2007 (5) TMI 141 - AT - Income Tax

Tribunal: TDS on Usance Interest, Interest Imposition, and Applicability of Section 201(1A)

The Tribunal concluded that the assessee was liable to deduct TDS on usance interest from the date of payment and to pay interest under section 201(1A) ... Liability to deduct tax at source - Interest under section 201(1A) - mandatory and compensatory - Judicial declaration as statement of the law retrospective to inception - Bona fide belief not a defence to interest under section 201(1A)Liability to deduct tax at source - Judicial declaration as statement of the law retrospective to inception - Assessee's liability to deduct tax at source on usance interest - HELD THAT: - Both Members agreed that, in view of the Gujarat High Court decision in CIT v. Vijay Ship Breaking Corporation [2003] 261 ITR 113, usance interest is a payment of interest within the meaning of section 195(1) and was chargeable to tax. The Tribunal applied the settled principle that when a superior court declares the law it states what the law always was, so the High Court's pronouncement is retrospective to the inception of the statutory provision. Consequently, the assessee was liable to deduct tax at source on usance interest from the date of the payments in accordance with the law as declared by the jurisdictional High Court. [Paras 12, 31, 33, 34, 67]Assessee was liable to deduct tax at source on usance interest (liability existed from inception) and the demand under section 195(1) read with section 201(1) was sustained.Interest under section 201(1A) - mandatory and compensatory - Bona fide belief not a defence to interest under section 201(1A) - Period from which interest under section 201(1A) is chargeable for non-deduction/delayed payment of TDS on usance interest - HELD THAT: - The Tribunal examined the nature and scheme of section 201(1A) and the consistent judicial precedent holding that the provision creates an automatic, mandatory, compensatory liability to pay simple interest where tax has not been deducted or, after deduction, not paid. The Accountant Member and the Third Member held that the liability to interest arises from the date the tax was deductible (i.e., from the date of payment of the usance interest) and continues until actual payment, because the statutory liability to deduct existed from inception; the Commissioner (and one Member) that had deleted interest from the inception date was reversed. The Tribunal further held that a bona fide belief based on earlier contrary decisions (e.g., Visakhapatnam Port Trust) does not negate the statutory liability to interest, since the proviso to section 201(1) addresses penalty and not interest. The decision in Star India (concerning retrospective amendment of service-tax) was distinguished as involving retrospective legislative amendment, not interpretation of pre-existing statutory liability. [Paras 29, 38, 39, 64, 70]Interest under section 201(1A) is chargeable from the date the tax was deductible (date of payment of usance interest) until actual payment; interest cannot be avoided merely by bona fide reliance on a prior contrary decision.Final Conclusion: Revenue's appeals allowed in part: the Tribunal upheld the liability to deduct TDS on usance interest from inception and held that interest under section 201(1A) is payable from the date the tax became deductible (date of payment of usance interest) until actual payment; the assessee's cross-objections are dismissed. Issues Involved:1. Deletion of interest levied under section 201(1A) of the Income-tax Act, 1961.2. Upholding the demand on account of TDS.3. Determination of the date from which interest under section 201(1A) is chargeable.Issue-wise Detailed Analysis:1. Deletion of Interest Levied Under Section 201(1A):The Revenue contended that the Commissioner of Income-tax (Appeals) erred in deleting the interest of Rs. 1,70,817 levied under section 201(1A) of the Income-tax Act, 1961, arguing that the provisions of section 201(1A) are mandatory and not subject to retrospective amendment. The assessee argued that the interest should be levied only from the date of the Gujarat High Court's decision in the case of Vijay Ship Breaking Corporation [2003] 261 ITR 113, which contradicted the earlier Andhra Pradesh High Court's decision in Visakhapatnam Port Trust [1983] 144 ITR 146. The Commissioner of Income-tax (Appeals) deleted the interest, citing the Supreme Court's decision in Star India P. Ltd. v. CCE [2006] 280 ITR 321, which held that interest, being quasi-punitive, should not be levied retrospectively. However, the Tribunal noted that interest under section 201(1A) is compensatory and mandatory, and thus, should be levied from the date the tax was deductible, i.e., the date of the Gujarat High Court's decision.2. Upholding the Demand on Account of TDS:The assessee argued that the Commissioner of Income-tax (Appeals) erred in upholding the demand of Rs. 6,72,949 on account of TDS, contending that the decision in the case of CIT v. Vijay Ship Breaking Corporation [2003] 261 ITR 113 (Guj) should not apply. The Tribunal, however, upheld the Commissioner of Income-tax (Appeals)'s decision, stating that the assessee was liable to deduct TDS on usance interest from the date of the Gujarat High Court's decision.3. Determination of the Date from Which Interest Under Section 201(1A) is Chargeable:The key issue was whether interest under section 201(1A) should be charged from the date of payment of usance interest or from the date of the Gujarat High Court's decision in Vijay Ship Breaking Corporation [2003] 261 ITR 113. The Accountant Member held that interest should be charged from the date of the High Court's decision, while the Judicial Member opined that it should be from the date of payment of usance interest. The Third Member, agreeing with the Judicial Member, concluded that the liability to deduct tax at source and pay interest under section 201(1A) existed from the date of payment of usance interest, as the law as interpreted by the Gujarat High Court was always in existence. The Tribunal emphasized that the decision of the High Court merely clarified the law, which had always been in force, and thus, the interest was chargeable from the date of payment of usance interest.Conclusion:The Tribunal concluded that the assessee was liable to deduct TDS on usance interest from the date of payment and to pay interest under section 201(1A) from that date until the tax was actually paid. The appeal of the Revenue was partly allowed, and the cross-objections filed by the assessee were dismissed. The Tribunal directed the Assessing Officer to impose interest from the date of the Gujarat High Court's decision until the tax was paid. The Third Member's decision confirmed that the interest under section 201(1A) is compensatory and mandatory, and thus, applicable from the date of payment of usance interest.