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2007 (5) TMI 141 - AT - Income TaxDeduction of tax at source AO contended that assessee was liable to deduct tax u/s 195(1) on the payment of usance interest and accordingly demand were made along with interest Demand was confirmed and interest would be payable by assessee right from the date when liability to deduct tax at source arose
Issues Involved:
1. Deletion of interest levied under section 201(1A) of the Income-tax Act, 1961. 2. Upholding the demand on account of TDS. 3. Determination of the date from which interest under section 201(1A) is chargeable. Issue-wise Detailed Analysis: 1. Deletion of Interest Levied Under Section 201(1A): The Revenue contended that the Commissioner of Income-tax (Appeals) erred in deleting the interest of Rs. 1,70,817 levied under section 201(1A) of the Income-tax Act, 1961, arguing that the provisions of section 201(1A) are mandatory and not subject to retrospective amendment. The assessee argued that the interest should be levied only from the date of the Gujarat High Court's decision in the case of Vijay Ship Breaking Corporation [2003] 261 ITR 113, which contradicted the earlier Andhra Pradesh High Court's decision in Visakhapatnam Port Trust [1983] 144 ITR 146. The Commissioner of Income-tax (Appeals) deleted the interest, citing the Supreme Court's decision in Star India P. Ltd. v. CCE [2006] 280 ITR 321, which held that interest, being quasi-punitive, should not be levied retrospectively. However, the Tribunal noted that interest under section 201(1A) is compensatory and mandatory, and thus, should be levied from the date the tax was deductible, i.e., the date of the Gujarat High Court's decision. 2. Upholding the Demand on Account of TDS: The assessee argued that the Commissioner of Income-tax (Appeals) erred in upholding the demand of Rs. 6,72,949 on account of TDS, contending that the decision in the case of CIT v. Vijay Ship Breaking Corporation [2003] 261 ITR 113 (Guj) should not apply. The Tribunal, however, upheld the Commissioner of Income-tax (Appeals)'s decision, stating that the assessee was liable to deduct TDS on usance interest from the date of the Gujarat High Court's decision. 3. Determination of the Date from Which Interest Under Section 201(1A) is Chargeable: The key issue was whether interest under section 201(1A) should be charged from the date of payment of usance interest or from the date of the Gujarat High Court's decision in Vijay Ship Breaking Corporation [2003] 261 ITR 113. The Accountant Member held that interest should be charged from the date of the High Court's decision, while the Judicial Member opined that it should be from the date of payment of usance interest. The Third Member, agreeing with the Judicial Member, concluded that the liability to deduct tax at source and pay interest under section 201(1A) existed from the date of payment of usance interest, as the law as interpreted by the Gujarat High Court was always in existence. The Tribunal emphasized that the decision of the High Court merely clarified the law, which had always been in force, and thus, the interest was chargeable from the date of payment of usance interest. Conclusion: The Tribunal concluded that the assessee was liable to deduct TDS on usance interest from the date of payment and to pay interest under section 201(1A) from that date until the tax was actually paid. The appeal of the Revenue was partly allowed, and the cross-objections filed by the assessee were dismissed. The Tribunal directed the Assessing Officer to impose interest from the date of the Gujarat High Court's decision until the tax was paid. The Third Member's decision confirmed that the interest under section 201(1A) is compensatory and mandatory, and thus, applicable from the date of payment of usance interest.
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