Assessee is liable to deduct tax
at source on interest payments, even if it has not claimed same as
deduction while computing its total income
Facts:
a)
The assessee-company credited interest to its sister concern’s account
without deducting tax under section 194A. The Assessing Officer treated
assessee as an 'assessee-in-default' and levied interest
on it under section 201(1A);
b)
On appeal before the CIT (A), the assessee contended that it could not
be treated as an 'assessee-in-default', when it had not claimed interest
amount as expenditure. The CIT (A) dismissed the assessee's appeal.
Aggrieved assessee filed the instant appeal.
The Tribunal held in favour of revenue as under:
1)
Provisions of section 194A(1) provide that the person responsible to
pay the interest is liable to deduct tax at source at the time of credit
or payment, whichever is earlier. Since the section uses the term 'any
income by way of interest', it should be viewed from the angle of the
payee and not from the angle of the person making the payment;
2)
The accounting or tax treatment given by the payer in respect of
interest paid by him may not be relevant at all for
the purposes of section 194A. So long as the interest amount constitutes
"income" in the hands of recipient, the payer shall be liable to deduct
tax at source on the interest amount so paid;
3)
Thus, even if the payer had disallowed the expenditure under section
40(a)(ia) or did not claim the same as expenditure at all, he would
still be liable to deduct tax at source under section 194A on the
interest amount so paid, if the said payment was liable to TDS;
4)
Further, the provisions of section 40(a)(ia) do not override the
provisions of section 201. It provides only for deferment of the
allowance and does not provide for absolute disallowance. Its objective
appears to be to compel the assessee to deduct tax at source in order to
claim the relevant expenditure as deduction;
5)
Section 201 provides for treating an assessee as an assessee-in-default
who has failed to deduct or pay the TDS amount. Its objective is only
to
compensate the Government for the failure of an assessee to deduct or
pay the TDS amount;
6)
Thus, the provisions of section 40(a)(ia) and section 201 operate on
different objectives. Accordingly, the assessee was liable to deduct tax
at source on interest payments, even if it had not claimed the same as
deduction while computing its total income. The revenue was entitled to
initiate proceedings under section 201 for such failure. Thus, the order
of CIT(A) was to be upheld - AGREENCO FIBRE FOAM (P.) LTD V.
ITO(TDS)
(2013) 38 taxmann.com 155 (Cochin - Trib.)