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TMI Blog2014 (7) TMI 905X X X X Extracts X X X X X X X X Extracts X X X X ..... he Branch Manager, SBI (hereinafter referred to as "deductor" in the instant case), it was observed by the assessing officer that the assessee/ deductor had made the following payments to ONGC Ltd., Dehradun (here-in-after referred to as the "deductee" in the instant case) on account of interest accrued in years mentioned against each financial years. Financial year Interest paid/ accrued 2009-10 Rs. 424,59,73,344/- 2010-11 Rs. 66,44,41,84,836/- 2011-12 Rs. 765,01,81,407/- 2.1. The assessing officer observed that the assessee/ deductor had not deducted TDS on the above payments u/s 194A of the I.T. Act. Accordingly, show cause notice u/s 201/201(1)(a) was issued to the assessee. The assessee vide reply dated 25-2-2013 advanced following submissions: 2.2. The assessee pointed out that it was maintaining an account under the name and style of 'Site Restoration Account' ("SRA" in short) for ONGC as per the provisions of clause (b) of sub-section (1) of section 33ABA of the I.T. Act. It was pointed out that as per the third proviso to sub-section (1) of section 33ABA, the amount of interest paid accrued was to be treated as deposit and, therefore, the provisions of se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax at Source does not arise; g. The amount so credited is taxable under the head 'Profit and Gains of business and profession' and not under the head 'income from other sources' The provisions of section 194A requires tax to be deducted only from interest income, and since the amount is liable to be taxed as profit from business and profession, responsibility to deduct tax at source under section 194A does not arise; h. The amount standing to the credit of site restoration Account, becomes income only in the year in which it is withdrawn. Since no amounts have been withdrawn in these financial years, therefore there is no income liable for taxation. i. The provisions of section 194A are applicable only to amount of interest paid by a banking company on Time Deposit Account. Since Deposit in Site Restoration Account is not in the nature of Time Deposit the provisions of section 194A are not applicable." 2.4. The assessing officer, however, did not accept the assessee's contentions for the following reasons: (a) Interest become deposit only on the reinvestment of the same to the amount standing to the credit of the deductee. For the purposes of the assessee/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13 [the impugned order} passed by the Ld. Deputy Commissioner of Income-tax (TDS) Dehradun [the 'Ld. AO'] under section 201(1)/20I(lA) of the Act, is without jurisdiction and is against law as well as facts and circumstances of the case, since section 194A is inapplicable for Site Restoration Fund (SRF) under section-33ABA. 2. That the Ld. CIT (A)-I, Dehradun has erred both on facts and in law in holding that the assessee-bank was under an obligation to deduct tax under section 194A on interest accrued on deposit under the Site Restoration Fund maintained by ONGC, inter alia because 2.1 The provision of section 194A had no applicability to the facts to the present case since the deposit maintained in accordance with the provisions of section 33ABA can not by any 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 011-12; and Rs. 90,27,21,405/-." 7. First we take up the assessee's appeals. 8. At the out set, Ld. Sr. counsel, Shri Bishwajit Bhattacharya, clarified that writ petition was filed before the Hon'ble High Court of Uttrakhand against the order passed u/s 201/201(1A) as the assessing officer had required the assessee to pay the demand within a week. The Hon'ble High Court observed as under: "The remedy is by way of appeal and with necessary application for interim relief and interim relief can be granted by the appellate authority. It seems to me that the respondents department ahs initiated recovery proceedings asking the petitioner to pay the amount after assessment is over. I think this is not the way to recover the amount. Here, 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 take ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat as per sec. 33ABA, only SBI is authorized to accept these deposits in Site Restoration Fund A/c. He pointed out that the account was opened with SBI by ONGC on 21-3-2002 and, thereafter, every year on 31st March, the interest is credited in the said SRA a/c. However, no maturity period is there and, therefore, it is not 'time deposit' as contemplated in Explanation 1 to section 194A(3)(vii). 10.1. In support of his above contention, ld. Sr. counsel referred to sec. 194A(1), which is reproduced below: [Interest other than "Interest on securities". 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 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be authorized by the Authorized officer of the Ministry of Petroleum and Natural Gas or the agency authorized by the Ministry in this behalf. He, therefore, submitted that the withdrawal could not be made without due authorization. He pointed out that till date no withdrawal has been made by ONGC. He, therefore, submitted that there is no question of any fixed period being there and, therefore, it does not come within the ambit of time deposit as contemplated in Explanation 1 to section 194A. 11. The third plea of ld. Sr. counsel was that section 194A is applicable to income by way of interest and unless there is taxable income, sec. 194A cannot be attracted. He pointed out that as per third 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 accru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tral because the assessee has included the interest in its P&L A/c and has claimed hundred per cent deduction of same amount as per the provisions of section 33ABA. Therefore, in any view of the matter, no tax was chargeable from the interest. 