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Facts
The assessee, a trust, made payments to trustees and other parties without deducting TDS under Section 194C. The Assessing Officer (AO) treated these as defaults and raised demands for tax and interest. The CIT(A) deleted these additions, holding that Section 194C was not applicable.
Held
The Tribunal held that the provisions of Section 194C were not attracted to the payments made to the trustees, as a significant portion of the collection from 'Dan Patra' was to be equally divided among trustee families as per the trust deed approved by the court. Similarly, for other payments, the assessee had provided evidence that the recipients had paid taxes on those incomes.
Key Issues
Whether Section 194C of the Income Tax Act, 1961, is applicable to payments made to trustees based on a court-approved scheme, and whether the assessee is liable for TDS default if recipients have already paid taxes.
Sections Cited
201, 201(1A), 194C, 139, 38
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Income Tax Appellate Tribunal, JAIPUR BENCHES,”SMC” JAIPUR
Before: SHRI GAGAN GOYAL, AM & SHRI NARINDER KUMAR, JM vk;dj vihy la-@ITA No. 739, 744 to 746/JPR/2025
vkns'k@ORDER Per Bench:
The above captioned four appeals are being disposed of by this common order, as the appeals involve common issues, and Ld. DR for the department and Ld. AR for the appellant have argued the appeals simultaneously.
2. By way of the four appeals, the assessee has challenged four separate orders passed by Learned CIT(A), whereby the appeals filed by 744 to 746/JPR/2025 Shri Baba Mohan Ramji Kalikholi Walamilkpur Gurjar, Alwar. the assessee challenging assessment order dated 29.02.2024, passed u/s 201(1)201(1A) of the Act, relating to the assessment year 2017-18; assessment order dated 22.03.2023, relating to assessment year 2016-17, passed u/s 201(1)/201(1A) of the Act; assessment order dated 06.06.2024, relating to the assessment year 2018-19, passed u/s 201(1)/201(1A) of the Act and assessment order dated 06.06.2024, relating to the assessment year 2019-20, passed u/s 201(1)/201(1A) of the Act, came to be allowed and the assessment orders were set aside.
3. Arguments heard. File perused.
4. Ld. DR for the department-appellant has submitted that he stands by the reasons recorded by the Assessing Officer, whereby he correctly passed assessment orders, the assessee having failed to deduct TDS u/s 194C on the payments made by the assessee to its trustees/members as per bank account statements of the assessee, for the above said assessment years. The contention raised by Learned DR for the department-appellant is that the Assessing Officer rightly held the assessee liable for the defaults made, as regards provisions of sections 201(1)/201(1A) of the Act, and correctly made additions of the specified amount, in addition to the amount of interest which became due thereon.
744 to 746/JPR/2025 Shri Baba Mohan Ramji Kalikholi Walamilkpur Gurjar, Alwar.
On the other hand, Ld. AR for the assessee submitted that Learned CIT(A), for the reasons recorded in the impugned orders, was justified in setting aside the assessment orders, passed by the Assessing Officer, having regard to the order dated 25.08.2005, passed by Learned District & Sessions Judge, Alwar on a petition u/s 38 of the Rajasthan Public Trust Act, filed by Shri Khacheeru Alias Phool Singh and others vs. Another. In this regard, Ld. AR has submitted written submissions which read as under:- “1. It is submitted that as per the trust deed the trustees have a right to receive 75% of the total collection from "Dan Patra" kept in temple. The trust deed was approved by the District & Session Judge, Alwar as per its order dt. 25.08.2005 (PB 3-21). Thus 75% of the donation collected in the donation box do not accrue or arises to the assessee trust but it is the income belonging exclusively to the family members of 8 trustees which is diverted at source itself due to obligation cast upon it by the District & Session Court. There is difference between an amount which a person is obliged to apply out of his income and an amount which by nature of the obligation cannot be said to be part of income of assessee. In latter situation. obligation income is diverted before it reaches the assessee. Therefore, it cannot be treated as income of assessee as such income never reaches the assessee who might have to collect the income for and behalf of the person to whom it is payable. It is a diversion of income by over-riding title on which there is no obligation on the assessee to deduct tax at source. The assessee has relied on the decision of Hon'ble Supreme Court in case of CIT Vs. Sitaldas Tirathdas 41 ITR 367, Damlia Cement Ltd. Vs. CIT 237 ITR 617 and decision of Hon'ble Kerala High Court in case of Sarla Devi Vs. CIT 222 ITR 211 on this issue which is correctly appreciated by the appellate authority. Hence only because the entire amount collected in the donation box is deposited in the bank account of assessee and from their amount is paid to the trustee, it would not mean that it is the income of assessee and payment made to the trustee is the expenditure of the assessee. Therefore, the appellate authority has correctly held that such payment made to the trustees is not liable for TDS u/s 194C of the Act.
