TMI Blog2015 (6) TMI 201X X X X Extracts X X X X X X X X Extracts X X X X ..... A Nos. 188 to 190/Bang/2013 - - - Dated:- 31-3-2015 - P Madhavi Devi, JM And Abraham P George, AM,JJ. For the Appellant : Shri Narendra Sharma, Adv. For the Respondent : Dr K Shankar Prasad, JCIT(DR) ORDER Per Smt. P Madhavi Devi, JM. These are assessee's appeals against the common order dated 9/11/2012 of the CIT(A), Mysore, confirming the orders of the Assessing Officer (AO) holding the assessee to be an assessee in default u/s 201 and also levy of interest u/s 201(1A) of the Income-tax Act, 1961 [hereinafter referred to as 'the Act' for short] for the assessment years 2007-08 to 2009-10. 2. Brief facts of the case are that the assessee is a local authority which is legally entitled to and is entrusted by the Government of Karnataka with the control and management of the municipal or local fund. The day-today administration is governed by the Karnataka Municipality Act and the Commissioner supervises, controls and also manages the financial affairs of the council. The assessee received funds from various sources like Central Government, State Government and other nodal agencies under various programmes and projects meant for welfare of the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f its order has held as under: 7. We have duly considered the rival contentions and gone through the record carefully. Section 194A and section 196 of the Income Tax Act has a direct bearing on the controversy in hand. Therefore, we deem it appropriate to take note of the relevant clauses of these sections. They read as under: 'Section 194A [Interest other than Interest on securities . 194A. Any person, not being an individual or a Hindu 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: xxxxxxxxx .. (3) The provisions of sub-section (1) shall not apply- ..xxxxxxxxxxxxxxxx . (iii) to such income credited or paid to: (a)x.x.x.x.x.x.x.x.x. (b) x.x.x.x.x.x.x.x.x (c).x.x.x.x.x.x.x.x.x. (d).x.x.x.x.x.x.x.x.x (e).x.x.x.x.x.x.x.x.x. (f) such other institution, association or body (or class of institutions, associations or bodies, whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he official gazette. According to the Assessing Officer, the notification bearing No.S.O.3489 dated 22.10.1970 provide definition of company, to whom payment can be made with deducted taxes. It should be a company in which all the shares are held (whether singly or taken together) by the Govt. or the RBI or a corporation owned by that Bank. He observed in Paragraph No.5.5 that the benefit of section 194A(3)(iii)(f) would be admissible to an assessee who made payments to a company whose shares are held by the Govt. or held by the RBI or held by the corporation owned by RBI. Thereafter the Assessing Officer took into consideration the shareholding pattern of KUIDFC in Paragraph No.5.6 of the impugned order. The details read as under: 5.6 In the present case, the share holding pattern of the deductee i.e. KUIDFC which was made available during the course of present proceedings read as under: S. No Name of share holders No. of shares 1 Govt. of Karnataka, Bangalore 606476 2 Director of town planning Member Secretary, Bangalore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es which are being mentioned by the Assessing Officer in the 2nd table are also of the nature of the govt. Director of Town Planning and Member Secretary, Bangalore is a representative of the State Govt. He is a govt. employee. Similar is the position with regard to the Metropolitan Commissioner, Commissioner, Dy. Director (Planning Commission) etc. On what basis the Assessing Officer has segregrated them and took away from the govt. nominee are not discernible. 10. The next fold of contention raised by the learned Counsel for the assessee is based on the orders of the Govt. of Karnataka pointing out how the interest income paid to KUIDFC would be credited in the accounts of the govt. The relevant part of the order issued by the Govt. read as under: Proceedings of the Govt. of Karnataka Sub: Maintenance of Revolving Fund by pooling of resources by the Govt. under externally aided KUDCEM KUID Projects implemented by KUIDFC on behalf of the Govt. reg. Read: (1) G.O No.HUD 223 MNX Bangalore dated 16.8.1993 (2) G.O No.UDD 18 BMR 97 Bangalore dated 17.02.1997 (3) G.O No.UDD 2 PRJ 99(P) Bangalore dated 21.12.2000 (4) G.O No.HUD 33 BMR 95 Bangalore dated 30.11.199 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct guidelines, funds projected and/or arising/accruing on account of Govt. in the hands of KUIDFC towards (a) loan recoveries from the IAs; (b) interest, dividend, incentive and other revenues on deployment of unutilized Govt. funds under the scheme/projects; (c) interest on the loans given to the IAs;and (d) revenues generated on redeployment of funds at (a), (b) and (c) are to be pooled in the Urban Infrastructure Development Fund (UIDF) under the above two projects. Govt. has an absolute domain on all such funds and they do not constitute income of the KUIDFC. KUIDFC has been maintaining such UIDF and is pooling all the funds as detailed above in the UIDF which is in accordance with the project guidelines and it shall continue to do so. 6 .xxxxxxx .. 