1991 (5) TMI 109

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.... their accounts, there was no obligation on the assessee under section 194A to deduct tax. This contention was negatived by the assessing officer who took recourse to a Circular No. 288 dated 22-12-1980 issued by the Central Board of Direct Taxes and levied an interest of Rs. 1380. The assessee appealed to the Commissioner of Income-tax (Appeals) who also followed the said circular and held that there was no justification for the assessee to credit the interest to the interest payable account and not to the accounts of the creditors themselves. 2. The learned counsel for the assessee contended that under the terms of section 194A, tax was deductible only when the amount was credited to the account of the creditor or was paid and since in....

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....t payable to creditor when he credits the amount of interest to the account of such creditor or when he pays the same to the creditor in cash or by issue of a cheque or draft or by any other mode. In the case before me the assessee admittedly has neither credited the amount of interest to the account of the creditor nor has it paid the same in cash or by the issue of a cheque or draft. What it has done is that it has shown its liability to pay interest by crediting the amount in an account called ' Interest payable account ' and charging the same to the profit & loss account. On the plain language of section 194A, the liability to deduct income-tax did not arise. The learned departmental representative referred to the Explanation to section....

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....e. The Explanation says that if the interest is even credited to an interest payable account or a suspense account, then it shall be deemed to have been credited to the account of the payee. The language of the Explanation shows that it was intended to plug a loophole and to remove a lacuna in the language of section 194A and would require a debtor to do what according to the language of section 194A he could reasonably say and understand that he was not required to do. It, thus, enlarges the obligation to a tax-payer and, therefore, cannot be given retrospective effect when the Legislature itself has clearly said that it will have effect from 1-6-1987. In my view, therefore, the assessee having not paid the interest nor having credited the....