2001 (3) TMI 265 - AT - Income Tax

Summary

Issues Involved:
1. Cancellation/reduction of interest charged under section 201(1A) for assessment years 1985-86 to 1987-88.
2. Application of section 194A(3)(i) regarding interest likely to be paid.
3. Classification of discounting charges as interest.
4. Necessity of loan interest if discounting facility is not used.
5. Applicability of Madras High Court's decision in 146 ITR 479 for levy of interest under section 201(1A).

Detailed Analysis:

Issue 1: Cancellation/Reduction of Interest under Section 201(1A)
The Commissioner (Appeals) canceled/reduced the interest charged under section 201(1A) for the assessment years 1985-86 to 1987-88. The Assessing Officer had charged interest as the assessee had debited interest amounts but did not deduct and pay tax under section 194A. The Commissioner (Appeals) held that no interest could be charged for cheque discounting charges and creditors covered by Form No. 27A. The Tribunal agreed with the Commissioner (Appeals) that cheque discounting charges are not akin to interest payments and thus not subject to interest under section 201(1A).

Issue 2: Application of Section 194A(3)(i)
The revenue argued that section 194A(3)(i) includes interest likely to be paid during the financial year. The Tribunal noted that the Assessing Officer considered cheque discounting charges as interest, but the Commissioner (Appeals) disagreed. The Tribunal upheld the Commissioner's view, stating that cheque discounting charges are not interest simpliciter and thus not subject to TDS provisions.

Issue 3: Classification of Discounting Charges as Interest
The revenue contended that cheque discounting charges should be treated as interest. The Tribunal found that cheque discounting charges are different from interest payments and not covered by section 201(1A). The Tribunal emphasized that the machinery provision of section 201(1A) fails if the date of actual payment of tax is not available, making it impracticable to compute interest.

Issue 4: Necessity of Loan Interest if Discounting Facility is Not Used
The revenue argued that if the assessee did not use the discounting facility, it would have to pay loan interest. The Tribunal did not specifically address this argument but focused on the nature of cheque discounting charges, concluding they are not subject to section 201(1A).

Issue 5: Applicability of Madras High Court's Decision in 146 ITR 479
The revenue submitted that the Commissioner (Appeals) should have followed the Madras High Court's decision in 146 ITR 479, which held that the assessee should be charged interest under section 201(1A). The Tribunal considered this but ultimately determined that the machinery provision of section 201(1A) fails in the present case due to the absence of the date of actual tax payment.

Separate Judgments for Different Assessment Years:

Assessment Year 1985-86:
The Tribunal dismissed the revenue's appeal, agreeing with the Commissioner (Appeals) that no interest under section 201(1A) could be charged for cheque discounting charges or creditors covered by Form No. 27A.

Assessment Years 1986-87 and 1987-88:
The Tribunal partly allowed the revenue's appeals. It held that the assessee was liable to deduct tax at source for interest credited to the interest payable account. The Tribunal directed the Assessing Officer to levy interest under section 201(1A) on the sums credited to the interest payable account from the date of credit till the date of actual payment of tax into the bank.

Conclusion:
The Tribunal dismissed the appeal for the assessment year 1985-86 and partly allowed the appeals for the assessment years 1986-87 and 1987-88, directing the levy of interest under section 201(1A) for these years based on the amounts credited to the interest payable account.