TMI Blog2012 (4) TMI 210X X X X Extracts X X X X X X X X Extracts X X X X ..... guments of the AO irrelevant, unwarranted and insignificant - provision of TDS sections are not applicable on project funds released by the central government and ownership of interest income belongs to Ministry of Road Development/ Central Government and therefore TDS is not required to be deducted u/s 196 - u/s 194A(3)(iii)(f) any income credited or paid to an institution, association or body which the Central Government notify in the Official Gazette is not liable of deduction of tax at source - rejected the grounds of appeal of the department. - IT APPEAL NOS. 966 TO 973 (JP.) OF 2011 - - - Dated:- 10-2-2012 - R.K. GUPTA, SANJAY ARORA, JJ. Subhash Chandra for the Appellant. P.C. Parwal for the Respondent. ORDER 1. These are eight appeals and eight cross objections by department and assessee relating to assessment years 2004-405 to 2011-12 respectively. 2. Identical ground in all the appeals of the department are as under :- "On the facts and in the circumstances of the case the ld. CIT (Appeals) has erred in deleting the demand raised under section 201(1)/201(1A) of the I.T. Act by the A.O. on account non-deduction of tax source by the assessee on pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ged the legal ground rejected by ld. CIT (A). Strong reliance was placed on the order of AO by ld. CIT D/R. Portion of order of AO was read also. It was stated that though income of the society may be exempt but interest has accrued and, therefore, the bank was liable to deduct TDS on accrual of interest. 6. On the other hand, the ld. Counsel of the assessee placed reliance on the order of ld. CIT (A). Copy of written submission was also filed. Written submissions so filed were explained also. It was stated that the interest accrued on the funds was not liable to be taxed in the hands of the society as the interest was accrued on account of Ministry of Rural Development. Whatever the amount was accrued as interest, that was credited to the account of Ministry of Rural Development Account. Attention of the Bench was drawn on page 29 of Paper Book where Guidelines to this effect is placed. It was further submitted that a Notification under section 194A( 3)(iii)(f) was also issued by the Central Government by which various Agencies/Societies were exempted from deducting tax. Even under section 196, the assessee is not liable to deduct tax. The ld. CIT (A) has discussed all these a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and interest accrued/ paid on such irretrievable grants is subject to TDS u/s 194A of the I.T. Act, 1961. ( v ) The Hon'ble Supreme Court decision in case of Hindustan Coca Cola Beverage (P.) Ltd. v. CIT [2007] 293 ITR 226/163 Taxman 355, nowhere states that liability cannot be created u/s 201(1) and 201(1A) but it only speaks about non-enforcement of the demand in a case where the tax has been paid by the deductee assessee. ( vi ) Accordingly, ITO (TDS) issued order dt. 18.03.2011 u/s 201(1)/201(1A) for F.Y. 03-04 to F.Y. 10-11 treating the assessee bank in default for not deducting TDS u/s 194A as per the table below: Financial Year Demand u/s 201(1) Demand u/s 201(1A) Total Demand 2003-04 65,60,050/- 51,70,975/- 1,17,31,025/- 2004-05 21,51,805/- 16,06,319/- 37,58,124/- 2005-06 2,54,05,920/- 1,58,21,935/- 4,12,27,855/- 2006-07 3,00,46,434/- 1,58,28,554/- 4,58,74,988/- 2007-08 2,50,66,332/- 1,00,64,948/- 3,51,31,280/- 2008-09 3,99,81,052/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the bank was required to deduct the TDS on interest income under consideration. However, in my opinion the above provision was a residuary in nature, to take care of an exigency or eventuality, when the TDS is deducted by bank and how to claim the refund of the same also. Thus undue importance should not be given to such sub-ordinate clause. Moreover that clause also considered the interest income is tax free only as the procedure of claiming refund of such is also mentioned therein. Otherwise also the legal position in this regard is contrary to such contradictory assumption as the earlier Chapter-10 clearly specify the nature and status of the interest income as belonging to the Ministry of Rural Development as such. Once the legal and factual position towards the belongingness of such income is clearly established, then any subsequent contradictory mechanism / provision made in the same internal manual has no binding or overriding effect on such statutory position. Accordingly, I find force in the arguments of the Ld. AR that such accounting heads are provided to cover a situation where the bank has, for some reason, deducted the tax at source and providing for such account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are basically related to RRRDA only. Since, now it has been held that the interest receipt do belong to the Ministry of Rural Development only, therefore, all such arguments of the AO have been found irrelevant, unwarranted and insignificant as such. 10. The detailed submissions were filed on behalf of the assessee which will be useful to consider the issue are discussed here as under: "At the outset it may be noted that the ld. CIT(A) has held the non-applicability of sec.194A on the ground that, (i) provision of TDS sections are not applicable on project funds released by the central government; (ii) ownership of interest income belongs to Ministry of Road Development/ Central Government and therefore TDS is not required to be