7. In the circumstances, it has been found necessary to issue suitable orders covering the various aspects discussed in the preceding paras. 8. Proposals have been examined. Govt. order No.UDD 67 PRJ 03(2) Bangalore dated 31.03.2003. In the circumstances explained in the preamble, Govt. directs that the KUIDFC shall in confirmity with the KUID and KUDCEM Project guidelines continue the present practice of not tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... KUIDFC. KUIDFC has been maintaining such UIDF and is pooling all the funds as detailed above in the UIDF which is in accordance with the project guidelines and it shall continue to do so . 12. The Hon'ble Supreme Court in the case of Associated Power Co. Ltd vs. CIT reported in 218 ITR 195 and CIT vs. Sunil J. Kinarewala has expounded the concept of overriding title on an income. In the case of Associated Power Co. Ltd, the facts are that assessee is a company engaged in the business of generation of electricity and distribution thereof to consumers. It is governed by the Electricity Supply Act, 1948. By virtue of provisions of Electricity Supply Act and the Schedules thereunder, the assessee company was required to maintain a reserve account where it credited a sum of ₹ 46,460 out of its revenues to such contingency reserve account. It claimed the deduction of this amount which was rejected by the AO. The learned AAC allowed the claim of assessee relying upon the decision of Hon'ble Kerala High Court rendered in the case of Cochin State Power Light Corporation Ltd. vs. CIT (1974) 93 ITR 582 (Ker). The Tribunal found a diversion of opinion amongst various Hon' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the purpose of undertaking that is being transferred. Thus there is nothing in the statue to suggest that the amounts standing to its credit cannot be taken into consideration in arriving at the purchase price. The Hon'ble Court had held that the amount credited to the contingency reserve is not diverted by raising of an overriding obligation or title and in determining the profits of the assessee, it must be taken into account. In the case of CIT vs. Sunil J. Kinarewala, the facts are, the assessee is a partner in the partnership firm known as Kinariwala R.J.K. Industries, Ahmedabad . He was having 10 per cent shares therein. On 27th Dec., 1973, he created a trust namely Sunil Jeevan Lal Kinariwala Trust . By a deed of settlement assigning 50 per cent out of his 10 per cent right title and interest (excluding capital as a partner in the firm and a sum of ₹ 5,000 out of his capital in the firm) in favour of the said trust. There are three beneficiaries of the trust, namely, assessee's brother's wife, assessee's niece and the assessee's mother. In asst. yr. 1974-75, he claimed that as 50 per cent of the income attributable to his share from the firm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssigner-partner. In this view of the matter, it is unnecessary to consider the alternative contention based on s. 60 of the Act. For the aforementioned reasons, we are of the view that the order under challenge cannot be sustained. It is, accordingly, set aside. Consequently, the share of the income of the assessee assigned in favour of the trust has to be included in the total income of the assessee. The questions are, accordingly, answered in favour of the Revenue and against the assessee. If we examine the order of the Govt. extracted (Supra), in the light of these two decisions of the Supreme Court, then it would indicate that the title over the interest income at the time of generation from the assessee rest with the Govt. and not KUIDFC. Thus, the interest in practical was paid to the Govt. and section 196 provide that notwithstanding anything contained in the foregoing provisions of this Chapter, no deduction of taxes shall be made by any person from any sum payable to the Govt. The assessee was not required to deduct the TDS on the payments made to the Govt. Considering all these aspects, we are of the view that the Assessing Officer has erred in treating the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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