744 to 746/JPR/2025 Shri Baba Mohan Ramji Kalikholi Walamilkpur Gurjar, Alwar.
2. It may be noted that similar issue was raised by the AO in AY 2015-16 but after considering the reply of the assessee, no demand was raised. Copy of order dt. 19.12.2021 u/s 201(1)/201(1A) for AY 2015-16 is at PB 38-42. Thereafter Ld. CIT u/s 263 of the Act considered the order passed by the AO as erroneous and prejudicial to the interest of the assessee against which assessee filed appeal before Hon'ble ITAT who after considering the submission of the assessee vide order dt. 28.06.2024 in (PB 43-52) quashed the order passed by Ld. CIT u/s 263 of the Act by giving following findings:- 14. Record reveals that before arriving at the abovesaid conclusion.. letter dt. 12.02.2024 was issued by Learned CIT(TDS), to the assessee, by way of show cause notice u/s 263 of the Act. The allegation leveled therein was that the assessee had made certain payments to so-called trustees from its bank account, without deduction of tax under the Act, that the trustees had accounted for 25% receipt of total donations, received in Danpatra, in its Receipts and Payment Account, but the balance 75% of the amount was transferred to the 8 heads of the families of trustees; that the assessee had failed to submit documentary or corroborative evidence as regards its claim that 75% did not form part of its Receipts and Payment Account. Copy of reply dated 25.02.2024, submitted by the assessee to the aforesaid show cause notice, is also on record. With the paper book, we also find attached copy of reply dated 22.12.2021 submitted by the assessee to the Assessing Officer, in reply to his notice.
As noticed above, while passing the order dated 29.12.2021, the Assessing Officer took into consideration the reply submitted by the assessee and only thereafter held the assessee to be in default. That is how, he had raised a demand only of Rs. 2,809/- only, u/s 201(1) of the Act, with interest of Rs. 2,753/- Record reveals that the Assessing Officer also took into consideration decision in by this Appellate Tribunal in respect of some other trust, namely, Shri Shyam Mandire Committee, Khatu Shyam Sikar, a trust, framed and also approved by the Learned District and Sessions Judge, Alwar, vide order dated 28.01.2005 and factum of diversion of the funds of that trust, as per order.
Herein, it is not in dispute that the assessee trust came to be constituted as per scheme. presented alongwith petition u/s 38 of Rajasthan Public Trust Act, 1959, and approved by the Learned District & Session Judge, Alwar on 25.08.2005. Copy of the scheme forms part of the said order dated 25.08.2005.
As is available from Clause-(Kha) of Serial No. 5 of the said scheme, 25% of the income of the trust was to be spent on Dharmshala and other development programmes and maintaining of the trust, whereas remaining 75% of its income, collected from Danpatras was to be equally divided amongst 8 heads of the trustee families.
744 to 746/JPR/2025 Shri Baba Mohan Ramji Kalikholi Walamilkpur Gurjar, Alwar. The above referred to scheme must have been considered by the Assessing Officer (TDS). 18. As a result, it cannot be said that while passing the order, the Assessing Officer did not conduct proper enquiry or necessary verification. Rather, it can safely be said that the Assessing Officer applied his mind to the material collected during the enquiry and then arrived at a particular conclusion.”
Without prejudice to above, it is submitted that section 194C applies where any person is responsible for paying any sum to any resident for carrying out any work in pursuance of a contract between the contractor and the specified person. In the present case, assessee is not responsible for paying any sum to the trustees rather such sum is paid to them in pursuance to the order of the Court. Further such payment is not in pursuance of any contract between the assessee and the trustees rather a right has accrued to the trustees to receive the amount directly from the donation collected in the donation box. No other TDS provision is applicable on such amount received by the trustees. Such payment is not claimed as expenditure under I&E A/c. Thus, when Chapter XVIIB is not applicable on the amount received by the trustees, order of AO(TDS) on this issue is incorrect and therefore the appellate authority has rightly deleted the demand of Rs.27,09,165/- raised on this account.
