Bank cannot simply defer deduction of tax at source on interest on deposits and keep on waiting for certificate under section 197 to be obtained by depositor; it is liable to deduct tax as per mandate of section 194A
IN THE ITAT CHANDIGARH BENCH ‘B’
Assistant General Manager (PR)
Income-tax Officer (TDS), Shimla
AND T. R. SOOD, ACCOUNTANT MEMBER
IT APPEAL NOS. 765 & 766 (CHD.) OF 2014
[ASSESSMENT YEARS 2011-12 & 2012-13]
JANUARY 28, 2015
Tarun Kumar for the Appellant. S. K. Mittal for the Respondent.
T. R. Sood, Accountant Member – The appeals filed by the assessee are directed against the order dated 23.7.2014 of CIT(A), Shimla.
2. In both these appeals identical grounds have been raised which are as under:—
|1.||That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. Assessing Officer in passing order u/s 201(1)/201(1A) of the Income Tax Act raising a demand of Rs. 20,23,012/- (assessment year 2011-12) and Rs. 14,68,355/-(assessment year 2012-13).|
|2.||That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in holding that the assessee failed to deduct TDS on the interest payment u/s 194A and impugned demand has been raised by recording incorrect facts and findings and by disregarding the submission of the assessee.|
|3.||That in any view of the matter and in any case, the impugned order passed by Ld. AO u/s 201(1)/201(1A) is illegal, arbitrary, against the principal of natural justice, void authorities below initio and therefore deserves to be quashed.|
3. After hearing both the parties we find that Assessing Officer called for information u/s 133(6) of the Income-tax Act, 1961 from the person responsible of the assessee’s bank. The information sought was with prior approval of the CIT (TDS) Chandigarh. The assessee was asked to supply the details of names & addresses and PAN numbers and amount of interest paid/credited in the name of various trust/bodies, funds, boards etc. or FDR’s with the bank on which no tax was deducted. From the information it was found that various deposits had been made by Himachal Pradesh State Electricity Board (HPSEB) on which tax was not deducted. No submissions were made before the Assessing Officer, therefore, assessee was held to be in default and liability was determined u/s 201(1) and 201(1A) of the Act.
4. On appeal, it was mainly stated that HPSEB was a government company established by the State and 100% shares were held by the Himachal Pradesh Government, therefore, provisions of section 194A were not applicable because of specific exemption was provided u/s 194A(32)(iii)(f). It was further submitted that in the earlier period the Board has furnished a certificate under section 197 for non deduction and the Board was pleading that this year also they will obtain the Certificate and the bank believed the Board that tax was not deductible. Later on, a certificate from the Income Tax Officer i.e ACIT (TDS) Shimla dated 28.3.2011 was obtained for deduction at the rate of 1% for the period 28.5.2010 to 31.3.2011. The assessee informed that because of this certificate and request of the Board had a bonafide belief that tax was not required to be deducted and, therefore, the same was not deducted but after the certificate tax @ 1% was deducted and deposited also. Therefore, interest should not have been charged.
5. The Ld. CIT(A) did not find force in these submissions and decided the issue against the assessee vide paras 4 to 4.2, which is as under:—
“4. I have gone through the facts of case, submission of assessee and the case laws relied upon. The fact is that deductee assessee is separate entity taxable under Income Tax Act, Act does not permit the deductor bank, not to deduct tax without explicit certificate from the assessing officer of deductee to the same effect. Deductor cannot step in to the shoes of I.T. authorities, who are responsible for ascertaining the tax liability of deductee. However, the liability of deductor to deduct tax arises as and when any sum is credit to the accounts of deductee. The ratio of Hindustan Cocacola Beverages Pvt. Ltd. Never exempted deductor from the liability of deducting the tax rather Hon’ble Supreme Court has upheld the decision of Tribunal of treating the appellant assessee as assessee in default for failure to deduct tax.
