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Arundathi Investments Ltd. Vs. Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Madras
Decided On
Judge
Reported in(1984)10ITD754(Mad.)
AppellantArundathi Investments Ltd.
Respondentincome-tax Officer
Excerpt:
.....in his action as he took the view that interest received should be credited when there was 'payee account' ; and, therefore, he held that what the assessee did was only to avoid the liability under section 194a. therefore, on the facts and in the circumstances of the case, he held that the assessee was liable to deduct tax under section 194a, which amounted to rs. 3,180. as the assessee had not deducted it and not paid to the government of india account as on 31-10-1980, he held that an interest amounting to rs. 636 is chargeable under section 201. he further observed that if the tax deducted at source was not deducted and paid immediately along with the interest as per challan, further interest would be charged until the tax deducted at source was paid. in appeal, the.....
Judgment:
1. The assessee has preferred this appeal, against the order dated 1-12-1982 of Shri R. Parthasarathi, the Commissioner (Appeals), who partly allowed the appeal against the order of the ITO, Shri S. Bose, dated 21-11-1981. The relevant facts in brief are that the assessee is a public limited company. For the assessment year 1980-81, the accounting year ended on 31-12-1979. The system of accounting of the assessee is mercantile. The assessee borrowed the loans and the interest on these loans were not paid to the creditors nor credited to the [relevant] account. Rather it was shown or credited in the suspense account. The assessee did not deduct any tax Under Section 194A of the Income-tax Act, 1961 ('the Act'), on the ground that interest was not paid to any party or creditor. The ITO did not accept the plea of the assessee and as such he levied an interest amounting to Rs. 636 Under Section 201 of the Act. The ITO also did not accept the plea of the assessee that in view of the circular of the Board, the assessee is justified in his action as he took the view that interest received should be credited when there was 'payee account' ; and, therefore, he held that what the assessee did was only to avoid the liability Under Section 194A. Therefore, on the facts and in the circumstances of the case, he held that the assessee was liable to deduct tax Under Section 194A, which amounted to Rs. 3,180. As the assessee had not deducted it and not paid to the Government of India account as on 31-10-1980, he held that an interest amounting to Rs. 636 is chargeable Under Section 201. He further observed that if the tax deducted at source was not deducted and paid immediately along with the interest as per challan, further interest would be charged until the tax deducted at source was paid. In appeal, the Commissioner (Appeals) upheld the action of the ITO as stated above. The assessee, being aggrieved, has preferred this appeal.

2. Shri N. Devanathan, the learned counsel for the assessee, contends that the Commissioner (Appeals) is unjustified in holding that the assessee's case is not governed by the CBDT Circular No. 1212, dated 1-11-1978 [F. No. 385/61/78-IT(B)]. He further contends that the Commissioner (Appeals) is unjustified in confirming the view of the ITO that the provisions of Section 194A were attracted in the facts of the case ; that the Commissioner (Appeals) ought to have appreciated that neither the interest was paid nor was credited to the account and hence the provisions of Section 194A did not apply. In a nutshell, the contentions of the assessee-counsel are the repetition of the stand of the assessee which was there before the Commissioner (Appeals) and before the Tribunal in the case decided on 18-8-1983 in the case of Sivakami Finance (P.) Ltd. v. ITO [1983] 6 ITD 351 (Mad.). On the other hand, the learned departmental representative contends that the assessee has not shown the amount of interest in the accounts of the creditors, which he should have shown being [following] mercantile system of accounting. He further contends that when the identity of the creditors is known and their accounts are there in the books of account of the assessee, then there is no basis to show the interest in the 'payee account' or 'suspense account'. He further contends that the Board's circular cited supra is not applicable, as the same is rectified by subsequent circular.

3. We have heard the rival submissions and gone through the record before us. The contentions raised by the assessee and the department are almost the same, which were there in the latest decision of the Tribunal in the case of Sivakami Finance (P.) Ltd. (supra). From this decision of the Tribunal, it is more than manifest that the assessee's claim can be upheld if there are unavoidable circumstances on the part of the assessee to make the payment of interest and the same is nothing else than financial crisis. In this case, there is no such situation.

