1990 (3) TMI 128 - AT - Income Tax

Summary

Issues Involved:
1. Levy of interest under Section 201(1A) of the Income-tax Act, 1961.
2. Timing of crediting interest to creditors' accounts and its impact on tax deduction at source (TDS) obligations.
3. Application of Rule 30(1)(b)(i) and relevant circulars issued by the Central Board of Direct Taxes (CBDT).

Detailed Analysis:

1. Levy of Interest under Section 201(1A) of the Income-tax Act, 1961:
The primary issue in these appeals is the levy of interest under Section 201(1A) of the Income-tax Act, 1961, for the assessment years 1980-81 and 1982-83. The Income Tax Officer (ITO) imposed interest of Rs. 7,285 and Rs. 9,227 respectively, on the grounds of delayed payment of tax deducted at source (TDS) on interest credited to the accounts of certain parties.

2. Timing of Crediting Interest to Creditors' Accounts:
The assessee argued that although the accounting years ended on 30-6-79 and 30-6-1981, the actual crediting of interest to the creditors' accounts occurred much later when the accounts were finalized. The assessee contended that since the tax deducted at source was remitted to the government within two months from the actual crediting date, no interest should be chargeable under Section 201(1A).

3. Application of Rule 30(1)(b)(i) and Relevant Circulars:
The Departmental Representative argued that under Section 194A, tax should be deducted at the time of crediting interest to the account of the payee or at the time of payment, whichever is earlier. Rule 30(1)(b)(i) specifies that tax should be paid within two months from the end of the month in which the interest is credited. The representative also cited Circular No. 288 issued by the CBDT, which clarifies that interest should be payable from the end of the period of two months from the end of the accounting year, irrespective of when the closing entries are actually made.

The Tribunal considered the rival submissions and emphasized that under the scheme of the Income-tax Act, tax deducted at source is a mode of tax collection. The Tribunal noted that the books of accounts showed that interest was credited on 30-6-79 and 30-6-1981, and there was no material evidence to support the claim that the credit was given much later. The Tribunal held that the dates recorded in the books should be taken as the actual dates of credit.

The Tribunal distinguished the present case from the decisions in Todi Investments (P.) Ltd. and Kumar Bros. (Agency Division), where the Tribunal had found as a matter of fact that the credit for interest was given much later than the last date of the accounting year. In the present case, the Tribunal found no such evidence and held that the interest had to be paid within two months from the dates recorded in the books.

The Tribunal also upheld the CBDT Circular No. 288, stating that the tax on interest credited should be payable within two months from the end of the month in which the accounts are made up, irrespective of when the closing entries are actually made.

Conclusion:
The Tribunal allowed the appeals of the Revenue, holding that the ITO was justified in charging interest under Section 201(1A) for the delayed payment of tax deducted at source. The Tribunal emphasized that the dates recorded in the books of accounts should be taken as the actual dates of credit, and the tax should be paid within two months from those dates as per Rule 30(1)(b)(i) and the CBDT Circular No. 288.