TDS on interest by partnership firms: exemption for individuals and HUFs does not extend to firms, triggering default consequences.

A partnership firm is a distinct assessable person under the Income-tax Act, separate from its partners, and therefore does not fall within the limited exemption from tax deduction at source on interest payments available only to individuals and Hindu undivided families under section 194A. Because the word "firm" is absent from that exemption, a firm remains bound to deduct tax at source on interest paid by it. Non-deduction exposes the firm to being treated as an assessee in default and to liability for interest under sections 201 and 201(1A).

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Issues: Whether a partnership firm was obliged to deduct tax at source under section 194A of the Income-tax Act, 1961 on interest payments made by it, and whether failure to do so justified treating it as an assessee in default and levying interest under sections 201 and 201(1A) of the Income-tax Act, 1961.

Analysis: Section 2(31) of the Income-tax Act, 1961 treats a firm as a distinct assessable person, separate from the individuals constituting it. Section 194A exempts only individuals and Hindu undivided families from the obligation to deduct tax at source on interest payments, and there is no corresponding exclusion for firms. The absence of the word "firm" from the exemption provision indicates that a firm making interest payments remains bound by the deduction obligation. Accordingly, non-deduction attracts the consequences prescribed for default.

Conclusion: The firm was liable to deduct tax at source under section 194A, and the order treating it as a defaulter and charging interest under sections 201 and 201(1A) was in law. The finding is against the assessee.

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