Rather the stand of the assessee is that the Board's circular is there in favour of the assessee. This cannot be accepted in view of the fact that the Board's circulars are valid to the extent these are administrative in nature and not where they interfere in the interpretation of law or in the judicial functions of the ITO. The view taken by the Madras High Court is binding on the Madras Benches and, therefore, following it with respect, we hold that the assessee cannot be benefited on the plea of the Board's circular. Hence, reliance can be placed on the decision of A.L.A. Firm v. CIT [1976] 102 ITR 622 (Mad.). We reject the stand of the assessee. Furthermore, the decision of the Madras Bench is also against the assessee supra, as there the Tribunal has held that the assessee's claim cannot be allowed if the assessee has not brought unavoidable circumstance on record to show that the assessee failed to pay the tax. In this case, the assessee has nowhere placed or pleaded rather it is the case of the assessee that the assessee is entitled to put interest amount in the suspense account in view of the Board's circular referred to above. The Board's circular cannot be followed in view of the decision of the Hon'ble Madras High Court in the case of A.L.A. Firm (supra) and there is no substance in the plea of the assessee that the decision of the Tribunal in Sivakami Finance (P.) Ltd.'s case (supra) is in its favour, as the case of the assessee is distinguishable. In that case, the Tribunal categorically held that such claim can be allowed if the assessee has proved the financial crisis for non-payment of tax. In this case, the assessee has failed to show or credit interest amount in the accounts of the creditors in its books of account, rather it is shown in the suspense account and there are no names of the creditors, when the creditors are there in the books of account and, as such, there is no basis for the assessee to act in the manner acted upon. In view of our above discussion, we hold that the authorities below are justified in their conclusions. Hence, we confirm the impugned order and reject the contentions of the learned counsel of the assessee.

5. With great respect. I am unable to agree with my brother, the learned Judicial Member's order. The Tribunal in its earlier order [(Madras Bench 'C', dated 18-8-1983, in IT Appeal Nos. 482 to 486 (Mad.) of 1983] in Sivakami Finance (P.) Ltd.'s case (supra) for the assessment years 1976-77 to 1980-81, etc., referred to in the Judicial Member's order has elaborately dealt with the same issue, also referring, inter alia, to the Board's circulars and held for the various reasons given therein that when the interest was credited to the 'Interest payable account', it did not amount to crediting the interest to the accounts of the payees and, consequently, no liability for deducting the tax on the interest amount was incurred. On the point regarding the binding nature of the Board's circulars granting administrative relief to the asses-see, the Supreme Court decision in the case of K.P. Varghese v. ITO [1981] 131 ITR 597 is authority for the proposition that such circulars are binding on the departmental officers. Following the ratio of the Tribunal's order, I would hold that the assessee was not liable to deduct tax from the interest payable of Rs. 15,510 Under Section 194A ; consequently, the levy of interest by the ITO Under Section 201 is not justified. I would, hence, allow the assessee's appeal.

Order Under Section 255(4) of the income-tax act, 1961 - Whereas we are unable to agree on the point set out below for the assessment year 1980-81, we refer the following point of difference of opinion to the President for reference to the Third Member Under Section 255(4) of the Act : Whether, on the facts and in the circumstances of the case, there was no liability on the assessee to deduct tax from the 'interest payable' of Rs. 15,510 Under Section 194A and, consequently, the Income-tax Officer was not justified in levying interest of Rs. 636 Under Section 201 on the assessee 1. There being difference of opinion between the learned Judicial Member and the learned Accountant Member the following question has been referred to me for decision as a Third Member : Whether, on the facts and in the circumstances of the case, there was no liability on the assessee to deduct tax from the 'interest payable' of Rs. 15,510 Under Section 194A and, consequently, the Income-tax Officer was not justified in levying interest of Rs. 636 Under Section 201 on the assessee 2. In the course of the assessment proceedings for the assessment year 1980-81, the ITO found that the assessee had borrowed certain loans from East India Corporation Ltd., but the interest of Rs. 15,510 relating thereto had been credited by the assessee to the 'Interest Payable Account' and not to the 'Payee's Account'. The ITO further found that the assessee had not deducted the tax of Rs. 3,180 from the amount of interest payable to the creditor, as required Under Section 194A. He, therefore, charged interest amounting to Rs. 636 Under Section 201. While doing so, he relied upon the CBDT Circular No. 288 [F. No. 275/46/79-IT(B)], dated 22-12-1980 -[1981] 130 ITR (St.) 2-ignoring the CBDT Circular letter No. 276/72/77-IT (B), dated 25-1-1979-Taxmann's Direct Taxes Circulars, Vol. 1, 1980 edn., p. 734.

On appeal, the Commissioner (Appeals) agreed with the ITO that interest was leviable on the assessee in this case. He, however, directed the ITO to recompute the amount of interest, keeping in view certain directions given by him. Aggrieved by the order of the Commissioner (Appeals), the assessee went in appeal before the Tribunal.

3.1 Before proceeding further, I would reproduce the aforesaid circulars for appreciating the controversy involved in the case.

