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Facts
The assessee, a Charitable Trust, was treated as an assessee in default for non-deduction of TDS on advertisement expenses and interest. The AO levied TDS liability and interest. The CIT(A) confirmed the order. The assessee appealed, raising grounds related to the applicability of TDS provisions for charitable trusts and non-ascertainment of payee's tax payment by the AO.
Held
The Tribunal admitted additional grounds of appeal concerning the AO's failure to ascertain if the payees had deposited the tax directly, as required by Section 191 of the Income Tax Act. It was noted that Section 40(a)(ia) disallowance is not applicable to Charitable Trusts claiming exemption under Section 11. The Tribunal found no finding regarding the payee's tax payment and thus remanded the issue to the AO for fresh adjudication.
Key Issues
Whether the assessee, a charitable trust, can be held as an assessee in default for non-deduction of TDS without ascertaining if the payees have paid the tax directly, and whether Section 40(a)(ia) applies to such trusts.
Sections Cited
201, 201(1A), 234E, 40(a)(ia), 191, 194C, 194A, 139, 221, 199, 192, 31ACB
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Income Tax Appellate Tribunal, DELHI ‘A’ BENCH,
Before: MS. MADHUMITA ROY, & SHRI NAVEEN CHANDRA
PER NAVEEN CHANDRA, ACCOUNTANT MEMBER:- This appeal by the assessee is preferred against the order of the ld. CIT(A), Delhi dated 11.07.2024 pertaining to A.Y. 2016-17. 2. The assessee has raised the following grounds of appeal:
1. 1. 1. Page 1 of Rao Khem Chand Vidya Vihar Shiksha Samiti “1. That on the facts and circumstances of the case and in law, the CIT(A) erred in confirming the TDS liability u/s 201 of Rs. 13,119/- and interest liability u/s.201(1A) of Rs.9,839/-, without appreciating the fact that TDS liability of the Payer does not arises where the Payee's are not known, thus the assessee appellant prays for deletion of Rs.22,958/- in full 2. That on the facts and circumstances of the case and in law, the CIT (A) erred in confirming the TDS liability u/s 201 of Rs 3,88,408/- and interest liability u/s.201(1A) of Rs 2,91,305/- and assessee-appellant prays full relief because (1). The ITO, TDS treated that assesee - appellant as default u/s 201/201(1A), without appreciating the fact that the assessee-appellant is a Charitable Society Registered u/s. 12A was under the bona fide belief that the provisions Chapter XVIII deduction of TDS is not applicable to a Registered Charitable Society due to non applicability of the section 40a(ia) disallowance of expenses on account of non deduction of Tds. (ii). The ITO. Tds treated that assessee - appellant as default u/s 201/201(1A), without ascertaining as to whether taxes had been deposited or not by recipient of income directly as per the mandatory provisions of Explanation to section 191.
3. That on the facts and circumstances of the case and in law, the CIT(A) erred in confirming the late fee charges u/s 234E of Rs.4.01,527/- for the delay caused in furnishing TDS deduction statement without appreciating the fact that neither TDS was deducted nor TDS deduction statement u/s.200(3) was filed, Page 2 of Rao Khem Chand Vidya Vihar Shiksha Samiti accordingly imposing late fee under the charging section 200A(1) clause (c) does not arise, thus the assessee - appellant prays for deletion of the late fee of Rs.4,01,527/- u/s 234E in full 4. That on the facts and in the circumstances of the case and in law the ITO,TDS erred in issuing the order u/s.201/201(1A), dated 15/03/2021 without generating the Document Identification Number (DIN), which is in violation of CBDT Circular No. 19/2019 dated 14th August, 2019, in view of this impugned order is invalid and deserves to be annulled.
That the appellant craves leave to add or amend the grounds of appeal
before the appeal is finally heard and disposed off.”
3. In addition to the above grounds of appeal
, the assessee has raised additional legal jurisdictional grounds of appeal which read as under:
1. That on the facts and circumstances of the case and in law, the CIT(A) erred in not declaring the order of the ITO, TDS (Rohtak) [ITO, TDS] as null and void because the ITO, Tds exceeds his jurisdiction to declare the assessee as default u/s.201/201(1A) without ascertaining as to whether taxes had been deposited or not by recipient of income by not following the mandatory provisions of section 191 read with Explanation, thus assessee-appellant prays that the order of the ITO, TDS may kindly be held as null and void due to non fulfilment of foundational jurisdiction.
2. That on the facts and circumstances of the case and in law, the CIT (A) erred in confirming the addition of Rs.3,88,408/- [Rs.4,01,527/- Minus Rs.13,119/-] made u/s.201 due to non deduction of TDS without appreciating the fact that the Payee's are income tax assessee's having valid PAN NO. and the ITO, TDS
Page 3 of Rao Khem Chand Vidya Vihar Shiksha Samiti does not make any enquiry from the respective AO's of the Payee's regarding deposit of tax on the entire income, thus assessee's prays for deletion of Rs.3,88,408/- in full..
