1. The question involved in this appeal is somewhat interesting and it relates to the manner of giving benefit of tax deducted at source. The matter can be better understood with reference to a few facts which may be stated hereunder : The assessee has given some loans to two concerns, namely : (i) New Central Jute Mills Co. Ltd. ; and (ii) Panchsheel Shipping Co. Ltd. It receives interest from these two concerns on the amounts lent.
The assessee follows mercantile system of accounting and its accounting year is the financial year ending on 31-3-1979 relevant for the assessment year 1979-80. Since the assessee is following mercantile system of accounting, it included the interest accrued on the advances made by the assessee to the aforesaid two concerns for the assessment year 1979-80. The assessee also filed certificates under Section 203 of the Income-tax Act, 1961 ('the Act') in order to claim the tax deducted at source in respect of the interest receivable from the two concerns. The ITO did not agree to give credit for tax deducted at source on the ground that they did not pertain to the assessment year 1979-80. So far as New Central Jute Mills Co. Ltd. is concerned, it deducted tax at source on 27-8-1979.
The amount was credited to the Government account on 5-9-1979. In the case of Panchsheel Shipping Co. Ltd. the deduction was made on 4-9-1979 and the payment was made on 13-9-1979. It is in accordance with the tax deducted at source by these two concerns that the certificates were furnished. It is evident that the dates on which the tax was deducted at source do not fall in the relevant assessment year 1979-80 and that is why the ITO refused to give credit. The Commissioner (Appeals) agreed with the ITO. The assessee has, thus, come up in appeal before the Tribunal.
2. The question has been argued at some considerable length by both the parties and it is not necessary to mention the arguments in detail as the whole thing turns upon construction of the various provisions relating to the tax deducted at source. We may, therefore, straightaway look to the relevant provisions. Apart from levying tax directly on the assessee, there are special provisions contained in Chapter XVII under which tax can be deducted at source or by advance payment. This is provided in Sub-section (1) of Section 190 of the Act. Section 191 of the Act no doubt saves the collection of tax from the assessee direct in cases where there is no deduction at source or payment of advance tax. In respect of different types of income provisions have been made as to the manner of deduction at source. We are, however, concerned with deduction at source in respect of interest other than 'Interest on securities'. This is covered by Section 194A of the Act. The relevant portion of this section may be stated as under : (1) Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any income by way of interest other than income chargeable under the head 'Interest on securities', shall, 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, deduct income-tax thereon at the rates in force : We are deliberately omitting the proviso as it deals with the procedure to be followed in case where no deduction is made. This provision enjoins upon every person to deduct the tax in respect of interest income at the time of giving credit to the account of the payee or at the time of payment in cash. This evidently envisages crediting of the amount on the basis of accrual. Obviously, the Legislature has kept in mind the different methods of accounting followed by different persons.
The other provisions with which we may be concerned are Sections 199, 203 and 205 of the Act. Section 199 is necessary to be reproduced (without the proviso) : Any deduction made in accordance with the provisions of Sections 192 to 194, Section 194A, Section 194B, Section 194BB, Section 194C, Section 194D and Section 195 and paid to the Central Government shall be treated as a payment of tax on behalf of the person from whose income the deduction was made, or of the owner of the security or of the shareholder, as the case may be, and credit shall be given to him for the amount so deducted on the production of the certificate furnished under Section 203 in the assessment including a provisional assessment under Section 141A, if any, made for the immediately following assessment year under this Act : This section recognizes that any payment made by any person by way of tax deducted at source shall be treated as payment by the person from whose income the deduction is made. In other words, it is treated as if the person whose income is liable to tax has paid the tax. However, the benefit will be given only on the production of the certificate by the concerned person under Section 203. Thirdly, the credit will be given in the assessment for the immediately following assessment year. It looks as though the words 'immediately following assessment year' must be read along with the date on which the deduction is made. Section 203 envisages every person to furnish a certificate to the person from whose income the tax is deducted at source giving all the necessary particulars. These particulars are actually prescribed in Form No. 19A.Section 205 on which lot of emphasis has been placed by the counsel for the assessee, reads as follows : Where tax is deductible at the source under Sections 192 to 194, Section 194A, Section 194B, Section 194BB, Section 194C, Section 194D and Section 195 the assessee shall not be called upon to pay the tax himself to the extent to which tax has been deducted from that income.
