Failure to deduct TDS on employee perquisites under s. 192(1) triggers automatic interest under s. 201(1A), levy restored.

Whether interest under Income Tax Act s. 201(1A) was chargeable for failure to deduct tax at source under s. 192(1) on perquisites, the HC held that interest liability arises automatically by operation of law upon default in remitting tax by the due date, is compensatory (not penal), and does not depend on "good or sufficient reason" or on the eventual tax liability of the assessee. Since s. 201(1A) is a machinery provision to compensate for use of public funds and legislative scheme distinguishes interest from penalty, the Tribunal erred in deleting the levy. The references were answered against the assessee and in favour of the Revenue, restoring interest for AYs 1967-68 to 1971-72.

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Issues involved: The judgment involves a common question of law regarding the chargeability of interest under section 201(1A) for the assessment years 1967-68 to 1971-72.

Summary:
The judgment pertains to a dispute regarding the non-deduction of tax at source under section 192 of the Income-tax Act, 1961, and the subsequent levy of interest under section 201(1A). The Assessing Officer found that tax had not been properly deducted on commission and perquisites paid to employees, leading to the application of interest under section 201(1A). The Appellate Assistant Commissioner held the assessee in default for non-deduction of tax on perquisites, which was upheld by the Tribunal. The Tribunal's decision was challenged by the Revenue, arguing that the levy under section 201(1A) is automatic and mandatory.

Upon examining sections 192(1) and 201(1A) of the Act, the court noted that they address non-deduction of tax and the levy of interest, respectively. The court emphasized that the use of "shall" in section 201(1A) indicates a mandatory levy of interest as compensation for withheld tax. Referring to legal precedents, the court highlighted that interest is compensatory and automatic, distinct from a penalty. The court concluded that the Tribunal erred in directing the deletion of interest, ruling in favor of the Revenue and against the assessee.

In light of the above analysis, the court held that the levy of interest under section 201(1A) was justified, and the Tribunal's decision was not supported. Consequently, the court answered the question in the negative, favoring the Revenue. All five references were disposed of accordingly.

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