QUESTION: I have a fixed deposit in a bank from which I am not receiving any interest during the year but my auditor advised me that I should report the interest from the deposit from the date of deposit till March 31, 2011, though the deposit matures only in the succeeding year. Why should I offer this amount for the year, when I follow the cash system of accounting and offering it in the year, when my savings bank account is credited with such interest?
ANSWER: Since the bank charges such interest in its books and claims the same as a deduction in computation of its income, it is obliged in law to deduct tax at source on such amounts.
However, the depositor is not compelled to offer it as income and he can avail himself of the tax deduction certificate non-controversially in the year in which he is offering the income as understood by the departmental officers with reference to Sec. 199 of the Income-tax Act. Sec. 199 is an enabling provision not barring refund of tax deducted in the year in which it is deducted, when there is no liability on such income, which need not legitimately be reported, not only when he follows cash system of accounting but even otherwise because it has not become due. All the same, taxpayers, who would like to sail with the Department, so as to avoid controversies, may like to cash the non-interest bearing tax deduction certificate by offering the corresponding income on which tax has been deducted during the year as advised by the reader's auditor. The suggestion of the reader that the situation is “unreasonable, ridiculous and anomalous” has a ring of truth but this is one of the many anomalies which we have to live with our tax system framed with extra caution to ensure that there is no postponement of tax deduction even where there is no leakage of revenue by postponement of tax.
