TDS interest under Section 201(1A) cannot survive where Form 15A existed and recovery had become time-barred.

Where the payer had obtained Form 15A certificates under Rule 29A read with the proviso to Section 194A(1), there was no obligation to deduct tax at source on the interest payments, so interest under Section 201(1A) could not be levied on that footing. The text also notes that a separate lapse, such as any default connected with Form 27A, did not by itself attract interest under Section 201(1A) unless the statutory failure under Section 201(1) existed. For years where recovery was already time-barred under Section 231, the deemed default could not be pursued and the related interest demand was likewise unsustainable.

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Issues: Whether interest charged under Section 201(1A) of the Income-tax Act, 1961 could be cancelled where the payer had obtained certificates in Form 15A under Rule 29A of the Income-tax Rules, 1962 read with the proviso to Section 194A(1) of the Income-tax Act, 1961, and whether recovery being time-barred under Section 231 of the Income-tax Act, 1961 also supported cancellation of the interest.

Analysis: The assessee had obtained the necessary Form 15A certificates, and on that admitted position there was no legal obligation to deduct tax at source on the interest payments. The liability under Section 201(1A) is consequential to the failure contemplated by Section 201(1), and a separate default, if any, in filing Form 27A does not by itself attract interest under that provision. Independently, for the years where the recovery period had expired under Section 231, the demand relating to the deemed default could not be pursued, and interest computation on that basis was also unsustainable.

Conclusion: The cancellation of interest was justified on both grounds, and the Revenue's challenge failed.

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