2005 (8) TMI 300 - 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 (IT Act).
2. Whether the interest credited to the accounts of retired employees of ONGC was exempt under section 10(12) of the IT Act.
3. Whether the assessee-trust was liable to deduct tax at source under section 194A of the IT Act.
4. Whether the principle of mutuality applied to the interest credited by the trust.
5. Whether past acceptance by the Revenue of the assessee's position absolves the assessee from current liability.

Detailed Analysis:

1. Obligation to Deduct Tax at Source:
The primary grievance of the appellant-trust was against the confirmation of the order made under sections 201 and 201(1A) of the IT Act by the CIT(A). The trust, recognized under the Employees Provident Fund and Miscellaneous Provisions Act, 1952, and constituted for the welfare of ONGC employees, was found by the ITO (TDS) to have retained amounts of many retired employees, crediting interest on their balances without deducting tax at source. The AO held that the trust was liable to deduct tax on such interest under section 194A, treating the trust as an assessee in default under sections 201/201(1A).

2. Exemption Under Section 10(12):
The appellant argued that the interest credited to retired employees was outside the scope of total income under section 10(12) of the IT Act. Clause 18 of the fund's regulations allowed members to retain their balances post-retirement. The CIT(A) disagreed, stating that the interest credited after cessation of employment was not eligible for exclusion from total income under section 10(12), thus liable to tax.

3. Liability Under Section 194A:
The appellant contended that the trust was not required to deduct tax at source under section 194A, as the interest credited was merely an application of the trust's income, which was not taxable. The CIT(A) upheld the AO's view that the interest credited to retired employees was taxable, and the trust was required to deduct tax at source under section 194A. The Tribunal agreed, noting that the interest credited did not fall within the parameters of Rule 8 of Part A of the Fourth Schedule, thus not exempt under section 10(12).

4. Principle of Mutuality:
The appellant invoked the principle of mutuality, arguing that the income earned by the trust from contributions and investments was not taxable, as it was merely applied for the benefit of the employees. The Tribunal rejected this argument, stating that the principle of mutuality does not extend to taxing amounts in the hands of individual recipients.

5. Past Acceptance by Revenue:
The appellant argued that the Revenue had accepted the position of non-deduction of tax at source from inception until the financial year 1997-98, and the AO was not justified in changing this settled position. The Tribunal dismissed this argument, noting that past acceptance does not absolve the assessee from current liability under Chapter XVII-B for failing to deduct tax at source.

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