Actual payment governs salary TDS; unpaid year-end salary cannot trigger default or interest liability.

Tax is deductible from salary under section 192 only on actual payment, not merely on accrual or book provision, so unpaid year-end salary reflected as an outstanding liability does not attract TDS. On that basis, no obligation arose to deposit tax under Chapter XVII-B and Rule 30(2), and inclusion of the unpaid amount in the default computation under sections 201(1) and 201(1A) was contrary to the statutory scheme. The resulting demand and interest were therefore treated as a mistake apparent from the record, making rectification under section 154 maintainable to that extent.

---

---

Issues: Whether salary that remained unpaid at the end of the year was liable to tax deduction at source under section 192, and whether the resulting demand and interest under sections 201(1) and 201(1A) could be rectified under section 154.

Analysis: Section 192 fastens the obligation to deduct tax from salary at the time of actual payment, not merely when salary is credited or provided for in the books. The unpaid salary stood reflected as outstanding liability, and therefore no deduction obligation arose on that amount. Where no obligation to deduct tax existed, no liability to deposit tax in the Government treasury arose under Chapter XVII-B and Rule 30(2). The inclusion of unpaid salary in the default computation was therefore contrary to the statutory scheme and constituted a mistake apparent from the record.

Conclusion: The assessee was not liable to be treated as an assessee in default under sections 201(1) and 201(1A) in respect of unpaid salary, and the rectification application was maintainable and ought to succeed to that extent.

Ratio Decidendi: Tax is deductible from salary under section 192 only on actual payment, and unpaid salary outstanding at year-end cannot be brought to tax deduction at source or treated as default under sections 201(1) and 201(1A).

---