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2020 (12) TMI 1192 - AT - Income TaxTDS u/s 195 - interest income accrued in the hands of the foreign entity - Interest was waived later - Liability to deduct TDS on accrual basis - demand u/s. 201(1) and 201(1A) - HELD THAT:- Section 195 specifies that taxes will have to be deducted either at the time of credit of such income in the account of the payee or at the time of payment thereof in cash or any other mode. In the case of the assessee there is no interest credited to the payee's account and there was no payment made as per books of account. No expenditure was claimed towards interest payable. In the light of these facts, we find that the provisions of section 195 is not applicable. As per the terms of agreement, the interest for the F.Y. 2010-11 was required to be credited on 30.04.2011 and during this period, there was no interest required to be credited also. There was no expenditure accrued during the previous year and also claimed and hence, the provisions of section 195 of the Act has no application. The interest payable was eventually waived, therefore, the assessee had not paid any interest. Since no interest was paid or claimed as expenditure, the provisions of section 195 of the Act cannot be applied. As decided in the case of CIT vs. Kalyani Steels Ltd [2018 (5) TMI 152 - KARNATAKA HIGH COURT] wherein it was held that if there is no income embedded in a payment there is no tax deductible at source. In the case of the assessee neither any interest is paid nor provided for in the books as payable. Further, an amount which will not be included in the total income of a person cannot be considered as "income" for the purpose of deduction of tax at source at all. The purpose of deduction of tax at source is not to collect a sum which is not a tax levied under the Act, it is to facilitate the collection of tax lawfully leviable under the Act. For the aforesaid reasons, we hold that the liability to deduct tax did not arise in the year under consideration. Whether the order passed u/s. 201(1) and 201(1A) of the Act for the assessment year 2011-12, was barred by limitation? - In the instant case, the financial year concerned is 2010-11 and notice for initiating proceedings u/s. 201(1)/201(1A) was issued on 19.03.2018. The orders u/s. 201(1)/201(1A) of the I.T. Act was finally passed on 31.03.2018, which is seven years from the end of the financial year. Therefore, it cannot be stated in facts of this case, the order u/s. 201(1)/201(1A) was passed within a reasonable time, going by the dictum laid down by the judicial pronouncement mentioned supra and the prescription of limitation mentioned u/s. 201(3) and (4) of the I.T. Act. Similar view was taken in the case of M/s. U.S. Technology Resources (P) Ltd. [2018 (4) TMI 991 - ITAT COCHIN] wherein the present Accountant Member was the co-author of the said order. In view of the aforesaid reasoning, we hold that the order passed u/s. 201(1)/201(1A) of the I.T. Act was barred by limitation in the facts and circumstances of the case.
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