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TMI Blog2005 (4) TMI 54X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome-tax (Appeals) to hold there had been no default on the part of the assessee in respect of TDS pertaining to the interest credited/paid on deposits ?" 2. The present reference relates to the assessment year 1985-86 in respect of proceedings arising out of charge of interest under section 201(1A) of the Act. 3. Briefly stated, the facts giving rise to the present reference are as follows : The respondent-assessee is a public limited company. It has maintained mercantile system of accounting. During the assessment year under consideration it had followed a system whereby liability on account of interest was claimed by debiting interest account. The corresponding liability, however, is not credited to the respective account of the payees but taken into account styled as "interest payable account". The aforesaid entries are passed on the last day of the accounting period, viz., September 30, 1984. The second step taken by the company is to debit the interest payable account on different dates and credit the respective account of the payees and also credited to the TDS account. The last step is the actual payment to the parties and the deposit of the amount deducted as TD ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 201(1A) on the amount of TDS on interest. However, it would not apply in so far as the TDS on payments to contractors and TDS on salaries is concerned. The penal interest under section 201(1A) amounting to Rs. 1,403 and Rs. 2,045 has correctly been charged in respect of the delay in deposit of TDS on contract payments and on salaries. The interest charged by the DC (Assessment) for delay in deposit of TDS on interest payments amounting to Rs. 84,450 (Rs. 877 + Rs. 120,296 + Rs. 30,127 + Rs. 1,417 + Rs. 41,733) is hereby deleted. In the result, the appeal is partly allowed. The interest charged by the DC (Asstt.) under section 201(1A) is hereby reduced to Rs. 3,448." 4. We have heard Sri Shambhu Chopra, learned standing counsel for the Revenue. Nobody has appeared on behalf of the respondent-assessee. 5. Learned standing counsel submitted that under section 194A(1) of the Act, it was incumbent upon the assessee to deduct tax at source while crediting the amount of interest to the account of the payees whether it had actually been paid over to the payee or not. According to him, crediting the amount of interest to the account and subsequently to the interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ever, the interest is credited by an assessee, carrying on business or profession, as on the date up to which the accounts thereof are made, the amount of tax deducted would be payable to the Central Government within two months of the expiration of the month in which the accounts of the assessee are made falls. For example, if the accounts are made up to say November 7, 1980, the tax deducted on the interest credited on that date would be payable to the Central Government by January 31, 1981, irrespective of when the closing entries are actually made." 6. Relying on the said circular, he submitted that when the interest is debited to the interest account and credited to the interest payable account, it would be deemed that the interest has been paid to the creditors as amount has been claimed as a deduction in the return. In support of his submissions, he has relied upon the following decisions : 1. Southern Brick Works Ltd. v. CIT [1984] 146 ITR 479 (Mad). 2. ITO v. Anil Kumar Gupta [1992] 197 ITR 266 (P H). 3. CIT v. Rathi Gum Industries [1995] 213 ITR 98 (Raj). 7. He further submitted that tax deducted at source is to be deducted the moment it is cre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of sub-section (1) of section 194A of the Act, there was no liability to deduct tax at source in case whether interest has not been paid to the creditors and, therefore, levy of interest has rightly been deleted by the Commissioner of Income-tax (Appeals), which has been upheld by the Tribunal. We further find that the Explanation so added has been held to be prospective in nature by the Punjab and Haryana High Court in the case of Punjab Business and Supply Co. P. Ltd. v. ITO [1991] 188 ITR 550, the Rajasthan High Court in the case of CIT v. Oriental Power Cables Ltd. [1993] 203 ITR 237, the Gujarat High Court in the case of Alkapuri Investments P. Ltd. v. D. S. Khoba [1997] 226 ITR 506 and in the case of Laxmi Industries Ltd. v. ITO [1998] 231 ITR 514 (Raj). In all these cases, it has been held that an Explanation brought on the statute book is ordinarily clarificatory in nature and has retrospective effect, as the Explanation so brought to a provision in the statute simply explains the law as it has always been in the main provision. However, the rule governing the construction of the provisions imposing penal liability upon the subject is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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