2023 (7) TMI 863 - HC - Income Tax

TDS u/s 194A - interest income accrued on the Term Deposit Accounts of the JKSRRDA - failure of the assessee to deduct tax at source u/s 194A on the interest paid/accrued on the Term Deposit Accounts of the JKSRRD, a society registered under J K Societies Registration Act, Svt. 1998 - HELD THAT - The JKSRRDA being a body wholly financed by the Government was covered by S.O 3489 dated 27.10.1970 and, therefore, no separate notification in the official Gazette was required to be issued by the Central Government to include JKSRRDA specifically within the ambit of exemption provided under Section 194A (3)(iii)(f) of the Act. Once the two Forums below have returned concurrent findings of fact that the funds released for implementation of PMGSY by JKSRRDA and deposited in the account known as Programme Fund/Account were the funds/money belonging to the Central Government, there should be no dispute that, in terms of Section 196 of the Act, no deduction of tax is to be made by any person from any sum payable to the Government. It is, thus, abundantly clear that the interest paid or accrued on the Term Deposit Accounts under Saving Bank Account of JKSRRDA was the money belonging to the Central Government and, therefore, exempted from deduction of income tax at source u/s 194A. Thus raising a demand on account of failure of the assessee/Bank to deduct tax at source u/s 194A on the interest income accrued on the Term Deposit Accounts of the JKSRRDA was legally and factually flawed as JKSRRDA is a society registered under the Act of 1998 is a body wholly financed by the Central Government for implementation of PMGSY and, therefore, exempt from TDS in terms of Notification No.3489 dated 22.10.1970 issued by the Central Government under Section 194A(3)(iii)(f) - Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the assessee was required to apply for exemption under Section 194A(3)(iii)(f) of the Income Tax Act, 1961.
2. Whether the funds accrued as interest on Term Deposit Accounts were exempt from TDS under Section 196 of the Act.

Summary:

Issue 1: Exemption under Section 194A(3)(iii)(f)
The appellant questioned whether the assessee needed to apply for exemption under Section 194A(3)(iii)(f), which could only be granted after a notification by the Central Government. The court found this question misconceived and not arising from the pleadings. The court agreed with the respondent that the Assessing Authority wrongly demanded over Rs. 2 crores due to failure to deduct tax at source on interest paid/accrued on Term Deposit Accounts of JKSRRDA, a society registered under the J&K Societies Registration Act, Svt. 1998.

Issue 2: Exemption under Section 196
The court clarified that JKSRRDA is a society wholly financed by the Government of India for implementing PMGSY. The funds deposited in the Programme Fund/Account were government funds, and interest accrued on these funds was exempt from TDS under Section 196 of the Act. Both CIT(A) and ITAT confirmed that the funds belonged to the Government of India, thus exempting them from TDS.

The court upheld the orders of CIT(A) and ITAT, stating that the interest income accrued on Term Deposit Accounts was the income of the Government of India and exempt from TDS under Section 196. Additionally, JKSRRDA, being wholly financed by the Central Government, was exempt from TDS under Notification No. 3489 dated 22.10.1970 issued under Section 194A(3)(iii)(f) of the Act.

Conclusion:
The appeal was dismissed, affirming that the interest income accrued on the Term Deposit Accounts of JKSRRDA was exempt from TDS under Section 196 and Notification No. 3489. The court found no substantial question of law for determination in this appeal.