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Facts
The Assessing Officer disallowed Rs. 6,98,06,208/- as interest paid to a political party, which was challenged by the assessee. The CIT(A) deleted this addition, but the revenue appealed to the Tribunal.
Held
The Tribunal noted that the exemption under Section 13A for political parties is subject to certain conditions. While the Punjab & Haryana High Court's decision in Canara Bank case was cited, the Tribunal found the facts distinguishable. The issue was remitted back to the Assessing Officer.
Key Issues
Whether disallowance under Section 40(a)(ia) is permissible when interest is paid to a political party, even if the party's income is exempt under Section 13A.
Sections Cited
143(3), 147, 148, 40(a)(ia), 194A, 201, 13A, 201(1)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “B” BENCH : BANGALORE
Before: SHRI PRASHANT MAHARISHI & SHRI SOUNDARARAJAN K.
Per Prashant Maharishi, Vice President
1. This appeal is filed by the DCIT, Circle 7(1)(1), Bangalore (the assessee/appellant) for the assessment year 2010-11 against the appellate order passed by the National Faceless Appeal Centre, Delhi (NFAC) [ld. CIT(A)] dated 27.3.2024 wherein the appeal filed by the assessee against the reassessment order passed u/s. 143(3) rws 147 of the Income-tax Act, 1961 [the Act] dated 7.2.2013 by the JCIT, LTU, Bangalore , was partly allowed.
2. The revenue has raised the following grounds of appeal :-
“1. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance under section 40(a)(ia) r.w.s. 194A of the I T Act 1961 Rs. 6,98,06.298;- holding that no disallowance under section 40(a)(ia) can be made as the assessee is not an assessee in default under section 201 of the Act, ignoring the fact that the payee is not a fully exempt entity from charge of tax and there existed no provisions of law or notification or orders which granted any exemption from liability to deduct tax under section 194A in respect of credit allowed or payments made to any political party. The appellant craves the leave to add, amend, alter and/or delete any of the grounds of appeal as above.”
3. The only issue involved in this appeal is regarding disallowance u/s. 40(a)(ia) r.w.s. 194A of the Act of Rs.6,98,06,298 holding that no disallowance under this section can be made as the assessee is not in default u/s. 201 of the Act, ignoring the fact that the payee is not a fully exempt entity from charge of tax and there existed no provisions of law or Notification or orders which granted any exemption from liability to deduct tax u/s. 194A of the Act.
4. The brief facts of the case show that assessee filed its return of income on 39.9.2020 at a total income of Rs.390,56,81,270 which resulted into assessment order u/s. 143(3) of the Act at Rs.422,71,99,213. Assessee is a nationalized bank in which majority of shares are held by Central Government. The Regular assessment was completed u/s 143(3) as per order dated 07-02-2013. The Assessment was re-opened by issuing a notice u/s 148 on 27-03-2017. The Appellant after filing the return of income, obtained the reasons for re-opening and filed its objections. However, the same was rejected and Assessment was completed on 29- 12-2017 by making some disallowance along with the issue in dispute in this appeal of disallowance u/s 40(a)(ia) of Interest paid to Political Party Rs 6,98,06,208/- . Being aggrieved by the said order under section 143(3) read with section 147, the Assessee preferred the appeal before the ld CIT (A) who deleted the addition.
This appeal is e-filed by the Revenue with a delay of 180 days. Application for condonation of delay along with Affidavit is filed by the Revenue stating that " I Shri. Santosh Bheemaiah, IRS son of Sri. Bheemaiah.B aged 42 about years, Deputy Commissioner of Income Tax, Circle -7(1)(1), Bangalore, do hereby solemnly affirm and state as follows:
I am working in aforesaid post and I am fully conversant with the facts deposing hereto.
That the filing of appeal is delayed because of the circumstances which are beyond the control of the Appellant.
The delay in filing of appeal before the Hon'ble ITAT is due to the fact that upon receipt of the order, the assessing authority had prepared scrutiny report and same was forwarded to concerned jurisdictional PCIT's office and decision was taken to file appeal before Hon'ble ITAT. Subsequently, after receiving authorisation from PCIT, appeal was filed before ITAT electronically by Deputy Commissioner of Income Tax- Circle 2(1)(1), Mumbai before the ITAT Mumbai on 16.05.2024.
The Hon'ble ITAT Mumbai vide dated 30.07.2024 has dismissed the appeal of the revenue stating that jurisdiction of the ITAT in adjudicating an appeal would lie within the jurisdiction of the Assessing Officer who had passed the assessment order which is subject matter of appeal.
