2005 (4) TMI 54 - HC - Income Tax

Allegation that assessee had delayed in payment of TDS by the mode of not crediting the account of the payees but effecting the credit in the interest payable account explanation inserted in Sec. 194A w.e.f. 1-6-87 is prospective hence for the disputed period, liability for deduction of tax at source arose only when the amount of interest was credited to the account of the payee or at the payment - so there is no default in respect of TDS pertaining to the interest credited/paid on deposits

Issues Involved:
1. Whether the Tribunal was justified in confirming the view taken by the Commissioner of Income-tax (Appeals) that there had been no default on the part of the assessee in respect of TDS pertaining to the interest credited/paid on deposits.

Detailed Analysis:

Issue 1: Justification of Tribunal's Decision on TDS Default

Facts and Context:
- The case pertains to the assessment year 1985-86 concerning the charge of interest under section 201(1A) of the Income-tax Act, 1961.
- The respondent-assessee, a public limited company, followed a mercantile system of accounting. It credited interest to an "interest payable account" rather than directly to the payees' accounts.
- The Assessing Officer deemed this as a delay in TDS payment, treating the credit to the "interest payable account" as equivalent to crediting the payees' accounts, thus levying interest for the delay.

Commissioner of Income-tax (Appeals) Decision:
- The Commissioner of Income-tax (Appeals) allowed the appeal, reducing the interest charge from Rs. 87,898 to Rs. 3,448.
- The Commissioner noted that the law required TDS deduction when interest is credited to the account of the party, but in this case, the interest was credited to the "interest payable account," not directly to the payees' accounts.
- The Explanation to section 194A(1), inserted by the Finance Act, 1987, effective from June 1, 1987, was intended to address such scenarios but was not applicable to the period in question.

Tribunal's Decision:
- The Tribunal upheld the Commissioner's decision, agreeing that there was no default in TDS deposit as the interest was credited to the "interest payable account" and not directly to the payees' accounts.

Legal Arguments:
- The Revenue argued that under section 194A(1), TDS should be deducted when interest is credited to any account, including "interest payable account," referring to Circular No. 288, dated December 22, 1980.
- The Revenue cited several cases supporting that crediting to an "interest payable account" should trigger TDS deduction.

Court's Analysis and Conclusion:
- The court noted that the Explanation to section 194A(1) was effective from June 1, 1987, and was not applicable to the assessment year 1985-86.
- The court emphasized that the liability for TDS under section 194A(1) arose only when interest was credited to the payees' accounts or paid, not when credited to an "interest payable account."
- The court agreed with the Tribunal and Commissioner that the unamended provisions of section 194A(1) did not impose TDS liability for credits to an "interest payable account."
- The court referenced various judgments supporting the view that the Explanation was prospective and imposed a new liability, thus not applicable retrospectively.

Final Judgment:
- The court answered the referred question in the affirmative, in favor of the assessee, and against the Revenue, confirming that there was no default in TDS deposit by the assessee for the period in question.
- No order as to costs was made.

This comprehensive analysis ensures that all relevant legal terminology and significant phrases are preserved, providing a detailed understanding of the judgment on each issue involved.

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