1. At the instance of the Revenue the Income-tax Appellate Tribunal has referred the following two questions of law for the opinion of this court :
'1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that no interest under section 215 could be levied in the assessee's case for the assessment year 1971-72
2. Whether, on the facts and in the circumstances of the case and having regard to the provisions of section 194A(3) of the Act, the Tribunal's view that tax is deductible at source under section 194A in the assessee's case, and, therefore, there is no assessed tax as defined in section 215(5) on which interest could be levied is sustainable in law ?'
2. The assessee in this case in the Madras Fertilisers Limited. For the assessment year 1971-72, the ITO has made an assessment on August 28, 1972, on a total income of Rs. 10,28,050. Out of this, a sum of Rs. 10,51,247 is the income by way of interest on dollar short-term deposit. The said interest has been received by the assessee on the surplus funds not immediately required which had been deposited for a short period with the Chemical Bank, New York. Another amount included was short-term rupee deposit of Rs. 51,822. The said deposit was also made in the State Bank of India out of surplus funds not required for a short period. There was another item of income being the interest on Tamil Nadu Electricity Board Bonds of Rs. 2,934. While making the assessment the ITO levied interest under s. 215 of the I.T. Act, 1961 (hereinafter referred to as 'The Act', at the rate of 9 percent, for the period from April 1, 1971, to March 31, 1972, and at 12 percent for the period from April 1, 1972, to August 28, 1972. For the first period the interest levied was Rs. 50,889 and for the second period, Rs. 20,705. This was computed with reference to the then assessed tax at Rs. 5,65,428.
3. The assessee appealed to the AAC and thereafter to the Tribunal. The Tribunal decided the appeal by its order dated September 30, 1975, upholding the computation of the AAC determining the total income at Rs. 95,125 as against Rs. 10,28,050 as originally assessed by the ITO. Regarding the levy of interest under s. 215 of the Act, originally the AAC has not considered that question in detail. Therefore, the Tribunal remitted that question to the AAC for fresh consideration. The AAC held that the levy of interest with reference to the revised total income of Rs. 95,125 under the provisions of s. 215 of the Act was in order. He did not accept the plea of the assessee that it genuinely believed that it had no taxable income and that merely because the Department took another view, interest could not be levied. The assessee took the matter in appeal to the Tribunal on the question of interest to be levied under s. 215 of the Act. The Tribunal, after construing the provisions of ss. 215 and 194A, held that the levy of interest under s. 215 was not in order as the tax was deductible at source under s. 194A of the Act in respect of the items of interest which had been assessed in the assessment, and, therefore, there was not deficit in terms of s. 215 of the Act in view of sub-s. (5) of that section. In that view, the Tribunal set aside the levy of interest under s. 215 of the Act. Aggrieved by the view expressed by the Tribunal, the Revenue has sought and obtained a reference to this court on the questions set out above.
4. According to the learned counsel for the Revenue, though sub. (5) of s. 215 of the Act uses the expression 'deductible', that expression has to be understood as 'deducted' and that if that section is understood in that manner, since not tax has been deducted factually in this case at source from the interest income the interest is payable as per the provisions of s. 215 of the Act. On the facts of this case, there is no dispute that so far as the interest income of the assessee is concerned, the tax is deductible at source. But in this case no such tax has infact been deducted and consequently there has been no payment to the Department towards the tax due on the interest income. The fact that the bank which paid interest to the assessee has not in fact deducted the tax at source is not disputed by both sides. If the tax deductible at source has not been deducted and paid over to the Department, then the banks whose duty it is to make deduction can be treated as the assessee in default under the provisions of s. 201 of the Act. Interest also can be collected along with the amounts which they ought to have deducted but which they did not deduct under s. 201(1A). Therefore, under the provisions of s. 201, that portion of the tax which has not been deducted and paid over to the Department will have to be paid with interest by the banks which are under a duty to make the deduction at the source. We have thus to keep in mind s. 201(1A) of the Act while construing s. 215 of the Act which deals with the interest payable by the assessee in respect of the tax assessed on him. Section 215(1) of the Act proceeds as follows :
'215. Interest payable by assessee :-(1) Where, in any financial year, as assessee has paid advance tax under section 212 on the basis of his own estimate and the advance tax so paid is less than seventy-five per cent. of the assessed tax, simple interest at the rate of twelve per cent. per annum from the 1st day of April next following the said financial year up to the date of the regular assessment shall be payable by the assessee upon the amount by which the advance tax so paid falls short of the assessed tax.'