3.2 The CBDT Circular Letter No. 276/72/77-IT(B), dated 25-1-1979, reads as follows : I am directed by the Committee of the Federation to address you as under : Under Section 194A of the Income-tax Act, an assessee is required to deduct income-tax at source from the interest income of a resident at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or otherwise.

Many assessees, while finalising their accounts, do not necessarily credit the amount of interest payable to each creditor ; instead they credit the interest payable on the amount of loans raised by them in a separate interest payable account. Since such assessees do not credit the amount of interest to the account of the respective payee, they do not deduct tax at the time of finalising the accounts. Tax is, however, deducted at the time when the interest is either actually credited to the account of the respective payee or is paid to them. It has been brought to the notice of the Federation that the Department is insisting upon deduction of tax at source even at the time of crediting the amount of interest to the interest payable account as aforesaid and has even launched prosecution for alleged failure to deduct tax at source and pay to Government.

The Section, as it is worked, requires deduction of tax at source only at the time when the interest is credited to the account of the payee or payment thereof. There is, therefore, no obligation on the part of assessee to deduct tax at the time of making a provision in the accounts in respect of interest payable by him. The crediting of interest to the account of the payee is not the same thing as crediting the interest to the 'interest payable account'. It is, therefore, suggested that suitable instructions be issued to the authorities below not to insist deduction of tax at source at the time of crediting the interest to the interest payable account. All pending penal or prosecution proceedings may also be directed to be withdrawn immediately. (p. 734) 3. The material expression in Section 194A(1) is 'at the time of credit of such income in the account of the payee ....'. When interest is debited to 'Interest account' or any other nominal account, the debit is for a specific amount calculated with reference to the deductor's liability to a particular creditor in accordance with the terms and conditions of the loan. What is, therefore, important is that the interest payable to a creditor has constructively been credited to the account of the payee ; the apparent nomenclature of the particular account in which the credit is made is not conclusive in the matter. The nominal accounts like 'Interest Payable Account', 'Liability for Expense Account', 'Suspense Account', etc., are heads or captions meant to cover stray transactions of unidentifiable receipts and payments. Except in stray cases failure to credit the interest to the account of the payee cannot also be called a method of accounting regularly employed within the meaning of Section 145(1) of the Act and would not, therefore, be accepted as an explanation for the consequential failure to deduct the tax at source. The burden of proving that there was a valid justification for crediting interest to any account other than the account of the payee would rest obviously on the person responsible for making the deduction. The time for deduction would be when the interest is credited. - [1981] 130 ITR (St.) 3.

4.1 In the course of appellate proceedings before the Tribunal, the asses-see relied upon the Circular Letter No. 276/72/77-IT(B), dated 25-1-1979 and the decision of the Tribunal in the case of Sivakami Finance (P.) Ltd. (supra) in support of his case.

4.2 The learned Judicial Member was of the opinion that the above circular letter, dated 25-1-1979, did not change the correct legal position, as held by the Madras High Court in A.L.A. Firm's case (supra) and that, even though the assessee had credited the interest payable to the creditor in the suspense account, he was liable to deduct the tax Under Section 194A. He also observed that in the case of Sivakami Finance (P.) Ltd. (supra), it was proved that the assessee did not deduct the tax Under Section 194A due to paucity of funds, but there was no such evidence in the present case and hence there was no justification for not deducting the tax Under Section 194A. He, accordingly, declined to follow the decision of the Tribunal in the case of Sivakami Finance (P.) Ltd. (supra). According to him, therefore, the appeal of the assessee deserved to be dismissed.

4.3 The learned Accountant Member, on the other hand, was of the view that the Tribunal had clearly held, after discussing the circulars in question in the case of Sivakami Finance (P.) Ltd. (supra), that when the interest was credited to the 'Interest Payable Account' and not to the 'Payee's Account', then there was no obligation on the part of the assessee to deduct the tax Under Section 194A. The learned Accountant Member also observed that the circular letter, dated 25-1-1979, was binding on the revenue authorities in view of the decision of the Supreme Court in the case of K.P. Varghese (supra). According to him, since the interest of Rs. 15,510, had not, in fact, been credited to the 'Payee's Account', the assessee was not legally bound to deduct the tax Under Section 194A and so, the levy of interest of Rs. 636 by the ITO Under Section 201 was not justified.

