- (1.) The Tribunal, New Delhi, has referred to following question of law under Section 256(1) of the IT Act, 1961 (hereinafter referred to as "the Act"), for opinion of this Court: "Whether, on the facts and in the circumstances of the case and in accordance with the provisions of law, the Tribunal was justified in confirming the view taken by the CIT(A) to hold that 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 asst. yr. 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 : 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., 30th Sept., 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 TDS in the Government treasury. On the basis of the aforesaid facts the AO was of the view that the company had delayed the payment of TDS by the mode of not crediting the account of the payees but effecting the credit in the interest payable account. Taking the view that the credit to the interest payable account on 30th Sept., 1984, tantamounts to a credit in the account of the payees, the AO proceeded to treat the assessee to be in default for delay in deposit of TDS and levied interest to the tune of Rs. 87,898. Feeling aggrieved with the aforesaid order, the assessee preferred appeal before the CIT(A). CIT(A) has allowed the appeal and deleted the levy of interest and reduced the charge of interest to a figure of Rs. 3,448. Revenue feeling aggrieved, preferred an appeal before the Tribunal. Tribunal has upheld the order passed by CIT(A) and dismissed the appeal filed by the Revenue. Tribunal has upheld the view taken by CIT(A) which reads as follows : "I have carefully examined the facts and circumstances of the case and the contentions of the learned counsel. The intention of the legislature in inserting the Explanation to Section 194A(1) appears to be very clear, i.e., to remove a lacuna for avoidance of tax. The law requires deduction of tax at source whenever interest is paid on deposits. This requirement applies equally where the interest is not actually paid, but is credited to the account of the party. However, in the present case, the interest was neither paid to the party nor credited to its account on 30th Sept., 1984, i.e., the close of the accounting year. The interest due was credited to interest payable account. Therefore, the appellant-company was able to avoid the requirement of TDS until time of actual payment of interest. It was to deal with such a situation that the law was amended by insertion of the Explanation. However, in view of the clear and specific direction in Section 47 of the Finance Act, 1987, the Explanation could not be applied to situations arising before 1st June, 1987. In view of the foregoing, it is held that there was no default on the part of the appellant-company in deposit of TDS on interest and, therefore, no penal interest is chargeable under Section 201(1A) on the amount of TDS on interest. However, it would not apply insofar as the TDS on payments to contractors and TDS on salaries are concerned. The penal interest under Section 201(1A) amounting to Rs. 1,403 and Rs. 2,045 have 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.";