2002 (10) TMI 37 - HC - Income Tax

Deduction and payment of income-tax at source in time in terms of section 194C - assessee made the payment on March 13 1990 obviously with substantial delay. The Assessing Officer demanded interest amounting to Rs. 28, 834 under section 201(1A) of the Income-tax Act. There is no dispute on the amount of interest computed under section 201(1A) if the assessee is otherwise liable. The only contention raised against the demand of penal interest is the limitation provided under section 231 of the Income-tax Act which stands deleted by the Direct Tax Laws (Amendment) Act of 1987 with effect from April 1 1989. - The limitation under section 231 so far as the interest is concerned applies only with reference to the date of demand. Since the date of demand itself is taken as the proceedings for recovery the question of limitation does not apply at all in this case. Therefore the assessee cannot contend that the assessee was an assessee in default and the limitation for recovery of interest has to be reckoned from the commencement of the financial year.

Summary

Issues:
1. Applicability of limitation under section 231 of the Income-tax Act for recovery of interest demanded.
2. Interpretation of the term "assessee in default" in relation to interest for default in payment of tax.
3. Calculation of interest under section 201(1A) of the Income-tax Act.

Analysis:

Issue 1: Applicability of limitation under section 231
The case involved a society that made payments to a contractor without deducting income tax at source in time. The Assessing Officer demanded interest under section 201(1A) of the Income-tax Act. The contention raised was regarding the limitation provided under section 231, which was deleted by an amendment. The Tribunal held that there was no limitation for the recovery of interest demanded due to the deletion of section 231. The court reasoned that since the repeal of section 231 was effective before the expiry of the limitation period, the Department was entitled to demand interest even for the first year of default up to a certain date. The court concluded that the demand of interest was within time, as the repeal of section 231 removed the limitation.

Issue 2: Interpretation of "assessee in default"
The court examined the term "assessee in default" in the context of interest for default in payment of tax. It was argued that the assessee should be treated as an assessee in default from the end of the financial year in which the default occurred. The court clarified that under section 201, the default is only in respect of tax payable, not interest. The court emphasized that interest under section 201(1A) is demanded by the officer after the payment of tax by the assessee. Therefore, the limitation for recovery of interest applies with reference to the date of demand, not the commencement of the financial year. The court held that there was no limitation under section 231 for the demand of interest in this case.

Issue 3: Calculation of interest under section 201(1A)
The court distinguished a previous case where interest could not be demanded as tax was not payable. In the present case, the assessee had paid the tax, albeit with a delay, making them an assessee in default until the payment date. The court clarified that section 231 does not apply to interest for default in payment of tax. Interest under section 201(1A) is demanded separately from tax, and the limitation for interest recovery is based on the date of demand. Since the demand date was considered the start of the recovery proceedings, the court concluded that there was no limitation for the demand of interest. The Tribunal's decision in favor of the Revenue was upheld, and the questions raised were answered against the assessee.