So far as TDS on other payments is concerned, AO raised demand of Rs.1,870/- u/s 201(1) on payment of Rs.1,87,000/- made to Kushal Chand Gupta which is debited in I&E A/c towards Mela Mandir Trust bhandara expenses. Before the appellate authority assessee has filed PAN no. & the income tax return of Kushal Chand Gupta to prove that the amount paid to him has been considered by the recipient in its income on which tax has been paid by him. As per section 201 of the Act, the person liable to deduct TDS will not be deemed as an assessee in default for non-deduction if the recipient is resident of India, recipient has furnished his income tax return u/s 139 & recipient has paid applicable taxes due on the income declared on the return filed by him. In the present case, assessee has furnished all these evidences before the appellate authority and therefore TDS demand of Rs.1,870/- is rightly deleted by him. As far as interest u/s 201(1A) of Rs.2,946/- is concerned, once the assessee is held as not an assessee in default, no interest for non-deduction can be levied. Reliance in this connection is placed on the following cases:- ICICI Securities Limited Vs. ITO (International Taxation) (2023) 198 ITD 214 (Mumbai) (Trib.) The facts of the case are that assessee sold 15,39,100 shares of Ranbaxy held by the ICICI 744 to 746/JPR/2025 Shri Baba Mohan Ramji Kalikholi Walamilkpur Gurjar, Alwar. Bank on behalf of BNY and sent the remittances aggregating to Rs.94,61,35,488/- to BNY Mellon, New York. A payment of Rs.40,92,98,212/- was made towards the tax liability of the BNY on the sale of these shares. However this payment has been made as advance tax whereas such payment should have been paid as TDS by the payer. Accordingly, the demand was raised u/s 201 of the Act and interest u/s 201(1A) was calculated on the same. It was held that the fact remains that the taxes are paid as advance tax for BNY Mellon, and to that extent, the assessee tax-deductor cannot be saddled with a tax withholding demand under section 201(1) r.w.s. 195 of the Income Tax Act, 1961. In view of these discussions, as also bearing in mind the entirety of the case, we uphold the assessee's plea, and quash the impugned tax withholding demand under section 201 r.w.s. 195 of the Income Tax Act, 1961. Once the basic tax withholding liability under section 201(1) is quashed, the interest liability under section 201(1A), being consequential in nature, also stand quashed. The assessee gets the relief accordingly.
CIT Vs. Rajasthan Rajya Vidyut Prasaran Nigam Ltd. 287 ITR 354 (Raj.) Hon'ble High Court upheld the findings of Hon'ble ITAT by holding that when the assessee has paid more tax than the tax payable and refund is due, even (after) tax deducted at source is counted, in such case, there is no justification for charging interest under section 201(14).
CIT Vs. Rishikesh Apartments Co-operative Housing Society Ltd. 253 ITR 310 (Guj.) Where the payer failed to deduct tax but the person has paid such tax and that too at the time when it had become due, it would not be proper on the part of the revenue to levy any interest u/s 201(1A) as the amount which was payable to the revenue had been duly paid.
Solar Automobile India Pvt. Ltd. Vs. DCTT 64 DTR 34 (Kar.) In this case Hon'ble Court at Para 9 of the order held as under- "In so far as payment of interest u/s 1944 (sic-201(1A) is concerned, the interest is payable for the period it is not paid after deduction. The principal liability of paying tax is that of the creditor and a statutory duty is cast on the debtor to deduct tax on the income of interest payable and remit the same to the company (sic-Government) irrespective of liability of the principal debtor. Unless the principal debtor (sic-creditor) files the return and pays tax, then the vicarious liability exists on the persons who should have deducted tax at source or ought to have deducted tax at source. The revenue cannot collect tax on interest from both the principal and the agent. In that context, the order passed by the 744 to 746/JPR/2025 Shri Baba Mohan Ramji Kalikholi Walamilkpur Gurjar, Alwar. authorities holding that the assessee is liable to pay interest from the date of default till the date of order is errorneous. However, the authorities have to find out whether the creditors have filed the returns and paid the tax. If deductee has filed the return and paid the tax, the liability of the assessee ceases from the day they deductee has paid the tax."
