The Hindu : Plight of depositors

Online edition of India's National Newspaper
Monday, Mar 01, 2004

Business

Business

Plight of depositors

QUESTION: I have considerable income by way of interest from bank deposits. The bank in spite of my repeated requests does not deduct tax. In view of the expectation, that it will be deducted at least by the end of the year, I have not paid advance tax. What are my damages by way of interest or penalty for failure to pay advance tax?

ANSWER: It is unfortunate that Income-tax Department is not able to enforce the duty to deduct tax even on the part of scheduled banks including nationalised banks. The normal expectation is that the taxpayer pays advance tax and if it is not so paid, he has to pay interest under Sec. 234B for non-payment or shortfall in respect of advance tax and under Sec. 234C for failure or shortfall in respect of each instalment of advance tax.

However, Sec. 209 which provides for computation of advance tax to be paid by the assessee on his estimated current income provides for adjustment of deduction "by the amount of income-tax which would be deductible or collectible at source during the said financial year under any provisions of this Act from any income... and the amount of income-tax so reduced shall be advance tax payable" vide clause (d) of sub-section (1) of Sec. 209. Sec. 234B and 234C also stipulates interest on advance tax referable to Sec. 208, which in turn is required to be reckoned under Sec. 209.

If there is no liability for advance tax or the shortfall is less than Rs. 5,000, because of the expected tax deduction (whether actually deducted or not) by the bank or for that matter from any other person, there can be no interest to that extent either under Sec. 234B or 234C. Interest is leviable only on those, who have failed to deduct tax along with tax under Sec. 201 of the Act. This is the Scheme of the Act.

The only difficulty is convincing the assessing officer about this point in law, because interest is being calculated probably by the computer which does not provide for this situation or done routinely even when done manually, overlooking this provision.

It is for the reader to bring out the point and seek cancellation of the interest where it has been charged.

S. Rajaratnam

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