4.1 As far as provisions of section 194(f)(iii) is concerned, the exemption has to be granted specifically for reasons to be recorded in writing, and has to be duly notified in official gazette. In fact no exemption under this section is deemed to be granted, as each body/institution has to apply separately to CBDT and exemption has to be notified in Official Gazette after approval of Central Government. The case laws relied upon by the appellant factually differ from the facts of the case of assessee.
4.2 Even as per assessee’s own admission Bank had accepted the certificate for non deduction of tax at source in the previous year. However, subsequently failed to deduct tax without the such certificate under section 197 subsequently. So the argument of the deductor that failure to deduct tax was not deliberate is not acceptable and action of A.O. is upheld.”
6. Before us, Ld. Counsel for the assessee reiterated the submissions made before the CIT(A). He also filed a copy of certificate issued under section 197. He further relied on the decision of Hon’ble Himachal Pradesh High Court in the case of CIT v. State Bank of Patiala [IT Appeal No. 17 of 2014].
7. On the other hand Ld. DR strongly supported the impugned order. He further submitted that no notification was issued by Central Government by which HPSEB has been exempted u/s 194A(3)(iii)(f) of the Act.
8. We have considered the rival submissions carefully and do not find any force in the submissions of the assessee. First of all when the interest was credited by the bank to the HPSEB, valid certificate was not available with the assessee’s bank and, therefore, bank could not simply defer the deduction of tax and simply keep on waiting for certificate to be obtained by HPSEB when there was a clear mandate of a Statute to do a particular action then the same cannot be postponed simply because the other person is making a request.
9. We further find no force in the submissions that Board was exempt from deduction in view of section 194A(3)(iii)(f) of the Act. This provision read as under:—
“194A (1) Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any income by way of interest other than income [by way of interest on securities], shall at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheques or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force….
……(3) the provisions of sub-section (1) shall not apply .- ….
…..(f) such other institution, association or body or class of institutions, associations or bodies which the Central Government may, for reasons to be recorded in writing, notify in this behalf in the Official Gazette.”
10. The above clearly shows that only those associations or bodies to be covered by the exception which have been notified by the Central Government. The assessee has not filed any notification showing that HPSEB was notified by the Central Government under the above provision and we further find that decision of Hon’ble Himachal Pradesh High Court is not applicable because in that case it was noticed by the Tribunal that M/s Biotech Biobusiness and HP SITEG from whom the tax was required to be deducted was a society wholly financed by the Govt. of India and a general notification was issued by the Central Government which has been noted by the Tribunal as well as the Hon’ble High Court at para 7 which is as under:—
“7. Evidently, as noticed by the Appellate Authority, by virtue of its power, in terms of Section 194A, Central Government has issued notification covering “Any undertaking or body including a Society registered under the Societies Registration Act, 1860 (XXI of 1860) financed wholly by the Government”
11. Otherwise also, this theory of application of section 194A(3)(iii)(f) is totally contradicted by the HPSEB itself. On the one hand it claims that it is covered by the exception and no tax is required to be deducted. On the other hand HPSEB approaches the ACIT (TDS) with a request for lower deduction and ultimately a certificate is issued that tax should be deducted at a rate of 1%. If the HPSEB was really covered by this exception of 194A(3)(iii)(f) then assessee should have asked for Nil deduction certificate or challenged the action of the Assessing Officer before the relevant Forum. Therefore, in our opinion the assessee bank was required to deduct tax. Since assessee has later on deducted the tax at 1% which was also approved by the Income Tax Authorities, in our opinion, there cannot be any default for deduction of tax on the part of the bank. However, at the same time since tax has been deducted late, the assessee is definitely liable to pay interest u/s 201(1A). Simply because assessee was under some bonafide belief that tax was not required to be deducted, cannot be a reason for not charging the interest. Therefore, we set aside the order of Ld. CIT(A) and remand the matter back to the file of Assessing Officer with a direction to Assessing Officer to charge interest u/s 201A on the basis of 1% deduction.
12. In the result, appeals are partly allowed for statistical purposes.