COMMISSIONER OF INCOME TAX Vs. MADRAS FERTILISERS LIMITED

JUDGEMENT

(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 :

(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.) 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.