2011 (8) TMI 1162 - AT - Income Tax

Summary

Issues Involved:
The judgment involves the cancellation of orders passed u/s. 201 and 201(1A) of the Income-tax Act, 1961 regarding non-deduction of tax on chit dividend paid by the assessee, which was considered as interest u/s. 2(28A) and within the purview of section 194A of the Act.

Details of Judgment:

Issue 1: Cancellation of Orders u/s. 201 and 201(1A) of the Income-tax Act, 1961
The appeals by the Revenue were directed against the orders of CIT(A)-II, Hyderabad, concerning two assessees. The common issue in both appeals was the non-deduction of tax on chit dividend paid by the assessee, which was argued to represent interest as per section 2(28A) and fall under section 194A of the Act. The Tribunal considered similar cases and held that the disbursed amount by a chit fund company to members cannot be treated as interest, as there is no borrowing of money or debt incurred in chit funds. This view was supported by the case of Bilahari Investments (P) Ltd. v. CIT and confirmed by the Supreme Court in CIT vs. Bilahari Investment Pvt. Ltd. The Tribunal concluded that the payment of dividend to chit fund subscribers does not qualify as interest, thus the assessee was not liable to deduct TDS u/s. 194A or for interest u/s. 201(1) and 201(1A) of the Act.

Conclusion:
The Tribunal dismissed both appeals of the Revenue based on the findings that chit fund dividend does not constitute interest, absolving the assessee from TDS deduction and interest liabilities under the Income-tax Act, 1961.