TMI Blog2014 (7) TMI 905X X X X Extracts X X X X X X X X Extracts X X X X ..... non-deduction/ at lower rate - The interest income does not loose its character merely because of the deeming provisions u/s 33ABA treating the accrued interest being treated as deposit - the nature of a receipt is to be decided at first instance; and secondly, this sub-section does not make the withdrawals chargeable to tax till the account is not closed - It is not the case of assessee that when withdrawal is made on closure of account, then also the amount withdrawn is to be subjected to TDS - this sub-section refers to entire credit balance lying in this account and not only the accrued interest - section 33ABA(5) brings to tax the amount which was earlier allowed as deduction. The deposits contemplated u/s 33ABA need not necessarily come from business of extraction or production of petroleum or natural gas because of the word used 'consisting' in sub-section (1) of section 33ABA - The deposits can be made from any other source of income also - no parity can be drawn between interest accruing to SRF a/c and the withdrawals made u/s 33ABA(5) which are assessable as business income - it cannot be held that interest accrued on SRF a/c was not chargeable to tax in the ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 33ABA, the amount of interest paid accrued was to be treated as deposit and, therefore, the provisions of section 194A were not attracted. The assessee further submitted that this is further clarified in explanation (b) to section 33ABA, after sub-section (9) as per which amount standing to the credit of the assessee the SRA includes interest accrued to such account. Referring to sub-sections (3) and (5) of section 33ABA, it was submitted that as per these provisions the ONGC was not entitled to draw the amount standing to the credit in the SRA except for the purposes specified in the scheme and the amount was to be taxed in the year in which it was withdrawn under the head profits and gains of business or profession . 2.3. The assessee further submitted that deposit held in SRF a/c is not in the nature of 'time deposit' (STDR) and, therefore, in view of the provisions contained u/s 194A(3)(vii) read with Explanation (1) below sub-section (3), no TDS was required to be made. It was pointed out that SRA is a special account which is provided only by State Bank of India at its designated branches only to those assessees who are carrying on the business of mineral oil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eposit only on the reinvestment of the same to the amount standing to the credit of the deductee. For the purposes of the assessee/ deductor this is payment of interest, either on accrual basis or on payment basis, on the fund parked in its accounts. (b) The treatment of income in the hands of the payee is not within the purview of deductor while making payment i.e. to say that the treatment given by the deductee has no relevance for the application of section 194A of the I.T. Act in the hands of deductor. Thus, section 33ABA has no relevance in this context. (c) No certificate u/s 197 for non-deduction of tax on the interest income had been obtained by the payee. (d) The ONGC was showing it as income from other sources. (e) The assessee's contention that it is not a time deposit is only an after thought. The assessing officer pointed out that the assessee treated the account as STDR but later denied its own submissions in its letter dated 1-3-2013, stating that this was not in the nature of STDR. (f) No documentary evidence was filed by assessee to demonstrate that ONGC had included the amount credited by bank to SRF a/c as its income and offered it for tax. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... means be termed as term deposit. Also interest credited does not amount to income by way of interest . Interest credited is deductible expenditure up to a limit. Under section- 33 ABA the concept of chargeability of income comes into play only when any amount (including the interest) is withdrawn from the account on its closure. This follows from a plain reading of section-33 ABA, which is a standalone provision for Site Restoration Fund (SRF). No amount can be withdrawn without specific approval of Ministry of Petroleum Natural Gas. 2.2 That the Ld. CIT (A) has completely overlooked the factual substratum of the case as also the written submissions furnished by the assessee wherein the entire gamut of the SRF Scheme was explained in detail and also the fact that the deposit under the said scheme maintained with the assessee-bank could not be classified as term deposit within the meaning of Explanation 1 to section 194A so as to create an obligation to deduct tax source. 2.3 That the Ld. CIT (A) has also erred in law in not appreciating the fact that the issue whether the deposit under SRF could be classified as Term Deposit was examined by the department in the year 2003 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere, I find the recovery proceedings has not been initiated in accordance with the procedure laid down in the Act and Rule framed therein. It appears by the impugned notice and order a threat has been given to recover the amount. I am of the view any action taken by the department without due and proper recovery proceedings tantamount to high handed action, if not, arbitrary. If any action not recognized by the law, nor following the law is taken by any authority with power, such action can only be termed as high handed and arbitrary. This writ petition is entertained on the allegation of high handed arbitrary action being taken. I do not approve of the action taken by the respondents. Accordingly, the