2008 (8) TMI 128 - HC - Income Tax

Liability to deduct TDS on interest paid on TDR/STDR and on rent paid for the office building to four co-owners - interest paid by the Bank to the NRIs on deposits in Indian Currency was exempt u/s10(15)(iv)(fa) and thereby not subject to TDS u/s195 further when there are a number of owners of a property the limit/ceiling of Rs.1, 20, 000 was applicable to each co-owner separately and thus no tax was required to be deducted at source u/s 194I revenue s appeal dismissed

Summary

Issues:
1. Whether interest paid by the bank to NRIs on deposits in Indian currency was exempt under Sec.10(15)(iv)(fa) of the I.T. Act, 1961 and not subject to TDS under Sec.195 of the IT Act?
2. Whether TDS under Section 194-I of the Act applies when there are multiple owners of a property, and the limit applies to each owner separately?

Detailed Analysis:
Issue 1: The judgment dealt with the exemption of interest paid on deposits in Indian currency to NRIs under Sec.10(15)(iv)(fa) of the Income-tax Act and its impact on TDS. The appellant argued that the interest paid on TDR/STDR did not fall under the exemption, thus TDS was applicable. However, the court referred to Sec.10(15)(fa) which exempts interest payable by a scheduled bank to non-residents or individuals not ordinarily resident on deposits in foreign currency approved by the RBI. The court cited a relevant case law to establish that tax should only be deducted on income subject to tax under the Act. As the interest income in question was exempt under Sec.10(15)(fa), the court upheld the ITAT's decision to set aside the demand for TDS, ruling in favor of the assessee.

Issue 2: The judgment also addressed the issue of TDS under Section 194-I concerning rent paid to co-owners of a property. The appellant contended that TDS should apply as the shares of co-owners were not definite and ascertainable. However, the court examined the ownership structure where the property belonged to a trust with definite shares among family members. The court distinguished a previous Calcutta High Court ruling by highlighting an Apex Court decision emphasizing the need to assess each co-owner's share of income separately. The court concluded that the limit for TDS applied to each co-owner individually, and as such, no tax was to be deducted at source. Consequently, the ITAT's decision to accept the appeals of the assessee was upheld, and the second issue was decided in favor of the assessee.

In conclusion, the High Court dismissed both appeals filed by the appellant based on the detailed analysis and interpretations of relevant provisions and case laws presented in the judgment.