deducted u/s 196; (iii) Chapter 10 of the accounts manual which provides that interest on the fund belongs to Ministry of Road Development cannot override Chapter 15 of the accounts manual which provides for claiming refund when tax is deducted at source by Bank; (iv) As per Notification no. SO 3489 dated 22.10.1970, RRRDA being a society registered under Societies Registration Act, 1860 financed wholly by the Government is not liable for deduction o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terest will be added to the same account. The expenditure out of this interest amount will be guided the instructions /guidelines to be issued by the Ministry of Rural Development/NRRDA from time to time. The Bank shall intimate to the SRRDA, the interest amount credited by it to the Account from time to time. The MORD or the NRRDA may, from time to time, issue such directives to the Bank /SRRDA as necessary for smooth flow of funds and effective of the Programme and the Bank shall take note of the advice, and comply with such directives." Thus, as per this MOU, RRRDA will keep the funds for the PMGSY works interest earned thereon in one account with the bank. It will not withdraw or apply or utilize any funds from this account except in the manner permitted under the PMGSY [Clause 3(i) (ii) of MOU] The bank has also undertaken that notwithstanding any general agreement or any statutory provision it will keep the funds for the PMGSY Programme only in one account called the Programme Fund follow the guidelines of Government of India for payment from PMGSY Fund. It is also obliged to automatically invest the funds in excess of Rs. 25 lacs in the Programme fund in its fixed de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee bank in the Programme Fund is not an income of RRRDA. It is only a payment of interest on the Government Funds which is not liable for deduction at source u/s 196 of the Act. It may be noted that sec. 196 not only covers any sum payable to the Govt. by way of interest but also covers any amount paid by way of interest in which it has full beneficial interest. Therefore, assessee bank cannot be made liable for deduction of tax at source u/s 194A on interest credited to such Programme Fund maintained by MORD with it. The Addl. CIT (TDS) has referred to Chapter 4 of PMGSY Accounts Manual (PB 47-54) which outline the Accounting system of Programme Fund. As per Para 4.1.2 of this Chapter (PB 47) Programme Fund is constituted of the funds received from MORD or the State Government also covers interest earned on surplus fund in the bank, liquidated damages, recovery of cost from contractors, etc. This Programme Fund is a Balance Sheet item of SRRRDA. As per the chart of accounts of Programme Fund in Item No. 19.1 (PB 49), there is a reference of tax deducted at source by Bank on the investment. In the explanatorily notes (PB 53), it is clarified that tax deducted at sourc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lause. Since RRRDA is a society registered under the Rajasthan Societies Act, 1958 which is promulgate under the Societies Registration Act, and is wholly financed by Gov., any interest paid to it is not liable for deduction of tax at source under the aforesaid clause. Copy of notification is at PB 56-58. This fact is accepted by the ITO (TDS)/ Addl. CIT (TDS). The observation of the Addl. CIT (TDS) that even such notified institutions u/s 194A(3)(iii)(f) will also not be automatically exempted from TDS unless they furnish to the payer a declaration in the prescribed format i.e. Form No. 15G is incorrect in as much as when there is no liability to deduct TDS on interest credited/ paid to RRRDA being covered u/s 194A(3)(iii)(f), there is no requirement to furnish declaration as per section 197A(1A). The declaration under this section is required to be furnished only when there is a liability to deduct tax at source. Once there is no liability to deduct tax at source u/s 194A(3) which provides for the cases where the provision of sub section1 of section 194A shall not apply, question of furnishing of declaration do not arise. Hence, in view of section 194A(3)(iii)(f) also the Bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... than Rural Road Development Agency and the funds held in this account are allowed to be utilized only for the purpose of approved work under Pradhan Mantri Gram Sadak Yojna. Whatever the interest accrued that is also included in the funds transferred by Ministry of Rural Development and, therefore, there is no control over the amount by Rajasthan Rural Road Development Agency, neither the bank interest is income of Rajasthan Rural Road Development Agency as the same is accrued to the Ministry of Rural Development, Government of India. Therefore, for this reason also there is no question of deducting TDS under section 194A. It is further seen that under section 194A(3)(iii)(f) any income credited or paid to an Institution/Association or Body which the Central Government notified in the Official Gazette is not liable to deduct tax at source. Undisputedly Rajasthan Rural Road Development Agency is an Institution/Society which is created for specific purpose and attached with the Ministry of Rural Development to monitor the expenditure incurred by PWD on Pradhan Mantri Gram Sadak Yojna. Therefore, for this reason also the bank was not liable to deduct tax under section 194A. There was ..... X X X X Extracts X X X X X X X X Extracts X X X X
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