5. It is in these circumstances that the matter has been referred to me for resolving the dispute as Third Member.

6. Before me, the learned representative of the department reiterated the arguments advanced by the learned Judicial Member. He also submitted that the second circular, dated 22-12-1980, should govern the present case and that since the assessee was not prevented by any financial difficulties from deducting the tax Under Section 194A, the charging of interest under Section 201 was justified. According to him, the identity of the creditor being known and his account being there in the account books of the assessee, the method adopted by the assessee for crediting the interest to the 'Suspense Account' was merely a camouflage. According to him, the decision of the Tribunal in the case of Sivakami Finance (P.) Ltd. (supra), was not applicable to the facts of the present case and so the impugned orders of the authorities below were correct.

7. The learned counsel for the assessee, on the other hand, submitted that all the arguments of the department, in the present case, have been dealt with by the Tribunal in the case of Sivakami Finance (P.) Ltd. (supra). He, particularly, invited my attention to para 11 of the Tribunal's order in the aforesaid case wherein it was held that the first circular letter, dated 25-1-1979, held the field for the assessment year 1980-81 and that the second circular, dated 22-12-1980, could not withdraw the concession conferred by the first circular on the assessee and impose a new burden on him. He also referred to the observation of the Tribunal in the aforesaid case to the effect that "when the interest was credited to the 'Interest Payable Account', it did not amount to crediting the interest to the accounts of the payees and, consequently, no liability for deducting the tax on the interest amount was incurred". The learned counsel for the assessee also referred to the decision of the Supreme Court in the case of K.P.Varghese (supra), according to which, the circulars of the CBDT are legally binding on the revenue even if they deviate from the provisions of the Act.

8. After going through the record and hearing the learned representatives of the parties, I am inclined to agree with the view taken by the learned Accountant Member.

9. The first question for consideration is whether the circular letter, dated 25-1-1979, or the circular, dated 22rl2-1980, governs the present case. On this question, the Tribunal has given a specific finding in the case of Sivakami Finance (P.) Ltd. (supra), that the circular letter, dated 25-1-1979, applies to the assessment year under consideration, i.e., the assessment year 1980-81 (relevant to the accounting period ending 31-12-1979), that the subsequent circular, dated 22-12-1980, is not retrospective in effect and so, the same cannot withdraw the concession conferred on the assessee by the first circular and impose a new burden. The Tribunal, being an All India Institution, it will not be appropriate to depart from the view taken by the Tribunal in the case of Sivakami Finance (P.) Ltd. (supra), on the same issue. This has been so held by the Madras High Court in CIT v. S. Devaraj [1969] 73 ITR 1 and in CIT v. L.G. Ramamurthi [1977] 110 ITR 453. According to these authorities, it is proper and desirable that when the Tribunal takes a particular view on an issue, it should not contradict itself and, subsequently, come to a diametrically opposite view on the same issue. In view of these authorities, I would hold that the circular letter, dated 25-1-1979 and not the circular, dated 22-12-1980, would govern the present case.

10. Now it is worthy of note that whereas the circular, dated 22-12-1980, mentions the circumstances under which the crediting of interest to the 'Suspense Account' would absolve an assessee from his obligation to deduct tax, the circular letter dated 25-1-1979, is absolutely silent in this behalf. The circular letter, dated 25-1-1979, merely states that when an assessee credits the interest to the 'Suspense Account' and not to the 'Payee's Account', there is no obligation on his part to deduct tax at the time of making provision in the accounts in respect of interest payable by him. Since it is the circular letter, dated 25-1-1979, which applies to the present case, the question of finding out any justification (like paucity of funds, etc.), for taking advantage of the concession under the circular letter, dated 25-1-1979, does not arise. In the case of Sivakami Finance (P.) Ltd. (supra), the Tribunal held that the assessee was entitled to succeed under both the circulars. In the present case, even though the assessee did not take up the plea of paucity of funds for not deducting the tax Under Section 194A, he is entitled to succeed simply on the basis of the circular letter, dated 25-1-1979. That this circular is binding on the department is amply supported by the decision of the Supreme Court in the case of K.P. Varghese (supra).

11. Even on a plain reading of Section 194A, an assessee is under an obligation to deduct tax at the time of crediting of interest to the account of the payee or at the time of payment thereof in cash or by cheque, etc. If the assessee does not credit the interest to the account of the payee, whatever may be the reason, the provisions of Section 194A will not apply and so, the levy of interest Under Section 201 will not be justified.

12. In view of the above discussion, I agree with the learned Accountant Member that in view of the CBDT Circular letter, dated 25-1-1979, the assessee was not liable to deduct tax from the interest of Rs. 15,510 Under Section 194A, and, consequently, the order of the ITO levying interest of Rs. 636 on the assessee Under Section 201 is not sustainable. The appeal filed by the assessee, therefore, deserves to be allowed.

13. The case will now go to the Bench concerned for disposal, accordingly.


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