T.V.K. NATARAJACHANDRAN, A.M.: These are appeals by Revenue, which are directed against consolidated order of Commissioner (Appeals). IV, Madras dt. 19th June., 1984, wherein he held that assessee was not liable to deduct tax under s. 194A and consequently not liable to deduct tax under s. 194A and consequently not liable to pay interest under s. 201(1A of IT Act, 1961 for asst. yrs. 1978-79 and 1979-80. Revenue has taken common grounds contending that Commissioner (Appeals) erred in his decision and also in allowing set off of amounts debited by way of interest against credits holding that tax is deductible only on net amount. Before dealing with merits of case certain facts have to be stated. assessee is company trading in cotton but presently is under liquidation. It has registered and central office located at Madurai and branches at Teni, Hubli and Chilakaluripet. assessee follows calendar year as accounting year. ITO completed assessment for asst. yr. 1978-79 on 10th July, 1980 and for asst. yr. 1979-80 on 28th Oct., 1980. On 10th July, 1980 ITO required assessee to explain why tax had not been deducted under s. 194A of IT Act., 1961 on entire interest amount credited to accounts of certain specified parties which were companies. assessee in its letter dt. 4th Aug., 1980 replied that obligation to deduct tax at source arose only in case of real payment of interest and as accounts were consolidated at head office, tax had been deducted on net interest payable and therefore no further deduction of tax at source as required by ITO was called for. It was also maintained by assessee that if tax is deducted before end of financial year, which has been actually done in this case, provisions of s. 194A (4) were complied with. ITO by his letter dt. 31st March, 1983 pointed out that according to s. 194A tax is deductible at source every time amount is credited to account of creditor whether it is in head office or branch office. Accordingly he was satisfied that tax deducted at source in respect of certain specified parties was not adequate and therefore assessee was required to pay balance. ITO also pointed out that interpretation places by assessee on sub-s. (4) of s. 194A was also not correct. Therefore, he raised demand notice and challan for Rs. 19,667 and Rs. 23,715 being interest under s. 201 (1A) of IT Act, 1961 respectively for asst. yr. 1978-79 and 1979-80. Further ITO has also passed separately orders on 31st day of March, 1983 levying interest of Rs. 19,667 and Rs. 23,715 under s. 201(1A) of IT, Act, 1961 for asst. yrs. 1978-79 and 1979-80. Aggrieved over orders of ITO assessee raised following common grounds, namely: "1. order of ITO is against law and opposed to facts and probabilities of case. assessing authority ought to have found that accounts in various branches or functioning of appellant with various branches or functioning of appellant with various branches cannot be treated as different entities. He ought to have found that assessee was one single company and whatever transactions that take place in its branches has reference to business done by appellant at its head office and therefore debiting and crediting of interest in subsidiary books of company till accounts are consolidated with head office does not give rise to liability for exemption of tax under s. 149(A) of IT Act. assessing authority erred in treating different branches of appellant as different assessee. assessing authority ought to have found that though company may have many branches, it is crediting of interest in assessee's books alone can give rise to liability to deduction of tax. Any other entry in account books in branches did not create such liability. assessing authority erred in not accepting explanation offered by appellants. assessing authority also failed to appreciate implications of section 194(A) of IT Act in its true perceptive. assessing authority ought to have found that deduction of tax under t h e above provision is warranted only when debt is credited in favour of somebody and until such time liability to pay interest crystallises itself and accounted in assessee's books, there is no obligation whatsoever for assessee to deduct tax and pay to govt." In other words major ground of assessee was that unless and until accounts of various parties are consolidated in head office no liability for deduction of tax under s. 194A of IT Act, 1961 arose and entries in account books of branches did not create such liability. Commissioner (Appeals) reproduced relevant facts relating to parties, such as amount of interest credited, tax deductible at source, tax deducted and balance of tax to be deducted separately for asst. yrs. 1978-79 and 1979-80 in para 2 and 7 of his impugned order. Commissioner (Appeals) accepted contentions of assessee and observed as under: "At end of accounting year all branches submit their ledger accounts to head office and head office consolidates these accounts. It is only then head office discovers whether net interest is payable to party or is receivable from party. If net interest is payable then head office credits party with that amount of interest and deducts tax at source under s. 194A on net interest. It also pays such tax to Central Government". On this basis he came conclusion that interpretation given by ITO was not correct. Referring to s. 204 which defines 'the person responsible f o r paying' as including principal officer of company if payer is company he developed theory that as principal officer is located at head office at Madurai but not at any branch office and as only head office consolidates all accounts received from branches at end of accounting year company could credit