be compensatory for the period the Revenue was deprived of funds.

Conclusion:
The Tribunal dismissed both the Revenue's and the assessee's appeals. The Tribunal upheld the CIT(A)'s decision that the assessee is not in default under Section 201(1) if the recipients had paid the tax. However, the Tribunal held that interest under Section 201(1A) is chargeable till the date of tax payment by the recipients, aligning with the compensatory nature of interest and following the Rajasthan High Court's interpretation.