respondents will be free to take action as per the procedure established for recovery. I think in ordinary circumstance the respondents should wait till limitation period is over because within the period of limitation. The assessee ahs every right to prefer appear within the statutory period. The period of limitation in case will be over on 6th April 2013. This recovery proceeding may be initiated after the expiry of 6th April, 2013. The petitioner shall keep apart the amount of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an 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 cheque 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 ..... [(vii) to such income credited or paid in respect of deposits (other than time deposits made on or after the 1st day of July, 1995) with a banking company to which the Banking Regulation Act, 1949 (10 of 1949) applies (including any bank or banking institution referred to in section 51 of that Act); 10.2. Ld. Sr. counsel submitted that provisions of clause (vii) to section 194A(1), reproduced above, makes it clear that the provisions of TDS are applicable only with respect to interest credited/ paid on time deposit made after 1-7-1995 and not on other deposits. 10.3. Ld. Sr. counsel, therefore, submitted that the question which crops up for our consideration is whether SRF deposit is time deposit or not. 10.4. In this regard, ld. Sr. counsel referred to Explanation 1 below sub- section (3) to section 194A, which de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ird proviso to section 33 ABA(1), the amount credited in the special a/c or the Site Restoration Account by way of interest is to be treated as deposit. Thus, the Ld. Sr. counsel contended that the interest looses its character ab initio and deemed to be deposit. He submitted that the identity of interest gets lost with its accrual as per third proviso to section 33ABA(1) 11.1. Ld. Sr. counsel submitted that section 33ABA is a self contained code and, therefore, chargeability of interest accrued for purposes of TDS u/s 194A has to be considered as per the provisions of section 33ABA. He submitted that unless interest income was chargeable to tax, no TDS provisions could be triggered. He submitted that section 194A cannot operate independently being machinery provision and it is to be read with section 33ABA. In this regard ld. Counsel relied on the decision of Hon'ble Supreme Court in the case of GE India Technology Centre P. Ltd. Vs. CIT (2010) 327 ITR 456 (SC), wherein the Hon'ble Supreme Court has held that the expression chargeable under the provisions of the Act in section 195(1) shows that the remittance has got to be a trading receipt, the whole or part of which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his is revenue neutral. 13. Ld. Sr. counsel in this regard submitted that assessee has submitted certificates from CAs to prove that ONGC has, in any event, accounted for interest treating it to be income, therefore, as per the decision of Hon'ble Supreme Court in the case of Hindustan Coca Cola Beverage Pvt. Ltd. and that of Hon'ble Gujarat High Court in the case of CIT Vs. Rishikesh Apartments Co-operative Housing Society Ltd. 253 ITR 310 (Guj.), the assessee cannot be treated as an assessee in default. Ld. Counsel pointed out that this plea of assessee has been accepted by ld. CIT(A) and department is in appeal on this issue. 14. Ld. CIT(DR) referred to page 116 of the paper book, which is letter dated 19-12-2003 from AO to AGM, SBI, wherein the assessing officer had, inter alia, required the SBI to furnish the details regarding interest and TDS. He further referred to page 117 which is the reply filed by assessee and pointed out that assessee kept silent over the plea of time deposit . 14.1. Ld. CIT(DR) submitted that Explanation 1 to sub-section (3) of section 194A aims to address the deposits which are not payable on demand.. He submitted that time deposit i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e exemption already given to the ONGC has been withdrawn by the I.T. department and the Bank has no alternative but to deduct the tax and, accordingly, tax was also deducted on 31-3-2003 for both the financial years viz. 2001-02 and 2002-03 amounting to ₹ 9,.15,02,410/- He, therefore, submitted that assessee had accepted that the TDS was to be made and, therefore, reliance of ld. Sr. counsel on the certificate for A.Y. 2002-03 is misplaced. 15.1. As regards the plea of assessee with regard to non-applicability of section 194A on account of there being no income by way of interest, ld. CIT(DR) submitted that section 33ABA is not relevant for SBI. He submitted that Section 190 starts with non obstante clause and, therefore, intention of legislature is to require the deductor to deduct the tax at source notwithstanding the regular assessment to be made at a later date. He referred to section 194A and pointed out that the phrase used is shall which means that it is mandatory in nature. Ld. CIT(DR) submitted that provisions of section 194A are to be interpreted independent of section 33ABA. Unless certificate of exemption from TDS was produced by ONGC, the deductor had no opt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upon the other provisions of the Income Tax Act and the Rules of the SRF Scheme. He submitted that what is going to be the quantum of the deduction is dependent upon other provisions of the Income-tax Act because there under only eligible profits and gains of business as addressed in clause (ii) of section 33ABA(1) can be computed. 