9911796707
TMI Blog1988 (1) TMI 89X X X X Extracts X X X X X X X X Extracts X X X X ..... d relevant to the A.Ys. 1981-82 and 1982-83, respectively. The above interest amounts were debited to profit and loss account and credited to the interest payable account. No tax was deducted at the time of crediting the above interest amounts to the " interest payable account ". The above amounts were claimed as a deduction in the returns by the assessee-company but were disallowed by the ITO as according to him the deduction of interest claimed without deduction of tax at source could not be allowed in view of provisions of section 40(a)(i) of the Income-tax Act. 3. On appeal, it was claimed that provisions of section 40(a)(i) were not attracted in this case as interest accrued was not payable outside India. It was further submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed or paid under Chapter XVII-B of the Act. Only exception being the case of a payee having an agent in India under section 163 of IT Act. To disallow the deduction, all the above narrated circumstances should be present. This sub-section is not applicable in this case as it has not been shown that interest claimed as deduction by the assessee " was payable outside India ". No doubt, Karnail Singh is a non-resident but from this no inference can be drawn that interest on loan advanced by him was payable outside India. To determine whether interest was payable in or outside India, it was necessary to look to agreement between the parties. The assessee from very start had been claiming that interest in this case was payable in India. This ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and, therefore, bar of section 40(a)(i) was not attracted in this case. In view of above finding that interest claimed as deduction was not payable outside India, these appeals can be disposed of without deciding this question. However, as both the parties have submitted on this point, we record our finding on this issue also. The assessee-company admittedly follows mercantile system of accounting and, therefore, for computing its income all liabilities accrued are to be allowed as deduction. On this position there is no dispute between the parties. 6. The two provisions under Chapter XVII-B of the Income-tax Act dealing with deduction of tax from interest relevant for deciding the issue before us are sections 194A(1) and 195(1) of the Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest to a resident may be payable outside India. The provision of section 194A(1) of the Income-tax Act would be attracted. Likewise interest to a non-resident may be payable in India requiring deduction of tax at source u/s 195(1) of the Income-tax Act. It will all depend upon the terms of the agreement under which interest is payable. No general proposition, that in every case of non-resident interest must be taken to be payable outside India, can be accepted nor any authority was shown to us in support of the above proposition. The argument of the assessee that tax at source was not deductible under section 195(1) of the Income-tax Act as the interest was not actually paid when entry in interest payable account was made is required t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erabad Income-tax Act. The Income-tax Officer however, held that as no tax was deducted from the interest, the assessee should pay on that amount income-tax at the maximum rate under section 24(12) of the Hyderabad Income-tax Act. Held that " payment " in section 24(4) of the Hyderabad Income-tax Act [corresponding to section 18(3A) of the Indian Income-tax Act, 1922] should be interpreted as meaning actual payment and therefore crediting of interest amounts to the accounts of the lenders could not be deemed to be payment within the meaning of that sub-section so as to attract the provisions of section 24(12) of the Hyderabad Income-tax Act [corresponding to section 18(7) of the Indian Income-tax Act]. The order of the Income-tax Officer de ..... X X X X Extracts X X X X X X X X Extracts X X X X
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