TMI Blog2005 (8) TMI 300X X X X Extracts X X X X X X X X Extracts X X X X ..... the scope of total income, there was no obligation to deduct the tax at source. 4. That the CIT(A) has further overlooked that the amounts of interest credited by the appellant in respect of the balances outstanding to the account of retired employees of M/s ONGC was not in the nature of income and as such, the provisions of s. 194A of the IT Act could not be invoked so as to conclude that the assessee had credited any income by way of interest to such of the accounts of the retired employees of M/s ONGC. It is, therefore, prayed that it be held that the order of the CIT(A) is erroneous being unsustainable in law. It be thus held that the order made under ss. 201 and 201(1A) of the IT Act is vitiated being bad both on facts and in law. It be thus held that the amount allegedly required to have been deducted at source along with the interest aggregating to Rs. 58,74,456 be held in respect of which the assessee could not be held to be in default as unsustainable." 2. Although the appellant has preferred multiple grounds of appeal but the only grievance is with regard to the action of the CIT(A) in sustaining the order of the AO holding the assessee in default under s. 201/201(1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uired under r. 5 of Part A of Fourth Schedule, it was argued that although no request was received in writing as required under r. 5(3) of Part A of the Fourth Schedule, yet it was a regular feature to retain the credit of the retired employees with the fund from year to year; as the retired employees did not press for the withdrawal of the accumulated balance, the same be construed as a request having been made in writing. It was also submitted that the purported non-compliance of not obtaining a consent in writing to retain the amount as required, was a mere technical and venial breach of a rule. The retention was indeed permissible in terms of cl. 18 of the regulations. 3. The assessee also argued that the trust was a recognized provident fund and it credited the interest received by it from the investment of its funds and as such the amount credited to the account of employees was merely an application of the income of the trust. As the income in the hands of the trust fund was not otherwise taxable, it was argued that the action of taxing the same on the part of ITO was not justified. The assessee made detailed written submissions before the CIT(A), copy of which is placed i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l granted by the CIT and held that since the assessee had failed to obtain declaration in writing, the interest paid was income in the hands of the assessee and, therefore, the appellant-trust was obliged to deduct tax at source under s. 194A of the Act. It was further submitted that there was no requirement as such of obtaining a request in writing as per 1. 5(3) of Part A of the Fourth Schedule to the Act as such a request in writing may not be in black and white on a paper, and could also be gathered from the conduct of the parties. The learned counsel further submitted that in any case such violation is a technical violation and argued that having regard to the decision of the apex Court in the case of Collector, Land Acquisition vs. Mst. Katiji Ors. (1987) 62 CTR (Syn)(SC) 23 : (1987) 167 ITR 471 (SC), a liberal approach should be adopted. The learned counsel submitted that such employees have not been assessed to tax in respect of this interest income as it has been considered exempt in the hands of such ex-employees of ONGC within the meaning of s. 10(12) of the Act. The action of the lower authorities in treating the appellant as an assessee in default for its alleged fai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee was not, in law, required to deduct tax at source under s. 194A of the Act in respect of interest credited to the account of the members of the fund who have ceased to be in employment of ONGC. 8. On the other hand, learned Departmental Representative has defended the orders of the lower authorities. According to the learned Departmental Representative, much emphasis has been laid by the assessee in relation to cl. 18 of its regulations to submit that the retiring employees could continue to remain members of the trust. According to the learned Departmental Representative, the existence or otherwise of cl. 18 does not deviate from the fact that the assessee was required to deduct tax on such interest income credited to the account of the employees who had ceased to be in employment. The learned Departmental Representative referred to the provisions of s. 10(12) to argue that the exemption from tax is available on the accumulated balance to the extent provided in r. 8 of Part A of the Fourth Schedule to the Act. Therefore, it follows that s. 10(12) of the Act does not envisage a blanket exemption and the aforesaid proposition is reinforced after reading the contents of r. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an employee participating in a recognized provident fund, to the extent provided in r. 8 of Part A of the Fourth Schedule." 11. Rule 8 of Part A of the Fourth Schedule, which provides the extent and conditions for excluding the accumulated balance payable to an employee from total income, reads as under: "8. The accumulated balance due and becoming payable to an employee participant in a recognized provident fund shall be excluded from the computation of his total income- (i) if he has rendered continuous service with his employer for a period of five years or more, or (ii) if, though he has not rendered such continuous service, the service has been terminated by reason of the employee's ill-health, or by the contraction or discontinuance of the employer's business or other cause beyond the control of the employee, or (iii) if, on the cessation of his employment, the employee obtains employment with any other employer, to the extent the accumulated balance due and becoming payable to him is transferred to his individual account in any recognized provident fund maintained by such other employer." 12. It would also be appropriate to refer to the definition of the express ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loyee is transferred in the recognized provident fund maintained by the subsequent employer. The above situations, which have been envisaged under r. 8, are admittedly not attracted to the instant case. In the case before us, the credits have been made to employees who have since retired or in other words have ceased to be in employment. It is also not the case of the assessee that the cessation of such members is on account of their ill-health or by contraction or discontinuance of the employer's business or for any other cause beyond their control. Further, there is also no case made out that on the cessation of the employment with ONGC, such retiring employees have obtained employment with any other employer and the accumulated balances due and becoming payable have been transferred to another provident fund. Therefore, it would not be unjustified to infer that the interest credited by the assessee to the account of such persons does not fall within the parameters as provided for in r. 8. In other words, on a combined operation of s. 10(12) with r. 2(f) and r. 8 of Part A of the Fourth Schedule, the impugned amounts credited in the account of the members of the trust who have ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not liable to be taxed under the head 'Salaries'. It is in this background that we approve of the action of the AO in holding the assessee in default for not having deducted tax at source in terms of s. 194A of the IT Act. Sec. 194A of the IT Act provides for deduction of tax at source on payment made by a person, not being an individual or an HUF, of any income by way of interest in the manner prescribed therein. The amount credited by the fund is nothing but interest. 15. Now, regarding the reliance placed by the learned counsel for the assessee on the judgment of the Hon'ble High Court of Madras in M.C. Muthanna for the proposition that interest credited to the account of the members partook the character of salary under the provisions of the Act and, therefore, tax deduction at source, if at all, has to be effected under s. 192 and not s. 194A as contended by the Revenue. We have perused the judgment of the Hon'ble High Court of Madras. The facts were that the assessee was a member of a recognized provident fund, he received interest in excess of the rate prescribed in cl. (b) of r. 6 of Part A of the Fourth Schedule. Assessee claimed deduction under s. 80L with respect to su ..... X X X X Extracts X X X X X X X X Extracts X X X X
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