The main legal point established in the judgment is that a company is obligated to comply with the statutory requirements of Section 194A of the Income-tax Act, 1961, and is liable for non-deduction of TDS on interest payments.

JUDGMENT

KAPADIA, J.

1. A short question which arises for determination in these civil appeals is : whether Income Tax Appellate Tribunal was right in holding that there was no obligation on the part of the assessee-company to comply with the statutory requirements of Section 194A of the Income-tax Act, 1961 (for short, the Act ) by deducting tax deductible at source (TDS) on interest paid by it for loans availed of by the assessee and repaid by it with interest on the ground that the loans were meant for the directors of the assessee-company and not for the assessee- company and after recording a finding that the directors had misused the name of the company to avail of the loan.

2. The facts giving rise to these civil appeals are as follows: Assessee (sole respondent in all the civil appeals) is a company incorporated under the Companies Act, 1956 engaged in the business of real estate and construction. A survey was conducted under Section 133A of the Act when cheque receipt registers and cheque payment registers were found in the business premises of the company. On examination of the said books, the Department detected taking of loans by the directors of the company (assessee) in their individual capacities from creditors in the name of the assessee-company. The loan amounts received by way of cheques in the name of the assessee were deposited in the bank account of the assessee and transferred to the account of the directors on the same day by issuing corresponding cheques. When the directors repaid the loan amount or interest thereon such payments were also routed through the assessee-company. The directors issued cheques in favour of the assessee and the assessee in turn issued cheques to the creditors/lenders of such directors. Receipt of loan amounts by the directors as also repayment of loans and interests were all reflected in the books of accounts of the respective directors. The receipts and outgoings were shown in the accounts of the directors with the assessee-company. The books of accounts of the assessee-company did not reflect the loans borrowed by the assessee-company. According to the assessee, neither the borrowing nor repayment nor payment of interest on the borrowing were reflected as transactions of the assessee in its books of accounts, they were only reflected in the accounts of the directors in the books of the assessee- company.

3. The A.O. found that when interest was paid by cheques issued by the company to the creditor, TDS was not deducted at source by the assessee on the interest payments as required under Section 194A(1) of the Act and, therefore, the A.O. applied the provisions of Section 201(1) of the Act by declaring the assessee-company as assessee-in-default and also applied Section 201(1A) of the Act imposing interest for not deducting TDS at source. The order passed by the A.O. was confirmed by the appellate authority. Before the Tribunal the assessee contended that the borrowings were routed through the company; that the company was merely a medium through which the borrowings and repayments were routed; that the loans were taken by the directors and not by the company which loans and interests thereon were not reflected in the company s books of accounts and that the company was merely disbursing the repayments of loans along with interests and, therefore, it was not liable to deduct TDS at source under Section 194A of the Act. This contention of the assessee has been accepted by the Tribunal. Hence, these civil appeals are filed by the Department.

4. In the present matter, it is not in dispute that the assessee-company has paid interests without deducting TDS under Section 194A of the Act. It is not in dispute that the loans were advanced by the lenders to the assessee-company. It is not in dispute that the loans were repaid by the assessee through its bank accounts. It is not in dispute that interest was p