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2008] 303 ITR 212 [2005] 148 Taxman 297 (Allahabad) HIGH COURT OF ALLAHABAD Commissioner of Income-tax v. Swarup Vegetable Products R.K. AGRAWAL AND RAJES KUMAR, JJ. IT REFERENCE NO. 1 OF 1995 APRIL 8, 2005 Section 194A, read with section 201, of the Income-tax Act, 1961 - Deduction of tax at source - Interest other than interest on securities - Assessment year 1985-86 - Whether by virtue of Explanation to section 194A(1) liability has been created with effect from 1-6-1987 to deduct tax at source even where amount of interest is being credited to interest payable account and has not been paid to creditor to his account - Held, yes - Whether Explanation imposes penal liability and cannot be held to be clarificatory in nature - Held, yes FACTS The assessee-company was following mercantile system of accounting. During the assessment year 1985-86 it had followed a system whereby liability on account of interest was claimed by debiting interest account. The corresponding liability, however was not credited to the respective account of the payee but taken into account styled as "interest payable account." The aforesaid entries were passed on the last day of the accounting period viz., 30-9-1984. Thereafter, the assessee debited the interest payable account on different dates and credited the respective account of the payees and also credited the TDS account. Lastly the actual payment to the parties was made and amount deducted as TDS was deposited in the Government treasury. On the basis of aforesaid facts the Assessing Officer was of the view that the company had delayed the payment of TDS by the mode of not crediting the account of the payees but effecting the credit in the interest payable account, and taking the view that credit in the interest payable account on 30-9-1984 tantamount to a credit in the accounts of payee, levied interest under section 201(1A). On appeal, the Commissioner (Appeals) deleted the levy of interest on the ground that Explanation, inserted by Finance Act, 1987, to section 194A(1) could not be applied to situations arising before 1-6-1987. On revenue's appeal, the Tribunal upheld the Commissioner (Appeals) order. On reference : HELD In…

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