COMMNR. OF INCOME TAX, BANGALORE AND ANR. versus M/S. CENTURY BUILDING INDUSTRIES PVT. LTD.

Citation: [2007] 8 S.C.R. 959 · Decided: 10-08-2007 · Supreme Court of India · Bench: S.H. KAPADIA · Disposal: Appeal(s) allowed

Judgment (excerpt)

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COMMNR. OF INCOME TAX, BANGALORE AND ANR. 
A 
,_..;. 
v. 
MIS. CENTURY BUILDING INDUSTRIES PVT. LTD. 
AUGUST IO, 2007 
[S.H. KAPADIA AND B. SUDERSHAN REDDY, JJ.] 
B 
_.,, . 
-t 
Income Tax Act, 1961: 
ss. 194-A, 201 and 20l(JA)-Tax deductible at source-On interest- c 
Liability to deduct-Directors of assessee-Company taking loans from 
creditors in the name of Company-Repayment of loan amount or interest 
thereon also routed through assessee-company-TDS as required u!s 194A(l) 
not deducted at source by assessee-company on interest payments-Company 
declared as assessee-in-default and interest imposed u/s 201(1A)-Held: 
Whenever interest is credited to the account of payee the payer has to deduct D 
the TDS-Revenue was right in invoking provisions of ss. 201 and 20l(JA) 
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against the assessee-Company-However, on facts, in the first instance over 
the years Revenue should not have allowed non-deduction of TDS by assessee-
company and nothing prevented A.O. from raising objection to such practice. 
A survey of the respondent-assessee Company was conducted u/s E 
133-A of the Income Tax Act, 1961 and itwas detected that directors of the 
Company took loans in their individual capacities from creditors in the name 
of the assessee-company. The loan amounts received by way of cheques in 
the name of the assessee were deposited in the bank account of the assessee 
and transferred to the account of the directors on the same day by issuing F 
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corresponding cheques. Repayments of the loan amounts or interest thereon 
were also routed the same way through the assessee-company. But TDS was 
not deducted at source by the assessee-company on the interest payments as 
required under Section 194A(l) of the Act and, therefore, the A.O. applied 
the provisions of Section 201(1) of the Act by declaring the company as 
assessee-in-default and also applied Section 201(1A) of the Act imposing G 
interest for not deducting TDS at source. The order passed by the A.O. was 
confirmed by the appellate authority. However, the Tribunal accepted the 
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contention of the assessee-company that it was merely a medium through which 
959 
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,A 
960 
SUPREME COURT REPORTS 
[2007] 8 S.C.R. 
A the borrowings and payments were routed and it was merely disbursing the 
repayments of loans along with interests and, therefore, it was not liable to 
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deduct TDS at source under Section 194A of the Act. Aggrieved, the Revenue 
filed the instant appeals. 
B 
Allowing the appeals, the Court 
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HELD: 1.1. Income Tax Appellate Tribunal was not right in holding that 
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there was no obligation on the part of the assessee-company to comply with 
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the statutory requirements of Section l 94A of the Income-tax Act, 1961 by 
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deducting tax deductible at source (TDS) on interest paid by it for loans availed 
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of by the assessee and repaid by it with interest on the ground that the loans 
were meant for the directors of the assessee-company and not for the assessee-
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company and after recording a finding that the directors had misused the name 
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of the company to avail of the loan. [Paras 1and9) [961-D, E; 967-E) 
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1.2. The material expression in Section_ 194A(l) of the Act is "at the 
D time of credit of such income to the account of the payee". When interest is 
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debited to "Interest Account" the debit is for a specific amount calculated 
with reference to the liability of the deductor to a particular creditor in 
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accordance with the terms and conditions of the loan. Therefore,. whenever 
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interest is credited to the account of the payee the payer has to deduct the 
TDS. The crux of the matter is that the debit is for a specific amount 
E calculated with reference to the deductor's liability to a particular creditor 
in accordance with the terms and conditions of the loan. 
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l . 
(Para 7) [966-H; 967-A-B) 
1.3. In the instant case, the lender had advanced the loan to the assessee-
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company. Debit was made by the assessee-company to the "Interest Account" 
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for a specific amount calculated with reference to the deductor's liability to a 
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creditor. There is no resolution of the assessee-company placed before the 
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A.O. whereby the company has agreed to act as a medium for routing the 
borrowings and repayments. In the circumstances it cannot be said that the 
assessee-company was incharge of disbursing the repayments made by 
G directors in their individual capacities. Consequently, Department 

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