Law:

Section:

Section 201, read with section 194A, of the Income-tax Act, 1961 - Deduction of tax at source - Consequence of failure to deduct or pay - Assessment year 2001-02 - Whether levy of interest under section 201(1A) can be construed as a penalty - Held, no - Pursuant to award made under the Motor Vehicles Act, assessee-company had paid compensation and interest to victims of motor vehicle accident - However, it failed to deduct and remit TDS amount on interest payment to revenue as required under section 194A and, hence, Assessing Officer directed it to deposit TDS amount with interest under section 201(1A) - On appeal, Tribunal set aside direction to pay interest under section 201(1A), holding that interest was in nature of penalty and confirmed rest of order - Whether Tribunal, after having held that assessee was liable to deduct TDS on interest component paid, was correct in holding that no interest need be paid by assessee for non-deduction of TDS - Held, no FACTS The assessee, an insurance company, had paid compensation and interest to the victims of motor vehicle accident, pursuant to the award made under the Motor Vehicles Act. However, it failed to deduct and remit the TDS amount on the interest payment to the revenue as per mandate of section 194A and, hence, the Assessing Officer directed it to deposit the TDS amount with interest. On appeal, the Commissioner (Appeals) confirmed the order of the Assessing Officer. On second appeal, the Tribunal set aside the direction to pay interest under section 201(1A) holding that the interest liability was in nature of penalty and confirmed the rest of order. It also permitted the assessee to split and spread over the interest liability for each of the assessment year. On the revenue's appeal to the High Court : HELD Section 201(1A) is a provision to levy interest for delayed remittance of the TDS. It is the practice of the revenue that for belated payment of tax for any reasonable cause, the assessee is liable to pay interest at the rate of 12 per cent per annum. Similarly, for refunds, the revenue pays interest to the assessee. Therefore, the levy of interest under section 201(1A) cannot, at any rate, be construed…

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