TMI Blog2009 (7) TMI 75X X X X Extracts X X X X X X X X Extracts X X X X ..... r and, therefore, the amount of bid disbursed equally among members is to be treated as ‘interest’ payable on money borrowed. This approach is fallacious on the face of it - the amount disbursed to the members from their contribution cannot be treated as ‘interest’ – No TDS u/s 194A is not deducible - 44 of 2008 - - - Dated:- 24-7-2009 - A. K. SIKRI and VALMIKI J. MEHTA, JJ. Mr. Subhash Bansal, Advocate, for the Appellant. Mr. Prakash Kumar, Advocate, for the Respondent. JUDGMENT A. K. SIKRI, J. - This appeal has been preferred under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as "The Act") against the order of the ITAT, New Delhi passed in ITA No. 857/Delhi/2006 on 4th May 2006 for the financial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not fall within the meaning of interest as defined under Section 2(28A) of the Act? (b) Whether the ITAT was correct in law in holding that the assessee was not required to deduct the tax at source within the meaning of Section 194A of the Act and as such the assessee was not in default under Section 201 of the Act. 5. Since the assessee is a Chit Fund company, various subscribers become members of different chits which are floated by such a company. Normally, these chits are for a fixed period of 20, 25, 30 or 40 months. If the chit is for a period of 25 months, 24 members are made as subscribers and one chit remains with the organizer (i.e. the assessee herein) named as "Foreman". The subscribers contribute fixed amount, every mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is backdrop, the moot question which arises for consideration is as to whether payment of the aforesaid nature disbursed to the subscribers of the chit would amount to 'interest' as defined under Section 2(28A) of the Act. If it is not 'interest', question of deduction of tax at source under Section 194A of the Act would not arise and, thus, the assessee would not be treated to be in default under Section 201 of the Act. Therefore, answer to question No. (b) would automatically be answered while deciding question No.(a) formulated above. 7. Before we proceed to examine the question No. (a), the relevant provisions, i.e., the sections in question of the Act, may be stated for a better understanding of the issues at hand :- "Section 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... buted among all the subscribers/members equally. Obviously, this amount is not in respect of any moneys borrowed by the assessee or any debt incurred by the assessee. 9. It is at this juncture that it is important to note that as per The Madras Chit Funds Act, 1961, as extended to the Union Territory of Delhi (Madras Act 24 of 1961), the term "dividend", and not "interest", has been defined to mean - "the share of a subscriber in the discount available under the chit agreement for ratable distribution among the subscribers at each installment of the chit". 10. The question raised before us is with regard to the taxability of the discount allotted to the subscribers of the chit, which as per the counsel for the appellant is in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t', we may also refer to law dictionary and provisions contained in other enactments. According to BLACK'S Law Dictionary, Seventh Edition, the term interest means :- "Advantage or profit, esp. of a financial nature; a legal share in something; all or part of a legal or equitable claim to or right in property." Likewise, the Interest Tax Act, 1974 defines interest to mean - "interest on loans and advances made in India and includes - (a) commitment charges on unutilized portion of any credit sanctioned for being availed of in India; and (b) discount on promissory notes and bills of exchange drawn or made in India, but does not include - (i) interest referred to in sub-section (1B) of section 42 of the Reserve Bank of India Act, 193 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted out above. The chit fund operations are regulated statutorily by the Madras Chit Fund Act, as extended to Delhi, which have nothing to do with the banking business. 14. Thus, from whatever angle the matter is to be looked into, the amount disbursed to the members from their contribution cannot be treated as 'interest'. The Tribunal was, thus, right in holding that the assessee had not paid any interest to its subscribers of the chit. This issue is, thus, decided against the Revenue and in favour of the assessee, affirming the order of the Tribunal in this behalf. 15. The second issue is with respect to the applicability of section 194A of the Act to the assessee's case. As pointed out above, the payments made/disbursed to the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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