1988 (6) TMI 57 - AT - Income Tax

Summary

Issues:
1. Computation of interest under section 215.

Analysis:
In this case, the assessee, a private limited company, was engaged in holding investments and financing industrial enterprises. The issue revolved around the computation of interest under section 215. The Income Tax Officer (ITO) noted that the assessee had filed an estimate of advance tax after deducting the estimated Tax Deducted at Source (TDS) on interest receivable by it. The ITO observed that the interest received by the assessee was from companies that credited the interest to the interest payable account instead of the assessee's account. TDS was not deducted at that time. The assessee debited the interest receivable to the interest receivable account and offered it for taxation. The ITO charged interest under section 215 without giving credit for TDS for the computation of advance tax, despite TDS certificates being produced during assessment. The CIT(A) upheld the ITO's decision.

The primary contention raised by the assessee was regarding the interpretation of the term 'assessed tax' under section 215(5) of the Act. The assessee argued that the ITO should have considered the credit for the amount of tax deducted at source, even if it was not deducted during the financial year. The assessee relied on the Madras High Court decision in CIT vs. Madras Fertilizers Ltd. to support their argument. On the other hand, the Departmental Representative supported the ITO's decision, stating that since TDS was not deducted during the financial year, the ITO was justified in ignoring the credit for tax from the interest income.

The Tribunal analyzed the definition of 'assessed tax' under section 215(5) and concluded that the term should be understood as the tax finally assessed reduced by the amount of tax deductible. The distinction between 'deductible' and 'deducted' was crucial in interpreting the provision. Referring to the Madras High Court decision, the Tribunal held that where there was a possibility of deduction of tax at source, the person failing to deduct tax was liable to pay interest, not the assessee. Therefore, the Tribunal set aside the CIT(A)'s order and directed the ITO to give credit for the amount of tax deducted at source in the computation of interest income. The Tribunal emphasized that such credit for TDS should also be considered in the computation of interest under section 215.

In conclusion, the appeal succeeded in part, and the Tribunal allowed it accordingly.