1996 (4) TMI 114 - HC - Income Tax

Summary

Issues:
1. Interpretation of Section 199 of the Income-tax Act regarding the credit for tax deducted at source.
2. Validity of withdrawing interest originally allowed under section 214 and charging interest under section 215.

Interpretation of Section 199 - Credit for Tax Deducted at Source:
The case involved a dispute regarding the interpretation of Section 199 of the Income-tax Act concerning the credit for tax deducted at source. The Income-tax Appellate Tribunal initially held that the credit for tax deducted at source should be given for the assessment year relevant to the previous year in which the tax was deducted. However, upon appeal, the Commissioner of Income-tax set aside this decision, stating that the tax in question was rightly allowed in the original assessment order for the assessment year 1977-78. The Tribunal further analyzed sections 194A, 200, and 199 of the Income-tax Act, emphasizing the timing of tax deduction and deposit by the payer. The Tribunal found that the tax in question was deducted in December 1976 and February 1977, but it was required to be deposited within two months after the close of the accounting year, falling within the year 1978-79. Therefore, the assessee was not entitled to claim the deduction in the assessment year 1977-78.

Validity of Interest Withdrawal under Section 214 and Charging under Section 215:
The dispute also involved the validity of withdrawing interest originally allowed under section 214 and charging interest under section 215. The Income-tax Officer had withdrawn the interest originally allowed under section 214 and charged interest under section 215, a decision that was upheld by the Income-tax Appellate Tribunal. However, upon further review, the High Court found that the Tribunal's decision was not in accordance with the law. The High Court referred to the provisions of section 154 and the case law of CIT v. Tanjore Permanent Bank Ltd., emphasizing that the tax credit should be given only when the tax is paid on the income for which deduction was made at source and offered for assessment. The High Court concluded that the Tribunal was not justified in confirming the Income-tax Officer's decision to withdraw interest under section 214 and charge interest under section 215.

Conclusion:
In conclusion, the High Court ruled in favor of the assessee and against the Revenue, stating that the Income-tax Appellate Tribunal's interpretation of Section 199 was incorrect. The High Court held that the credit for tax deducted at source should be given for the assessment year relevant to the previous year in which the tax was deducted. Additionally, the High Court found that the decision to withdraw interest originally allowed under section 214 and charge interest under section 215 was not justified. Therefore, the reference was answered in favor of the assessee, with no order as to costs.