TMI Blog1998 (3) TMI 96X X X X Extracts X X X X X X X X Extracts X X X X ..... e question referred is worded as under: "Whether the Appellate Tribunal is right in law and on facts in holding that interest under section 215 of the Income-tax Act should not be levied without giving credit for tax deducted at source ?" In I.T.R. Nos. 219 of 1991, 227 of 1991, 234 of 1991, 14 of 1992, 60 of 1992, 61 of 1992 and 283 of 1992 the question referred reads as under : "Whether the Appellate Tribunal is right in law and on facts in holding that interest under section 215 should be charged after giving credit for the tax deducted at source which was not actually deducted during the year but was actually deducted and paid in the next year ?" In I.T.R. Nos. 270 of 1995, 62 of 1996, 66 of 1996, 68 of 1996 and 69. of 1996, the question referred is worded as under : "Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is right in holding that it is the tax deductible at source and not the tax actually deducted at source which is to be taken into consideration while computing the interest under section 215 of the Income-tax Act, 1961 ?" In I.T.R. No. 185 of 1991, the question referred is worded as under: "Whether the Appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 215 of the Income-tax Act should not be deducted at source ?" In I.T.R. No. 285 of 1992, the question referred is worded as under: "Whether the Appellate Tribunal is right in law and on facts in holding that interest under section 215 should be levied after giving credit for tax deducted at source which was not actually deducted during the year but deducted and paid in the next year ?" Though questions are worded slightly differently, the controversy involved is the same and boils down to the aspect whether in the said definition of the words "assessed tax" incorporated in sub-section (5) of section 215 of the Act for the purpose of sections 215, 217 and 273, the tax determined on the basis of the regular assessment is to be reduced by the amount of tax which was deductible at source under the provisions mentioned therein or it was to be reduced by the amount of tax actually deducted in accordance with those provisions. According to the Revenue, it is the amount of tax which is actually deducted at source, which was to be reduced from the tax determined at the regular assessment while according to the assessee, the amount of tax which was deductible was required to be r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d of the lead matter, being Income-tax Reference No. 105 of 1990. Since in all these matters, the Tribunal has incorporated by reference its reasoning in its earlier decision in Kanchanjunga Investments Pvt. Ltd., we would refer to that reason to the extent that it is relevant to the question involved in these references. The aspect of interest under section 215 was considered in detail by the Tribunal in paragraphs 5 onwards of its decision dated June 7, 1988, in the case of Kanchanjunga Investments Pvt. Ltd. In that case, the assessee had filed the estimate of advance tax after deducting from tax payable on current income the amount of estimated tax deductible at source on interest income receivable by it. The Income-tax Officer analysed the question of deductibility of the tax deductible at source for computation of advance tax payable and noted that the entire interest income received by the assessee was from companies. When the interest became due to the assessee at the end of their previous year, instead of crediting the interest amount to the assessee's account, they credited the same to "interest payable account". At that point of time no credit whatsoever was given to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at in view of the specific meaning of the expression "assessed tax", the word "deductible" occurring in section 215(5) could not be confused for the meaning of the term "deducted". The Tribunal relied upon the decision of the Madras High Court in CIT v. Madras Fertilisers Ltd. [1984] 149 ITR 703, in which the High Court while construing the provisions of section 215 of the Act, held that, where the tax was deductible at source, the person who had failed to so deduct the tax at source, was liable to pay interest and not the assessee, as otherwise, there would be charging of interest twice on the amount of tax in relation to such income. The Tribunal directed the Income-tax Officer to give credit for the amount of tax deducted at source in computation of the interest income of the assessee. We have referred to the reasoning adopted by the Tribunal in the context of the facts of Kanchanjunga Investments, because, as held by the Tribunal in its decisions from which the aforesaid references arise, the facts of all these cases are also similar and the point involved identical, the Tribunal had followed its decision in Kanchanjunga Investments' case. Both the sides have made their content ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t source, was to recover the tax payable by the assessee and if there was a shortfall, to compensate the Revenue for loss of interest by making the assessee liable to pay interest at the prescribed rate, if the difference between the advance tax payable and the assessed tax was wider than 25 per cent. It was, therefore, submitted that the word "deductible" in section 215(5) should be understood as the tax actually deducted. Even if it was to be read as deductible, there was nothing which was required to be deducted after the credit of interest and since no amount remained deductible after the credit in the "income payable" and "income receivable" accounts of the parties, there was no question of reducing any deductible tax from the tax assessed at the regular assessment. It was contended that the provisions of sections 199, 202 and 205 indicate that it is only when the tax is actually deducted at source that the liability of the assessee ceases. It was submitted that if the tax is not deducted at source and it is treated as a deductible tax to be reduced from the assessed tax and no interest is to be charged thereon, it would frustrate the very object underlying section 215 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted in accordance with sub-clause (iii) that was, subject to clauses (c) and (d), to be the advance tax payable. Chapter XVII of the Act deals with collection and recovery of tax and as provided by section 190(1), notwithstanding the fact that the regular assessment in respect of any income is to be made in a later assessment year, the tax on such income shall be payable by deduction at source or by advance payment, as the case may be, in accordance with the provisions of this Chapter. The provisions regarding deduction at source are contained in sections 192 to 206B falling in Part "B" of Chapter XVII while the provisions regarding advance payment of tax contained in sections 207 to 219 fall in Part "C" of the said Chapter. As provided under section 191, in the case of income in respect of which provision is not made under this Chapter for deducting income-tax at the time of payment, and in any case where income-tax has not been deducted in accordance with the provisions of this Chapter, income-tax shall be payable by the assessee direct. Income-tax is deductible at source in respect of any interest other than interest on securities as provided by section 194A of the Act, which, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the