party or debit party with net interest and therefore branches located at Teni, Hubli and Chilakaluripet were not company itself and those branches have not actually paid interest nor received interest in cash. On basis of this theory he directed ITO to accept explanation offered by assessee and he further directed that Income Tax Officer should consolidate ledger accounts of each client and if in consolidated account appearing in head office there was interest payable by assessee, assessee should deduct tax at source and if there was short deduction ITO was at liberty to levy interest under s. 201(1A). In this view of matter he restored matter to ITO for fresh adjudication after carrying out his directions given above. Hence, appeal by Revenue. Revenue has raised following common grounds: "The order of ld. CIT(A) is contrary to law on facts and in circumstances of case. ld. CIT(A) erred in holding that assessee is not liable to deduct tax under s 194A and consequently, not liable to pay interest under s. 201(1A) of IT Act, 1961. ld. CIT(A) erred in allowing set of amounts debited by way of interest against credits and holding that tax is deductible only on net amount. ld. CIT(A) failed to note that provisions of s. 194A springs into action moment credit entry is made towards interest and hence debts toward interest are not to be taken into account for purposes of s. 194A". At time of hearing Shri S. Raganathan, ld. departmental representative reiterated grounds taken by Revenue and vehemently contended that tax is to be deducted at source each and every time interest is credited to accounts of creditors in books of accounts. He further submitted that sub-s. (1) of s. 194A imposes obligation either at time of credit of interest or at time of payment whichever was earlier and sub-s. (4) of s. 194A only permitted adjustment of any excess or deficiency arising out of previous deductions of tax at source. Therefore he urged that order of Commissioner (Appeals) should be reversed and that of ITO be restored. Shri R. Santhanakrishnan, ld. counsel for assessee, vehemently supported reasons and conclusion drawn by Commissioner (Appeals). He further submitted that sub-s. (4) of s. 194A permits even adjustment in case o f failure to deduct tax at source and therefore adjustments could be legitimately be made at end of accounting year in head office when accounts of branches were consolidated to ascertain net position in accounts of branches were consolidated to ascertain net position in respect of transaction with any specified party or creditor. He also supported order of Commissioner (Appeals) by stating that liability to deduct tax or pay tax was fastened on principal officer of company residing at head office in terms of s. 204(iii) of IT Act, 1961. net interest payable as per consolidated accounts of head office alone was criterion for attracting liabilityof s. 194A (1) of IT act, 1961 inasmuch as it is principle officer who ultimately pays tax deducted at source. We have duly considered rival submissions and record. At outset we have to point out that assessee has no objection for levy of interest under s. 201(IA) but it contends that it should be levied only on net interest credited in head office consolidated accounts at end of accounting year. This is clear from grounds taken by assessee before Commissioner (Appeals) which go to show that liability to deduct tax under s. 194A would arise only as per consolidated accounts of head office i.e. on basis of net interest payable by assessee to any particular party or creditor. Thus dispute revolves on interpretation of s. 194A(1) and (4) and consequently levy of interest under s. 204(1A) of IT Act, 1961. According to ITO there was short deduction and therefore interest is payable, but according to assessee there was no short deduction and therefore interest under s. 201(1A) was not payable, Commissioner (Appeals) has also accepted position that if ITO finds any short deduction of tax at source with reference to consolidated accounts of head office he was at liberty to levy interest under s. 201(1A). in other words Commissioner (Appeals) was agreeable to charging of interest on short deduction of tax at source under s. 194A(1) but held that it was only with reference to net interest payable as per consolidate accounts of head office. We shall now consider relevant provisions of sub-s. (1) of s. 194A is plain and clear in that it imposes obligation to deduct income-tax on income by way of interest to any resident at time of crediting of such income to account of payee or at time of payment thereof in cash or by issue of cheque or draft or by any other mode whichever is earlier. In other words crediting of interest income in account of payee or payment thereof whichever is earlier, is occasion when income-tax is to be deducted at source. In case of company business transactions carried on in several branches could be said to be carried on for and on behalf of company which is statutory person. It is admitted position in grounds of appeal taken by assessee before Commissioner (Appeals) as well as Commissioner (Appeals) in his appellate order that head office merely consolidates accounts of various branches. May be branch credits account of particular payee while another branch debits his account for different considerations. head office merely consolidates branch accounts only to find out net balance payable to and particular payee or creditors. If interest is payable interest is credited to accounts so as to arrive at outstanding balance due to creditor. interest charged to closing balance of particular creditor goes to debts of profit and loss account. Thus it is only