MADRAS D BENCH (THIRD MEMBER) ARUNDATHI v. INCOME TAX OFFICER INVESTMENT LTD. August 31, 1984 JUDGMENT Order P. S. DHILLON, J. M.: assessee has preferred this appeal, against order dt. 1st Dec., 1982 of Shri R. Parthasarathi, CIT (A); who partly allowed appeal against order of ITO, Shri S. Bose dt. 21st Nov., 1981. relevant facts in brief are that assessee is public limited company. For asst. yr. 1980-81 accounting year ended on 31st Dec., 1979. system of accounting of assessee is mercantile. assessee borrowed loans and interest on these loans were not paid to creditors nor credited to account. Rather it was shown or credited in suspense account. assessee did not deduct any tax under s. 194A on ground that interest was not paid to any party or creditor. ITO did not accept plea of assessee and as such he levied interest amounting to Rs. 636 under s. 201 of Act. ITO also did not accept plea of assessee, that in view of Circular of Board assessee is justified in his action as he took view that interest received should be credited when there was 'payee account'; and therefore, he held that assessee did only to avoid liability under s. 194A. Therefore, on facts and circumstances of case, he held that assessee was liable to deduct tax under s. 194A which amounted to Rs. 3,180. As assessee had not deducted it and not paid to Government of India account as on 31st Oct., 1980, he held that interest amounting to Rs. 636 is chargeable under s. 201 of Act. He further observed that if tax deducted at source was not deducted and paid immediately along with interest as per challan, further interest would be charged until tax deducted at source was paid. In appeal CIT (A) upheld action of ITO as stated above. assessee being aggrieved has preferred this appeal. Shri N. Devanathan, ld. Counsel for assessee contends that CIT (A) is unjustified in holding that assessee's case is not governed by CBDT Circular No. 1212 dt. 1st Nov., 1978 (F. No. 385/61/78-IT (B). He further contends that CIT (A) is unjustified in confirming view of ITO that provisions of s. 194A were not attracted in facts of case; that CIT (A) ought to have appreciated that neither interest was paid nor was credited to account and hence provisions of s. 194A did not apply. In nutshell, contention of assessee's Counsel are repetition of stand of assessee which was there before CIT (A) and before Tribunal in case decided on 18th Aug., 1983 in case of Sivakami Finance (P) Ltd. vs. ITO (1984) 38 CTR (Trib) 22 (Mad): (1983) 6 ITD 351. On other hand, ld. Departmental Representative contends that assessee has not shown amount of interest in accounts of creditors; which he should have shown being mercantile system of accounting. He further contends that when identity of creditors is known and their accounts are there in books of accounts of assessee, then there is no basis to show interest in "payee account" or "suspense account". He further contends that Board's Circular, cited supra, is not applicable as same is rectified by subsequent Circular. We have heard rival submissions and gone through record before us. contentions raised by assessee and Department are almost same which were there in latest decision of Tribunal in case of Sivakami Finance (P) Ltd. vs. ITO (supra). From this decision of Tribunal, it is more than manifesto that assessee's claim can be upheld if there is unavoidable circumstances on part of assessee to make payment of interest and same is nothing else than financial crisis. In this case, there is not such situation. Rather stand of assessee is that Board's Circulars is there in favour of assessee this cannot be accepted in view of fact that Board's Circulars are valid to extent, these are administrative in nature and no where they interfere in interpretation of law or in judicial functions of ITO. view taken by Madras High Court is binding on Madras Benches and, therefore, following it with respect, we hold that assessee cannot be benefited on plea of Board's Circular. Hence, reliance can be placed on decision of A. L. A. Firm vs. CIT (1976) 102 ITR 622 (Mad). We reject stand of assessee. Furthermore that decision of Madras Bench is also against assessee (supra) as there Tribunal has held that assessee's claim cannot be allowed if assessee has not brought unavoidable circumstance on record to show that assessee failed to pay tax. In this case assessee has nowhere placed or placed rather it is case of assessee that assessee is entitled to put interest amount in suspense account in view of Board's Circular referred to above. Board's Circular cannot be allowed in view of decision of Hon'ble Madras High Court in case of A. L. M. Firm vs. CIT (supra) and there is no substance in plea of assessee that decision of Tribunal (supra) is in its favour as case of assessee