Without prejudice the Grounds of appeal no.2 raised above, the CIT (A) erred in confirming the addition of Rs.3,88,408/- (Rs.4,01,527/- Minus Rs.13,119/-) made u/s.201 due to non deduction of TDS without appreciating the fact that the tax was duly deposited by the Payee's on the total income including the income received from the Payer, again the Department can not recover tax on the same income by treating the Payer to be assessee-in-default for shortfall in tax deduction, thus the assessee prays for deletion of Rs.3,88,408/- in full. (B). Additional legal jurisdictional grounds of appeal raised above by the assessee are purely legal in nature goes to the root of the matter can be taken as additional grounds at any stage including collateral proceedings and even before the Hon'ble ITAT for the 1st time and are emanating from the records available before the Tribunal. The legal grounds do not require any investigation and all materials are already on record before the Tribunal. (C). That no prejudice will cause to revenue by admitting these legal grounds, since, the revenue will be having a proper and reasonable opportunity of being heard on these issues. (D). That in the absence of admission of above grounds, the assessee may suffer irreparable loss.
(E).It is therefore humbly prayed before your honour to admit and adjudicate the additional legal jurisdictional grounds of appeal raised above. Reliance in this regard is placed upon the decisions in Page 4 of 11 [A.Y. 2016-17] Rao Khem Chand Vidya Vihar Shiksha Samiti the cases of "National Thermal Power Corporation vs. CIT (1998) 229 ITR 383 (SC)", "VMT Spinning Co. Ltd Vs. CIT (2016) 389 ITR 326 (P&H)", "Siksa O Anusadhan Vs. CIT (2011) 336 ITR 112) [Orissa.HC)", "CIT Vs. Mohd. Ayyub Agency (1992) 197 ITR '637 (All.HC)". "CIT Vs. Cellulose Products of India Ltd [1985] 151 ITR 499 (Guj.HC)- (FB)", "P.V.Doshi Vs.CIT [1978] 113 ITR
22. (Guj.HC)","CIT Vs. Mahalaxmi Sugar Mills Co. Ltd [1993] 200 ITR 275 (Del.HC)', "Taylor Instrument Co. (India) Ltd Vs.CIT [1992] 198 ITR
1. (Del.HC)". 'Kiran Singh & Others Vs. Chaman Pawan & Ors. (1955)
1. SCR 117 (SC).'
4. Briefly stated, the facts of the case, the assessee is a Charitable Trust Registered u/s 12AA of the Income-tax Act, 1961 [the Act, for short] and claiming relief u/s 11 of the Act relating to its application of income. The Assessing Officer, made an assessment u/s 143(3) dated 15.11.2018, disallowed a sum of Rs.8,31,572/- due to non-deduction of TDS and no appeal was filed against the disallowance of Rs.8,31,572/- as no demand was raised against the assessee and returned income of NIL was accepted. This information was forwarded to the AO, TDS for taking necessary action.
The AO TDS found that the society has paid following expenses to the advertisement agencies on which TDS are applicable u/s 194C and has paid Interest to Reliance Capital on which TDS are applicable u/s 194A are as under:- Page 5 of 11 [A.Y. 2016-17] Rao Khem Chand Vidya Vihar Shiksha Samiti Name of PAN of Secti Gross TDS @ Intt. u/s Total Less Balance Advertising deductees on Amt. 1% & 201(IA) Tax Prepa Tax Paid. 10% payable id if payable Rs. any. FM Advertising AAYPY2045F 194C 370000 3700/- 2775/- 6475/- 6475/-
Dainik AACCM5772G 194C 186747 1867/- 1400/- 3267/- 3267/- Bhaskar Amar Ujala AADCA0275H 194C 175448 1754/- 1315/- 3069/- 3069/- Reliance AAACR5054J 194A 3810872 381087/ 285815/- 666902/- 666902/- Capital Miscellaneous PAN Not 194A 65595 13119/- 9839/- 22958/- 22958/- provided Total 4608662 401527 301144/- 702671/ 702671/- The AO TDS accordingly held the assessee as deemed to be "an assessee in default" u/s 201(1) for taxation Rs.4,01,527/- on the Gross amount of Rs.46,08,662/- under the head Interest Components and Advertisement Exp. & consequential interest thereon of Rs.3,01,144/- u/s 201(IA) of the I.T. Act 1961 for failure to deduct tax at source.
The assessee appealed before the CIT(A) without success. The aggrieved assessee is now before us.
First, we take up the additional grounds taken by the assessee that the AO has not followed the mandatory provisions of section 191 read with Explanation and not ascertained as to whether taxes had been deposited or not by recipient of income before considering the assessee as assessee in default. We find that the same goes to the root of the matter, hence the same is admitted.
