COMMISSIONER OF INCOME TAX vs. NILGIRI INVESTMENTS PVT. LTD.

ITR/315/1993HC GujaratGJHC24021330199306 November 2001Author: HONOURABLE MR. JUSTICE MOHIT S. SHAH,HONOURABLE MR. JUSTICE D.A.MEHTA4 pages
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What were the facts?

These consolidated references by the revenue challenge the Income Tax Appellate Tribunal's interpretation of Section 215(5) and Section 194A of the Income Tax Act, 1961. The core issue revolves around how 'assessed tax' is computed for the purpose of calculating interest payable by the assessee under Section 215. Specifically, the revenue disputes whether tax deductible at source, even if not actually deducted, should be considered in reducing the 'assessed tax'. The references pertain to assessment years ranging from 1982-83 to 1985-86, involving multiple assessee companies: Nilgiri Investments Pvt. Ltd., M/s. Panchavati Investments Pvt. Ltd., M/s. Berar Investments Pvt. Ltd., and M/s. Dhaulagiri Investments Pvt. Ltd.

What did the High Court hold?

The High Court, in light of its prior decision in C.I.T. vs. Ranoli Investment P.Ltd. & Others (1999) 235 I.T.R. 432, held in favour of the assessee. The Court clarified that 'assessed tax' under Section 215(1) is to be read in conjunction with Section 215(5). This means 'assessed tax' is the amount determined on regular assessment, reduced by the tax deductible in accordance with Sections 192 to 194A, 194C, 194D, and 195, as far as it relates to income subject to advance tax. The Court emphasized that the words 'reduced by the amount of tax deductible' in Section 215(5) are significant. It further held that the time of deduction under Section 194A is when interest is credited, and the liability of the deductor arises for failure to make deduction at that time. Deduction made later at the time of actual payment is not 'tax deducted at source' properly so-called. The ratio is that for calculating interest under Section 215, the assessed tax should be reduced by the tax deductible at source, even if not actually deducted, as the assessee's liability to pay that portion of tax is discharged by this notional deduction. All questions were answered in favour of the assessee.

What were the issues?

The Tribunal had to decide the following questions: 1. Whether the Tribunal was right in holding that the assessee's claim may be re-examined by the Income-tax Officer, keeping in view that it is the amount of the tax deductible at source, and not tax deducted at source, which is to be taken into consideration while computing the assessed tax in terms of Section 215(5)? (Question of law and fact, concerning Section 215(5) and Section 194A). 2. Whether the Tribunal was right in directing the Assessing Officer to work out the amount of tax deductible at source on the amount of interest income and to give due credit for the same for the purpose of working out the assessed tax under Section 215(5) notwithstanding the fact that no tax was in fact deducted at source? (Question of law and fact, concerning Section 215(5) and Section 194A). 3. Whether the Tribunal correctly appreciated the provisions of Section 194A which provides that tax is deductible only when interest is credited or paid to the account of the assessee? (Question of law, concerning Section 194A). 4. Whether the Tribunal was right in holding that the tax deductible at source should be deducted and thereafter interest u/s.215 should be calculated? (Question of law and fact, concerning Section 215 and Section 194A). Assessee's Contention: The assessee argued that 'assessed tax' for Section 215(5) purposes should be reduced by the amount of tax deductible at source, irrespective of whether it was actually deducted. They relied on the principle that the liability to pay tax is discharged to the extent of tax deductible at source. Revenue's Contention: The revenue contended that only tax actually deducted at source should be considered for reducing the 'assessed tax' under Section 215(5). They argued that Section 194A mandates deduction only upon credit or payment of interest.

Which sections of the Income-tax Act were involved?

Section 215,Section 215(5),Section 194A,Section 209(1)(a),Section 192,Section 194,Section 194C,Section 194D,Section 195,Section 190,Section 191,Section 198,Section 199,Section 200,Section 202,Section 203,Section 205

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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX REFERENCE No 315 of 1993 WITH INCOME TAX REFERENCE Nos. 290 & 291 of 1995 WITH INCOME TAX REFERENCE No. 119 of 1996

For Approval and Signature:

Hon'ble MR.JUSTICE M.S.SHAH and Hon'ble MR.JUSTICE D.A.MEHTA ============================================================ 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?

The order continues below.

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