ALKAPURI INVESTMENTS PRIVATE LIMITED Vs. D S KHOBA

JUDGEMENT

(1.) THE short question is regarding obligation to deduction of tax by the persons paying interest in terms of S. 194A, as it stood prior to its amendment w.e.f. 1st June, 1987 vide Finance Act, 1987, and consequence that follows as a result of failure to do so.

(2.) THE petitioner company is carrying on a business of holding of investment, money lending and financial and industrial enterprises. The petition relates to asst. year 1982 83, the previous year of which ended on 30th Sept., 1981. The petitioner in the course of its business borrowed money from large number of persons. The petitioner has also issued secured 11% redeemable bonds on which interest @ 11% was payable to bondholders. At the end of accounting year the petitioner made a provision of estimated liability of the interest payable on all the loans outstanding and debentures and credited to the account of 'interest payable'. No amount of interest payable is credited to the individual accounts of persons to whom such interest was payable. These facts are not disputed. The petitioner did not deduct tax at source on the amount so credited to the account 'interest payable'. Respondent No. 1 who is the Assessing Officer (AO) of the petitioner issued notice dt. 25th June, 1985 under S. 201 r/w S. 221 and S. 201(1)(A) for the alleged default on the part of the petitioner in not deducting tax at source on the amount credited to the interest payable account.

(3.) ON 25th Jan., 1979, the CBDT issued a circular clarifying that when interest is neither credited to the account of payee nor was paid to the creditor no tax need be deducted. Vide another circular dt. 22nd Dec., 1980, another instructions were issued by the Board stating that tax has to be deducted at source even in case the interest is credited to the "interest payable account". It is immaterial whether the amount of interest is credited to the payee's account or not.