2014 (1) TMI 851 - AT - Income Tax

Deletion of demand made u/s 201(1)/201(1A) of the Act Exemption u/s 194A(3)(iii)(f) of the Act Eligibility for Exemption Separate application to be made - Revenue was of the view that the assessee is in default for not deducting tax at source u/s 194A(3) on interest paid / credited to societies Held that - There is no requirement for issuing individual instructions by the Central Govt. because clause (f) talks about particular types of institutions - The reason for this is that Govt. might have decided that wherever various funds are being provided to various societies or trusts for specified schemes, that since funds belong to the Govt. and can be used only for the purpose of a particular project, there was no reason to deduct the tax because such Societies are being funded by the Govt. on 100% basis - Societies which are being wholly funded by the Govt. would qualify for non-deduction of tax the Societies are not wholly financed by the Central Govt Decided against Revenue.

Summary

Issues:
Appeal against deletion of demand for non-deduction of tax at source under section 194A(3) on interest paid to societies.

Analysis:
1. The Revenue appealed against the deletion of demand for not deducting tax at source under section 194A(3) on interest paid to societies. The Revenue contended that the CIT(A) erred in law by deleting the demand of Rs. 23,96,132 for the financial year 2009-10. The Revenue argued that no exemption is deemed to be granted unless each organization applies separately and the exemption is notified in the official Gazette. The Revenue also raised concerns about the belated deduction of tax at source by the assessee.

2. The facts revealed that the Assessing Officer found the assessee in default under section 201 for not deducting tax on interest paid to various societies and trusts. The CIT(A) was presented with explanations regarding the reasons for non-deduction of tax. It was argued that the nodal agencies receiving funds from the government were not liable for tax deduction under section 194A(3)(iii)(f). The CIT(A) noted that the societies were registered and financed by the government, and the interest accrued on project funds belonged to the government ministries.

3. During the appeal, the Revenue argued that the bank was required to deduct tax under section 194A from the interest paid to any person unless a specific exemption was granted. However, the assessee's counsel relied on a government notification stating that societies wholly financed by the government were exempt from tax deduction under section 194A(3). The Tribunal examined the relevant provisions of section 194A and upheld the CIT(A)'s decision, emphasizing that societies wholly funded by the government were not required to deduct tax.

4. Ultimately, the Tribunal dismissed the Revenue's appeals, confirming the CIT(A)'s order. The decision was based on the understanding that societies wholly financed by the government were exempt from tax deduction under section 194A(3). The Tribunal found no fault in the CIT(A)'s order and upheld the dismissal of the appeals.

This comprehensive analysis covers the issues raised in the legal judgment, detailing the arguments presented by both parties and the Tribunal's decision based on the relevant legal provisions.