is distinguishable. In that case, Tribunal categorically held that such claim can be allowed if assessee has proved financial crisis for non- payment of tax. In this case, assessee has failed to show or credit interest amount in account of creditors in its books of accounts, rather it is show in suspense account and there is not name of creditors, when creditors are there in books of account and as such, there is no basis for assessee to act in manner acted upon. Therefore, even interest payable is not unavoidable. In view of our above discussion, we hold that authorities below are justified in their conclusions. Hence, we confirm impugned order and reject contention of ld. Counsel of assessee. In result, appeal is dismissed. PER C. R. NAIR, A. M.: With great respect, I am unable to agree with my brother ld. Judicial Member's order. Tribunal in its earlier order (C- Bench, Madras dt. 18th Aug., 1983 in ITS Nos. 482 to 486 (Mds) 1983, etc. in M/s Sivakami Finance (P) Ltd. Madurai etc. vs. ITO (1984( 38 CTR (Trib) 22 (Mad) for asst. yrs. 1976-77 to 1980-81, etc. referred to in Judicial Member's order) has elaborately dealt with same issue also referring inter alia to Board's Circulars, and held for various reasons given therein that when interest was credited to 'Interest payable account', it did not amount to crediting interest to accounts of payees and, consequently no liability for deducting tax on interest amount was incurred. On point regarding binding nature of Board's Circulars granting administrative relief to assessee, Supreme Court decision in case of K. P. Varghese (1981) 24 CTR (SC) 358: (1981) 131 ITR 597 (SC) is authority for proposition that such Circulars are binding on Departmental officers. Following ratio of Tribunal's order, I would hold that assessee was not liable to deduct tax from interest payable of Rs. 15,510 under s. 194A; consequently levy of interest by ITO under s. 201 is not justified. I would hence allow assessee's appeal. REFERENCE UNDER S. 255(4) OF INCOME TAX ACT, 1961 Whereas we are unable to agree on point set out below for asst. yr. 1980-81, we refer following point of difference of opinion to President for reference to Third Member, under s. 225(4) of IT Act, 1961: Whether on facts and circumstances of case, there was no liability on assessee to deduct tax from 'Interest payable' of Rs. 15,510 under s. 194A and consequently ITO was no justified in levying interest of Rs. 636 under s. 201 on assessee? -8-1984 PER M. R. SIKKA, VICE PRESIDENT: There being difference of opinion between ld. Judicial Member and ld. Accountant Member, following question has been referred to me for decision as Third Member: "Whether on facts and circumstances of case, there was no liability on assessee to deduct tax from 'Interest payable' of Rs. 15,510 under s. 194A and consequently ITO was not justified in levying interest of Rs. 636 under s. 201 on assessee?" In course of assessment proceedings for asst. yr. 1980-81 ITO found that assessee had borrowed certain loans from M/s East India Corporation Ltd., but interest of Rs. 15,510 relating thereto had been credited by assessee to "Interest payable account" and not "payee's account". ITO further found that assessee had not deducted tax of Rs. 3,180 from amount of interest payable to creditor as required under s. 194A of IT Act, 1961. He, therefore, charged interest amounting to Rs. 636 under s. 201 of said Act. While doing so, he relied upon CBDT Circular No. 288, dt. 22nd Dec., 1980, ignoring CBDT Circular No. 276/72/77 IT(B), dt. 25th Jan., 1979. On appeal, CIT (A) agreed with ITO that interest was leviable on assessee in this case. He, however, directed ITO to recompute amount of interest keeping in view certain directions given by him. Aggrieved by order of CIT (A), assessee went in appeal before Tribunal. Before proceeding further, I would reproduce aforesaid Circulars for appreciating controversy involved in case. CBDT Circular Nos. 276/72/77-IT (B), dt. 25th Jan., 1979, reads as follows (Vide Taxamann's Direct Taxes Circulars, Vol. 1, 1980 Edn., p. 734): "I directed by Committee of Federation to address you as under: Under s. 194A of IT Act, assessee is required to deduct income-tax at source from interest income of resident at time of credit of such income to account of payee or at time of payment thereof in cash or otherwise. Many assessees, while finalising their accounts, do not necessarily credit amount of interest payable to each creditor; instead they credit interest payable on amount of loans raised by them in separate interest payable account. Since such assessees do not credit amount of interest to account of respective payee, they do not deduct tax at time of finalising accounts. Tax is, however deducted at time when interest is either actually