TMI Blog1986 (10) TMI 100X X X X Extracts X X X X X X X X Extracts X X X X ..... located at Madurai and branches at Teni, Hubli and Chilakaluripet. The assessee follows calendar year as the accounting year. The ITO completed the assessment for the assessment year 1978-79 on 10-7-1980 and for the assessment year 1979-80 on 28-10-1980. On 10-7-1980 the ITO required the assessee to explain why tax had not been deducted under section 194A on the entire interest amount credited to the accounts of certain specified parties which were companies. The assessee in its letter dated 4-8-1980 replied that the obligation to deduct tax at source arose only in the case of real payment of interest and as the accounts were consolidated at the head office, tax had been deducted on the net interest payable and, therefore, no further deduction of tax at source as required by the ITO was called for. It was also maintained by the assessee that if tax is deducted before the end of the financial year, which has been actually done in this case, provisions of section 194A(4) were complied with. The ITO by his letter dated 31-3-1983 pointed out that according to section 194A tax is deductible at source every time the amount is credited to the account of the creditor whether it is in the h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee's books, there is no obligation whatsoever for the assessee to deduct tax and pay to the Government." In other words the major ground of the assessee was that unless and until the accounts of the various parties are consolidated in the head office no liability for deduction of tax under section 194A arose and the entries in the account books of the branches did not create such liability. The Commissioner (Appeals) reproduced the relevant facts relating to the parties, such as the amount of interest credited, tax deductible at source, tax deducted and the balance of tax to be deducted separately for the assessment years 1978-79 and 1979-80 in paragraphs 2 and 7 of his impugned order. The Commissioner (Appeals) accepted the contentions of the assessee and observed as under : "At the end of the accounting year all the branches submit their ledger accounts to the head office and the head office consolidates these accounts. It is only then the head office discovers whether net interest is payable to a party or is receivable from the party. If net interest is payable then the head office credits a party with that amount of interest and deducts tax at source under sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and vehemently contended that tax is to be deducted at source each and every time interest is credited to the accounts of the creditors in the books of account. He further submitted that sub-section (1) of section 194A imposes the obligation either at the time of credit of interest or at the time of payment whichever was earlier and sub-section (4) of section 194A only permitted adjustment of any excess or deficiency arising out of previous deductions of tax at source. Therefore, he urged that the orders of the Commissioner (Appeals) should be reversed and that of the ITO be restored. 5. Shri R. Santhanakrishnan, the learned counsel for the assessee, vehemently supported the reasons and conclusions drawn by the Commissioner (Appeals). He further submitted that sub-section (4) of section 194A permits even adjustments in case of failure to deduct tax at source and, therefore, the adjustments could legitimately be made at the end of the accounting year in the head office when the accounts of the branches were consolidated to ascertain the net position in respect of transactions with any specified party or creditor. He also supported the orders of the Commissioner (Appeals) by stati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... occasion when income-tax is to be deducted at source. In the case of the company the business transactions carried on in several branches could be said to be carried on for and on behalf of the company which is a statutory person. It is an admitted position in the grounds of appeal taken by the assessee before the Commissioner (Appeals) as well as the Commissioner (Appeals) in his appellate order that the head office merely consolidates the accounts of the various branches. Maybe a branch credits the account of a particular payee while another branch debits his account for different considerations. The head office merely consolidates the branch accounts only to find out the net balance payable to any particular payee or creditor. If interest is payable interest is credited to the accounts so as to arrive at the outstanding balance due to the creditor. The interest charged to the closing balance of a particular creditor goes to the debit of profit and loss account. Thus, it is only for the purpose of double entry accounting and to determine the net profit of a particular year it is necessary to ascertain the net balance payable to any particular creditor and the net interest payabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not warranted. Sub-section (4) of section 194A itself specifies company as a person responsible which also includes the principal officer thereof for the purpose of enforcing the default. 9. The Madras High Court had occasion to consider the implications of section 194A vis-a-vis the interest charged under section 201(1A) in the case of Southern Brick Works Ltd. v. CIT [1984] 146 ITR 479. The relevant portion of the judgment reads as under : "In this case, we are concerned with section 194A of the Act. Section 194A uses the expression 'at the time of the credit of such income to the account of payee or at the time of the payment thereof, in cash or by the issue of a cheque or draft or by any other mode whichever is earlier'. Therefore, if there has been a credit of the interest to the account of the creditor, that can be taken into account for the purpose of section 194A. Therefore, at the time of the credit of the interest to the account of the managing agents the liability to deduct tax on the amount of interest arises as per section 194A and consequently the liability to pay the tax to be deducted also arises. We are not inclined to agree with the contention of the learn ..... X X X X Extracts X X X X X X X X Extracts X X X X
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