Law:

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Section 194A of the Income-tax Act, 1961 - Deduction of tax at source - Interest other than interest on securities - Whether liability to deduct tax at source and pay it to account of Central Government in terms of section 194A arises at time of crediting interest to account of payee and not when interest is paid to creditor by cheque, draft or in cash - Held, yes Words & phrases - Word 'credit' occurring in section 194A of Income-tax Act, 1961 FACTS For violation of section 194 A by the accused-assessee, a complaint was filed by the ITO. The ITO had alleged that during the course of assessment, from the perusal of record of the accused firm, it transpired that the assessee-firm did not deduct tax at source out of interest credited to the account of creditors. The trial court held that the said provisions of section 194A were not attracted, as the liability to deduct tax at source from interest will arise only where interest is paid to the creditor by cheque, draft or in cash. On reference: HELD In the instant case, there was no dispute that the assessee had not actually paid interest but it was credited in the payee's account. A bare reading of section 194A shows without any manner of doubt that the tax is to be deducted at the source itself at the time of credit of such income out of interest to the account of the payee. The word 'or' has been used by the Legislature in the section, making it clear that in any of such eventuality, the tax has to be deducted from the creditor. No doubt, the word 'credit' used in the section has not been defined in the A ct. But there is no ambiguity about the meaning of the word 'credit'. The facts and circumstances of the case are squarely covered by the words 'at the time of credit of such income to the account of the payee'. The latter part of the section subsequent to the word 'or' after the word 'payee' is not attracted in any way to give an illogical interpretation as given by the trial court. Therefore, the of the trial court was set aside. CASE REFERRED TO J. Dalmia v. CIT [1964] 53 ITR 83 (SC). EDITORIAL COMMENTS The High Court has decided that liability to deduct tax at source and pay it to the account of the…

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