9911796707
TMI Blog1995 (7) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... tition relates to the assessment year 1982-83, the previous year of which ended on September 30, 1981. The petitioner, in the course of its business, borrowed money from a large number of persons. The petitioner has also issued secured 11 per cent. redeemable bonds on which interest at the rate of 11 per cent. was payable to bond holders. At the end of the accounting year, the petitioner made a provision for the estimated liability of interest payable on all the loans outstanding and debentures and credited it to the account " interest payable ". No amount of interest payable is credited to the individual accounts of persons to whom such interest was payable. These facts are not disputed. The petitioner did not deduct tax at source on the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nguage of the section itself is very clear and unambiguous to dispel any doubt about its interpretation. It says in unequivocal terms that tax is to be deducted by the present respondents for making payment of interest at the time of crediting of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode whichever is earlier. Any other mode of dealing with the interest does not attract the provisions relating to deduction of tax at source and in that event the petitioner cannot be held responsible for committing any breach of the provisions so as to invite penal consequences. On the other hand, learned counsel for the Revenue urged that it is immaterial whether i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the payee " or is actually paid to him either by cash or by issuing of cheque or draft or of any other mode. Crediting a lump sum amount to an interest payable account or suspense account was not the contingency envisaged under section 194A as it stood during the relevant period for attracting the obligation to deduct tax at source. We are here concerned with the first alternative only, viz., when the liability to deduct tax at source occurs in the case of book entries as distinct from actual payment. The Explanation which was inserted with effect from June 1, 1987, created an additional obligation even in respect of sums credited to the " interest payable account " or " suspense account " for tax to be deducted at source. When the statu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... books of account does not amount to any such acknowledgment in favour of the creditor, that is to say, such an entry as envisaged in the statute results in acknowledgment of accrual of a specific liability by the debtor corresponding to accrual of income by the creditor. Whereas, the case of credit of a lump sum amount in " interest payable account " does not result in any such specific acknowledgment of liability to pay interest to a specified creditor from where income-tax is to be deducted and for whose benefit it is to be deposited in the Treasury. But for the Explanation inserted with effect from June 1, 1987, the provision cannot be extended to crediting of any sum to the interest payable account without reference to the payee to wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as under : " A perusal of section 194A of the Income-tax Act, 1961, prior to its amendment with effect from June 1, 1987, shows that failure to deduct income-tax from interest payable to different depositors is visited with penal consequences only if such deduction is not made at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or through cheque or draft or by any other mode. The term " by any other mode " pertains to the actual payment of interest to depositors and thus cannot be said to cover showing such interest in a general interest payable account. The explanatory note regarding the amendment states that section 194A has been amended to provide that the tax will be deducted at s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the account of the payee or at the time of payment, whichever is earlier, and it further states that it was done with a view to prevent postponement of liability relating to such deduction of tax at source. Thus, the explanatory note itself reveals that there was a lacuna or loophole in the unamended provisions of section 194A. This Explanation was prospective in operation. It did not, therefore, apply to the present case." The same view was reiterated by the Rajasthan High Court in the case of CIT v. Zenith Commercial Agencies Ltd. [1993] 109 CTR 115. We are in respectful agreement with the ratio laid down in the aforesaid cases. In view of our aforesaid conclusion, we have no hesitation in saying that Circular No. 288, dated Dece ..... X X X X Extracts X X X X X X X X Extracts X X X X
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