Payer not Liable to Deduct TDS if Payee income is exempt

By | January 28, 2016

Facts of the Case

The assessee has paid an interest of Rs. 16,24,072/- in the Assessment Year 2011-12, Rs. 20,83,546/- in the Assessment Year 2012-13 & Rs. 25,33,431/- in the Assessment Year 2013-14 .

The assessee contended before the Assessing Officer that tax was not deducted in respect of payment to Visvesvaraya Technological University as it was existing solely for educational purposes and not for purposes of profit and wholly and substantial financed by the Government and is exempt from income tax under the provisions of sec. 10(23)(iiiab) of the Act and therefore, no liability to tax arose and no tax was deductible under sec. 194A. The assessee also produced before the Assessing Officer a letter of Visvesvaraya Technological University bearing No. VTU/Registered./IT/2014/997 dated 03/09/2014 wherein it was mentioned that Visvesvaraya Technological University is exempted from filing the returns under sec. 139 of the Income Tax Act, 1961 as its income was exempt under sec. 10(23)(iiiab) of the Income Tax Act, 1961 and it had requested the assessee bank not to deduct tax from deposits.

HELD

The machinery of TDS provisions made in statute is to facilitate the collection of that tax which is the principally payable by the recipient of the income. The TDS is not a separate or independent tax. Once the recipient of the income has included, the income paid by the payer and disclosed the same to the Department and paid tax thereon as per computation made by the recipient or no tax was paid by the recipient of income because as per the recipient, its entire income is exempt or on which no tax is payable, then the income is disclosed to the Department by the principal person who is liable to pay tax thereon and in such cases, unless it can be shown that the due tax could not be recovered by the Department from the principal person, who was liable to TDS until then the payer of the income cannot be treated as “Assessee in Default”.

 

IN THE ITAT PANAJI BENCH

RBL Bank Ltd.

v.

Income-tax Officer (TDS), Ward-1, Belgaum

N.S. SAINI, ACCOUNTANT MEMBER
AND GEORGE MATHAN, JUDICIAL MEMBER

IT APPEAL NOS. 329 TO 331 (PNJ) OF 2015
[ASSESSMENT YEARS 2011-12 TO 2013-14]

NOVEMBER  24, 2015

S.V. Padhye, CA for the Appellant. Keshav M. Dixit, DR for the Respondent.

ORDER

N.S. Saini, Accountant Member – These are the appeals filed by the assessee against the separate orders of Commissioner of Income Tax (Appeals), Belgaum, each dated 15/06/2015 passed in Assessment Years 2011-12, 2012-13 & 2013-14.

2. The common issue involved in all the years under consideration is that the Commissioner of Income Tax (Appeals) erred in confirming the order of the Assessing Officer holding the assessee bank as “Assessee in Default” under sec. 201(1) and raising demand of Rs. 2,38,735/- in the Assessment Year 2011-12, Rs. 2,81,260/- in the Assessment Year 2012-13 and Rs. 3,11,602/- in the Assessment Year 2013-14 including interest under sec. 201(1A) of the Act.

3. Brief facts of the case are that the assessee is a banking company engaged in the business of banking. On verification of information obtained under sec. 133(6) of the Income Tax Act, 1961, the ITO (TDS), Ward-1, Belagavi found that during the years under consideration, the assessee has paid an interest of Rs. 16,24,072/- in the Assessment Year 2011-12, Rs. 20,83,546/- in the Assessment Year 2012-13 & Rs. 25,33,431/- in the Assessment Year 2013-14 which is in excess of Rs. 10,000/- and hence, the assessee bank should have deducted tax at source in accordance with the provisions of sec. 194A(3)(i)(b) of the Act @ 10%, which it had failed to comply with. The assessee contended before the Assessing Officer that tax was not deducted in respect of payment to Visvesvaraya Technological University as it was existing solely for educational purposes and not for purposes of profit and wholly and substantial financed by the Government and is exempt from income tax under the provisions of sec. 10(23)(iiiab) of the Act and therefore, no liability to tax arose and no tax was deductible under sec. 194A. The assessee also produced before the Assessing Officer a letter of Visvesvaraya Technological University bearing No. VTU/Registered./IT/2014/997 dated 03/09/2014 wherein it was mentioned that Visvesvaraya Technological University is exempted from filing the returns under sec. 139 of the Income Tax Act, 1961 as its income was exempt under sec. 10(23)(iiiab) of the Income Tax Act, 1961 and it had requested the assessee bank not to deduct tax from deposits.

