2002 (3) TMI 205 - AT - Income Tax

Summary

Issues:
- Whether the direction to not levy TDS and interest under s. 201(1A) if advance tax is paid by sister-concerns is justified.

Analysis:
1. The Revenue's grievance in the appeals was that the Dy. CIT(A) erred in directing that no TDS should be made and no interest under s. 201(1A) should be levied if advance tax was paid by sister-concerns. The AO initiated proceedings under s. 201(1A) as the assessee-firm failed to deduct tax at source on interest payments to sister-concerns as per s. 194A. The Dy. CIT(A) allowed the appeals based on arguments that the sister-concerns had paid advance tax on the interest income, citing judgments from the Madhya Pradesh High Court and a decision of the Tribunal in a similar case.

2. The Revenue contended that interest under s. 201(1A) should be levied as the assessee failed to deduct tax at source on interest payments to sister-concerns, regardless of the sister-concerns paying advance tax. The Departmental Representative relied on judgments from the Kerala High Court and the Calcutta High Court to support the mandatory nature of interest under s. 201(1A). The absence of the assessee during the appeal hearing led to the Tribunal considering only the Departmental Representative's submissions.

3. The Tribunal analyzed the provisions of s. 201(1A) and cited the Kerala High Court's view that the levy of interest is compensatory for withholding tax. The Tribunal noted that the Jaipur Tribunal's decision in a similar case had been overruled by the Rajasthan High Court, emphasizing the mandatory nature of interest under s. 201(1A). The Tribunal disagreed with the Dy. CIT(A)'s decision and reversed it, restoring the AO's orders to levy interest under s. 201(1A).

In conclusion, the Tribunal held that interest under s. 201(1A) is mandatory and must be levied even if the recipient has paid advance tax, reversing the Dy. CIT(A)'s decision and upholding the AO's orders to charge interest on the assessee for failing to deduct tax at source on interest payments to sister-concerns.