2014 (2) TMI 456 - AT - Income Tax

Non deduction of TDS on dividend / premium on chit fund Interest u/s 2(28) of the Act comes within the purview of section 194A of the Act or not Held that - The decision in Bilahari Investments (P) Ltd., v. CIT 2006 (6) TMI 59 - MADRAS HIGH COURT - The members (subscribers) need not pay the total monthly subscription and instead, they pay the monthly subscription after deducting the amount of dividend earned. Members who have bid for the chit in auction have the liability to keep the contribution to the chit till the end of the chit period and the prized members get dividend in future months also - the payment to the subscribers of a chit towards dividend does not partake the character of interest - the orders of the CIT(A) upheld in holding that the assessee is not liable to deduct TDS u/s 194A of the Act thus, not liable for interest u/s. 201(1) and 201(1A) of the Act Decided against Revenue.

Summary

Issues involved:
Cancellation of orders passed u/s. 201 and 201(1A) of the Income-tax Act, 1961 regarding non-deduction of tax on chit dividend paid by the assessee.

Detailed Analysis:

Issue 1: Cancellation of orders u/s. 201 and 201(1A) for non-deduction of tax on chit dividend

The appeals were against orders of the Commissioner of Income-tax(Appeals) for the assessment years 2005-06 to 2007-08. The common issue was the cancellation of orders passed u/s. 201 and 201(1A) of the Income-tax Act, 1961 related to non-deduction of tax on chit dividend paid by the assessee. The Revenue contended that the chit dividend represented interest as per section 2(28A) and fell under section 194A of the Act.

Issue 2: Ex-parte disposal due to non-appearance of the assessee

Despite notice of hearing, no one appeared on behalf of the assessee-respondent, and no adjournment petition was received. Therefore, the appeals were disposed of ex-parte concerning the assessee based on the available record material.

Issue 3: Legal interpretation of chit dividend

The Tribunal considered previous cases like Marga Soochi Chit Pvt. Ltd. and Sahib Chits (Delhi) (P) Ltd. where it was held that the amount disbursed by a chit fund company to members from contributions cannot be treated as interest. As there is no borrowing of money or debt incurred in a chit fund, the provisions of section 194A and 2(28A) of the Act do not apply. This view was supported by the case of Bilahari Investments (P) Ltd. and confirmed by the Supreme Court.

Issue 4: Consistent judicial decisions

The Tribunal noted that various courts and coordinate Benches consistently held that payments to chit subscribers as dividends do not qualify as interest. Relying on previous decisions, the Tribunal upheld the orders of the CIT(A) stating that the assessee was not required to deduct TDS under section 194A and was not liable for interest under sections 201(1) and 201(1A) of the Act.

Conclusion:

Based on the legal interpretations and consistent judicial decisions, the Tribunal dismissed all three appeals of the Revenue, confirming that chit dividend payments do not attract TDS provisions and the assessee was not liable for interest under the Income-tax Act, 1961.