1990 (5) TMI 76 - AT - Income Tax

Tribunal Cancels Interest Levy Under IT Act, Emphasizes Timing of Credit Entry for Tax Liability

VANDANA PICTURES. Versus INCOME TAX OFFICER.

VANDANA PICTURES. Versus INCOME TAX OFFICER. - TTJ 037, 569, Issues:Levy of interest under section 201(1A) of the IT Act, 1961 for crediting interest to creditors without deducting tax at source.Analysis:The case involves an appeal by the assessee against the levy of interest under section 201(1A) of the IT Act, 1961 for crediting interest to certain creditors without deducting tax at source. The relevant previous year ended on 4th Nov., 1983 for the assessment year 1984-85. The assessee contended that due to a search and seizure operation under section 132 of the IT Act a few days before the close of the accounting year, there was a delay in passing entries for interest and paying the tax on such interest to the government. The Income Tax Officer (ITO) levied interest under section 201(1A) as the tax was paid only on 26th Dec, 1985, after the credit of interest on 12th Nov., 1983. The Commissioner of Income Tax (Appeals) upheld the levy of interest due to lack of evidence showing the delay in passing the credit entry. The assessee further appealed the decision.The key contention revolved around the timing of the credit entry for interest to the creditors. As per section 194A, tax should be deducted at the time of credit of income to the payee's account. The assessee argued that the delay in passing the credit entry was due to the search and seizure operations, reliance on a person compiling accounts, and retention of books by the Department. The CIT (A) found no evidence that the entry was made only in November 1985, but considering the delayed filing of returns and non-levy of penalty for delayed tax payment, it was plausible that the credit entry was made in November 1985 as claimed by the assessee. The liability to deduct tax arises at the time of credit, not the date for which the credit is made. Therefore, the Tribunal held that no interest is leviable as the tax on the interest credited was paid shortly after making the credit entry. Consequently, the appeal was allowed, and the levy of interest under section 201(1A) was canceled.In conclusion, the Tribunal's decision focused on the timing of the credit entry for interest to creditors, considering the circumstances leading to the delay, the provisions of section 194A, and the payment of tax on the credited interest. The judgment highlighted the importance of the actual credit date for tax liability and the absence of evidence supporting the immediate credit on 4th Nov., 1983. The decision ultimately favored the assessee, canceling the interest levy under section 201(1A) based on the timely payment of tax following the credit entry.