1. A short but interesting point has been raised in this appeal revolving round the interpretation of Sub-Section (1A) of Section 201 of the Income-tax Act, 1961 ('the Act'), read with Section 194A and Rule 30, of the Income-tax Rules, 1962.
2. The facts are in a very narrow compass and may be noted. The accounting year of the assessee-company for the assessment year 1979-80 ended on 31-3-1979. On 15-5-1979, its books of account were seized by the department in terms of Section 132 of the Act. Inspection of the said books was granted to the assessee-company on 10-8-1979. The appellant company took extracts from the seized books of account, and copied out accounts from the cash book and ledger and thereafter, finally adjusted its books of account sometime in September 1979 on the basis of the information gathered from the inspection of its seized books of account. The various creditors' accounts were credited with interest in September 1979. Tax under Section 194A was deducted at the time of making the said credits and such tax deducted at source was paid in the Reserve Bank of India on 16-10-1979.
3. The ITO felt that tax should have been deducted from the interest credited to the aforesaid creditors' accounts and paid to the Government within two months from the date when the accounts were to be closed, i.e., 31-3-1979, and inasmuch as it had not been done, interest was chargeable from the assessee in terms of Sub-Section (1A) of Section 201, read with Rule 30(1)(b)(i)(1).
4. On appeal, the learned Commissioner (Appeals) held that the aforesaid action of the ITO was entirely in order. The present appeal is directed against the aforesaid order.
5. The contention of the learned counsel for the assessee is short.
According to him, Sub-Section (1A) of Section 201 lays down that an assessee shall be liable to pay simple interest on the amount of tax deductible from interests credited to the various creditors "from the date on which such tax was deductible to the date on which such tax is actually paid". Sub Section (1) of Section 194A lays down that tax is to be deducted from interests paid "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 a cheque or draft or by any other mode, .whichever is earlier . . .". The plain meaning to be derived from the use of the aforesaid language in Sub- Section (1) of Section 194A, according to the learned counsel, is that tax is to be deducted not with reference to the date up to which the accounts of an assessee for a given previous year are to be drawn up, but with reference to the actual act of crediting interest in the accounts or the actual act of making payment by cash or cheque, etc., whichever be earlier. The actual act of crediting the interest to the accounts of creditors, in the case of the assessee, was done in September 1979. So the liability to deduct tax accrued and arose only in September 1979. Within two months of it, the assessee should have deposited the tax deducted at source in the treasury or with (sic) Reserve Bank of India. The assessee did it and, therefore, in his opinion, there was no default. The default was being sought to be presumed against the assessee not with reference to the language of Sub-Section (1) of Section 194A, but with reference to the language of the rule which visualized a third date also to be taken into account for the purpose of depositing the tax deducted. Such date, according to the learned Commissioner (Appeals), was the date up to which the accounts of the assessee's previous year were to be drawn up, namely, 31-3-1979. The aforesaid date does not find mention in Sub-Section (1) of Section 194A, which creates the statutory obligation on the assessee to deduct tax from interest and to pay it. Such obligation cannot be created by delegated legislation, namely by Rule 30. The purpose of the rule is to implement the mandate of the section.
It cannot supplant or replace the section or extend its scope. Rule 30 should, therefore, be interpreted in such a manner that it would be in accordance with the language of Sub-Section (1) of Section 194 A, and not in a manner which will bring it in conflict with the said language.
6. On behalf of the revenue, the order of the learned Commissioner (Appeals) is stoutly supported.
All sums deducted in accordance with the provisions of Sections 194A shall be paid to the credit of the Central Government. In respect of sums deducted in accordance with the provisions of Section 194A ...
where the income by way of interest referred to in Section 194A ...
is credited by a person carrying on a business or profession to the account of the payee as on the date upto which the accounts of such business or profession are made, within two months of the expiration of the month in which that date falls;....
7.2 Sub-rule (3) of Rule 30 may also be noted at this stage. The said sub-rule, so far as it is relevant for our purpose, reads as follows : Section...194A...shall pay the amount of tax so deducted to the credit of the Central Government by remitting it within the the time prescribed in Sub-rule (1) into any branch of the Reserve Bank of India ...accompanied by an income-tax challan...
Time and mode of payment to Government account of tax deducted at source 7.4 Rule 30 has been made to give effect to the provisions of Section 200 of the Act. The provisions of Section 200 may, therefore, also be noted at this stage. They read as follows: Any person deducting any sum in accordance with the provisions of Sections 192 to 194, Section 194A, Section 194B, Section 194BB, Section 194C, Section 194D and Section 195 shall pay within the prescribed time, the sum so deducted to the credit of the Central Government or as the Board directs.
7.5 The words, underlined by us [here italicizied] above both in Rule 30 as well as in Section 200, go to emphasize the fact that both Section 200 and Rule 30 come into operation after the tax has been deducted by the person responsible for deducting the tax. They did not deal with the point of time when liability to deduct tax arises. They deal with the time-limit within which the person deducting the tax in accordance with various sections, including Section 194A, should deposit the tax so deducted in the Government account. Apparently, therefore, it appears to us that no guidance can be had from either Rule 30 or Section 200 for the purpose of ascertaining the point of time when the liability to deduct the tax arises on the person, who is obliged to deduct the tax in accordance with the aforementioned section. For determining the aforesaid point of time, we must look at the relevant section under which the obligation to deduct the tax is created, because the interest under Sub-Section (1 A) of Section 201 is chargeable from the date on which such tax was deductible, and not from the date on which such tax was actually deducted. Actual deduction may be at a different date. Section 200 deals with the deposit of tax so deducted and Rule 30 indicates the time-limit within which such tax deducted by the person concerned should be deposited. Section 194A, has, therefore, to be looked up to find out the point of time when tax according to the said section was deductible from the interests paid.
We have already extracted the relevant part of the section above, and from a perusal thereof, it would be clear that the liability to deduct tax arises at the point of time when credit of interest to the account of the creditor is given or interest is in fact paid to the creditor, whichever be earlier. In the present case, admittedly, interest has been disbursed later, but the credit for it to the creditors account has been given earlier. Therefore, the point of time when the tax should have been deducted is when credit was given to the accounts of the creditors. Such credit was given in September, 1979. Such credit will, of course, affect the computation of income for the accounting period ending on 31-3-1979, but that should, in our opinion, be no consideration for determining the point of time when tax is deductible.
The language of Sub-Section (1) of Section 194A specifically stipulates the point of time when tax is to be deducted, and honouring the said language, we hereby hold that such point of time, in the present case, was September, 1979, and not 31-3-1979, as held by the learned Commissioner (Appeals). Inasmuch as the interest has been paid by the assessee within the time given by Rule 30, read with Section 200, the assessee cannot be held to be an assessee in default in respect of the said tax and no interest can be charged from the assessee for the payment of tax in the Reserve Bank of India on 16-10-1979. The order of the learned Commissioner (Appeals) is, in view of what we have stated above, hereby reversed and the appeal of the assessee is allowed.