TRO Vs. Bharat Hotels Ltd. 28 DTR 27 (Bangalore) (Trib.) The Hon'ble ITAT at Para 3.27 of the order held as under:-
For the assessment year 2004-05, the AO has charged interest u/s 201(14) in respect of TDS to be deducted on license fee. The tax payable after taking into credit the lease rent came to Rs. 1,92,74,580/- as per the computation of income available at p. 83 of the paper book filed by the learned Authorised Representative. The assessee has paid advance tax of Rs. 2.03,82,486/- The assessee has claimed refund of Rs. 11,07,906/-. In the P & L a/c, lease rent credited is of Rs. 3,69.28.350/-. Interest income credited in P & L a/c is to the extent of Rs. 2,20,31,949/-. In the computation of income, the sum of Rs. 2,20,31.949/-has been shown under the head Income from other sources and income from business has been written at Rs. 3,16,96,104/-. After going through the computation of total income and P & L alc, we are satisfied that the assessee has paid advance tax after taking into account the lease rent. Hence, when the assessee has paid the advance tax on the lease rent, then interest under s. 201(14) will not be chargeable in view of the Board circular that such Interest is to be charged up to the date when the deductee has paid the advance tax."
In view of above, appeal filed by the department be dismissed.
Only Ground Whether on the facts and in the circumstances of the case and in law the Ld. Addl./JCIT(A)-1, Mumbai has eared in deleting the addition of Rs.3,73,273/- made u/s 201(1) along with interest u/s 201(14) of Rs.3,33,827/- in respect of payment of Rs.1,46,69,701/- made to the trustees of the assessee and also payments of Rs.14,22,604/- on account of various expenditures holding that the impugned payments made by the assessee not come in the ambit of section 194C of the Income Tax Act, 1961. Submission:-
744 to 746/JPR/2025 Shri Baba Mohan Ramji Kalikholi Walamilkpur Gurjar, Alwar. 1. The payment made to the trustees is covered by the facts & submission given above for AY 2016-2017 and therefore demand of Rs.6,42,571/- (3,40,010+3,02,561) on payment of Rs.1,46,69,701/-made to the trustees is rightly deleted by the appellate authority.
2. In respect of payment made to other persons as tabulated at Pg 16 of the TDS order is concerned, assessee filed detailed reply before the AO and also before the appellant authority. The submission of the assessee on such payment is reproduced at Pg 11-17 of the appellate order. On such payment, either section 194C is not applicable or such payment is beyond the threshold limit prescribed u/s 194C or the assessee has furnished certificate from the Chartered Accountant in Form No.26A as required u/s 201of the Act. Considering the same the appellate authority has rightly deleted the demand raised u/s 201(1)/201(1A) of the Act and therefore the ground of the revenue be dismissed.
AY 2018-19 (ITA No.745/JPR/2025) Only Ground Whether on the facts and in the circumstances of the case and in law the Ld. AddL/JCIT(A)-1, Mumbai has eared in deleting the addition of Rs.5,22,285/- made u/s 201(1) along with interest u/s 201(14) of Rs.4,17,801/- in respect of payment of Rs.1,54,07,729/- made to the trustees of the assessee and also payments of Rs.1,92,900/- on account of various expenditures holding that the impugned payments made by the assessee not come in the ambit of section 194C of the Income Tax Act, 1961. Submission:- 1. The payment made to the trustees is covered by the facts & submission given above for AY 2016-2017 and therefore demand of Rs.7,97,107/- (4,93,756+3,93,351) on payment of Rs.1,54,07,729/-made to the trustees is rightly deleted by the appellate authority.
In respect of payment made to other persons as tabulated at Pg 11-12 of the TDS order is concerned, assessee filed detailed reply before the AO and also before the appellant authority. The submission of the assessee on such payment is reproduced at Pg 11 of the appellate order. On such payment, either section 194C is not applicable or such payment is beyond the threshold limit prescribed u/s 194C or on the payment made tax is deducted at source. Considering the same the appellate authority has rightly deleted the demand raised u/s 201(1)/201(1A) of the Act and therefore the ground of the revenue be dismissed. AY 2019-20 (ITA No.746/JPR/2025) Only Ground 744 to 746/JPR/2025 Shri Baba Mohan Ramji Kalikholi Walamilkpur Gurjar, Alwar. Whether on the facts and in the circumstances of the case and in law the Ld. Addl./JCIT(A)- 1.
