2002 (8) TMI 258 - AT - Income Tax

Summary

Issues Involved:
1. Levy of interest under Section 201(1A).
2. Levy of penalty under Section 271C.

Detailed Analysis:

Issue 1: Levy of Interest under Section 201(1A)
The assessee's grievance pertains to the levy of interest under Section 201(1A). The assessee-company, a subsidiary of Wipro Ltd., credited an income of Rs. 6,51,74,974 representing interest to Wipro Ltd. on 31st March 2000, without deducting tax at source as required under Section 194A. The assessee argued that Wipro Ltd. had promised to furnish an exemption certificate under Section 197(1), which was not provided, but Wipro Ltd. had paid the tax before April 2000. The AO charged interest under Section 201(1A) from 31st March 2000 to 30th March 2001. The CIT(A) modified this, restricting interest up to the date of filing of the return by Wipro Ltd.

The assessee contended that since it was not treated as an assessee-in-default under Section 201(1) because the tax was paid by Wipro Ltd., the same logic should apply to Section 201(1A). The assessee argued that the interest under Section 201(1A) is compensatory, and since the tax was paid within the statutory period, no interest should be levied. The Department argued that the levy of interest is mandatory and automatic, regardless of the tax being paid by the recipient.

The Tribunal held that the interest under Section 201(1A) is compensatory and mandatory but only to the extent that the exchequer is deprived of its revenue. Since the tax was paid within the due date, albeit by the recipient, the assessee should not be treated as in default under Section 201(1A).

Issue 2: Levy of Penalty under Section 271C
The assessee's grievance pertains to the levy of penalty under Section 271C for not deducting tax at source under Section 194A on the interest income credited to Wipro Ltd. on 31st March 2000. The AO initiated penalty proceedings, rejecting the assessee's plea that it relied on Wipro Ltd.'s promise to furnish a certificate under Section 197(1). The CIT(A) upheld the penalty, stating that the assessee was aware of its duty to deduct tax.

The assessee argued that it had a reasonable cause for non-deduction due to the promise of the certificate and that the ultimate tax liability was discharged by Wipro Ltd. The assessee relied on various judicial decisions to support its claim of reasonable cause.

The Tribunal held that the assessee had a bona fide belief based on the promise by Wipro Ltd., its holding company, to furnish the certificate under Section 197(1). The Tribunal also noted that the tax was paid within the due date applicable to the assessee. The Tribunal concluded that the assessee had a reasonable cause for not deducting the tax at source and thus, the penalty under Section 271C should not be levied.

Conclusion:
The Tribunal allowed the appeals of the assessee, deleting the levy of interest under Section 201(1A) and the penalty under Section 271C, holding that the assessee had a reasonable cause for non-deduction of tax at source.