9911796707
TMI Blog1997 (10) TMI 21X X X X Extracts X X X X X X X X Extracts X X X X ..... But, according to the assessee, it should have deducted the tax at source on the net amount of the interest payable to Dhanalakshi Corporation amounting to Rs. 6,818 and it was not liable to deduct tax at source on the gross sum of Rs. 1,19,711. The Income-tax Officer, however, in his order held that section 194A of the Act did not speak of any net payment. On appeal, the Appellate Assistant Commissioner also did not accept the plea of the assessee-firm that the tax was liable to be deducted on the net amount, as there is no provision in the Act to set off the credit entry against the debit entry. The Appellate Assistant Commissioner held that at the time of crediting the amount of Rs. 1,19,711 to Dhanalakshmi Corporation the assessee should have deducted the tax at source under section 194A of the Act. On appeal by the assessee, the Income-tax Appellate Tribunal held that in the computation of the income, the set off is necessary and section 194A of the Act contemplates the payment of income by way of interest. According to the Tribunal, the emphasis given by section 194A of the Act is on income, and not on the amount of interest paid because whatever may be the amount of inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case and the assessee has branches at Coimbatore and Madurai and the recipient of the interest has to pay interest to the assessee and after mutual set off of the interest due to the assessee and the interest due by the assessee, it is only on the net interest, the tax has to be deducted under section 194A of the Act. Learned counsel for the assessee strongly placed reliance on a decision of the Karnataka High Court in the case of Hyderabad Industries Ltd. v. ITO [1991] 188 ITR 749, and submitted that the purpose of deduction of tax at source is not to collect a sum which is not a tax levied under the Act and it is only to facilitate the collection of the tax lawfully leviable under the Act. She further submitted that if this court construes section 194A empowering the assessee to deduct tax on the gross amount of interest, it will cause great hardship to the commercial community as a whole and whenever the interest is credited, the assessee would have to deduct tax on the gross amount and pay the same to the Income-tax Department and according to her, it would cause great hardship and inconvenience to the trading community and viewed in that angle, she submitted, the view of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t interest. Therefore, when he credits the gross interest in the account of the payee, a statutory obligation to deduct tax is imposed on him at the time of credit of the interest. As stated earlier, as the statutory liability is imposed at the time of the credit of the interest, it is not possible for him to cast off the liability or shirk the liability imposed by the statute and deduct tax on the net interest that may be payable by him after mutual set off between the parties. Next, if the construction placed by learned counsel for the assessee that the person responsible for paying interest is liable to deduct tax on the net interest is accepted, it will lead to a situation wherein the person responsible for paying interest would be left in a position to determine the income and the tax of the person receiving the interest. In our view, such a construction is unwarranted on the plain interpretation of the provision of section 194A of the Act. Further, there is internal evidence in section 194A of the Act itself which gives a clue that tax has to be deducted only on the gross interest. Suppose the payee is of the opinion that lie will not be liable to pay tax or it will be less ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... person responsible for crediting interest is not concerned with the effect of his act of deducting tax at source at the time of credit of the amount and the ultimate tax liability that may be borne by the payee. In other words, the tax liability of the payee is a matter that has to be adjudicated by the Income-tax Officer in assessing the income of the payee when the officer makes the assessment of the said person. Therefore, in our view, the person responsible for crediting interest under section 194A of the Act is not really concerned with the ultimate tax liability to the payee. This court in Southern Brick Works Ltd. v. CIT [1984] 146 ITR 479, when construing the provision of section 194A of the Act, held that the liability to deduct the tax arises at the time of credit of interest to the account of the payee. This court also held that the liability is not postponed to the actual payment of interest. This court further held that though the actual payment of cash may be at a later point of time, when there is a credit entry in favour of the creditor in the account of the assessee, the occasion for deduction of the tax would arise, Similar view is also taken by the Punjab and H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly excluded from the scope of section 194A of the Act. The Appellate Tribunal is, therefore, not correct in holding that section 194A of the Act contemplates, only the net interest income that may be paid by the payer to the payee. The decision of the Karnataka High Court relied upon by learned counsel Ms. Maya J. Nichani in the case of Hyderabad Industries Ltd. v. ITO [1991] 188 ITR 749, has no application to the facts of the case. The Karnataka High Court was dealing with the case of interest income falling under section 10 of the Act, and since such an amount was not liable to be included in the total income of the person, the court held that amount cannot be considered as "income" for the purpose of deduction of tax at source. On the other hand, the instant case deals with the case of interest amount which is chargeable to income-tax. Therefore, the decision of the Karnataka High Court, cited supra, has no application to the facts of the case. It is now necessary to consider the other contention of Ms. Maya J. Nichani that hardship would be caused to the commercial circle, if the tax is required to be deducted at source even at the time of credit of the interest. No doubt, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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