By C. N. Vaze, Shailesh Kamdar, Jagdish T. Punjabi, Chartered Accountants
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47 (2008) 304 ITR (AT) 338 (Jodhpur)
ITO v. Emrald Construction Co. P. Ltd.
ITA No. 357 and 370/Jdpr./2002
A.Y. : 1996-97. Dated : 31-8-2007
S. 201(1A) — In case no tax is payable by the payee, no
interest u/s.201(1A) can be charged from the payer.
The assessee-company had made payment to three companies in
the nature of interest and contractor’s payment, but without TDS on the same.
The Assessing Officer levied interest u/s.201(1A) till the date of assessment
order. Before the CIT(A), the assessee contested that no tax was payable qua
contract or interest payments (incomes) or qua any other incomes of the
recipients, so the question of loss to the Revenue does not arise. Hence, no
interest was leviable u/s.201(1A). The CIT(A) upheld the levy of interest, but
restricted it till the date of assessment order of the recipients. On cross
appeals by the assessee and the Revenue, the ITAT held that
1. The interest to be charged u/s.201(1A) is not a penalty,
but a compensation of revenue loss for the delay in the payments of tax. The
rigours of S. 201 are flexible and not rigid as would not admit any sort of
explanation with regard to non-deduction at source.
2. The charging of interest u/s.201(1A) is definitely
mandatory, but this ‘mandatory’ nature has to take colour from the main charge
of the deduction of tax at source u/s.201. So to say, when the ‘tax’ which was
to be deducted u/s.201 was not payable at all, it would be unjust to conclude
that, in all eventualities, come what may, interest u/s.201(1A) is to be
charged from the deductor.
3. It is certain that the interest is chargeable from the
date on which the tax is due for deduction. The starting point has been
envisaged in the Act but not the end point. The ‘benchmark’ of the end point
is to be decided after taking into consideration various factors. The question
of charging interest up to framing of assessment orders in the hands of the
recipients would not arise, because ‘no tax dues’ are found against them and
as such there was no loss of revenue. Interest cannot be charged for the sake
of charging of interest only, it has to be charged in accordance with a
provision.
4. The interest is chargeable on the amount of tax to be
deducted. In case the chargeable tax at source increases or decreases, the
interest amount varies accordingly. But, in a case where the tax was not
payable at all, then in that case no interest can be charged. The word
‘compensatory’ clearly suggests this conclusion.
Cases relied upon :
(i) Vikrant Tyres Ltd. v. ITO, (1993) 202 ITR 454
(Kar.)
(ii) CIT v. Rishikesh Apartments Co-operative Housing
Society Ltd., (2002) 253 ITR 310 (Guj.)
(iii) Bennet Coleman & Co. Ltd. v. Mrs. V. P. Damle,
(1986) 157 ITR 812 (Bom.)
(iv) Karimtharuvi Tea Estate Ltd. v. State of Kerala, (1966) 60 ITR
262 (SC)
