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3. The case before us also raises another important legal issue about the scope of Section. 221 per se, and whether a penalty under the said Section can be imposed at all, as a consequence of non-deduction of tax at source after the insertion of Section. 271C w.e.f. 1st April, 1989. That respect of the matter, however, we will deal with a little later.

4. Coming back to the core issue, it is necessary to briefly explain the expression 'interest accrued but not due'. The expression 'interest accrued but not due' is essentially an accounting expression which refers to the interest liability which has arisen in respect of the interest payable by a person but liability to pay such interest has not crystallised. The expression becomes particularly relevant when interest is payable on a date later than the date on which books of account of the assessee are closed annually and, therefore, as at the time of closure of annual accounts, the assessee has incurred a liability in respect of interest but that liability is to be discharged at a later date. To illustrate, let us take a situation in which a person, who follows financial year as his accounting year has borrowed funds aggregating to Rs. 10,00,000, as on 1st April, on interest @ 12 per cent per annum and such interest is to be paid at the end of each calendar year. On 31st December of that year, therefore, the assessee has a liability to pay Rs. 90,000 to his borrowers. Now as on 31st March of the following year, the assessee will have an interest liability incurred for the remaining three months but the liability to pay the same will crystallise only at the end of this calendar year. While, for the purposes of accounting, this interest liability of Rs. 30,000, is to be provided in the books of account as a charge on income but since liability for payment will only mature at the end of the relevant accounting year, the corresponding credit is not to be given to the respective lenders but only to an appropriate provision account. It is such an interest liability which is referred to as 'interest accrued but not due.

6. That takes us to the question that in case only one penalty, i.e., either under Section 221(1) or under Section 271C, is imposable for the default of short-deduction of tax at source, under which Section can such a penalty be imposed.

7. We find that Section. 271C was inserted in the IT Act w.e.f. 1st April, 1989, by the virtue of Direct-tax Amendment Act, 1987, and that the CBDT, vide Circular No. 551, dt. 23rd Jan., 1990 [(1990) 82 CTR (St) 325], explained the insertion of this Section in following words:

9. Let us now take a look at the legal position after the insertion of Section. 271C, i.e., w.e.f. 1st April, 1989. We have already noticed that Section. 271C is a specific provision dealing with assessee's failure of non-deduction, or short-deduction, of tax at source, It is fairly well settled in law that general provisions do not override specific provisions, as aptly described by the maxim 'generalia specialibus non derogant'. A special provision normally excludes the operation of a general provision and we are of the view that such a principle governs the instant case also. In the case of South India Corpn. (P) Ltd. v. Secretary, Board of Revenue , Hon'ble Supreme Court had an occasion to consider whether Article 277 or Article 372 of the Constitution of India should govern the particular situation involved therein. Their Lordships then pointed out that 'a special provision should be given effect to the extent of its scope, leaving the general provision to control cases where specific provisions do not apply.' In the light of these discussions, it is clear to that to the extent a default is covered by the specific provisions of Section. 271C, such a default cannot be subject-matter of penalty under Section 221(1) of the Act. We are, therefore, of the considered view that penalty under Section 221(1) cannot be imposed for the cases of non-deduction and short-deduction of taxes at source, which are undisputedly covered by the specific provisions of Section. 271C, so far as period after 1st April, 1989 is concerned.

10. In view of the above discussions, we are of the considered view that the very levy of penalty under Section 221(1), on the facts of this case, was unsustainable in law since the short-deduction of tax at source took place in the financial year 1990-91, i.e., much after insertion of Section. 271C w.e.f. 1st April, 1989.

The levy of penalty under Section 221(1) was thus quashed on the ground of jurisdiction. As a matter of fact, the CBDT itself has in Circular No. 551, dt. 23rd Jan., 1990, accepted that until Section. 271C was inserted in the Act 'no penalty was provided for failure to deduct tax at source'. It is not only merely a question of mentioning a wrong section, which could perhaps be covered up by recourse to Section. 292B, it is also important to bear in mind that the impugned penalty is levied by an officer of the rank of the ITO, whereas, penalty under Section 271C could only have been levied by an officer of the rank of the Deputy (now Joint) CIT. The ITO was, from this point of view, not even competent to impose the impugned penalty. Learned Departmental Representative points out that penalty under Section 221 has been upheld by the Hon'ble Calcutta High Court in the case of Jubilee Investments and Industries Ltd. v. Asstt. CIT and therefore, Tribunal's decision in the case of Titagarh Steel Ltd. (supra) is not good law. We don't agree with this submission either. In fact this judgment clarifies that penalty under Section 221 is imposable when the assessee deducts the tax at source but does not deposit the same within the prescribed time-limit, whereas penalty under Section 271C is imposable in a case of assessee's failure to deduct tax at source. While discussing this aspect of the matter at p. 651 of the report, their Lordships have also taken note of the fact that the power to impose penalty in a case of non-deduction or short-deduction of tax at source, i.e., under Section 271C, is conferred on the Jt. CIT but it is not the same case so far penalty under Section 221 is concerned. Their Lordships have also made it clear that these sections operate in mutually exclusive areas by observing that "A perusal of both the sections, i.e., Section. 221 and Section. 271C, shows that though both the penalties are penalties for default--either in deducting the TDS or after deducting TDS the assessee's failing to deposit that amount with the Central Government within the prescribed time-limit ... Thus it is clear that penalty under both the sections is on different grounds". In the present case, even according to the Revenue, the default was on account of deduction of tax at source. Such a default for the reasons set out above, cannot be visited with penalty under Section 221. For this reason also, the impugned penalty is unsustainable in law.