2013 (7) TMI 967 - AT - Income Tax

Summary

Issues involved: Appeal against order deleting demand u/s 201(1) / 201(1 A) of the Income Tax Act, 1961 for not deducting tax at source u/s 194A(3) on interest paid to Societies.

Summary:
1. The Revenue appealed against the order of the Ld. CIT(A) deleting the demand of Rs. 15,43,911/- for the financial year 2008-09 created u/s 201(1) / 201(1 A) of the Income Tax Act, 1961. The issue revolved around the treatment of the assessee as in default for not deducting tax at source u/s 194A(3) on interest paid/ credited to Societies Biotech Biobusiness and HP SITEG.

2. The Ld. CIT(A) was criticized for deleting the demand despite acknowledging that the Appellant Bank was liable to deduct TDS u/s 194A from the interest paid to the Societies. The Revenue argued that the deductor was not required to examine whether the interest income accrued on surplus funds was part of the project fund or not. The Ld. CIT(A) held that the interest income belonged to the Ministries and tax deduction was not necessary, contrary to the decision in Adityapur Industrial Area Development Authority Vs. Union of India.

3. The Ld. CIT(A) was accused of ignoring the fact that the PR assessee had belatedly deducted TDS on interest payment before the order u/s 201(1) / 201(1 A) was passed, admitting liability for TDS deduction. The Revenue contended that interest u/s 201(1 A) should have been charged mandatorily.

4. The Tribunal upheld the Ld. CIT(A)'s decision based on earlier orders where it was established that Societies wholly financed by the Government were exempt from tax deduction u/s 194A. The Tribunal confirmed that the Societies in question did not qualify for tax deduction, leading to the dismissal of the Revenue's appeals.

Judgment: The Appellate Tribunal ITAT Chandigarh dismissed the Revenue's appeals, upholding the Ld. CIT(A)'s order deleting the demand u/s 201(1) / 201(1 A) of the Income Tax Act, 1961 for not deducting tax at source u/s 194A(3) on interest paid to Societies. The Tribunal relied on previous decisions confirming that Societies wholly financed by the Government were exempt from tax deduction, thereby deciding the issues against the Revenue.