2001 (2) TMI 110 - HC - Income Tax

Summary

Issues Involved:
The issues involved in this case are:
1. Interpretation of section 194C for levy of interest u/s 201(1A)
2. Applicability of the decision in CIT v. Kannan Devon Hill Produce Co. Ltd. [1986] 161 ITR 477 (Ker)

Interpretation of Section 194C for Levy of Interest u/s 201(1A):
The case involved a contractor who sub-contracted work and deducted tax at source, but the amount deducted was less than required. The Assessing Officer issued a show-cause notice for charging interest u/s 201(1A). The assessee argued that the sub-contractor had paid excess tax resulting in a refund, thus no loss of revenue occurred. The appellate authority referred to relevant case laws and canceled the interest. The Tribunal emphasized the timing of tax payments by the sub-contractor and directed the Assessing Officer to reevaluate the interest charged u/s 201(1A). The Revenue appealed, arguing that the assessee's duty to deduct tax is clear under section 201(1A) and interest is mandatory. Citing case laws, the court held that interest is compensatory for withholding tax and is mandatory under section 201(1A). The court differentiated between sections 201 and 201(1A), stating that interest accrues automatically on failure to pay tax by the due date. Consequently, the court upheld the levy of interest u/s 201(1A) due to the delayed payment of the deducted amount.

Applicability of CIT v. Kannan Devon Hill Produce Co. Ltd. [1986] 161 ITR 477 (Ker):
The court addressed the applicability of the decision in CIT v. Kannan Devon Hill Produce Co. Ltd. [1986] 161 ITR 477 (Ker) to the present case. The Revenue argued that the decision was not relevant as it pertained to section 201, not section 201(1A). The court agreed, emphasizing that section 201(1A) imposes a duty on the assessee to pay interest for non-deduction of tax. The court held that the decision in Kannan Devon Hill Produce Co. Ltd.'s case is not applicable to the facts of the present case.

Conclusion:
The High Court of Kerala disposed of the income-tax reference by affirming the levy of interest u/s 201(1A) and ruling that the decision in Kannan Devon Hill Produce Co. Ltd.'s case [1986] 161 ITR 477 (Ker) was not applicable to the case at hand.