Mumbai has eared in deleting the addition of Rs.12,10,870/- made u/s 201(1) along with interest u/s 201(1A) of Rs.8,26,468/- in respect of payment of Rs.1,87,29,400/- made to the trustees of the assessee and also payments of Rs.3,45,050/- on account of various expenditures holding that the impugned payments made by the assessee not come in the ambit of section 194C of the Income Tax Act, 1961. Submission:- 1. The payment made to the trustees is covered by the facts & submission given above for AY 2016-2017 and therefore demand of Rs.20,21,811/- (12,01,946- 8,19,865) on payment of Rs.1,87,29,400/-made to the trustees is rightly deleted by the appellate authority.
2. In respect of payment made to other persons as tabulated at Pg 10-11 of the TDS order is concerned, assessee filed detailed reply before the AO and also before the appellant authority. The submission of the assessee on such payment is reproduced at Pg 11-13 of the appellate order. On such payment, either section 194C is not applicable or certificate of Chartered Accountant in Form No.26A as required u/s 201 has been furnished. Considering the same the appellate authority has rightly deleted the demand raised u/s 201(1)/201(1A) of the Act and therefore the ground of the revenue be dismissed.”
6. As noticed above, the Assessing Officer observed in the assessment orders that certain payments were made by the assessee to the persons/concerns, but no TDS was deducted, as per provisions of the Act. He had also called upon the assessee to provide necessary details/supporting documents. It was thereupon that the assessee submitted reply, as regards the said payments. In that reply, the assessee made reference to the scheme of the Trust framed by Learned District and Sessions judge, Alwar on 25.08.2005, and also submitted copy thereof.
744 to 746/JPR/2025 Shri Baba Mohan Ramji Kalikholi Walamilkpur Gurjar, Alwar.
Admittedly, the assessee is a trust in which trustee, family members and followers perform certain duties, like administration, management of the temple, construction and management of Dharmshala to provide help to the needy of poor people. Indisputably, the order dated 25.08.2005, came to be passed on an application filed u/s 38 of the RPT Act. Learned District and Sessions Judge, Alwar framed scheme for the trust. As per said scheme, 25% of the income of the trust was to be spent on Dharmshala, and other development programmes and managing of the trust, whereas remaining 75% of its income collected from danpatras was to be equally divided amongst 8 heads of the trustee families.
In the given situation, it was for the department to satisfy as to how provision of Section 194C were attracted to the amount received by the trustee, when 75% of its income, collected from danpatras was to be equally divided amongst 8 heads of the trustee families. We find that provisions of section 194C of the Act were not attracted in the matters. Therefore, no addition could be made the Assessing Officer i.e. on account of default and on account of interest. Ld. CIT(A) was justified in accepting the contention raised on behalf of the assessee and allowing the appeals filed by the assessee.
744 to 746/JPR/2025 Shri Baba Mohan Ramji Kalikholi Walamilkpur Gurjar, Alwar. Result 9. In view of the above discussion, all the appeals filed by the department deserve to be dismissed. It is ordered accordingly. Copy of the common order be also placed in the connected appeal file. File be consigned to the record room after the needful is done by the office. Order pronounced in the open court on 02/09/2025.
Sd/- PSd/- ¼xxu xks;y½ ¼ujsUnz dqekj½ (GAGAN GOYAL) (NARINDER KUMAR) ys[kk lnL; @Accountant Member U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 02/09/2025 *Santosh आदेश की प्रतिलिपिअग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू The Appellant- Shri Baba Mohan Ramji Kalikholi Walamilkpur Gurjar, Alwar.. 1. 2. izR;FkhZ@ The Respondent- ITO(TDS), Alwar. 3. vk;djvk;qDr@ The ld CIT 4. विभागीय प्रतिनिधि] आयकरअपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत 5. xkMZQkbZy@ Guard File 744 to 746/JPR/2025) vkns'kkuqlkj@ By order,
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