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Issues Involved:
1. Non-deduction of tax at source under Section 194A. 2. Levy of interest under Section 201(1A) for non-deduction of tax. 3. Applicability and interpretation of Board's circulars. 4. Relevance of Tribunal's previous decisions and High Court rulings. Detailed Analysis: 1. Non-deduction of tax at source under Section 194A: The primary issue revolves around whether the assessee was required to deduct tax at source under Section 194A of the Income-tax Act, 1961. The assessee had paid interest exceeding Rs. 1,000 to four parties but had credited the interest to a general "Interest payable account" instead of the individual creditor's accounts. The ITO argued that this constituted a credit to the account of the payee, thus necessitating tax deduction at source. The Commissioner (Appeals) upheld this view, stating that the assessee's method was an attempt to circumvent the provisions of Section 194A. 2. Levy of interest under Section 201(1A) for non-deduction of tax: The ITO imposed interest under Section 201(1A) for the assessee's failure to deduct tax at source. The Commissioner (Appeals) confirmed this levy, emphasizing that the machinery provision of Section 194A must be implemented regardless of the final taxable income of the creditors. The Commissioner noted that the assessee's action of crediting interest to a general account did not exempt it from the obligation to deduct tax. 3. Applicability and interpretation of Board's circulars: The assessee relied on a Tribunal decision in the case of Sivakami Finance (P.) Ltd., which had interpreted the Board's circular to mean that no tax deduction was required if interest was credited to an "Interest payable account." However, the Commissioner (Appeals) and the Judicial Member of the Tribunal distinguished this case, arguing that the assessee was not in a financial crisis and had actually paid the interest, thus making the Sivakami Finance decision inapplicable. 4. Relevance of Tribunal's previous decisions and High Court rulings: The Judicial Member of the Tribunal held that the decision of the Madras High Court in CIT v. O.M.S.S. Sankaralinga Nadar & Co. took precedence over the Tribunal's decision in Sivakami Finance, as High Court decisions are binding on the Tribunal. The Accountant Member, however, disagreed, citing the Supreme Court's decision in K.P. Varghese v. ITO, which upheld the binding nature of Board's circulars granting administrative relief to the assessee. Separate Judgments Delivered: Judgment by Judicial Member: The Judicial Member upheld the ITO's and Commissioner (Appeals)'s decisions, emphasizing that the assessee's method of crediting interest to a general account was an attempt to evade tax. He argued that the assessee's financial position did not justify non-deduction of tax and that the decision of the Madras High Court should be followed over the Tribunal's previous decision. Judgment by Accountant Member: The Accountant Member disagreed, arguing that the interest was not actually paid to the creditors but credited to a general account, thus not attracting the provisions of Section 194A. He relied on the Tribunal's decision in Sivakami Finance and the Supreme Court's ruling in K.P. Varghese to argue that the Board's circulars were binding and provided relief to the assessee. Third Member's Decision: The Third Member sided with the Accountant Member, stating that the Tribunal should follow its previous decision in Sivakami Finance and the Board's circular, which was binding and provided relief to the assessee. He clarified that no interest was actually paid to the creditors, thus the provisions of Section 194A did not apply, and the levy of interest under Section 201(1A) was not justified. Final Outcome: The case was decided in favor of the assessee, with the majority opinion holding that there was no liability to deduct tax under Section 194A, and consequently, the interest levied under Section 201(1A) was not justified. The appeal was allowed, and the levy of interest was set aside.
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