High Court rules interest under Income-tax Act payable for delayed tax payment without specific reason

The High Court of GAUHATI ruled in favor of the Revenue in a case involving the interpretation of section 201(1A) of the Income-tax Act, 1961. The Court held that interest under section 201(1A) is payable for delayed tax payment without the need for a specific reason, unlike penalty. The Court concluded that the Tribunal erred in upholding the cancellation of interest by the Appellate Assistant Commissioner. As a result, the High Court directed the transmission of the order to the Income-tax Appellate Tribunal for action.

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Issues involved: Interpretation of section 201(1A) of the Income-tax Act, 1961 regarding the levy of interest for delayed payment of tax by an assessee.

Summary:
The High Court of GAUHATI was presented with a reference u/s 256(1) of the Income-tax Act, 1961, concerning the justification of sustaining the cancellation of interest under section 201(1A) for a default by the assessee. The assessee, a government undertaking, had failed to deposit the deducted tax amount in time, leading to a penalty and interest under section 201(1A) imposed by the Income-tax Officer. The Appellate Assistant Commissioner, considering the technical breach and lack of contumacious conduct, deleted the penal interest. The Revenue appealed to the Income-tax Appellate Tribunal, which upheld the Commissioner's decision, emphasizing that not everyone is presumed to know the law. The Revenue then sought the High Court's opinion on the matter.

During the hearing, it was argued that while penalty can only be imposed for failure to deduct and pay tax without good reason, interest u/s 201(1A) is not subject to such restrictions, as clarified by a Supreme Court decision. The High Court concluded that interest is payable for delayed tax payment without the need for a specific reason, unlike penalty. Therefore, the Tribunal erred in upholding the cancellation of interest by the Appellate Assistant Commissioner. Consequently, the High Court ruled in favor of the Revenue, directing the transmission of the order to the Income-tax Appellate Tribunal for action.

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