4. The Assessing Officer observed in his order that Hon’ble Karnataka High Court, Dharwad Bench vide its order dated 20/12/2013 in the case of Visvesvaraya Technological University v. Asstt. CIT [2014] 362 ITR 279 upholding the order of the Tribunal, has categorically stated that Visvesvaraya Technological University was not entitled to exempt under sec. 10(23)(iiiab) of the Income Tax Act, 1961. According to the Assessing Officer, as the Hon’ble High Court has held that income of Visvesvaraya Technological University was not exempt under sec. 10(23)(iiiab) of the Act the claim of the deductor was not in order. The Assessing Officer further observed that Visvesvaraya Technological University has neither furnished to the assessee a certificate from the Income Tax Department for low deduction/no deduction of tax in respect of Visvesvaraya Technological University nor Form No. 15G and therefore, he held that the assessee bank was under statutory obligation to deduct tax from interest paid on term deposits to Visvesvaraya Technological University and the Assessing Officer by passing an order under sec. 201(1) and 201(1A), determined the amounts payable under sec. 201(1)/(1A) amounting to Rs. 1,62,407/- and Rs. 76,328/- respectively, totalling to Rs. 2,38,735/- in the Assessment Year 2011-12; Rs. 2,08,355/- and Rs. 72,905/- respectively, totalling to Rs. 2,81,260/- in the Assessment Year 2012-13 and Rs. 2,53,343/- and Rs. 58,259/- respectively, totalling to Rs. 3,11,602/- in the Assessment Year 2013-14.

5. The assessee carried the matter in appeal before the Commissioner of Income Tax (Appeals) and argued that w.e.f. 01/07/2012, a person who has not deducted TDS will not be deemed to be a person in default if he furnishes a certificate to the effect that the person in respect of whom deduction was not made has furnished his return of income under sec. 139, has taken into account such sum for computing income in such return of income and has paid the tax due on the income declared by him in such return of income and the person furnishes a certificate to this effect in Form 26A. The assessee submitted that Visvesvaraya Technological University has confirmed that they have filed the return of income and has provided Form 26A which was filed before the Commissioner of Income Tax (Appeals).

6. The Commissioner of Income Tax (Appeals) after considering the submissions of the assessee observed that the proviso to sec. 201(1) provides for four conditions which need to be satisfied for claiming relief under these provisions. In the case of the assessee, no return of income for the assessment years under consideration was filed by Visvesvaraya Technological University under sec. 139 of the Act, but was subsequently filed, in response to notice under sec. 148 of the Act. Further, the income shown in the return is NIL and hence, Visvesvaraya Technological University had not taken into account the sum for computing its income for the relevant assessment years. No taxes had been paid by the deductee even while filing its return in response to notice under sec. 148. No certificate was furnished from the Chartered Accountant in Form No. 26A during the initial stage of the proceedings. Therefore, Commissioner of Income Tax (Appeals) dismissed the appeal of the assessee.

7. Before us, Authorized Representative of the assessee filed an application for admission of additional evidence in the form of Form No. 26A for all the assessment years under consideration. It was submitted that originally Form No. 26A signed by the Registrar of Visvesvaraya Technological University instead of Chartered Accountant was filed and thereafter realizing the mistake, the assessee has obtained the required Form 26A signed by the Chartered Accountant. Hence, it was the prayer to admit the additional evidence. Further, it was submitted that the Hon’ble Supreme Court in the case of Hindustan Coca Cola Beverage (P.) Ltd. v. CIT [2007] 293 ITR 226  has held that since the assessee had paid interest under sec. 201(1A) and there was no dispute that the tax due had been paid by the deductee, the appellate Tribunal came to the right conclusion that the tax could not be recovered once again from the assessee. It was the submission that as the Visvesvaraya Technological University, to whom the interest was paid by the bank, had filed its return of income and paid tax thereon, the assessee was not liable under sec. 201(1) of the Act.

