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Income Tax Appellate Tribunal, “C” BENCH : BANGALORE
Before: SHRI N.V. VASUDEVAN & SHRI D.S. SUNDER SINGH
Per N.V. Vasudevan, Vice President
This appeal by the Assessee is against the order dated 6.9.2018 of the CIT(Appeals)-13, Bangalore relating to assessment year 2013-14.
There is a delay of about 239 days in filing the appeal by the assessee. The reasons for condonation of delay has been set out in an affidavit filed before the Tribunal by the Manager of Cox Town Branch of
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State Bank of India (SBI) [formerly of State Bank of Travancore (SBT)], the appellant in this appeal. It has been mentioned that the impugned appellate order was served on the assessee on 29.9.2018 and the appeal before the Tribunal was to be filed on or before 19.11.2018. Due to change in the office premises of this branch consequent to merger of SBT and SBI, there was a delay in obtaining approval from the Head Office, hence there is a delay in filing the appeal.
We have considered the submission and are of the view that there been no negligence or want of diligence on the part of assessee and the reasons for filing the appeal belatedly are found to be reasonable and with sufficient cause. Hence the delay in filing the appeal is condoned.
As far as merits of the appeal is concerned, the facts are that the assessee bank paid during the FY 2012-13 a sum of Rs.60,67,388 being interest on deposit to Karnataka Building & Other Construction Workers Welfare Board. The assessee did not deduct tax at source at the time of making the aforesaid payment. Consequently, an order u/s. 201(1) and 201(1A) was passed by the AO. By the aforesaid order, the assessee was held to be an assessee in default for not deducting tax at source u/s. 194 of the Act.
On appeal, the CIT(A) confirmed the order of AO. Hence this appeal before the Tribunal.
At the time of hearing, it was brought to our notice by the ld. Counsel for the assessee that the organization to which the assessee paid interest viz., Karnataka Building & Other Construction Workers Welfare Board was an entity falling within section 194A(3)(iii)(f) of the Act and therefore there was no obligation on the part of assessee to deduct tax at source on payment of interest to the aforesaid organization. Reliance was placed on
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the order of the Tribunal in the case of Canara Bank v. ITO in ITA No.889 to 892/Bang/2014, order dated 23.09.2015 wherein the issue was decided in favour of the assessee. The relevant observations of the Tribunal were as follows:-
“09. We have perused the orders and heard the rival contentions. Section 194A (1) is reproduced hereunder : (1) Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any income by way of interest other than income by way of interest on securities, shall at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force. Provided that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such interest is credited or paid, shall be liable to deduct income-tax under this section. Explanation — For the purposes of this section, where any income by way of interest as aforesaid is credited to any account, whether called "Interest payable account" or "Suspense account" or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly. A reading of the above section would clearly show that every person who is paying to a resident, income in the nature of interest has to deduct Income-tax thereon at prescribed rates. Rigors of the said section are relaxed for certain type of interest payments mentioned in sub-section (3), which is reproduced hereunder : (3) The provisions of sub-section (1) shall not apply--
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(i) where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year by the person referred to in sub- section (1) to the account of, or to, the payee, does not exceed (a) ten thousand rupees, where the payer is a banking company to which the Banking Regulation Act, 1949 (10 of 1949) applies (including any bank or banking institution, referred to in section 51 of that Act) ; (b) ten thousand rupees, where the payer is a co- operative society engaged in carrying on the business of banking ; (c) ten thousand rupees, on any deposit with post office under any scheme framed by the Central Government and notified by it in this behalf ; and (d) five thousand rupees in any other case : Provided that in respect of the income credited or paid in respect of-- (a) time deposits with a banking company to which the Banking Regulation Act, 1949 (10 of 1949), applies (including any bank or banking institution referred to in section 51 of that Act) ; or (b) time deposits with a co-operative society engaged in carrying on the business of banking; (c) deposits with a public company which is formed and registered in India with the main object of carrying on the business of providing long-term finance for constructions or purchase of houses in India 1for residential purposes and which is eligible for deduction under clause (viii) of sub-section (1) of section 36,the aforesaid amount shall be computed with reference to the income credited or paid by a branch of the banking company or the co-operative society or the public company, as the case may be ; (iii) to such income credited or paid to— (a) any banking company to which the Banking Regulation Act, 1949 (10 of 1949), applies, or any co-operative society engaged in carrying on the
