2005 (5) TMI 236 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of interest levied under section 201(1A) of the Income-tax Act, 1961.
2. Liability to deduct tax at source (TDS) on usance interest.
3. Application of judicial decisions and their retrospective effect on tax liability.

Detailed Analysis:

1. Deletion of Interest Levied Under Section 201(1A):
The Revenue contended that the CIT(A) erred in deleting the interest of Rs. 3,68,632 levied under section 201(1A), arguing that the provisions of section 201(1A) are mandatory and not subject to retrospective amendment. The CIT(A) had deleted the interest based on the Supreme Court's decision in Star India (P.) Ltd., which held that interest liability created retrospectively is quasi-punitive and cannot be enforced. The Tribunal, however, noted that section 201(1A) mandates interest payment from the date the tax was deductible to the date it was actually paid. The Tribunal concluded that the assessee was liable to pay interest from the date of the Gujarat High Court decision in Vijay Ship Breaking Corpn. (20-3-2003) until the tax was paid.

2. Liability to Deduct Tax at Source on Usance Interest:
The assessee argued that no TDS was required on usance interest based on the Andhra Pradesh High Court's decision in Vishakhapatnam Port Trust, which was the prevailing law at the time. However, the Gujarat High Court in Vijay Ship Breaking Corpn. later held that TDS provisions apply to usance interest. The Tribunal emphasized that the liability to deduct TDS arises from the date of the Gujarat High Court's decision, as the law was clarified by this judgment. Consequently, the assessee was liable to deduct TDS on usance interest from 20-3-2003.

3. Application of Judicial Decisions and Their Retrospective Effect:
The Tribunal discussed the retrospective effect of judicial decisions, noting that a court's interpretation of the law is declaratory and applies from the inception of the statute. The Tribunal cited several cases, including Parshuram Pottery Works Co. Ltd. and Standard Radiator, which held that judicial decisions declare what the law has always been. Therefore, the Gujarat High Court's decision in Vijay Ship Breaking Corpn. clarified the law retrospectively, making the assessee liable for TDS on usance interest from the date of payment.

Separate Judgments:
The Accountant Member and Judicial Member disagreed on the interest liability period. The Accountant Member held that interest should be levied from the date of the Gujarat High Court decision, while the Judicial Member opined that interest should be levied from the date of usance interest payment. The Third Member, Vice President R.P. Garg, resolved the difference, concluding that the liability to deduct TDS and pay interest existed from the date of usance interest payment, as the law was clarified by the Gujarat High Court decision.

Conclusion:
The Tribunal directed the Assessing Officer to impose interest from the date of the Gujarat High Court decision until the tax was paid, partially allowing the Revenue's appeal. The cross-objection by the assessee was dismissed, affirming the CIT(A)'s decision on the TDS liability. The Third Member's decision emphasized that judicial interpretations apply retrospectively, and interest under section 201(1A) is mandatory and compensatory, not subject to waiver or reduction based on the taxpayer's bona fide belief.