2005 (10) TMI 80 - HC - Income Tax

Summary

Issues:
1. Whether the assessee was in default under section 194A of the Act for not deducting tax at source?
2. Whether the assessee's action of not deducting tax at source was justified based on the exemption granted by the competent authority?
3. Whether the Tribunal's decision regarding the tax deduction at source was correct?

Analysis:

1. The primary issue in this case was whether the assessee was in default under section 194A of the Act for not deducting tax at source. The assessee had credited a sum of Rs. 26,35,746 as interest payable to a company on March 31, 1995, without deducting tax at source. The Assessing Officer held the assessee to be in default, but the Commissioner of Income-tax (Appeals) and the Tribunal took a contrary view, stating that there was no default on the part of the assessee.

2. The second issue revolved around whether the assessee's action of not deducting tax at source was justified based on the exemption granted by the competent authority. The company to which the interest was payable had intimated the assessee about its exemption from income tax and the application for an exemption certificate from tax deduction at source. The competent authority later issued an order granting exemption to the assessee from deduction of tax at source. The Tribunal held that the assessee was entitled to take cognizance of the information received after the accounting period but before the closure of the accounts, and that the intimation to the payee about the exemption order within the available two months period absolved the assessee from default.

3. The final issue was whether the Tribunal's decision regarding the tax deduction at source was correct. The High Court concurred with the Tribunal's view, stating that there was no real default in compliance with the provision regarding tax deduction at source. The Court emphasized that the competent authority had authorized the non-deduction of tax at source before the deadline for depositing any deducted amount. Consequently, the Court dismissed the appeal, ruling that no substantial question of law arose for consideration.

In conclusion, the High Court upheld the Tribunal's decision, emphasizing that the assessee was not in default for not deducting tax at source due to the exemption granted by the competent authority within the specified timeframe.