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business of banking (including a co-operative land mortgage bank), or (b) any financial corporation established by or under a Central, State or Provincial Act, or (c) the Life Insurance Corporation of India established under the Life Insurance Corporation Act, 1956 (31 of 1956), or (d) the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963), or (e) any company or co-operative society carrying on the business of insurance, or (f) such other institution, association or body or class of institutions, associations or bodies which the Central Government may, for reasons to be recorded in writing, notify in this behalf in the Official Gazette; (iv) to such income credited or paid by a firm to a partner of the firm ; (v) to such income credited or paid by a co-operative society to a member thereof or to any other co-operative society ; (vi) to such income credited or paid in respect of deposits under any scheme framed by the Central Government and notified by it in this behalf in the Official Gazette ; (vii) to such income credited or paid in respect of deposits (other than time deposits made on or after the 1st day of July, 1995) with a banking company to which the Banking Regulation Act, 1949 (10 of 1949), applies (including any bank or banking institution referred to in section 51 of that Act) ; (viia) to such income credited or paid in respect of,-- (a) deposits with a primary agricultural credit society or a primary credit society or a co-operative land mortgage bank or a co-operative land development bank ;
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(b) deposits (other than time deposits made on or after the 1st day of July, 1995) with a co-operative society, other than a co-operative society or bank referred to in sub-clause (a), engaged in carrying on the business of banking ; (viii) to such income credited or paid by the Central Government under any provision of this Act or the Indian Income-tax Act, 1922 (11 of 1922), or the Estate Duty Act, 1953 (34 of 1953), or the Wealth-tax Act, 1957 (27 of 1957), or the Gift-tax Act, 1958 (18 of 1958), or the Super Profits Tax Act, 1963 (14 of 1963), or the Companies (Profits) Surtax Act, 1964 (7 of 1964), or the Interest-tax Act, 1974 (45 of 1974). (ix) to such income credited or paid by way of interest on the compensation amount awarded by the Motor Accidents Claims Tribunal where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid during the financial year does not exceed fifty thousand rupees. (x) to such income which is paid or payable by an infrastructure capital company or infrastructure capital fund or a public sector company or scheduled bank in relation to a zero coupon bond issued on or after the 1st day of June, 2005, by such company or fund or public sector company or scheduled bank ; Explanation — 1. For the purposes of clauses (i), (vii) and (viia), "time deposits" means deposits (excluding recurring deposits) repayable on the expiry of fixed periods.
Claim of the assessee is that it falls under sub-clause (f) of clause (iii) to sub-section (3) of the above section. Reliance has also been placed on notification SO 3489 [No.170 F. No.12/164/68 – ITCC/ITJ, dt.22.10.1970]. Said GO is also reproduced hereunder :
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As per the assessee it is a corporation established by a Central, State or Provincial Act. At this juncture it is required to have a look as to how the assessee has been constituted. Admittedly assessee is a Board which came into existence through notification No. KAE 241 LET 2006, dt.18.01.2007, which notification was issued in adherence to Section 18 of Building and Other Construction Workers’ (Regulation and Employment and Conditions of Service) Act, 1996. The said section is reproduced here under : 18.Constitution of State Welfare Boards:- (1) Every State Government shall, with effect from such date as it may, by notification, appoint, constitute a Board to be known as the. . .(name of the State) Building and Other Construction Worker's Welfare Board to exercise the powers conferred on, and perform the function assigned to, it under this Act. (2) The Board shall be a body corporate by the name aforesaid, having perpetual succession and a common seal and shall, by the said name, sue and be sued. (3) The Board shall consist of a chairperson, a person to be nominated by the Central Government and such number of other members, not exceeding fifteen, as may be appointed to it by the State Government: Provided that the Board shall include an equal number of members representing the State Government, the employers and the building workers and that least one member of the Board shall be a woman.
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(4) The term and conditions of appointment and the salaries and other allowances payable to the chairperson and the other members of the Board, and the manner of filling of causal vacancies of the members of the Board, shall be such as may be prescribed. 11. The question that is required to be answered is whether the State Welfare Board constituted through the notification issued under / in consonance with Section 18(1) of the Building and Other Construction Workers’ (Regulation and Employment and Conditions of Service) Act, 1996 could be considering as a corporation established by a Central / State or Provincial Act, falling within the meaning of notification GO No.SO 3469, dt.22.10.1970 (supra) reproduced by us at para nine above. A close look of this notification show that apart from corporation established by Central or State or Provincial Act, there are two other groups mentioned therein. One is a company in which all the shares are held by the Government or RBI or a Corporation owned by RBI ; and the second is an undertaking or body financed wholly by the Government. Therefore, in our opinion, the terminology used in clause (i) of the notification should be interpreted keeping in mind the tenor and texture of the other clauses. For interpreting what could come within the ambit of clause (i) of the rule “Noscitur A Sociis” can be applied in such a situation. The common genus that runs through all the three clauses is that ownership is vested with the Government either by way of holding the shares or by way of financing. If a company whose shares are held by the government is considered as one falling within sub-clause (f) of clause (iii) of section 194A of the Act, there is no reason why a welfare board constituted in accordance with the Central enactment should be excluded from its ambit. Especially so since funds of the Board was nothing but only cess collected by contractors under a statutory edict. 12. Apart from the above, what we find is that the Board has been established through a notification issued, under section 18 of Building and other Construction Workers’ (Regulation and Employment and Conditions of Service) Act, 1996. This Section has been reproduced by us above at para ten above. Clause (2) thereof states that the Board shall be a body corporate. To understand what is a body corporate, when a ready definition is not available in the relevant statutes, the best place to look is the