15.8. Ld. CIT(DR) further submitted that assessee has sought to place reliance on auditors' certificate issued under Rule 3AD read with section 33ABA of the Act to make out a case that interest accrued on SRF was not amenable to tax. In this context he submitted that under the scheme of the act, the competent authority to allow non-deduction of TDS on a sum is the Income Tax Authority as contemplated u/s 197 of the Act and none else. 15.9. Ld. CIT(DR) submitted that interpretation of the bank that interest accrued has to be necessarily treated as 'deposit', make the words whichever is less , otiose/ redundant. He pointed out that clauses (i) (ii) have to be read together in a way to arrive at the quantum of the deduction available which is 'lesser of deposit or the 20% profits of the business'. 15.10. As regards the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o first examine the relevant provisions in this regard to find out whether SRF a/c is time deposit or not. 17.4. Section 33ABA deals with Site Restoration Fund in respect of those assessees, who are carrying on business of prospecting for, or extraction or production of, petroleum or natural gas or both in India. Relevant portion reads as under: [Site Restoration Fund. 33ABA. (1) Where an assessee is carrying on business consisting of the prospecting for, or extraction or production of, petroleum or natural gas or both in India and in relation to which the Central Government has entered into an agreement with such assessee for such business, has before the end of the previous year-- (a) deposited with the State Bank of India any amount or amounts in an account (hereafter in this section referred to as the special account) maintained by the assessee with that Bank in accordance with, and for the purposes specified in, a scheme (hereafter in this section referred to as the scheme) approved in this behalf by the Government of India in the Ministry of Petroleum and Natural Gas; or (b) deposited any amount in an account (hereafter in this section referred to as the Site R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mean deposits which are repayable on the expiry of fixed periods. 17.6. Ld. Sr. counsel has referred to the various forms, forming part of the Schemes, which have been noted in his argument from which it is evident that there is no fixed period prescribed in regard to these deposits and assessee has to give notice to the bank for making withdrawal from this deposit account. The withdrawal is to be made as per requirement of sub- section (3) to section 33ABA. Therefore, it cannot be said to be for a fixed period. The fixed period implies that 'period' is determinable at the time of entering into contract. The term 'period' is qualified with the term 'fixed' and, therefore, when period of deposit is left to the eventuality of arising of purpose for withdrawal as contemplated u/s 33ABA(3) then, we fail to appreciate as to how it can come within the ambit of fixed period. The definition/ meaning of 'time deposit' is given in section 194A and, therefore, it cannot be assigned a general meaning as submitted by ld. CIT(DR). There is no room for any interpretation/ construction in tax laws, when there is no ambiguity in the language of section. When the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de in one lump sum or in instalments (not exceeding four instalments in each financial year) (3) Such deposit has to be made in Indian Rupee, and out of profits derived from the business referred in sub paragraph (3) of paragraph 1 above. (4) Shall account shall be maintained in Indian Rupees . 17.10. This clearly shows that SRF Deposit may be made in one lump sum or instalments not exceeding four instalments in each financial year. This plea is further fortified by clause 6 of the scheme which contemplates for computing interest and reads as under: 6. Interest: (1) Subject to sub-paragraph (2) the deposit shall carry interest at the highest rate for the applicable period as paid by the State Bank of India on the date the deposit is made for Rupee term deposits prevailing at the end of the financial year. (2) Where during any financial year any part of the deposit is withdrawn, the interest payable on the deposits shall be calculated on the basis of the minimum monthly balance in the account during each of the months in the financial year. (3) The interest payable for any financial year, or part thereof, shall only be credited to the account and shall not be p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovision as per third proviso to section 33ABA(1) of treating it as deposit is essentially application of income. This is also clear from the fact that ONGC is accounting for the interest in its P L A/c and then claiming deduction of deposit which includes the interest accrued on SRF a/c. The deeming fiction contemplated in third proviso is for the purposes of section 33ABA only and cannot be extended beyond the purpose for which it has been inserted in section 33ABA. 17.15. The plea advanced by ld. Sr. counsel is based on the premise that the deposits in the SRF a/c including the interest accrued on the SRF a/c is less than 20% of the profits and gains of the business and, therefore, the entire deposit is allowable as a deduction. However, this cannot be the basis for deciding whether TDS was required to be made u/s 194A or not. It is the nature of receipt being interest, which triggers the applicability of provisions of section 194A and if the assessee was claiming for no TDS then it should have obtained certificate u/s 197 for non-deduction/ at lower rate. The interest income does not loose its character merely because of the deeming provisions u/s 33ABA treating the accrued ..... X X X X Extracts X X X X X X X X Extracts X X X X
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