COMMISSIONER OF INCOME TAX vs. KOSHALYA INVESTMENT P LTD IVL

ITR/223/1991HC GujaratGJHC24013456199125 June 2003Author: HONOURABLE MR. JUSTICE ANIL R. DAVE,HONOURABLE MR. JUSTICE A.M.KAPADIA3 pages
AI SummaryAllowed

What were the facts?

For assessment year 1982-83, the assessee was liable to pay Rs.1,52,971.12 as interest to various parties. This interest was not paid by the end of the relevant previous year. The assessee debited this amount to an 'interest payable account'. The assessee argued that since the interest was neither paid nor credited to the creditors' accounts, tax deduction at source was not applicable. However, the Assessing Officer charged penal interest under Section 201(1A) for non-deduction and non-payment of tax. The Commissioner of Income-tax (Appeals) upheld the Assessing Officer's order. The assessee appealed to the Income-tax Appellate Tribunal, which cancelled the interest.

What did the High Court hold?

The High Court held that for the assessment year in question (prior to the amendment of Section 194A(1) effective from June 1, 1987), it was not necessary to deduct tax at source from interest payable unless the interest was actually paid or credited to the creditor's account. Since the facts indicated that the interest was neither paid nor credited, the assessee was not obligated to deduct tax at that stage. Consequently, the Tribunal was justified in deleting the penal interest levied under Section 201(1A). The Court relied on its own decision in ALKAPURI INVESTMENTS PVT. LTD Vs. D.S. KHOBA AND ORS., 226 ITR 506. The question of law was answered in the affirmative, in favour of the assessee.

What were the issues?

1. Whether the Appellate Tribunal is right in law and on facts in cancelling the interest charged under Section 201(1A) of the Income-tax Act, 1961? Assessee's contention: The assessee contended that tax deduction at source under Section 194A was not applicable as the interest payable was neither actually paid to the creditors nor credited to their accounts. Therefore, charging interest under Section 201(1A) was incorrect. Revenue's contention: The revenue argued that the assessee had committed a default by not deducting and paying tax on the interest amount, thus justifying the levy of interest under Section 201(1A). The revenue did not dispute the factual position regarding non-payment or non-crediting of interest.

Which sections of the Income-tax Act were involved?

Section 201(1A),Section 194A(1),Section 256(1)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX REFERENCE No 223 of 1991

For Approval and Signature:

Hon'ble MR.JUSTICE A.R.DAVE and Hon'ble MR.JUSTICE A.M.KAPADIA

============================================================ 1. Whether Reporters of Local Papers may be allowed : NO to see the judgements?

2.

To be referred to the Reporter or not? : NO 3. Whether Their Lordships wish to see the fair copy : NO of the judgement?

4.

Whether this case involves a substantial question : NO of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder?

5.

Whether it is to be circulated to the concerned : NO Ma

The order continues below.

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