credited to account of respective payee or is paid to them. It has been brought to notice of Federation that Department is insisting upon deduction of tax at source even at time of crediting amount of interest to interest payable account as aforesaid and has even launched prosecution for alleged failure to deduct tax at source and pay to government. section, as it is worked, requires deduction of tax at source only at time when interest is credited to account of payee or payment thereof. There is, therefore, no obligation on part of assessee to deduct tax at time of making provision in accounts in respect of interest payable by him. crediting of interest to account of payee is not same thing as crediting interest to "interest payable account". It is, therefore, suggested that suitable instructions be issued to authorities below not to insist deduction of tax at source at time of crediting interest to interest payable account. All pending penal or prosecution proceedings may also be directed to be withdrawn immediately." CBDT Circular No. 288, dt. 22nd Dec., 1980, reads as follows (Vide (1981) 23 CTR (TLT) 30: (1981) 130 ITR (St.) 2): "3. material expression in s. 194A(1) is " at time of credit of such income in account of payee......." When interest is debited to "Interest Account," or any other nominal account, debit is for specific amount calculated with reference to deductor's liability to particular creditor in accordance with terms and conditions of loan. What is, therefore, important is that interest payable to creditor has constructively been credited to account of payee; apparent nomenclature of particular account in which credit is made is not conclusive in matter. nominal accounts like "Interest Payable Account". "Liability for Expenses Account", "Suspense Account", etc., are head so captions meant to cover stray transactions of unidentifiable receipts and payments. Except in stray cases failure to credit interest to account of payee cannot also be called method of accounting regularly employed within meaning of s. 145(1) of Act and would not, therefore, be accepted as explanation for consequential failure to deduct tax at source. burden of proving that there was valid justification for crediting interest to any account other than account of payee would rest obviously on person responsible for making deduction. time for deduction would be when interest is credited. In course of appellate proceedings before Tribunal, assessee relied upon Circular No. 276/72/77-IT(B), dt. 25th Jan., 1979, and decision of Tribunal in case of M/s Sivakami Finance (P) Ltd., etc. vs. ITO (supra) in support of his case. ld. Judicial Member was of opinion that above Circular dt. 25th Jan., 1979 did not change correct legal position, as held by Madras High Court in (1976) 102 ITR 622 (Mad) (A. L. M. Firm vs. CIT) and that, even though assessee had credited interest payable to creditor in suspense account, he was liable to deduct tax under s. 194A of IT Act, 1961. He also observed that in case of M/s Sivakami Finance (P) Ltd. (supra), it was proved that assessee did not deduct tax under s. 194A due to paucity of funds, but there was no such evidence in present case and hence there was no justification for not deducting tax under s. 194A. He, accordingly, declined to follow decision of Tribunal in case of M/s Sivakami Finance (P) Ltd. According to him, therefore, appeal of assessee deserved to be dismissed. ld. Accountant Member, on other hand, was of view that Tribunal had clearly held, after discussing Circulars in question, in case of M/s Sivakami Finance (P) Ltd., that when interest was credited to "Interest payable account" and not to "Payee s account" then there was no obligation on part of assessee to deduct tax under s. 194A. ld. Accountant Member also observed that Circular dt. 25th Jan., 1979 was binding on Revenue Authorities in view of decision of Supreme Court in case of K. P. Varghese vs. ITO & Anr. (1981) 24 CTR (SC) 358: (1981) 131 ITR 597 (SC). According to him, since interest of Rs. 15,510 had not, in fact, been credited to "payee's account", assessee was not legally bound to deduct tax under s. 194A and so, levy of interest of Rs. 636 by ITO under s. 201 was not justified. It is in these circumstances, that matter has been referred to me for resolving dispute as Third Member. Before me, ld. representative of department reiterated arguments advanced by ld. Judicial Member. He also submitted that second Circular dt. 22nd Dec., 1980 should govern present case and that since assessee was not prevented by any financial difficulties from deducting tax under s. 194A, charging of interest under s. 201 was justified. According to him, identity of creditor being known and his account being there in account books of assessee, method