5. This section provides that when the advance tax paid is less than seventy-five per cent. of the assessed tax, simple interest at the rate of 12 per cent. per annum shall be levied from the 1st day of April next following the said financial year up to the date of the regular assessment, on the amount by which the advance tax falls short of the assessed tax. The 'assessed tax' has been defined in s. 215(5) of the Act, as meaning the tax determined on the basis of the regular assessment as reduced by the amount of tax deductible in accordance with the provisions of ss. 192 to 194, s. 194A, etc. As per this definition, 'assessed tax' represents the tax determined by regular assessment as reduced by the amount of tax deductible in accordance with the provisions of s. 194A of the Act. Therefore, the expression 'assessed tax' used in s. 215(1) of the Act has to be understood as the tax finally assessed as reduced by the amount of tax deductible in accordance with the provisions of s. 194A of the Act. As already stated, that tax is deductible at source on the interest income under s. 194A of the Act cannot be disputed. So long as s. 215 of the Act permits the levy of interest only on the difference between the assessed tax and advance tax actually paid, we have to take note of the amount of tax deductible at source under s. 194A of the Act, and this has been specifically provided in sub-s. (5) of s. 215 of the Act. It is significant to note that normally advance tax is paid either on the basis of the previous year's assessment or on the basis of the estimate given by the assessee long before the final assessment and at that stage, there is no question of actual deduction of the tax at source in respect of the interest income and the deduction at source takes place practically at the end of the year when the interest is paid and it is for this reason the statute in sub-s. (5) of the Act uses the expression 'deductible' instead of 'deducted'. Therefore, construing sub-s. (5), it is not possible to understand the expression 'deductible' occurring therein as possible to understand the expression 'deductible' occurring therein as 'deducted'.
6. Further, the learned counsel for the assessee appears to be right in his submission that in cases where the tax is deductible at source, that will have to be excluded from consideration while the estimate of the income for the payment of advance tax is submitted. Reliance is placed by the learned counsel on the language used in s. 190(1) which is as follows :
'190. (1) Notwithstanding that the regular assessment in respect of any income is to be made in a later assessment year, the tax on such income shall be payable by deduction at source or by advance payment, as the case may be, in accordance with the provisions of this Chapter.'
7. That section seems to provide that the tax in respect of a regular assessment is payable either by deduction at source or by advance payment, as the case may be, in accordance with the provisions of Chapter XVII. thus, the deduction of tax at source and payment of advance tax have been treated as two alternative modes of payment in advance. Hence, where the statute provides for deduction of tax at source in respect of a particular income, the concerned assessee need not pay any advance tax in relation to the said income. In this, case, it is not in dispute that in respect of the interest income, deduction of tax at source is contemplate under s. 194A of the Act. However, the deduction at source has not been effected by the banks which paid the interest to the assessee which they should have done as per the provisions of the Act. For the default of compliance with s. 194A the bank can be brought under s. 201 as an assessee in default. Section 201(1A) specifically provides that if a person or authority who is bound to make a deduction of tax at source as contemplated by the statute does not deduct or after deducting fails to pay the tax, then such a person or authority is liable to pay simple interest on the amount of tax not deducted from the date on which such tax was deductible to the date on which the said tax was actually paid. Thus, in respect of interest income on which deduction of tax at source should have been made, the liability to pay interest is fastened on the person or authority who failed to make deduction as required under s. 194A. Therefore, in respect of the tax payable on the said interest income, the assessee also cannot be taken to be liable to pay interest. Otherwise, it will mean that there are two persons under the Act to pay interest on tax on the same income. The Legislature would not have contemplated such a situation where in respect of the tax on interest income, two persons are liable to pay interest for the delayed payment of tax. We are, therefore, inclined to hold that whatever there is a possibility of a deduction of tax at source, the person who had failed to deduct tax at source is liable to pay interest and not the assessee, as otherwise, there will be charging of interest twice on the payment of tax in relation to the same income. Such an interpretation should normally be avoided. In this case, therefore, the Tribunal appears to be right in holding that in terms of s. 215 interest could not be levied on the assessee on the tax which is deductible at source. We answer the said questions referred to us in the affirmative and against the Revenue. The Revenue will pay the costs of the assessee. Counsels fee Rs. 500.