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TMI Blog1983 (8) TMI 139X X X X Extracts X X X X X X X X Extracts X X X X ..... payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force. Provided that no such deduction shall be made in a case where the person (not being a company or a registered firm), entitled to receive such income furnishes to the person responsible for making the payment "(a) an affidavit, or (b) a statement in writing, declaring that his estimated total income assessable for the assessment year next following the financial year in which the income is credited or paid will be less than the minimum liable to income-tax." Under this section, which was introduced by the Finance (No. 2) Act, 1967, w.e.f. 1st April, 1967 tax has to be deducted at source on interest income other than interest on securities at the time of credit of such income to the account of the payee or at the time of payment thereof by any mode whichever is earlier, at the rates in force. Certain exceptions are provided to the application of this section to obviate difficulties in the case of small tax-payers and other persons referred to in the latter portion of that section, The question that is now posed for consideratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid to the creditor or credited to his account. Since the interest was not credited to the account of the payee nor paid to him, the question of deduction of tax at source and resultant or consequent default for the incurring of the liability for the levy of interest would not arise. Secondly, even though there is the Circular No. 288 dt. 27th December, 1980 issued by the CBDT, earlier, in a Circular issued by the Board under its No. 276/72/77-17(B) dt. 25th January, 1979, addressed to the Federation of Indian Chambers of Commerce and Industry, the Board had clarified that when interest was neither credited to the account of the payee nor paid to the creditor, no tax need be deducted. That circular governed the assessments in question and under that Circular, the assessee could not be said to be an assessee in default for not deducting tax at source and no interest should have been levied. The CIT(A) considered that it was the latter Circular issued on 27th December, 1980 No. 288 that should govern the appeals and not the earlier Circular. His reasoning was that Circular of 1979 explained the action to be taken in genuine cases of difficulty and it did not cover cases where the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e nor credited and the provisions of s. 194A did not apply at all. He then explained to us the need for inserting s. 194A and submitted that the need for insertion was to ensure proper recovery of tax without loss of revenue. By casting the obligation of deducting tax at source on the person responsible for paying the interest, that responsibility continues to lie on the shoulders of the assessee because when the payment of interest was made to the creditors concerned, tax will have to be deducted at source at that time. When the persons responsible for payment are confronted with this situation when money was not available for payment of tax deducted at source, it cannot be presumed that the Parliament had intended to cast an unbearable burden on them which would be the result if the interpretation placed by the ld. CIT(A) on s. 190A and the meaning of the expression credited is accepted. Actually it was the responsibility of the payee to pay the tax on income due by way of interest. That was shifted to the payer by obligating him to deduct the tax at the time of payment. This must naturally take into consideration the capacity of the payer to pay the tax deducted at source. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the matter keeping in view the provisions of s. 194A, the object of its insertion, the views expressed by the Board in its Circulars, it appeared to us that the view taken by the revenue is perhaps too abridged to be held to be in conformity with the intentions of the Legislature. It is also beset with several practical problems and unintended hardships. When tax is sought to be deducted at source by the person responsible for paying the interest, it is not the tax liability of the assessee, it is the tax liability of the person on whose behalf the tax is sought to be deducted. The tax liability of the payee is shifted to the payer to a very large extent, only in order to see that the payees do not escape the payment of tax due on the income. This is, therefore, a provision made to ensure proper collection of tax due to the State. Though the liability cast upon the assessee for the recovery of such tax deducted at source is the same as his own tax liability, there is a clear distinction between the liability cast upon him on account of the payees and his own liability. Insofar as the former is concerned, it is thought that it does not add any burden to the extent responsibility f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rther provides that before levying such a penalty the assessee shall be given a reasonable opportunity of being heard. That section also provides that when the ITO is satisfied that the default was for good and sufficient reasons, no penalty shall be levied under that section. This indicates that a person who is deemed to be an assessee in default and who incurred the liability to pay penalty u/s 221, and who is entitled to be given a reasonable opportunity of being heard before a penalty is levied can on his satisfying the ITO that the default was for good and sufficient reasons, claim that no penalty shall be levied under that section. This shows that the assessee can advance what he considers to be good and sufficient reasons to show that he is not an assessee in default or deemed to be in default in making the payment of tax. He can show lack of necessary money, and it is open to him to say that due to lack of funds he could not make the payment of tax and that, in our opinion, could be taken as very good and sufficient reason to take him out of the provisions of s. 221. Thus, when lack of money is a good and sufficient reason for non-levy of penalty u/s 221, it must mean that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsideration before the Supreme Court. Adopting the interpretation given to the word paid , the Supreme Court held in this case that the expression credited must also mean the same, namely, making the amount unconditionally available to the member, and the concerned observation of the Supreme Court is reproduced below: "We are unable to accept the contention. In J. Dalmia vs. CIT (1964) 53 ITR 83 (SC) Shah J., speaking for the court, had observed: In general, dividend may be said to be paid within the meaning of section 16(2) when the company discharges its liability and makes the amount of dividend unconditionally available to the member entitled thereto. This condition must also be fulfilled in case a dividend is credited. In other words, the credit must be in such form that the dividend is unconditionally available to the member." The meaning given to the word "credited" as used in s. 16(2) can in no manner be different from the meaning to be given to the same expression used in s. 194A. Where s. 194A stated that tax must be deducted at the time of credit of such income to the account of the payee, it must mean that when the interest income is unconditionally made avail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issued by the CBDT. In the first Circular of 1978, the Board appears to have understood the meaning of the expression credit in the manner in which we have understood it, and also in accordance with the meaning given to this expression by the Supreme Court in the cases referred to above and when it said that the crediting of interest to the account of the payee is not the same thing as crediting the interest to the interest payable account . The Board also clarified in the Circular that the section requires deduction of tax at source only at the time when the interest is credited to the account of the payee or payment thereof, and there is no obligation on the part of the assessee to deduct tax at the time of making a provision in the accounts in respect of interest payable by him. Thus, a distinction has been drawn by the Board between making a provision in the accounts for the liability of interest payable and crediting of interest to the account of the payee which meant making the money available to the creditor for drawing. What has happend in this case is only making a provision in the accounts in respect of the interest payable by him when the interest payable account w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d justification for crediting the interest to an account other than the account of the payee. When the Board has stated in the Circular that there should be proof that there was a valid justification for crediting the interest to any account other than the account of the payee, as a reason for not levying penalty or interest, it meant it bears repetition to say, that in proper cases, valid justification for crediting interest to any account other than the account of the payee, is not only envisaged but also considered justified. The assessee s plea that he had no funds had not been doubted. Thus even on the basis of the latter Circular, the assessee must be deemed to have discharged the burden of proof cast upon them by showing why the interest was credited to the nominal accounts and not to the accounts of the payee. That apart, this Circular which has been issued on 22nd December, 1980, cannot take away the concession given by the earlier Circular of 1978. The assessee are entitled to arrange their affairs on the basis of the law as explained by the CBDT for the benefit of the assessees in the country. It cannot, therefore, retrospectively withdraw that concession and then impose ..... X X X X Extracts X X X X X X X X Extracts X X X X
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