Law:

Section:

Section 201(1A) of the income-tax act, 1961-Deduction of tax at source-Consequences of failure to deduct-Whether, where assessee is deemed to be assessee in default in terms of section 201(1A), interest chargeable for period of default can be said to be penal interest so that it could be waived on ground that default was not intentional or on any other basis-Held, no Rule 119A of the income-tax rules, 1962-Whether rule 119a is procedural and is applicable to all calculations of interest in proceedings arising subsequent to 1-1-1975, even if period of default fell before 1-1-1975-Held, no Facts During each of the assessment years 1971-72 to 1978-79, the petitioners had deducted tax under section 192(1) from the salary paid to their employees but had failed to deposit the same within the period prescribed under rule 30(1)(b). The ITO treated the petitioners as assessees in default in terms of section 201(1A) and charged simple interest at the rate of 12 per cent per annum on the amount of such tax for the periods of the default. In the revision proceedings before the Commissioner under section 264, the petitioners submitted that in view of the fact that they were one of the major taxpayers and the delays were not intentional, the interest charged under section 201(1A) should have been fully waived. The alternate submission was that for the levy of interest, rule 119A, as introduced with effect from 1-1-1975, should have been followed, i.e., defaults of less than one month should have been ignored and the amount of interest should have been rounded off as prescribed. It was contended that the rule was a procedural one and should apply to all pending calculations, even if the period of default fell before 1-1-1975. The Commissioner, however, did not accept these submissions and upheld the levy of interest. On writ, the petitioners reiterated their submissions made before the lower authorities and also submitted that the levy of interest under section 201(1A) was penal and it ought to have been waived where the default was not intentional. Held Admittedly, the petitioners had failed to remit within the prescribed time the tax deducted at source from the salaries of…

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