RAJASTHAN AVAS VIKAS & INFRASTRUCTURE LIMITED,JAIPUR vs. ACIT, JAIPUR

PER SH. VIKRAM SINGH YADAV, A.M. These are two appeals filed by the assessee against two separate

orders passed by ld. CIT(A)-2, Jaipur of even date i.e, 29/01/2016 for

A.Y. 2011-12 & 2012-13 respectively. Since common issues are involved,

both the appeals were heard together and disposed off by this

consolidated order. The grounds of appeal taken by the assessee are as

under:-

ITA No. 391/JP/2016:

“1. The Ld. AO has erred in withholding TDS of Rs. 38,440/- deducted by Bank on Interest income held by the assessee in fiduciary capacity which was not income of the assessee. Since, the funds received from HUDCO were held by the assessee in Trust/in fiduciary capacity on behalf of State Government for disbursement, hence the Ld. AO erred in treating the income of interest on such funds temporarily deposited in bank as taxable income and further erred in withholding the TDS of Rs. 38,440/-. The interest income being not taxable and TDS therefore is allowable to assessee. The assessee was acting as nodal agency for and on behalf of State Government in receiving and repaying loan from HUDCO and as such interest income on such idle funds which were held in trust by the assessee was exempt income of State Government, hence, the Ld. AO erred in not allowing the TDS amount of Rs. 38,440/- 2. That the application of section 199 of the Income Tax Act of Rs. 38,440/- on TDS amount is illegal, unjustified and without any basis.”

ITA No. 391 & 392/JP/2016 3 Rajasthan Avas Vikas & Infrastructure Ltd Vs ACIT

ITA No. 392/JP/2016: “1. The Ld. AO has erred in withholding TDS of Rs. 12,43,682/- deducted by Bank on Interest income held by the assessee in fiduciary capacity which was not income of the assessee. Since, the funds received from HUDCO were held by the assessee in Trust/in fiduciary capacity on behalf of State Government for disbursement, hence the Ld. AO erred in treating the income of interest on such funds temporarily deposited in bank as taxable income and further erred in withholding the TDS of Rs. 12,43,682/. The interest income being not taxable and TDS therefore is allowable to assessee. The assessee was acting as nodal agency for and on behalf of State Government in receiving and repaying loan from HUDCO and as such interest income on such idle funds which were held in trust by the assessee was exempt income of State Government, hence, the Ld. AO erred in not allowing the TDS amount of Rs. 12,43,682/- 2. That the application of section 199 of the Income Tax Act of Rs. 12,43,682/- on TDS amount is illegal, unjustified and without any basis.”

a nodal agency by the Government of Rajasthan for Police Housing

Scheme and funds were received by the assessee from HUDCO on behalf

of State Government for disbursement to various agencies for

construction of houses for the Police department. The funds so received

from HUDCO till the time the same was disbursed to the various agencies

were placed in FDRs with the bank and TDS was deducted by the bank

on interest earned on such FDRs. The funds so received belonged to the

ITA No. 391 & 392/JP/2016 4 Rajasthan Avas Vikas & Infrastructure Ltd Vs ACIT

Government of Rajasthan and any interest on such funds placed in the

form FDR also belongs to Government of Rajasthan. As a result, the

assessee did not offer the interest income for tax while filing its return of

income. At the same time, it claimed credit of TDS deducted on such

interest income against its tax liability while filing its return of income.

The Assessing Officer agreed with the assessees contention’s that

interest on FDR has been received by the assessee in fiduciary capacity

and the same was not brought to tax. However, as far as the claim of

credit of TDS on such interest income was concerned, the same was not

allowed to the assessee following the provisions of Section 199 of the Act

and the relevant I.T rules. The Assessing Officer also mentioned that a

similar issue was involved in the A.Y 2010-11 wherein credit of TDS was

not allowed to the assessee.

2.1 Being aggrieved, the assessee carried the matter in appeal before

the ld. CIT(A). The ld. CIT(A) after noting the facts of the case referred

to the order passed by his predecessor for A.Y 2010-11 and confirmed

the AO’s order in not allowing credit of TDS to the assessee. Now, the

assessee is in appeal before us against the said order passed by the ld.

CIT(A).

2.2 At the outset, the ld. AR drawn our attention to the decision

passed by the Coordinate Bench in ITA No. 247 & 248/JP/2014 dated

ITA No. 391 & 392/JP/2016 5 Rajasthan Avas Vikas & Infrastructure Ltd Vs ACIT

18.3.2016 in assessee’s own case for A.Y 2009-10 and 2010-11 and

submitted that issue was decided in favour of the assessee by the said

decision passed by the Coordinate Bench and hence, the same should be

followed in respect of impunged matters before us.

2.3 The issue under consideration before the Coordinate Bench for for

A.Y 2009-10 and 2010-11 are as under:-

ITA No. 247/JP/2014 (Assessment Year 2009-10):

“In the facts and circumstances of the case the learned Commissioner (Appeals) has erred in not allowing credit of TDS of Rs. 4502798, deducted by our Bank on interest and deposited to the Income Tax Department and holding that the interest belongs to Police Department and the provisions of section 199 are applicable.’ ITA No. 248/JP/2014 (Assessment Year 2010-11)

“In the facts and circumstances of the case the learned Commissioner (Appeals) has erred in not allowing credit of TDS of Rs. 1741463, deducted by our Bank on interest and deposited to the Income Tax Department and holding that the interest belongs to Polce department and the provisions of section 199 are applicable.”