Page 6 of Rao Khem Chand Vidya Vihar Shiksha Samiti 8. At the very outset, the ld. counsel for the assessee submitted that for treating the assessee in default u/s.201 of the Act, Explanation to Sec 191 [Direct Payment] cast duty upon the Assessing Officer to make an exercise regarding the failure of the Payee to deposit the tax directly to the Govt. A/C. Even though details of the 'Payees' name & PAN NO's. are available no exercise regarding direct deposit of tax specified in the 'Explanation to section 191 by the Payees was not done either by the Assessing Officer or by the CIT(A). The CIT(A) dismissed the same under the wrong application of law that the provisions of section 40(a)(ia) of the Act being disallowance of expenses due to non-deduction of TDS is applicable to a Charitable Trust claiming exemption u/s 11 and the assessee has not filed documentary evidences not to held as default u/s.201 as specified u/s 40(a)(ia) of the Act.
It is say of the ld. counsel for the assessee that in the present case the assessee Trust is a Charitable Trust Registered u/s 12AA of the Act and for claiming relief u/s 11 of the Act, the provisions of section 40(a)(ia) are not applicable to the assessee for the A.Y under consideration. For this proposition, the ld. counsel for the assessee relied upon the decision of the Mumbai Tribunal in the case of Mahatma Gandhi Seva Mandir Vs. DDIT ('E) [2012 taxmann.com 321 and "United Educational Society Vs. JCIT [2019] 107 taxmann.com 127 (Del.Trib)"
Page 7 of Rao Khem Chand Vidya Vihar Shiksha Samiti where it was held that provisions of section 40(a)(ia) of the Act are not applicable to Charitable Trusts claiming exemption u/s 11 of the Act.
Per contra, the ld. DR relied upon the orders of the authorities below.
We have heard the rival submissions and have perused the relevant material on record. The relevant provision for fastening the liability for failure to deduct TDS are contained in section 199 and 201 of the Act as follows: Direct payment. 191. 30[(1)] In the case of income in respect of which provision is not made under this Chapter for deducting income-tax at the time of payment, and in any case where income-tax has not been deducted in accordance with the provisions of this Chapter, income-tax shall be payable by the assessee direct. **** Explanation.—For the removal of doubts, it is hereby declared that if any person including the principal officer of a company,— (a) who is required to deduct any sum in accordance with the provisions of this Act; or (b) referred to in sub-section (1A) of section-192, being an employer, does not deduct, or after so deducting fails to pay, or does not pay, the whole or any part of the tax, as required by or under this Act, and where the assessee has also failed to pay such tax directly, then, such person shall, without prejudice to any other consequences which he may incur, be deemed to be an assessee in default within the meaning of sub-section (1) of section-201, in respect of such tax. Consequences of failure to deduct or pay. 201. (1) Where any person, including the principal officer of a company,— (a) who is required to deduct any sum in accordance with the provisions of this Act; or Page 8 of 11 [A.Y. 2016-17] Rao Khem Chand Vidya Vihar Shiksha Samiti (b) referred to in sub-section (1A) of section 192, being an employer, does not deduct, or does not pay, or after so deducting fails to pay, the whole or any part of the tax, as required by or under this Act, then, such person, shall, without prejudice to any other consequences which he may incur, be deemed to be an assessee in default in respect of such tax: Provided that any person, including the principal officer of a company, who fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid to a resident or on the sum credited to the account of a resident shall not be deemed to be an assessee in default in respect of such tax if such resident— (i) has furnished his return of income under section 139; (ii) has taken into account such sum for computing income in such return of income; and (iii) has paid the tax due on the income declared by him in such return of income, and the person furnishes a certificate to this effect from an accountant in such form as may be prescribed17: Provided further that no penalty shall be charged under section 221 from such person, unless the Assessing Officer is satisfied that such person, without good and sufficient reasons, has failed to deduct and pay such tax.
The Explanation to the provisions of section 191 fastens liability on the Deductors to pay tax in the event TDS, as required by the Act, is not deducted/deposited, and the assessee has also not paid the tax directly, whereas the provisio of section 201 mandates that if income tax is not deducted at source (TDS), the person responsible for deducting or depositing TDS may be deemed an "assessee in default". The conjoint and harmonious reading of the Explanations to section 191 and 1st Proviso to section 201, the Deductor has to furnish a certificate under Page 9 of Rao Khem Chand Vidya Vihar Shiksha Samiti Rule 31ACB of the Income Tax Rules in Form 26A that the payee has paid the tax due on the income.
We find that there is no finding in the order u/s 201(1) that there is any information regarding payment of tax by the assessee, as per the Explanation of section 191, is available nor the assessee has submitted any certificate in the prescribed format as required under 1st Proviso to section 201 of the Act. We therefore are of the considered view that in the interest of justice, the issue may be remanded to the file of the AO to examine the payment of taxes by the relevant payees and adjudicate the matter of considering the assessee as “assessee-in-default” afresh. The additional ground is allowed for statistical purpose.
As we have decided to remand the matter to the AO, no adjudication is made on the original grounds taken by the assessee.
Sd/- Sd/- [MADHUMITA ROY] [NAVEEN CHANDRA] JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 6th February, 2026 VL/
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Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi
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