adopted by assessee, crediting interest to "suspense account" was merely camouflage. According to him, decision of Tribunal in case of M/s Sivakami Finance (P) Ltd. etc. vs. ITO (1984 38 CTR (Trib) 22 Mad was not applicable to facts of present case, and so, impugned orders of authorities below were correct. ld Counsel for assessee, on other hand, submitted that all arguments of Department in present case have been dealt with by Tribunal in case of "Sivakami Finance (P) Ltd." (supra). He, particularly, invited my attention to para 11 of Tribunal's order in he aforesaid case wherein it was held that first Circular dt. 25th Jan., 1979 held field for asst. yr. 1980-81 and that second Circular dt. 22nd Dec., 1980 could not withdraw concession conferred by first Circular on assessee and impose new burden on him. He also referred to observation of Tribunal in aforesaid case to effect that "when interest was credited to 'interest payable account', it did not amount to crediting interest to accounts of payees and, consequently, no liability for deducting tax on interest amount was incurred". ld. Counsel for assessee also referred to decision of Supreme Court in case of K. P. Varghese (1981) 24 CTR (SC) 358: (1981) 131 ITR 597 (SC), according to which, Circulars of CBDT are legally binding on Revenue even if they deviate from provisions of Act. After going through record and hearing ld. representatives of parties, I am inclined to agree with view taken by ld. Accountant Member. first question for consideration is whether Circular dt. 25th Jan., 1979 or Circular dt. 22nd Dec., 1980 governs present case. On this question, Tribunal has given specific finding in case of M/s Sivakami Finance (P) Ltd. (ITA Nos. 482 to 486/Mds/83 dt. 18th Aug., 1983) that Circular dt. 25th Jan., 1979 applies to assessment year under consideration, i.e., asst. yr. 1980-81 (relevant to accounting period ending 31st Dec., 1979, that subsequent Circular dt. 22nd Dec., 1980 is not retrospective in effect, and so, same cannot withdraw concession conferred on assessee by first Circular and impose new burden. Tribunal being All India Institution, it will not be appropriate to depart form view taken by Tribunal in case of Sivakami Finance (P) Ltd. on same issue. This has been so held by Madras High Court in CIT vs. S. Devaraj (1969) 73 ITR (Mad) and in CIT vs. L. G. Ramamurthy 1977 CTR (Mad) 416: (1977) 110 ITR 453 (Mad). According to these authorities, it is proper and desirable that when Tribunal takes particular view on issues, it should not contradict itself and subsequently come to diametrically opposite view on same issue. In view of these authorities, I would hold that Circular dt. 25th Jan., 1979 and not Circular dt. 22nd Dec., 1980, would govern present case. Now it is worthy of note that whereas Circular dt. 22nd Dec., 1980 mentions circumstances under which crediting interest to 'suspense account' would absolve assessee from his obligation to deduct tax, Circular dt. 25th Jan., 1979 is absolutely silent in this behalf. Circular dt. 25th Jan., 1979 merely states that when assessee credits interest to 'suspense account' and not to 'payee's account', there is not obligation on his part to deduct tax at time of making provision in accounts in respect of interest payable by him. Since it is Circular dt. 25th Jan., 1979, which applies to present case, question of finding out any justification (like paucity of funds, etc.), for taking advantage of concession under Circular dt. 25th Jan., 1979 does not arise. In case of M/s Sivakami Finance (P) Ltd., Tribunal held that assessee was entitled to succeed under both Circulars. In present case, even though assessee did not take up plea of paucity of funds for not deducting tax under s. 194A, he is entitled to succeed simply on basis of Circular dt. 25th Jan., 1979. That this Circular is binding on Department is amply supported by decision of Supreme Court in case of K. P. Varghese (supra). Even on plain reading of s. 194A, assessee is under obligation to deduct tax at time of crediting of interest to account of payee or at time of payment thereof in cash or by cheque, etc. If assessee does not credit interest to account of payee, whatever may be reason, provisions of s. 194A will not apply and so levy of interest under s. 201 will not be justified. In view of above discussion, I agree with ld. Accountant Member that in view of CBDT Circular dt. 25th Jan., 1979, assessee was not liable to deduct tax from interest of Rs. 15,510 under s. 194A and, consequently, order of ITO levying interest of Rs. 636 on assessee under s. 201 is not sustainable. appeal filed by assessee, therefore, deserves to be allowed. case will now go to Bench concerned for disposal accordingly. *** ARUNDATHI INVESTMENT LTD. v. INCOME TAX OFFICER