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2015 (6) TMI 201 - AT - Income TaxNon deduction of TDS - interst paid to Government - overriding title on an income - assessee in default u/s 201 and also levy of interest u/s 201(1A) - whether the assessee falls within the ambit of exclusion clauses provided in sub section 3 of section 194A(3)(iii)(f)? - Held that - The title over the interest income at the time of generation from the assessee rest with the Govt. and not KUIDFC. Thus, the interest in practical was paid to the Govt. and section 196 provide that notwithstanding anything contained in the foregoing provisions of this Chapter, no deduction of taxes shall be made by any person from any sum payable to the Govt. The assessee was not required to deduct the TDS on the payments made to the Govt. Considering all these aspects, we are of the view that the Assessing Officer has erred in treating the assessee in default. Consequently the demand raised by the Assessing Officer by virtue of order passed u/s 201 and the interest charged u/s 201(1A) is deleted and the orders are quashed - Decided in favour of assesse.
Issues Involved:
1. Whether the assessee is an assessee in default under Section 201 of the Income-tax Act, 1961. 2. Whether the levy of interest under Section 201(1A) of the Income-tax Act, 1961 is justified. 3. Whether the payment of interest to KUIDFC is considered as payment to the Government under Section 196 of the Income-tax Act, 1961, thereby exempting it from TDS. Detailed Analysis: 1. Assessee in Default under Section 201: The Assessing Officer (AO) held the assessee as an assessee in default under Section 201 of the Income-tax Act, 1961, for not deducting tax at source (TDS) on the payment of interest to KUIDFC. The AO's opinion was based on the provisions of Section 194A, which mandates TDS on interest payments. The assessee contended that KUIDFC is a government body and thus exempt under Section 196. However, the AO rejected this claim and treated the assessee as in default. 2. Levy of Interest under Section 201(1A): Alongside holding the assessee in default, the AO also levied interest under Section 201(1A) for the failure to deduct TDS. This interest is a statutory consequence of non-compliance with TDS provisions, aimed at compensating the government for the loss of revenue. 3. Payment to KUIDFC as Payment to Government under Section 196: The primary contention from the assessee was that KUIDFC should be treated as a government entity, making the interest payments exempt from TDS under Section 196. The Tribunal referenced a previous ruling in a similar case involving the Mysore Urban Development Authority, where it was determined that payments to KUIDFC are indeed payments to the Government. This conclusion was reached after examining the shareholding pattern of KUIDFC and the government orders indicating that KUIDFC acts as a nodal agency managing government funds. The Tribunal noted that the funds managed by KUIDFC, including interest income, are pooled into the Urban Infrastructure Development Fund (UIDF) and are under the absolute domain of the government. Therefore, the interest income does not constitute the income of KUIDFC but that of the government. Consequently, the Tribunal held that Section 196 applies, exempting such payments from TDS. Conclusion: The Tribunal found that the circumstances of the present case were similar to those in the Mysore Urban Development Authority case. It concluded that the AO erred in treating the assessee as in default and in levying interest under Section 201(1A). The orders of the CIT(A) and the AO were set aside, and the appeals of the assessee for all three assessment years were allowed. Pronouncement: The judgment was pronounced in the open court on 31.3.2015, allowing the assessee's appeals for the assessment years 2007-08 to 2009-10.
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