U.P. National Manufacturers Ltd. vs Assistant Commissioner of Income Tax (TDS), Varanasi

In this income tax Appeal only one question has been pressed at the time oft argument, which is question no. 4 of the four substantial questions of law, mentioned in the memo of appeal. The question, as drafted in the memo of appeal, reads as follows: WHETHER on facts and in the circumstances of the case, the learned ITAT is correct in law in holding that interest u/s 201(1A) of the income tax Act is payable by the appellant for non-deduction of tax at source from the commission payments although the recipients of such commission have paid full advance tax in respect of their income (including such commission income) and there has been no loss to the revenue on account of non-deduction of tax at source from such payments.

It has been argued from the appellant''s side that u/s 201(1-A) where a person fails to deposit the tax deducted by him at source, such person, who is under statutory obligation to deduct and pay TDS, will be liable to pay simple interest on the amount of such tax from the date on which such tax was deductible to the date on which such tax is actually paid.

It has been submitted from the side of the appellant that what is being charged under this provision is not penalty but interest. The entitlement to charge interest arise only when the recipient receives the principal amount after delay. The situation with regard to penalty, if payable, may stand on a different footing. From the side of the appellant two decisions, one of the Gujarat High Court and the other of the Rajasthan High Court, have been relied upon. These references are as follows:

Commissioner of Income Tax Vs. Rishikesh Apartments Co-operative Housing Society Ltd., .

Commissioner of Income Tax Vs. Rajasthan Rajya Vidyut Prasaran Nigam Ltd., .

We have not been shown any reason to take a view different from the above. The substantial question of law, framed above, is, therefore, answered against the department and in favour of the assessee holding that where the lax has been received by the department by way of advance tax deposited by the payee and, consequently, there has been no loss to the revenue on account of non-deduction of TDS, no interest u/s 201(1-A) of the income tax Act would be payable and the ITAT was not correct in holding to the contrary. The appeal is, accordingly, allowed and the impugned order of the ITAT is set aside. The matter will be re-examined by the ITAT.