2015 (12) TMI 1891 - AT - Income Tax

TDS u/s 194A - interest on deposits held by the Branch - assessee in default for not deducting tax at source on alleged deposits which were funds of the Central Government - CIT(A) has held that societies which are being wholly funded by Government would qualify for non deduction of tax u/s 194A in accordance with notification No. 3489 dated 22.10.1970 - HELD THAT - As per the PMGSY a scheme of the Ministry of Rural Development , any interest income accrued on surplus funds of the project parked in the bank would be of Ministry of Road Developments and State Rural Road Development Agency would not have any right over the interest income. Chapter X of the Accounting Manual of PMGSY Scheme is explicit in this regard and the AO erred in relying on Chapter XIII of the said Manual. Chapter X of the Accounting Manual is specific with regard to the nature and state of interest income, stating the interest income as belonging to the Ministry of Rural Development. The State Rural Road Agency does not have any control whatsoever on the interest income. That being so, the contents of Chapter XIII of the Accounting Manual, as rightly held by the ld. CIT(A), cannot over ride those of Chapter X of the Manual. J K State Rural Road Agency is a body established by the Government of J K, registered under the Societies Registration Act and is fully funded by the Government and it is not required to make TDS. Then, in BRANCH MANAGER, STATE BANK OF BIKANER JAIPUR 2012 (4) TMI 210 - ITAT JAIPUR as held that for interest on such like deposits, TDS provisions of section 194A of the Act are not attracted. This decision was also taken note of by the ld. CIT(A) while deleting the demand raised. Also, no contrary decision has been pressed into service before us on behalf of the department. Decided in favour of assessee.

Summary

Issues:
Departmental appeals for A.Ys. 2009-10, 2010-11, 2011-12 & 2012-13 challenging deletion of demands u/s 201(1) and interest u/s 201(1A) of the Income-tax Act, 1961.

Analysis:

1. Issue of Liability to Deduct Tax at Source:
The appellant contended that the ld. CIT(A) erred in deleting demands raised under sections 201(1) and 201(1A) for multiple assessment years. The appellant argued that the appellant was liable to deduct tax on interest on deposits held by the Branch, as per Chapter 13 of the Finance and Accounts Manual of the National Rural Road Development Agency. However, the ld. CIT(A) held that the appellant was not liable to deduct tax on interest income accrued on surplus funds of the project parked in the bank, citing the judgment of ITAT Jaipur Bench in a similar case. The Tribunal upheld this decision, emphasizing that the appellant was not responsible for deducting tax on such interest income.

2. Interpretation of Accounting Manuals:
The case involved a detailed analysis of the Accounting Manuals governing the treatment of interest income. The Tribunal found that Chapter X of the Accounting Manual of the PMGSY Scheme explicitly stated that any interest income accrued on surplus funds belonged to the Ministry of Road Developments, not the State Rural Road Development Agency. The Tribunal noted that the contents of Chapter XIII of the Accounting Manual, dealing with TDS on interest income, could not override the specific provisions of Chapter X. This interpretation supported the conclusion that the appellant was not liable to deduct tax on the interest income.

3. Applicability of Section 194A(3)(iii)(f) and Notifications:
The appellant argued that the provisions of section 194A(3)(iii)(f) applied to the J&K SRRDA, citing CBDT Notification No. 3489 dated 22.10.1970. However, the Tribunal held that the J&K State Rural Road Agency, being a body established by the Government and fully funded by it, was exempt from deduction of tax on interest on their deposits under the notification. This exemption was supported by the decision of the Chandigarh Bench of the Tribunal in a similar case involving societies wholly funded by the Government.

4. Precedent and Consistency in Decisions:
The Tribunal considered the precedent set by the ITAT Jaipur Bench in a similar case, where it was held that TDS provisions of section 194A were not attracted to interest on such deposits. The Tribunal found no contrary decision presented by the department. Consequently, the Tribunal confirmed the order of the ld. CIT(A) for all the years under consideration, leading to the dismissal of all appeals filed by the department.

In conclusion, the Tribunal's judgment upheld the decision of the ld. CIT(A) regarding the liability to deduct tax at source, interpretation of Accounting Manuals, applicability of relevant sections and notifications, and consistency with precedent. The appeals filed by the department were dismissed, affirming the findings in favor of the respondent.