TMI Blog2009 (3) TMI 636X X X X Extracts X X X X X X X X Extracts X X X X ..... ting an interest provision account in its books. No interest was being applied to individual deposit account which run into crore of deposits, because of non-computerization of the accounts, mainly as per terms of the schemes, which were mainly recurring in nature, interest which was payable on the deposit account was variable vis-a-vis instalments deposited by the depositor, tenure of the account is also one of the relevant factor which would determine the amount of interest, the other factor is whether payment was received on maturity or pre-maturity would decide the amount of interest. Thus, in the absence of proper computerization of accounts and looking to the volume of business, it was not possible for the assessee-company to mainly credit interest individual account and more so when different rates of interest were applicable to different accounts. The assessee had deducted the TDS on actual payment of interest to the depositors and deposits such TDS in the Government exchequer. The learned counsel for the assessee further pointed out that no order under section 201 for holding the assessee in default was passed. He pointed out that this indicates that as far as quantifica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia Mutual Benefit Co. Ltd. ( supra ) has examined this aspect in detail and found that the assessee was prohibited by reasonable cause for not deducting the TDS, more so, according to the ITAT, there was no default on the part of the assessee, relevant observations of the order of the ITAT are as under : "We have duly considered the submissions of the learned counsel to the effect that unless the payment forms income of the payee, it cannot be said that income has accrued to the payee. As mentioned earlier, Chapter XVII is a mode of recovery/collection of taxes. Deducting tax at source is one of the modes for recovery/collection of taxes. In some cases, the tax has to be deducted at source irrespective of the fact whether paid amount was the income of the payee whereas in other cases, the taxes have to be deducted at source for paying the amount as income. Both the circumstances may be explained by following examples. 27. Section 192 of the Act provides that any person responsible for paying any income chargeable under the head "Salary" shall, at the time of payment, deduct income-tax on the amount payable. This section has used the words "for paying any income chargeable unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will arise. The learned counsel s argument against such proposition bears no force and is to be dismissed. 30. However, it is settled law that penalty under section 271C is subject to the provisions of section 273B of the Act. This section reads as under : Notwithstanding anything contained in the provisions of clause ( b ) of sub-section (1) of section 271, section 271A, section 271AA, section 271B, section 271BA, section 271BB, section 271C, section 271D, section 271E, section 271F, section 271G, clause ( c ) or clause ( d ) of sub-section (1) or sub-section (2) of section 272A, sub-section (1) of section 272AA or section 272B, sub-section (1) of section 272BB or sub-section (1) of section 272BB or clause ( b ) of sub-section (1) or clause ( b ) or clause ( c ) of sub-section (2) of section 273, no penalty shall be imposable on the person or the assessee, as the case may be, for any failure referred to in the said provisions if he proves that there was reasonable cause for the said failure. 31. We have, therefore, examined whether there was any reasonable cause with the assessee to feel that the tax was not to be deducted at source as the interest payable by the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat if the liability was contingent whether the provisions of section 194A will be applicable was a contentious issue. The reason is obvious. Section 194A enjoins upon a person to tax at source who is responsible for paying to a resident any income by way of interest. If the liability was contingent then there was no responsibility of the assessee to make the payment. Similarly, the provisions are applicable to "any person who is responsible for paying to a resident any income by way of interest". But if the interest is not due to the payee and the right to receive the interest is not vested in the payee whether such interest could be the income of the payee was also a debatable issue. On this ground also the explanation furnished by the assessee was bona fide. 33. Moreover, it is not a case of non-deduction of tax at source or non-payment of tax deducted. The tax has been deducted and the same has been paid also. It is also not a case of short deduction of tax or short payment of tax. The dispute was only limited to the time when the tax was to be deducted at source. The assessee felt that unless the order under section 201(1) was passed holding the assessee in default, no pen ..... X X X X Extracts X X X X X X X X Extracts X X X X
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