The only other thing to be noticed is Rule 30(1)(6)(i) of the Income-tax Rules, 1962. It provides for the time within which the tax deducted at source has to be paid to the Government. This particular provision reads as follows : (i) in respect of sums deducted in accordance with the provisions of Section 194A, Section 194C and Section 194D,-- (1) where the income by way of interest referred to in Section 194A or the sum referred to in Section 194C or the income by way of insurance commission referred to in Section 194D is credited by a person carrying on a business or profession to the account of the payee as on the date up to which the accounts of such business or profession are made, within two months of the expiration of the month in which that date falls ; (2) in any other case, within one week from the last day of the month in which the deduction is made ; and 3. The assessee's argument is very simple. It says that since it has returned the interest income for the assessment year 1979-80 and the tax deducted at source is in respect of this income, the benefit thereof should be given to the assessee for the assessment year 1979-80. The argument is undoubtedly very attractive because when income is returned and tax is deducted in respect of that income, it may look proper that the tax in respect of that income which is already deducted at source must be taken into account. However, we do not think that the matter is so simple as that. The emphasis that the tax deducted at source should be directly linked up with the income returned perhaps is misplaced as we will presently show. As already mentioned Section 194 gives the option to the person, who is responsible to pay the interest income, to deduct tax at the time of credit of such income to the account of the payee (this arises when the person is following mercantile system of accounting). In the alternative, the tax can be deducted at the time of payment of the amount in cash. In this case though the record is not very clear as to whether on the dates mentioned already the two concerns paid the amounts or not, but from the tenor of the order of the Commissioner (Appeals) it appears that the interest amounts were paid on those dates to the assessee and, therefore, the deduction took place. The persons responsible, therefore, opted for the deduction of tax at source at the time of payment of the interest to the assessee. It is in accordance with this procedure that the certificates were furnished by the two concerns showing the tax deducted at source in terms of Form No. 19A.It may be further mentioned here that so far as Form No. 19A is concerned, the certificate can be given when the amount of tax is deducted at source irrespective of the fact whether the tax has been deposited to the Government or not. If we look to the form the position is very clear. It contemplates both situations, namely, actual deduction of tax from the interest payment or that the amount is to be paid to the Central Government by a particular date. Rule 30 in this connection, which has already been quoted [above], shows the time within which the payment has to be made to the Central Government. But that is between the person who deducts the tax at source and the Government and it has nothing to do with the assessee who claims the benefit of tax deduction. In other words, the benefit of tax deducted at source is to be given to the assessee irrespective of the fact as to whether the person who deducted the tax had paid it to the Government or not. All that the assessee is required, is to furnish to the ITO the certificate in Form No. 19A in order to get the benefit of tax deducted at source.
4. The real question to be considered is whether merely because the assessee has returned the interest income on accrual basis in the return of income for the assessment year 1979-80, the assessee can get the benefit of tax deducted at source even though the date on which the deduction took place falls beyond the assessment year 1979-80. In our opinion, the simple test to give the benefit of tax deducted at source is contained in Section 199 and that is on the production of the certificate furnished under Section 203. The law enjoins on the person who deducts the tax to give a certificate as per the provisions of Section 203 and the benefit of the tax deducted at source is obtainable by an assessee on the production of such certificate in accordance with Section 199. On a plain reading of Sections 199 and 203 it appears to our minds that the benefit of tax deducted at source has nothing to do with the income that is returned. A simple rule of procedure has been prescribed for getting the benefit and that is by the production of the certificate and nothing more. Admittedly, in this case the certificate furnished by the assessee clearly shows that deduction took place on dates which do not fall within the assessment year at all. If we once again look to Section 199, the benefit of tax deducted at source will be available only to the assessee for the assessment year 1980-81 which is the immediately following assessment year in relation to the dates of deduction.
Section 205 on which reliance is placed does not provide any guidance in this connection. That section merely says that wherever tax is deductible at source, the assessee will not be called upon to pay the tax to that extent. But Section 205 must be read in the context of Sections 199 to 203. Section 205 does not remain in vacuum. The argument of the assessee's counsel was that when tax is deductible at source, whether it is actually deducted or not or whether it is deducted at a later date, then the assessee would be entitled to the benefit of tax deducted at source. This argument is fallacious. The whole idea of giving the benefit of tax deducted at source is only when there is actual deduction coupled with the certificate by the person who deducts it.
5. We can illustrate how the benefit of tax deducted at source has nothing to do with the actual income returned with reference to several situations. If the payee and the payer adopt cash system of accounting and they have same accounting year, difficulties may not arise at all.
Similarly, if both of them adopt mercantile system of accounting with the same accounting year, no difficulty may arise. But if one follows cash system and the other follows mercantile system, there is bound to be anomaly, if one wants to correlate the benefit of tax deducted at source with the income which is included in the assessment. Similarly, there will be undue complications when different accounting years are followed by the payee and the payer. To take one concrete illustration let us say when both the persons adopt cash system but the accounting years are different, the payee's accounting year ends on 30-6-1981 and the payer's accounting year ends on 31-3-1981. So far as the person who pays the amount is concerned, he credits the interest and actually deducts the tax at source on 30-3-1981. In accordance with Section 199, the benefit of tax deducted at source will be available to the payee for the assessment year 1981-82 even though his accounts close by the end of June 1981 and the amount of interest received by him will be included in the assessment for the year 1982-83. In this case how do we fit in the benefit of tax deducted at source if we accept the argument of the assessee bearing in mind, however, the provisions of Section 199. Illustrations of this nature can be multiplied. The whole idea of ours in giving the illustration is to highlight the unnecessary confusion and anomaly if we accept the argument of the assessee. We have, therefore, found that the simple criterion to adopt is only on the basis of the production of the certificate and the benefit to be given in accordance with Section 199. The benefit has nothing to do with the inclusion of the income at all. Perhaps the Legislature thought fit to adopt this procedure to obviate so many practical difficulties that may arise if the concept of tax deducted at source is linked up with the inclusion of income relating to that deduction.
6. For the above reasons, we are of the view that the assessee cannot get the benefit of tax deducted at source in respect of the aforesaid two amounts for the assessment year 1979-80.