Government. As provided by section 205 of the Act, where tax is deductible at the source, the assessee shall not be called upon to pay the tax himself to the extent to which it has been deducted from the relevant income. Thus, from the aforesaid provisions it emerges that as soon as the tax is actually deducted at source by the person responsible to make payment, the liability of the assessee to pay that tax gets discharged and it is for the person who has deducted the tax at source to deposit the same with the Government. If the tax is not so deducted, then as noticed above, it remains payable by the assessee direct under section 191 of the Act. The consequences of failure to deduct the tax at source or failure to pay the tax deducted to the Government, are provided for in section 201 of the Act as per which, if no deduction is made or if the deducted amount is not paid as required by the Act, the person whose duty it was to deduct the tax at source and to pay, is to be treated as an assessee in default in respect of the tax, but no penalty is to be charged under section 221 from such person, if the Income-tax Officer is satisfied that the failure to deduct and pay the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid down in clause (a), or, as the case may be, sub-clause (i) of clause (d) of sub-section (1) of section 209, and such amount of advance tax is to be paid in equal instalments on the dates applicable in his case under section 211 of the Act. While computing the advance tax payable by him as per section 209(1)(a), the income-tax calculated as per sub-clauses (i) and (ii) of clause (a) of sub-section (1), is required to be reduced by the amount of income-tax, which would be deductible during the said financial year in accordance with the provisions of sections 192 to 194, 194A, 194C, 194D and 195 on any income (as computed before allowing any deductions admissible under the Act) on which tax is required to be deducted under the said sections and which has been taken into account in computing the said total income. It is only the net amount of income-tax calculated as per clause (iii) of section 209(1) that is to be the advance tax payable. We now come to the provisions of section 215 to which the question referred to us relates and which is required to be interpreted, keeping in view the aforesaid scheme of deduction at source and payment of advance tax by assessees. The relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee on the amount by which the advance tax paid falls short of the assessed tax. The words "assessed tax" occurring in sub-section (1) of section 215 are to be read in the light of the special meaning given to them under sub-section (5) of section 215 and accordingly assessed tax would mean not the full amount of the assessed tax determined on the basis of the regular assessment, but the amount reduced therefrom to the extent of tax deductible in accordance with the provisions of sections 192 to 194, 194A, 194C, 194D and 195 so far as it related to income subject to advance tax and so far as it is not due to variations in the rates of tax. The words "reduced by the amount of tax deductible in accordance with the provisions of sections 192 to 194, 194A, 194C, 194D and 195", which appear in sub-section (5) of section 215 also occur in clause (iii) of section 209(1)(a). The amount of tax deductible in accordance with section 194A would obviously mean the tax as was required to be deducted in respect of the interest income at the time of credit to the account of the payee or payment whichever is earlier. If the Legislature wanted only the tax actually deducted to be reduced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the account of the payee" in section 194A would take within their sweep the interest debited to "interest account" or any other nominal account when the debit is for a specific amount calculated with reference to the deductor's liability to a particular creditor in accordance with the terms and conditions of the loan. In such cases the interest payable to a creditor has been constructively credited to the account of the payee and the apparent nomenclature of the particular account in which the credit is made would not be conclusive of the matter. The nominal accounts like "interest payable account", "liability for expense account" or "suspense account" are heads or captions meant to cover only stray transactions of unidentifiable receipts and payments. Except in stray cases, failure to credit the interest to the account of the payee cannot also be called a method of accounting regularly employed within the meaning of section 145(1) of the Act and would not, therefore, be accepted as an explanation for the consequential failure to deduct the tax at source. The time of deduction would be when the interest is credited. Thus understood, the expression "at the time of credit of such in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , ultimately came to be discharged when the amount deposited was given credit to in the regular assessment. The liability to pay interest, however, got fastened on the payer from the date when it credited the amount in the "interest payable account" and it continued till the tax came to be actually paid, in view of the provisions of section 201(1A) of the Act. The question is whether the assessee who became liable to pay the tax as it was not deducted at source, also became liable to pay interest under section 215 of the Act. The payment of tax and interest have been separately dealt with in law. When, on regular assessment, the assessee is found to be liable to pay tax higher than the advance tax paid by him and the tax deducted at source, his liability to pay interest would arise under section 220(2) only after issuance of a demand notice under section 156 specifying tax, interest, penalty, fine or any other sum payable in consequence of any order passed under the Act. The liability to pay interest under section 215 would, however, arise only if the advance tax paid by the assessee is less than 75 per cent. of the assessed tax and the interest is payable till the date of regular ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olute while the liability of the payer to pay interest for non-deduction of tax at source is mandatory and absolute and would arise even if the assessee was not liable to pay interest under section 215. This ensures that the payer will compensate the Revenue in respect of loss of interest on the amount of tax which he was required to deduct at the time of credit, but he did not, until it is paid. The fact that the Revenue does not proceed against the payer for recovery of interest would not make the assessee jointly and severally liable with him to pay interest on the amount of tax which by virtue of not being deducted, is required to be paid by the assessee. If the assessee fails to pay the tax which he is required to pay by virtue of section 191 due to failure on the part of the payer to deduct tax at source before furnishing the return under section 140A, the Income-tax Officer can impose penalty as provided by sub-section (3) thereof. If the amount is not paid after the demand notice, then there are provisions of section 220(2) under which the assessee would be liable to pay simple interest at 12 per cent. after the period specified under sub-section (1) of section 220. While ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