8. On the other hand, Departmental Representative supported the orders of the lower authorities.

9. We have heard rival submissions of both the parties and perused the orders of the lower authorities and the material available on record. In the instant case, the undisputed facts are that the assessee bank has paid interest on term deposits of Rs. 16,24,072/- in the Assessment Year 2011-12, Rs. 20,83,546/- in the Assessment Year 2012-13 & Rs. 25,33,431/- in the Assessment Year 2013-14 without deducting TDS thereon to Visvesvaraya Technological University. As the total payment of interest exceeded to Rs. 10,000/- during the year, therefore, the Assessing Officer treated the assessee as ‘assessee in default’ under sec. 201(1)/(1A) for failure to deduct TDS under sec. 194A of the Act and held the assessee liable for Rs. 2,38,735/- in the Assessment Year 2011-12, Rs. 2,81,260/- in the Assessment Year 2012-13 and Rs. 3,11,602/- in the Assessment Year 2013-14.

10. On appeal, Commissioner of Income Tax (Appeals) confirmed the action of the Assessing Officer.

11. The Authorized Representative of the assessee has now filed an application for admission of additional evidence in the form of Form 26A on the ground that earlier Form 26A for the years under appeal was signed by the Registrar of the Visvesvaraya Technological University was filed by mistake by the assessee and that fresh Form 26A has been filed duly certified by the Chartered Accountant. Further, it was also the submission that as the deductee Visvesvaraya Technological University has paid taxes on the interest income by filing its return of income, the assessee was not liable under sec. 201(1) in view of the decision of the Hon’ble Supreme Court in the case of Hindustan Coca Cola Beverage (P.) Ltd. (supra).

12. The contention of the Departmental Representative before us is that as the Form No. 26A is filed by the assessee as additional evidence before the Tribunal, the Tribunal should restore the matter back to the file of the Assessing Officer for his verification and adjudication thereupon. The Departmental Representative also pointed out that Visvesvaraya Technological University in its return of income claimed entire income as exempt under sec. 10(23) including the amount of interest income in question and, therefore, no tax was paid by Visvesvaraya Technological University and therefore, the assessee is not entitled for benefit of the decision of Hon’ble Supreme Court in the case of Hindustan Coca Cola Beverage (P.) Ltd. (supra).

13. We find that it is not in dispute that the recipient of interest income i.e. Visvesvaraya Technological University has filed its return of income and has included the interest paid by the assessee as its income in the said return of income. As per sec. 4 of the Income Tax Act, it is the recipient of interest who is liable to pay tax. The machinery of TDS provisions made in statute is to facilitate the collection of that tax which is the principally payable by the recipient of the income. The TDS is not a separate or independent tax. Once the recipient of the income has included, the income paid by the payer and disclosed the same to the Department and paid tax thereon as per computation made by the recipient or no tax was paid by the recipient of income because as per the recipient, its entire income is exempt or on which no tax is payable, then the income is disclosed to the Department by the principal person who is liable to pay tax thereon and in such cases, unless it can be shown that the due tax could not be recovered by the Department from the principal person, who was liable to TDS until then the payer of the income cannot be treated as “Assessee in Default”.

14. We find that no material has been brought before us to show that in pursuance to any assessment made in the case ofVisvesvaraya Technological University (supra) any tax was determined by the Department as payable by Visvesvaraya Technological University and which had become unrecoverable from Visvesvaraya Technological University. However, we find force in the argument of the Departmental Representative, the issue requires to be set aside to the file of the Assessing Officer for verification of additional evidence filed by the assessee in Form 26A and thereafter adjudicate afresh after taking into consideration the decision of the Hon’ble Supreme Court in the case of Hindustan Coca Cola Beverage P. Ltd. (supra) and the observations made hereinabove and after allowing reasonable opportunity of hearing to the assessee. Thus, this ground of appeal of the assessee is allowed for statistical purpose for all the years under appeal.

15. In the result, all the appeals of the assessee are partly allowed for statistical purposes.

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