for purpose of double entry accounting and to determine net profit of particular year it is necessary to ascertain net balance payable to any particular creditor and net interest payable thereon. Sec. 194A(1) is concerned with crediting of interest income in accounts and not debiting of interest in account of particular payee. If any of assessee branch debits interest in account of particular creditor that particular creditor in turn would make appropriate credit entry in name of assessee for amount due by party to assessee company. liability to deduct tax at source in terms of s. 194A(1) arises in case of particular party when such credit entry is made in his accounts. Thus debit and credit entry stand on different footing altogether. What is relevant for head office is not relevant far purpose of s. 194A(1), inasmuch as it is concerned with crediting in accounts by which accrual of liability arises constructively in accordance with mercantile method of accounting and not with closing entries made at end of accounting year. Further sub-s. (4) of s. 194 no doubt permits adjustment of any excess or deficiency arising out of previous deduction of tax at source or default in deducting. In case of default adjustment could be proper deduction of tax covering default already made. In any case adjustment could not result in short deduction. Even if assessee could on rely sub-s. (4) to empower it to make such adjustment even in respect of defaults already made liability would arise only with reference to crediting of entries in books in account of payee not when accounts are consolidated on much later date by head office after receipt of branch accounts. In any case deduction of tax at source is coincidental to accruing of interest income in account of any particular payee and this section is not concerned with debting of interest in account of any particular payee. Therefore, interpretation made by assessee and accepted by Commissioner (Appeals) in our opinion, is not correct. Similarly reliance on sub-s (4) of s. 204 to contend that it is only principal officer who is responsible to deduct tax at source and therefore only when he finds that he account of particular payee result in net balance interest will be credited to his account with reference to that not balance and liability to deduct tax at source will arise only then is not warranted. Sub-s. (4) of s. 204 itself specifies company as person responsible which also includes principle officer thereof for purpose of enforcing default. Madras High Court had occasion to consider implications of s. 194A of IT act, 1961 vis-a-vis interest charged under s. 201(1A) of IT Act, 1961 in case of Southern Brick Ltd. vs. CIT, Madras (1984) 41 CTR (Mad) 200: (1984) 146 ITR 469 (Mad). relevant portion of judgment at page 480 reads as under: "In this case, we are concerned with s. 194A of Act, Sec. 194A uses expression 'at time of credit of such income to account of payee or at time of payment thereof, in cash or by issue of cheque or draft or by any other mode whichever is earlier. Therefore, if there has been credit of interest to account of creditor, that can be taken into account for purpose of s. 194A. Therefore, at time of credit of interest to account of managing agents liability to deduct tax on amount of interest arises as per s. 194A and consequently liability to pay tax to be deducted also arises. We are not inclined to agree with contention of ld. counsel for assessee that liability to deduct tax from interest and to pay same to Revenue arises only on actual payment of interest and not on date when amount is credited to creditor's account. said contention of assessee overlooks provisions in s. 194A which clearly contention of assessee overlooks provisions in s. 194A which clearly indicates that liability to deduct tax arises at time credit is made in account of payment or at time of actual payment thereof in cash or by issue of cheque or draft or any other mode, whichever is earlier. Here, though actual payment in cash was at later point of time, there has been credit entry in favour of creditor in accounts of assessee and, therefore occasion for deducting tax has occurred earlier". From above extract it is clear that liability to deduct tax arises only at time of crediting interest in accounts and consequently liability to pay tax to be deducted also arises. In other words liability to deduct tax and liability to pay tax to be deducted arises simultaneously at time of credit of interest income to account of payee. In this connection it is relevant to refer to Board's Circular No. 288 dt. 22nd Dec., 1980(1981) 130 ITR (St.) 2 wherein it has been clearly mentioned that time for deduction of tax would be when interest is credited in accounts and time for payment of tax deducted at source would recur from date of credit of interest made constructively to account of payee. In this connection it is needless to mention that profits or loss arises in respect of each and every transaction of each and every branch of business and therefore liability to deduct tax at sources arises as and when interest income is credited to account of payee even in respect of branch accounts and head office only consolidates accounts and arive at balance of particular payee and consequently determines quantum interest receivable or payable. In this view of matter, following respectfully ratio of Madras High Court decision cited supra, we hold that Commissioner (Appeals) erred in his reasons and conclusions and directions given to ITO. Consequently we reverse orders of Commissioner (Appeals) and restore orders of ITO. In result appeals are allowed. *** INCOME TAX OFFICER v. ASHOKA COTTON CO. LTD