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High Court of Judicature at Madras
THE HONOURABLE MR. JUSTICE RATNAM & THE HONOURABLE MR. JUSTICE RAMANUJAM
Commissioner of Income Tax, Tamil Nadu I, Madras - Appellant
Versus
Madras Fertilizers Limited - Respondent
Case No : TC No. 391 of 1978
Decided On : 07 September 1983
INCOME TAX - Interest payable by assessee - Assessed tax - Deduction of tax at source - Whether interest can be levied on assessee for tax deductible at source - Interpretation of sections 215 and 194A of the Income Tax Act, 1961.
Fact of the Case:
The assessee, Madras Fertilisers Limited, received interest income from dollar short-term deposits, short-term rupee deposits, and Tamil Nadu Electricity Board Bonds. The ITO levied interest under section 215 of the Income Tax Act, 1961 (the Act) on the assessed tax, which included the interest income. The assessee appealed to the AAC and the Tribunal, which held that no interest could be levied under section 215 as the tax was deductible at source under section 194A of the Act.
Finding of the Court:
The court held that the Tribunal was correct in holding that no interest could be levied under section 215 of the Act as the tax was deductible at source under section 194A of the Act. The court interpreted section 215(5) of the Act, which defines "assessed tax," to mean the tax determined on the basis of the regular assessment as reduced by the amount of tax deductible in accordance with the provisions of section 194A of the Act.
Issues: 1. Whether interest could be levied under section 215 of the Act on the tax deductible at source under section 194A of the Act. 2. Whether the Tribunal was correct in holding that no interest could be levied under section 215 of the Act as the tax was deductible at source under section 194A of the Act.
Ratio Decidendi: The court held that the expression "deductible" in section 215(5) of the Act should be understood as "deductible" and not "deducted." The court reasoned that the tax deductible at source under section 194A of the Act should be excluded from consideration while estimating the income for the payment of advance tax. The court also held that the liability to pay interest under section 201(1A) of the Act for failure to deduct tax at source is fastened on the person or authority who failed to make the deduction, and not on the assessee.
Final Decision: The court answered the questions referred to it in the affirmative and against the Revenue. The Revenue was ordered to pay the costs of the assessee.
RAMANUJAM J.
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 ?" *
The assessee in this case is 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 per cent. for the period from April 1, 1971, to March 31, 1972, and at 12 per cent. 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, 428The 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 no 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
According to the learned counsel for the Revenue, though sub-s. (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 no 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 a
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