2005 (4) TMI 54

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....s maintained mercantile system of accounting. During the assessment year under consideration it had followed a system whereby liability on account of interest was claimed by debiting interest account. The corresponding liability, however, is not credited to the respective account of the payees but taken into account styled as "interest payable account". The aforesaid entries are passed on the last day of the accounting period, viz., September 30, 1984. The second step taken by the company is to debit the interest payable account on different dates and credit the respective account of the payees and also credited to the TDS account. The last step is the actual payment to the parties and the deposit of the amount deducted as TDS in the Government treasury. On the basis of the aforesaid facts the Assessing Officer was of the view that the company had delayed the payment of TDS by the mode of not crediting the account of the payees but effecting the credit in the interest payable account. Taking the view that the credit to the interest payable account on September 30, 1984, tantamount to a credit, in the account of the payees. The Assessing Officer proceeded to treat the assessee to be....

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....0 (Rs. 877 + Rs. 120,296 + Rs. 30,127 + Rs. 1,417 + Rs. 41,733) is hereby deleted. In the result, the appeal is partly allowed. The interest charged by the DC (Asstt.) under section 201(1A) is hereby reduced to Rs. 3,448." 4. We have heard Sri Shambhu Chopra, learned standing counsel for the Revenue. Nobody has appeared on behalf of the respondent-assessee. 5. Learned standing counsel submitted that under section 194A(1) of the Act, it was incumbent upon the assessee to deduct tax at source while crediting the amount of interest to the account of the payees whether it had actually been paid over to the payee or not. According to him, crediting the amount of interest to the account and subsequently to the interest payable account to the creditor, the company was liable to deduct and pay tax at source at that very time in the aforesaid two accounts and in failure to deposit the tax is liable for interest. According to him, the assessing authority had rightly levied the interest. He has referred to Circular No. 288, dated December 22, 1980 (see [1981] 130 ITR (St.) 2), issued by the Central Board of Direct Taxes in which clarification regarding the liability for determination of ta....

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....t by January 31, 1981, irrespective of when the closing entries are actually made." 6. Relying on the said circular, he submitted that when the interest is debited to the interest account and credited to the interest payable account, it would be deemed that the interest has been paid to the creditors as amount has been claimed as a deduction in the return. In support of his submissions, he has relied upon the following decisions : 1. Southern Brick Works Ltd. v. CIT [1984] 146 ITR 479 (Mad). 2. ITO v. Anil Kumar Gupta [1992] 197 ITR 266 (P & H). 3. CIT v. Rathi Gum Industries [1995] 213 ITR 98 (Raj). 7. He further submitted that tax deducted at source is to be deducted the moment it is credited to the payee's account. 8. We have given our anxious consideration to the various pleas raised by learned standing counsel and we find ourselves unable to accept them for the following reasons : Under section 194A(1) of the Act, as it stood during the relevant period, amount of tax was to be deducted at source at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of cheque or draft or by any other mode. So far as the pre....

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....sthan High Court in the case of CIT v. Oriental Power Cables Ltd. [1993] 203 ITR 237, the Gujarat High Court in the case of Alkapuri Investments P. Ltd. v. D. S. Khoba [1997] 226 ITR 506 and in the case of Laxmi Industries Ltd. v. ITO [1998] 231 ITR 514 (Raj). In all these cases, it has been held that an Explanation brought on the statute book is ordinarily clarificatory in nature and has retrospective effect, as the Explanation so brought to a provision in the statute simply explains the law as it has always been in the main provision. However, the rule governing the construction of the provisions imposing penal liability upon the subject is that such provisions should be strictly construed. When a provision creates some penal liability against the subject, such provision should ordinarily be interpreted strictly. That apart, if two views of the interpretation or construction of a provision in the statute are reasonably possible, the view which is favourable to the subject should be adopted. 11. Contrary view has been taken by the Madras High Court in the case of ITO v. D. Manoharlal Kothari [1999] 236 ITR 357, wherein it has been held as follows (headnote) : "An Explanation can....