TDS on deep discount bond interest fails where no related interest expense was claimed, and default demand falls.

TDS liability under Chapter XVII-B did not arise where no corresponding interest expenditure on deep discount bonds was claimed in the relevant year. The Tribunal found that the assessee's accounts did not show any interest expense for that year, and the Revenue did not rebut the expenditure breakup or otherwise displace that position. On that factual basis, the foundation for treating the assessee as a defaulting deductor failed, and the demand under sections 201(1) and 201(1A) could not stand.

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Issues: Whether the assessee was liable to deduct tax at source and be treated as an assessee in default in respect of interest on deep discount bonds when no corresponding interest expense had been claimed for the year.

Analysis: The liability to deduct tax at source under Chapter XVII-B arises where the assessee is responsible for paying income and the corresponding income accrues in the payee's hands. On the record, the assessee's accounts did not show any claim of interest expenditure on the deep discount bonds for the relevant year. In that situation, the foundation for invoking the TDS default provisions did not survive. The Tribunal also noticed the assessee's expenditure breakup and found no material contradiction from the Revenue to displace the contention that no interest expense had been claimed.

Conclusion: The assessee was not liable to deduct tax at source on the alleged interest expense for the year under consideration, and the demand under sections 201(1) and 201(1A) did not survive.

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