5. The Hon'ble ITAT Mumbai in dated 30.07.2024 has also given liberty to file the appeal before the ITAT to Assessing officer having jurisdiction who had passed the assessment order. i.e. Bangalore Bench.
6. The Hon'ble ITAT has stated that the delay in filling the appeal may be condoned as the appeal in first instant is filed within the period of limitation.
7. Now, on receipt of the information from Mumbai DCIT-C-2(1)(1) this appeal is been filed.
There is no actual delay in filing above appeal. Hence the delay may be condoned.
That the present Application is bona fide and made in the interest of justice.
PRAYER It is therefore, most respectfully prayed that this Honourable Appellate Tribunal may most graciously be pleased to: a) Allow the present Application thereby condoning the delay caused in refilling of the present Appeal and permit the Applicant to refile the rectified Appeal; and, b) Pass any such other order or orders as this Honourable Court may deem fit in the interest of justice.
The ld DR reiterated the submission and ld AR did not have serious objection to the delay.
We have carefully considered the submission and find that as it is a transfer of appeal from Mumbai to bang lore and as original appeal is in time, according to us there is no delay in filing of appeal. Hence appeal is admitted.
8. The ld CIT (A) dealt with this issue as under: - " Disallowance of Rs. 6,98,06,208/- u/s 40/a) (ia) of the Act.
6. The learned Assessing Officer disallowed a sum of Rs. 6,98,06,208- u/s 40(a)(ia) based on the fact that no TDS was made u/s 194A in respect of interest paid to Political Party. The appellant has submitted that the income of a Political Party is totally exempt u/s 13A of the Act. In this case, the interest payment was made on the deposits held by All India Congress Party, which is a National Party and one of the oldest parties in India. It has been enjoying the exemption u/s 13A of the Act. Their income is not liable to tax. Therefore, the appellant Bank did not deduct TDS on the interest income.
6.1The appellant has given reference to the decision of the Hon'ble Punjab & Haryana High Court, in the case of Canara Bank reported in (2016) 386 ITR 229 (P&H). The court held that when the income is not liable to lax in the hands of the recipient, the payer cannot be treated as assessee in default u/s 201 of the Income Tax Act, 1961. If a taxpayer is not an assessee in default u/s 201, then, no disallowance u/s 40(a)(ia) can also be made.
6.3 Respectfully following the decision of the Hon'ble Punjab & Haryana High Court, in the case of Canara Bank reported in (2016) 386 ITR 229 (P&H), the disallowance made under this head is hereby deleted. Hence this ground of appeal is allowed."
9. Thus, the ld AO is aggrieved with the above appellate orders and is in appeal before us. The ld DR vehemently supported the order of the ld AO. The Ld AR submits that the ld CIT (A) has followed the order of the Honourable high court and there is no infirmity.
We have carefully considered the rival contentions and perused the orders of the ld Lower authorities. The issue involved in this appeal is that interest is paid to a political party whose income is exempt u/s 13 of the act. On such payments of interest this bank has not deducted tax at source. The ld AO disallowed it is u/s 40a(ia). The ld CIT A deleted the disallowances following the decision of Honourable Punjab and Haryana High court in Commissioner of Income-tax (TDS)-1, Chandigarh vs. Canara Bank [2017] 79 taxmann.com 342 (Punjab & Haryana)/ [2016] 386 ITR 229 (Punjab & Haryana) [16-03-2016].
We find that according to the provisions of section 194A of the income tax act there is no exemption provided in explanation to section 194A of the income tax act if the interest is paid to a political party. Therefore according to the provisions of section 194A of the act , the tax should have been deducted by the assessee bank at the time of making payment to political parties. Even otherwise the income of political party is exempt under section 13 A of the act is also subject to the condition that such income should be chargeable to tax under the head income from house property or income from other sources or capital gain along with the voluntary contributions. Such exemption is also provided subject to certain conditions. In view of the above fact it cannot be said that that no taxes required to be deducted at source on interest paid to any political party.
The decision of the honourable Punjab and Haryana High Court is not with respect to the interest paid to any political party and therefore the facts of the case relied upon by the learned CIT – A are distinguishable.
However we remit the whole issue back to the file of the learned assessing officer with a direction to the assessee to substantiate that that the issue is covered by the first proviso to section 201 (1) of the act where subject to certain conditions, the assessee is not deemed to be an assessee in default and further consequently no disallowance can be made.
The assessee is directed to comply with the provisions of section 201 of the act as indicated above, the learned assessing officer may verify the same and if it is found in accordance with the law, delete the disallowance.
In the result, the appeal filed by the learned assessing officer is allowed for statistical purposes Pronounced in the open court on this 05th day of December , 2025.