March 2012
Akber Abdul Ali v. ACIT ITAT ‘B’ Bench, Mumbai Before J. Sudhakar Reddy (AM) and V. Durga Rao (JM) ITA No. 5538/Mum./2008 A.Y.: 2005-06. Decided on: 28-12-2011 Counsel for assessee/revenue: N. R. Agarwal/P. K. B. Menon
By Jagdish D. Shah, Jagdish T. Punjabi
Chartered Accountants
fiogf49gjkf0d
Section 40(a)(ia) r.w. section 194A — Disallowance of interest for failure to deduct tax at source — Payment of disputed amount with interest as per the Court order — Interest paid without deduction of tax at source — Whether AO justified in disallowing the same — Held, No.
Facts:
The assessee was liable to pay the sum of Rs.68.54 lakh to one of its creditors. On account of his failure to pay, the suit for recovery was filed by the said creditor. The Court passed the decree settling the amount at Rs.55 lakh, which also included the sum of Rs.18.5 lakh towards interest.
In the return of income filed by the assessee, the amount paid by way of interest was claimed as deduction. Since the assessee had not deducted tax at source, the AO disallowed the claim u/s.40(a)(ia). The CIT(A) on appeal upheld the order of the AO.
Before the Tribunal, the assessee contended that the amount was paid in accordance with the decision of the High Court. The interest payable under the decree of the Court was a judgment debt, therefore, he was not obliged to deduct tax at source.
Held:
In view of the ratio laid down by the Bombay High Court in the case of Madhusudan Shrikrishna v. Emkay Exports, (188 Taxman 195), the Tribunal agreed with the assessee and held that the assessee had no obligation to deduct tax at source on the interest amount of Rs.18.5 lakh paid to the creditor.