The facts under consideration before the Coordinate Bench were

that during the year under consideration the assessee deposited funds

received from HUDCO in FDRs with the Bank as the same were lying idle

and got the interest of Rs. 2,18,15,365 and on the said interest the Bank

of Rajasthan had deducted TDS of Rs. 45,02,798. The assessee did not

ITA No. 391 & 392/JP/2016 6 Rajasthan Avas Vikas & Infrastructure Ltd Vs ACIT

offer the interest income of Rs. 2,18,15,365 for the purpose of tax in the

return of income as the assessee was merely acting as a nodal agency

for the State of Rajasthan and has deposited the amount with the bank

for and on behalf of State of Rajasthan. It was also the case of the

assessee that the interest income accrued on the FDRs was not taxable.

The assessee has submitted that the assessee is entitled to the refund of

entire amount of Rs. 45,02,798 in the assessment year 2009-10.

In the context of above facts, the Coordinate Bench relied on the

decision of Hon’ble Delhi High Court in case of CIT vs. Relcom (2015)

234 Taxman 693 (Delhi) and its relevant findings are as under:-

“In the present case the amount was deposited as FDR’s by the assessee on behalf of State of Rajasthan with the Bank of Rajasthan and on the FDR’s deposit the interest has been accrued. The TDS was deducted by the Bank on the interest accrued on the FDRs. In our view, the Revenue is taking the hyper technical plea of not returning the TDS to the assessee on the pretext that the amount has been deposited with the bank on behalf of State of Rajasthan. Since the State of Rajasthan is not a taxable entity, therefore, refund of TDS cannot be given to the State of Rajasthan. It is not disputed that the assessee after realizing the interest income from the bank has given back the amount to the State of Rajasthan. Similarly it is also undisputed that the refund of TDS has not been claimed by the State of Rajasthan and is only claimed by the assessee being the nodal agency of the State of Rajasthan for this project. In our view, no prejudice will be caused to any person if the TDS is refunded to the assessee being the nodal agency with the undertaking to return the amount to the State of Rajasthan. In view of thereof and also in view of the judgment referred hereinabove, the TDS deducted by the Income Tax Department is directed to be paid to the assessee and we accordingly hold the same. In this view of the matter, the appeal of the assessee is allowed”

ITA No. 391 & 392/JP/2016 7 Rajasthan Avas Vikas & Infrastructure Ltd Vs ACIT

2.4 The facts of the instant case are pari materia to the facts of the

case before the Coordinate Bench in respect of assessee’s own case for

A.Ys 2009-10 and 2010-11. The Revenue has not brought to our notice

any contrary authority on the said issue. Hence, we do not see a reason

to deviate from the view taken by the Coordinate Bench in assessee’s

own case.

2.5 Undisputedly, the interest income has not been brought to tax by

the Revenue accepting the assessee’s contention that the receipt of

funds and interest thereon is in the fudiciary capacity on behalf of the

State of Rajasthan. The State of Rajasthan being not a taxable entity,

there should not be any TDS at first place. For reasons best known to the

assessee and the bank, the TDS has been deducted. Given that interest

income is not taxable either in the hands of the assessee or the state of

Rajasthan, the TDS has to be refunded. Since the assessee is acting as

the nodal agency and all funds have been routed through it, the refund

of TDS has to be routed through it to the State of Rajasthan.

Accordingly, we direct the Revenue to refund the TDS of Rs. 38440/- to

the assessee with the undertaking to return the said amount to the State

of Rajasthan.

ITA No. 392/JP/2016

ITA No. 391 & 392/JP/2016 8 Rajasthan Avas Vikas & Infrastructure Ltd Vs ACIT

2.6 In ITA No. 392/JP/2016, the facts are pari-materia to the facts of the case in above appeal in ITA No. 391/JP/2016. Accordingly, our findings and directions contained therein shall apply mutatis mutandis to this appeal as well.

In the result, both the appeals of assessee are allowed.

Order pronounced in the open court on 12/05/2017.

Sd/- Sd/- (Diva Singh) (VIKRAM SINGH YADAV) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member

Jaipur Dated:- 12/05 /2017 *Ganesh आदेश की प्रतिलिपि अग्रेषित@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. vihykFkhZ@The Appellant- Rajasthan Avas Vikas & Infrastructure Ltd., 2. izR;FkhZ@ The Respondent- ACIT,Circle-6, Jaipur. vk;dj vk;qDr@ CIT –TDS, Jaipur 3. vk;dj vk;qDr¼vihy½@The CIT(A)-III, Jaipur 4. 5. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत 6. xkMZ QkbZy@ Guard File (ITA No.391 & 392 /JP/2016)

vkns'kkuqlkj@ By order,

सहायक पंजीकार@ Aेेपेजंदज. त्महपेजतंत