12.1. Ld. Sr. counsel pointed out that the total amount along with interest earned on SRF a/c in each of the assessment years for the past 12 years have been well below 20% of profits of business of ONGC (The figure of well below 20% has been factually accepted by ONGC in the counter affidavit filed in Hon'ble Uttrakhand High Court). Thus, in any event, interest earned on SRF a/c is hundred per cent deductible u/s 33ABA which means that this 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct of present day commercial life that a deposit which is not payable on demand partakes the character of 'Time/Term Deposit' only. 15. As regards the first plea of assessee that exemption had been granted in A. Y. 2002-03, ld. CIT(DR) submitted that statement of Branch Manager should not be considered. Ld. CIT(DR) further referred to letter addressed to ITO, (TDS) by the authorized representative of the Bank which was filed before us on 13th May 2014 and pointed out that in the said letter in para 4 it was pointed by the authorized representative that in the absence of any communication from the ONGC on the point of TDS, it has been presumed by the Bank that the 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 Rs. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ONGC. The main actor ONGC has undisputedly first treated the interest in their return as taxable and only thereafter they have been continuously claiming deduction as provided u/s 33ABA. 15.6. He pointed out that as per the third proviso to section 33ABA(1) deemed deposit of interest is only for the purposes of that section but it is not relevant for taxability of interest. Deeming fiction is only for treating the accrued interest as 'deposit' and it cannot be extended beyond that. 15.7. Ld. CIT(DR) further submitted that the contention of assessee that section 33ABA is a self contained code, is not correct because this section is dependent 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest to deduct TDS at the time of credit of such interest to the account of the payee. However, by virtue of sub-section (3), provisions of sub-section (1) are not applicable, inter alia, as per clause (vii) in the case of interest credited or paid in respect of deposits (other than time deposits made on or before 1st day of July 1995). Therefore, if a deposit is not in the nature of time deposit, then it is not amenable to the provisions of section 194A. 17.3. In the present case interest has been credited by SBI on SRF a/c which has been opened by ONGC with it as per the provisions of section 33ABA. Therefore, it is necessary to 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as provided in the agreement referred to in section 42, shall be deemed to be the profits and gains of business or profession of that previous year and shall accordingly be chargeable to income-tax as the income of that previous year. Explanation.--Where any amount is withdrawn on closure of the account in a previous year in which the business carried on by the assessee is no longer in existence, the provisions of this sub-section shall apply as if the business is in existence in that previous year. 17.5. Explanation 1 to clause (vii) of sub-section (3) to section 194A clearly contemplates time deposit to 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tural Gas in this behalf. (2) On receipt of the request for withdrawal, the deposit office shall, a soon as may be, pay the amount to the depositor through a credit o the designated account. 17.9. SRF deposit continue to run as long as the agreement of ONGC with the Government runs and withdrawals can be made depending upon requirements. Clause 3 of the SRF Scheme reads as under: "3. Deposit: how to be made - (1) A deposit in terms of Section 33ABA of the Income-tax Act , 1961 may be made by any depositor in accordance with the provisions of this Scheme. (2) The deposit may be made 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) t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... overy provisions are primarily machinery provisions and, therefore, they have to be considered in the context of substantive section. Therefore, plea of ld. CIT(DR) that provisions of section 33ABA should not be considered at all is devoid of any merit. Whole scheme u/s 33ABA read with section 194A is an integrated scheme of taxation and both have to be considered together. 17.14. It is well settled principle of Income-tax law that the nature of receipt is to be decided at the first instance. The interest accruing to SRF a/c is income of ONGC and the deeming provision 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not find any substance in this plea of assessee. 17.17. This issue can be examined from one more point of view. 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. From this it follows, as submitted by ld. CIT(DR), that interest income earned from SRF a/c is assessable as income from other sources and not as business income. Consequently, 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. Therefore, it cannot be held that interest accrued on SRF a/c was not chargeable to tax in the year of accrual. 17.18. As we have allowed the assessee's appeals holding that the provisions of section 194A are not applicable, accepting the first plea of assessee, therefore, the appeals filed by the department, contesting the directions of ld. CIT(A) in restoring the matter to assessing officer for certain verification, have become infructuous. 19. In the result, assessee's appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X
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