2015 (9) TMI 181 - AT - Income Tax

Non deduction of tds - assesses paid interest to KIADB - assessee had a belief that it was not liable to deduct tax since KIADB was exempt from tax, being registered under Section 12A - Assesee in default - Held that - In the instant case, the assessee bank had taken term deposit from KIADB. The KIADB was entitled to interest on these term deposits. These interest incomes which have received by KIADB are not liable to be taxed in view of the Registration under Section 12AA enjoyed by KIADB. When the interest income is not liable for taxation, there is no obligation on the part of the assessee bank to make deduction of tax at source. Since the interest income was not liable to be taxed in the hands of the recipient, there is no obligation on the part of the assessees to deduct tax at source. However, since the Hon ble High Court judgment in the case of CIT Vs. ITC Hotels Ltd. 2015 (8) TMI 987 - KARNATAKA HIGH COURT is rendered subsequent to the order of the CIT (Appeals), the CIT (Appeals) did not have the benefit to peruse the same Restore the issue for de novo consideration to the file of the Assessing Officer. - Decided in favour of assessee for statistical purposes.

Summary

Issues:
Appeal against orders of Commissioner of Income Tax (Appeals) regarding charging interest under Section 201(1A) of the Income Tax Act for failure to deduct tax at source on interest paid to Karnataka Industrial And Development Board (KIADB) by 4 branches of Canara Bank.

Analysis:
The appeals by the assessee branches of Canara Bank were directed against the orders of the Commissioner of Income Tax (Appeals), LTU, Bangalore for Assessment Years 2012-13 and 2013-14. The issue revolved around the failure of the assessee branches to deduct tax at source while paying interest to KIADB, believing it was exempt from tax due to being registered under Section 12A of the Income Tax Act. However, KIADB's registration was canceled, leading to demands raised by the Assessing Officer under Section 201(1A) of the Act.

The CIT (Appeals) upheld the action of the Assessing Officer, charging interest under Section 201(1A) against the assessees for not deducting tax under Section 194A of the Act. The assessees contended that KIADB's income was exempt from tax, hence no obligation to deduct tax at source. They cited legal precedents and High Court judgments to support their argument, emphasizing that the interest income paid to KIADB was not taxable.

The Tribunal considered the arguments and legal precedents presented by both parties. It noted that the High Court had confirmed the Registration granted to KIADB, indicating that the interest income received by KIADB was not taxable. Therefore, the Tribunal allowed the appeals for statistical purposes, directing the issue to be restored for de novo consideration by the Assessing Officer in light of the High Court judgment.

In conclusion, the Tribunal's judgment favored the assessee branches of Canara Bank, highlighting the importance of the High Court's decision regarding the taxability of the interest income paid to KIADB. The case was remanded to the Assessing Officer for further consideration based on the High Court's ruling.