2005 (7) TMI 718 - AT - Income Tax

Summary

Issues Involved:
1. Whether the assessee-trust was obliged to deduct tax at source under sections 201 and 201(1A) of the Income-tax Act.
2. Whether the interest credited to the account of retired employees was outside the scope of total income under section 10(12) of the Income-tax Act.
3. Whether the provisions of section 194A of the Income-tax Act were applicable to the interest credited by the appellant to the accounts of retired employees.
4. Whether the trust's failure to obtain written consent from retired employees to retain their amounts was a mere technical breach.
5. Whether the principle of mutuality applied to the income credited by the trust.
6. Whether the interest credited should be taxed under the head 'Salaries' and subject to section 192 rather than section 194A.

Detailed Analysis:

1. Obligation to Deduct Tax at Source:
The CIT(A) confirmed the order under sections 201 and 201(1A) of the Income-tax Act, holding the assessee-trust liable for not deducting tax at source on interest credited to the accounts of retired employees. The Tribunal upheld this view, stating that the assessee was in default for failing to deduct tax as required under section 194A.

2. Scope of Total Income under Section 10(12):
The assessee argued that the interest credited to retired employees' accounts was outside the scope of total income under section 10(12). However, the Tribunal found that the interest credited did not qualify for exemption under section 10(12) because it did not meet the conditions specified in rule 8 of Part A of the Fourth Schedule. The interest credited to accounts of employees after their retirement was not exempt from tax.

3. Applicability of Section 194A:
The Tribunal held that the provisions of section 194A were applicable to the interest credited by the appellant to the accounts of retired employees. Since the interest credited was not exempt under section 10(12), the assessee was obliged to deduct tax at source under section 194A.

4. Technical Breach of Rule 5:
The assessee contended that the failure to obtain written consent from retired employees to retain their amounts was a mere technical breach. The Tribunal rejected this argument, stating that non-compliance with rule 5 of Part A of the Fourth Schedule was not merely technical but significant for determining tax liability.

5. Principle of Mutuality:
The assessee argued that the principle of mutuality applied, and therefore, no income was chargeable to tax. The Tribunal dismissed this argument, stating that the principle of mutuality could not be extended to the taxing of amounts in the hands of individual recipients.

6. Taxation under 'Salaries' and Section 192:
The assessee contended that the interest credited should be taxed under the head 'Salaries' and subject to section 192 rather than section 194A. The Tribunal disagreed, noting that the interest credited to the accounts of retired employees did not qualify as 'Salaries' under the Act. Therefore, the provisions of section 194A were correctly applied.

Conclusion:
The Tribunal affirmed the CIT(A)'s decision that the assessee-trust was liable to deduct tax at source under section 194A for the interest credited to the accounts of retired employees who ceased to be in employment with ONGC. Consequently, the assessee was in default under sections 201/201(1A) for the financial years in question. All the appeals of the assessee were dismissed.