2003 (1) TMI 70 - HC - Income Tax

Computation of interest payable under section 201(1A) - Whether there cannot be any computation of interest payable under section 201(1A) of the Income-tax Act 1961 until there has been a deduction? - The use of the expression shall in sub-section (1A) makes the liability to pay interest in the circumstances mentioned mandatory. question is answered in negative

Summary

Issues: Interpretation of Section 201(1A) of the Income-tax Act, 1961 regarding the computation and levy of interest on tax deducted at source.

Analysis:
The judgment involves a detailed analysis of the interpretation of Section 201(1A) of the Income-tax Act, 1961, specifically concerning the computation and levy of interest on tax deducted at source. The appellant argued that interest cannot be levied under Section 201(1A) unless there has been a deduction and the date of such actual payment is discernible. The appellant relied on a Tribunal decision in Ess Kay Construction v. Asst. CIT [1997] 58 Taxman 32 to support their argument. However, the court emphasized that the language used in Section 201(1A) is different from other sections like 220(2) and 221, and the concept of continuing default is inherent in these sections. The court clarified that Section 201(1A) mandates the payment of interest at 15% per annum on the amount of tax deductible from the date it was so deductible until it is actually paid, without any pre-condition of reasonable cause for non-payment. The liability to pay interest is absolute and mandatory, with the interest being payable continuously until the tax amount is actually paid. The court also referenced previous decisions to support the interpretation of Section 201, emphasizing that interest can be charged irrespective of whether the tax amount due is deducted by the defaulting party or not. The judgment dismissed the appeal, stating that there is no substantial question of law involved for admission.

In conclusion, the judgment provides a comprehensive analysis of the provisions of Section 201(1A) of the Income-tax Act, 1961, emphasizing the mandatory and continuous nature of the interest payment on tax deducted at source. The court's interpretation clarifies that the liability to pay interest arises from the date the tax was deductible until the actual payment is made, without any requirement of a reasonable cause for non-payment. The judgment reinforces the importance of complying with tax deduction obligations and the consequent interest liabilities as prescribed by the law.