COMMISSIONER OF INCOME TAX Vs. DHANALAKSHMY WEAVING WORKS

JUDGEMENT

(1.) AN interesting question arises in this reference made by the Tribunal, Cochin Bench, under section 256(1) of the Income Tax Act, 1961 (hereinafter referred to as `the Act'). Questions referred as follows :

(2.) FACTUAL position, as set out in the statement of the case, is as follows: The assessee is a partnership firm carrying on business in manufacture of handloom cloth. During the previous year ending on 30-6-1984 relevant to the assessment year 1985-86, the assessee paid a sum of Rs. 2,85,980 to Sangi & Co. as interest, without deducting tax at source. The assessee produced before the assessing officer evidence to show that income-tax assessment of that firm had already been completed admitting interest received from the assessee and taxes were also paid by Sangi & Co. on their assessment. For the assessee's default in not deducting tax on interest, in accordance with the provisions of section 194A of the Act, the assessing officer levied interest under section 201(1A), even though no penalty was levied under section 201(1A) . Interest of Rs. 9,761 was levied for the period from 30-6-1984 to 31-10-1986 under section 201(1A) . In first appeal, the Commissioner (Appeals) accepted the assessee's contentions regarding non-levy of interest on the facts of the case and following the ratio of the decision of this court in CIT v. Kannan Devan Hill Produce Co. Ltd., 1986 161 ITR 477, the Commissioner (Appeals) held that no interest was to be levied for failure to deduct tax by the assessee. Accordingly, he cancelled levy of penalty.

(3.) FOR resolving the dispute, it is necessary to take note of both sections 201(1) and 201(1A), as they stood at relevant time. They read as follows: