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The Chief Accounts Officer, Mysore City Corporation Mysore Versus Income-Tax Officer (TDS) , Mysore

Non deduction of TDS - interst paid to Government - overriding title on an income - assessee in default u/s 201 and also levy of interest u/s 201(1A) - whether the assessee falls within the ambit of exclusion clauses provided in sub section 3 of section 194A(3)(iii)(f)? - Held 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 a .....

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rders are quashed - Decided in favour of assesse. - ITA 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 .....

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ages 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 public. 3. In order to verify the compliance to TDS provisions of the Act, a TDS survey u/s 133A of the Act was conducted at the office premises of the Mysore City Municipal Corporation, Mysore on 19/11/2010. Various information was called for by the Assessing Officer (AO) and .....

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the same, the assessee is to be treated as an assessee in default u/s 201 and is also liable for interest u/s 201(1A) of the Act. He, accordingly, brought it to tax. 4. Aggrieved, the assessee preferred appeals before the CIT(A) who confirmed the order of the AO and the assessee is in second appeal before us. 5. Learned counsel for the assessee, while reiterating the submissions made by the assessee before the authorities below submitted that the issue as to whether the KUIDFC is a Government b .....

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d order is filed before us. The learned Departmental Representative, however, supported the orders of the authorities below. 6. Having regard to the rival contentions and the material on record, we find that in the case of Mysore Urban Development Authority (cited supra) similar circumstances existed where the Mysore Urban Development Authority had paid interest to KUIDFC without deduction of tax at source. This issue had been discussed by the Tribunal at length in the appeals of the Mysore Urba .....

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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……&hellip .....

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g, notify in this behalf in the Official Gazette. Section 196 Interest or dividend or other sums payable to Government, Reserve Bank or certain corporations. 196. Notwithstanding anything contained in the foregoing provisions of this Chapter, no deduction of tax shall be made by any person from any sums payable to- (i) the Government, or (ii) the Reserve Bank of India, or (iii) a corporation established by or under a Central Act which is, under any law for the time being in force, exempt from in .....

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rities], 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. The assessee is not an individual, therefore, it falls within the category of any person. It has made payment of interest which will come in the ambit of income. It has paid to a resident, thus it fulfills all the conditions of section 194A. We have p .....

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he assessee. 8. The next question which is posed before is, whether the assessee falls within the ambit of exclusion clauses provided in sub section 3 of section 194A(3)(iii)(f). Perusal of clause (f) extracted (supra) indicate that such institution, associations or body ought to be notified by the Govt. of India in the 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 deduct .....

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aph 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 200000 3 Addl. Chief Secretary to Govt. Bangalore 1 4 Addl. Chief Secretary & Principal Secretary, Finance Department, Bangalo .....

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lity to fall under the category of Govt. of Reserve Bank or corporation owned by Reserve Bank: S. No Name of share holders No. of shares 2 Director of town planning & Member Secretary, Bangalore 200000 5 Metropolitan Commissioner, BMRDA Bangalore 1 9 Commissioner, BDA, Bangalore 1 10 Chairman, BWSSB Bangalore 1 11 Chairman, BDA Bangalore 1 13 Dy. Director, Town Planning BMRDA Bangalore 1 14 Commissioner, Bangalore Mahanagara Paalike, Bangalore 1 9. According to the Assessing Officer S.Nos. 2 .....

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rector (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 .....

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FC) as a company under the Companies Act, 1956 to function as the Nodal Agency (NA) of the State Govt. for implementation of (i) centrally sponsored Mega City Scheme dealing with infrastructural problems of by metroes/mega cities including Bangalore (ii) externally/Govt. assisted schemes for urban areas development and improvement of infrastructural facilities in urban areas and (iii) act as a Funds Manager for the Govt. and intermediary between the Govt. and Urban Local Bodies (Implementing Age .....

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al districts of Dakshina Kannada, Udipi & Uttara Kannada vide G.O read at (3). 3. Salient features of the guidelines formulated by the Govt. under these projects are (i) creation of a Nodal Agency (NA) to act as Funds Manager on behalf of the Govt. and facilitate flow of assistance under the projects to the implementing Agencies (IAs); (ii) NA will release assistance to IAs under loan & grant components, as per the funding pattern prescribed under the relevant projects (iii) loan recover .....

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Govt. for such projects from year to year. Creation and maintenance of UIDF is similar to the Mega City Revolving Fund (MCRF) maintained by KUIDFC under the centrally sponsored Mega City Scheme. 4. KUIDFC is………….x x x x x …….eligible projects. 5. As per the project 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 .....

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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 guid .....

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venues generated on redeployment of funds as per (a), (b) and (c). Further distinct identify of constituents of the UIDF as mentioned above shall be maintained in the books of KUIDFC. 2. Govt. hereby authorizes Empowered Committee constituted under the KUID Project to evolve and approve regulations for the UIDF under the KUID and KUDCEM Projects. 3. Govt. accords approval for sanction of Management Fees (MF) to KUIDFC commending from 2002-03 for the services rendered by it on behalf of the Govt. .....

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nodal agency on behalf of the govt. It has only managed the funds of the govt. and received management fees. It has no complete control over the funds provided by the govt. The govt. has specifically observed that any interest income earned on deployment of these funds would be pooled in an urban infrastructure development fund by the nodal agency and to be utilized for funding similar urban development project and maintenance of earlier projects in consultation with the govt. It has also been p .....

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ove 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 E .....

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t Corporation Ltd. vs. CIT (1974) 93 ITR 582 (Ker). The Tribunal found a diversion of opinion amongst various Hon'ble High Courts, therefore, made a direct reference to the Hon'ble Supreme Court under s. 257 of the IT Act, 1961. Hon'ble Supreme Court while taking note of c/s. (III), (IV) and (V) of Sixth Schedule to the Electricity Act observed that assessee was required to maintain a contingency reserve, the contingency reserve shall not be drawn upon during the currency of license .....

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reserve, after the deduction of the amounts drawn under sub-para (1) shall be handed over to the purchaser and maintained as such contingencies reserve : Provided that where the undertaking is purchased by the Board or State Government, the amount of the reserve computed as above shall, after further deduction of the amount of compensation, if any, payable to the employees of the outgoing licensee under any law for the time being in force, be handed over to the Board or the State Government, as .....

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icity company which has to invest the sums appropriated to the contingency reserve. The investment would be in its name and it would be the owner thereon. The restrictions that the investment can be made only in securities mentioned in the Indian Trust and makes no difference to this position. The Hon'ble Supreme Court further observed that on purchase of the undertaking, the contingency reserve has to be handed over to the purchaser and maintained as such is only to make explicit in the res .....

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ts 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 ben .....

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at source; he also found that s. 60 of the Act was attracted as only income without a transfer of assets was settled. The Revenue took the matter in appeal before the learned first appellate authority who allowed the appeal of the assessee and the Tribunal reversed the order of the AAC. Hon'ble High Court relying on the judgments of Hon'ble Supreme Court in the cases of CIT vs. Bagyalakshmi & Co. (1965) 55 ITR 660 (SC) and Murlidhar Himatsingka & Anr. vs. CIT (1966) 62 ITR 323 ( .....

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ership with his share in the main partnership. The observations of the Hon'ble Supreme Court on pp. 17 and 18 are worth to note in this connection : "It is apt to notice that there is a clear distinction between a case where a partner of a firm assigns his share in favour of a third person and a case where a partner constitutes a sub-partnership with his share in the main partnership. Whereas in the former case, in view of s. 29(1) of the Indian Partnership Act, the assignee gets no rig .....

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