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Companies Act, 1956. Definition of a body corporate as given in Section (11) of the Act, is reproduced hereunder :
Above definition has been extracted by us only to show that a body corporate is considered equivalent to a corporation. The board can thus very well be construed as a corporation. It has been constituted to exercise the powers conferred on a State under the Building and other Construction Workers’ (Regulation and Employment and Conditions of Service) Act, 1996. Thus in our opinion the methodology in which and the purpose for which the board has been created, when seen along with the wording of SO No.3469, dt.22.10.1970, would show that it could claim itself to be falling within sub-clause (f) of clause (iii) to sub-section (3) of Section 194A of the Act. Assessee had a bonafide reason to believe that interest payment on deposits placed by the Board did not warrant deduction of tax at source. 14. We are alive to the fact that CIT (A) had relied on the judgment of Hon’ble Supreme Court in Dalco Engineering P. Ltd (supra) and Hon’ble Kerala High Court in Kerala Toddy Workers Welfare Fund (supra) for considering the assessee to be a board not established by a Central Act, but established under a Central Act. In our opinion both these decisions are distinguishable on facts. In the case of Dalco Engineering P. Ltd (supra), the question before the Hon’ble Apex Court was that whether the Disability Commissioner, Pune should have issued direction to an employer, to reinstate the respondent who was a telephone operator, back in service, exercising the jurisdiction vested in the Commissioner u/s.47 of the Persons with Disability (Equal Opportunities and Protection) Act, 1995 (in short ‘the Disability Act’). Respondent employee had relied on section 47 of the said Act which mandated non-discrimination in government employment for an employee who became disabled during his service. It also gave power to the appropriate government to exempt
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any establishment from the rigors of the said section. The term establishment employed in Section 47 of the said Act was defined in Section 2(k) of that Act. As per this definition, establishment meant a corporation established by or under a central, state or provincial Act or an authority or a body owned or controlled or aided by the government of a local authority or a government company, as defined in Section 617 of the Companies Act, 1956 and included departments of a government. Contention of the respondent was that his employer was incorporated under Companies Act, 1956 and therefore, was a corporation falling with the definition of section 2(k). Question before the Hon’ble Apex Court was therefore whether a company incorporated under the Companies Act could be construed as a corporation falling within Section 47 of the Disability Act. It was in such circumstances the Hon’ble Apex Court distinguished between a corporation established by a Central Act and a corporation established under a Central Act. A company incorporated under the companies Act can never be equated with a board constituted by a notification mandated by a central enactment. In the case of Kerala Toddy Workers Welfare Fund (supra), before Hon’ble Kerala High Court, the board of trustees constituted was only to administrate the funds in terms of the statute under which the board was created. In our opinion this case also was completely different on facts. As held by Hon’ble Apex Court in the case of CIT v. Sun Engineering Works (198 ITR 297), observations of the Court has to be understood in the light of the questions raised before it. It is neither desirable nor permissible to pick out a word or sentence divorced from the context of the question raised and treat it as a complete law. 15. Thus in our opinion, assessee was justified in considering the Board to be an institution, association or body falling within sub-clause (f) of clause (iii) of sub-section (3) of Section 194A of the Act. It had every reason to hold a bonafide belief that it was not liable to deduct tax at source on the interest payments effected by it to the Board. Especially so since Board gave all details to the assessee as to how it was constituted and also explained why the interest paid to it was exempt. In the facts and circumstances of the case, we are therefore of the opinion that assessee could not be deemed to be one in default for not deducting tax at source on interest paid to the board. Accordingly we set aside the orders of the Ld. CIT (A) and that of ITO (TDS) treating the assessee as one in default u/s.201(1) and levying interest u/s.201(1A) of the Act.”
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Since this Tribunal has already taken a view that the person to whom interest was paid was falling within the ambit of section 194A(3)(f) of the Act, there cannot be any order treating the assessee as an assessee in default u/s. 201(1) and also levying interest u/s. 201(1A) of the Act. We accordingly cancel the orders passed u/s. 201(1) & 201(1A) of the Act and allow the appeal of the assessee.
In the result, the appeal is allowed .
Pronounced in the open court on this 30th day of December, 2019.
Sd/- Sd/-
( D S SUNDER SINGH ) ( N V VASUDEVAN ) ACCOUNTANT MEMBER VICE PRESIDENT
Bangalore, Dated, the 30th December, 2019.
/Desai S Murthy /
Copy to:
Appellant 2. Respondent 3. CIT 4. CIT(E) 5. DR, ITAT, Bangalore. 6. Guard file
By order
Assistant Registrar ITAT, Bangalore.