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Issues: Interpretation of sub-section (1A) of section 201 of the Income-tax Act, 1961, in conjunction with section 194A and rule 30 of the Income-tax Rules, 1962.
The judgment revolves around the interpretation of sub-section (1A) of section 201 of the Income-tax Act, 1961, read with section 194A and rule 30 of the Income-tax Rules, 1962. The case involves a situation where the appellant company had its books of account seized by the department, and after inspecting the seized books, credited interest to various creditors' accounts in September 1979, deducting tax under section 194A and paying it to the Reserve Bank of India on 16-10-1979. The Income Tax Officer contended that the tax should have been deducted and paid within two months from the date the accounts were to be closed, i.e., 31-3-1979, and charged interest under sub-section (1A) of section 201. The Commissioner (Appeals) upheld the ITO's action, leading to the present appeal. The main contention raised by the appellant was that the liability to deduct tax arises at the point when interest is credited to the creditors' accounts, as per the language of sub-section (1) of section 194A. The appellant argued that the obligation to deduct tax cannot be created by delegated legislation, such as rule 30, and that rule 30 should be interpreted in a manner consistent with the language of section 194A. The appellant maintained that the tax deduction liability accrued in September 1979 when the interest was credited, not on 31-3-1979 as contended by the revenue. The Tribunal analyzed the provisions of rule 30 and section 200, emphasizing that they deal with the time limit for depositing tax deducted, not the point when the liability to deduct tax arises. The Tribunal held that the liability to deduct tax arises when interest is credited to the creditor's account, as stipulated in section 194A. Since the interest was paid within the prescribed time under rule 30, the Tribunal ruled in favor of the appellant, reversing the order of the Commissioner (Appeals) and allowing the appeal.
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