2003 (3) TMI 299 - AT - Income Tax

Summary

Issues:
1. Whether interest under section 201(1A) is mandatory in nature for non-deduction or late payment of tax.
2. Whether the obligation to deduct surcharge as per the Finance Act was binding on the assessee.
3. Whether the CIT(A) was justified in canceling the order of the Assessing Officer.

Analysis:
Issue 1: The appeal challenged the order of the CIT(A) deleting the interest levied under section 201(1A) of Rs. 4,701 due to a one-day delay in filing the appeal. The Revenue argued that interest under section 201(1A) is mandatory whenever tax is not deducted or paid to the Central Government on time. The CIT(A) contended that the Finance Acts did not impose an obligation on the assessee to deduct surcharge. The Assessing Officer had levied interest under section 201(1A) for the short deduction of tax detected, which the CIT(A) canceled. The Tribunal held that interest under section 201(1A) is compensatory in nature and mandatory when there is a failure to deduct tax at source, including surcharge.

Issue 2: The second issue revolved around whether the obligation to deduct surcharge as per the Finance Act was binding on the assessee. The Revenue argued that sub-section (5) of section 2 of the Finance Act, 1994, imposed an obligation on the assessee to deduct surcharge. The Tribunal held that the Finance Act has legal authority and validity, and failure to deduct surcharge as prescribed makes the levy of interest under section 201(1A) mandatory.

Issue 3: The final issue was whether the CIT(A) was justified in canceling the order of the Assessing Officer. The CIT(A) had canceled the Assessing Officer's order based on the argument that the Finance Acts did not impose additional obligations on the assessee beyond those in section 194C of the Income Tax Act. The Tribunal disagreed with this reasoning, stating that the Finance Act's provisions, including the obligation to deduct surcharge, cannot be ignored. The Tribunal set aside the CIT(A)'s order and allowed the Revenue's appeal.

In conclusion, the Tribunal held that interest under section 201(1A) is mandatory for non-deduction of tax, including surcharge, as prescribed by the Finance Act. The Tribunal set aside the CIT(A)'s order and allowed the Revenue's appeal, reinstating the Assessing Officer's order levying interest under section 201(1A).