ITO (TDS), HISAR vs. UNION BANK OF INDIA, BHIWANI

Following common grounds have been raised in these appeals: “1. The Ld. CIT(A) has erred in law and facts by not appreciating the observations made by the A.O. in treating the assessee in default, since the provisions to section 201 of the Act has been incorporated prospectively w.e.f. from 01.07.2012.

2 to 2313/Del/2015 Union Bank of India 2. The Ld. CIT(A) has erred in law and facts by ignoring the observations made by the A.O. that deductee (PAN - AABCH7770G) was a company registered u/s 25 of the Companies Act and as such, was not eligible to furnish declaration in Form 15G in view of the provisions of Rule 29C of the Income Tax Rules, 1962.

The Ld. CIT(A) has erred in law and facts by ignoring Board's Circular No. 4/2002, dated 16.07.2002, which states that there is no requirement for tax deduction at source in case of those funds or authorities or Boards or bodies whose income is unconditionally exempt u/s 10 & who are statutorily not required to file return of income as per section 139. Since the deductee is filing its ITR and hence not covered within the ambit of this circular, the deductor was not prevented by any reasonable cause for not deducting TDS u/s 194A.

In his rival submissions, the ld. DR but could not controvert the aforesaid contention of the ld. Counsel for the assessee.

We have considered the submissions of both the parties and perused the material available on the record. In the present case, it is an admitted fact that an identical issue having similar facts was a subject matter of the assessee’s appeal in to 1940/Del/2015 for the assessment years 2009-10 to 2013-14 wherein the similar issue has been set aside to the AO for fresh adjudication and the relevant findings have been given in paras 10 to 13 which read as under: “10. We have considered the submissions of both the parties and perused the material available on the record. In the present case, it is an admitted fact that the Haryana Cricket Association who was having the FDRs with the assessee, is registered u/s 12AA of the Act and its income is exempt u/s 11 of the Act. The said fact has been admitted by the ld. CIT(A) who mentioned that income of the assessee u/s 143(3) of the Act for the assessment year 2010-11 had been assessed at Nil, considering the exemption provided u/s 11 of the Act. In the present case, it is noticed that there was no finding by the ITO(TDS) regarding the payment of tax by the deductee for the various financial years. In the present case, the ld. CIT(A) in paras 7.2 & 7.3 has 4 ITA Nos. 2310 to 2313/Del/2015 Union Bank of India clearly directed the ITO(TDS) that the relief for tax computed u/s 201(1) of the Act was available to the assessee subject to the verification by the ITO(TDS) about the tax liability of the deductee for each financial year. The said observation of the ld. CIT(A) is reproduced verbatim as under: “7.2 In the instant case, a combined order for five financial years from 2008-09 to 2012-13 have been passed on 07.08.2013 and the proviso was applicable for consideration for two financial years. However, the appellant has relied on the judgments of Hon'ble Supreme Court in the case of Allied Motors 224 ITR 677 and Alom Extrusions 319 ITR 306 to emphasize that the proviso inserted to provide remedy for unintended consequences may be considered to be clarificatory in nature having retrospective effect. Since, the ITO has passed a combined order after insertion of proviso, therefore, the effect of proviso is considered to be extended to all financial years under consideration. It is noted that the deductor was under bonafide believe for non deduction of TDS on considering the Form 15G furnished by the deductee without realizing the admissibility of Form 15G by a company. Further, the appellant was under misconception that if the deductee have exempt income then there was no requirement to deduct TDS. Further, it is also a fact that the deductee has filed its return of income and assessment passed u/s 143(3) for A.Y. 2010-11 i.e. F.Y. 2009- 10 has been assessed at nil considering the exemption provided u/s 11 of the I.T. Act and registration granted u/s 12AA of the Act. Further, 5 to 2313/Del/2015 Union Bank of India on perusal of audit, report relevant to F.Y. 2012- 13, it is noted that the income on account of interest has been accounted for by the deductee in its P&L account and balance sheet. Therefore, the deductee’s income is exempted as per provisions of section 11 subject to fulfillment of the conditions stipulated in section 11 of the Act. Further, the Hon'ble Supreme Court in the Hindustan Coca Cola Beverage Pvt. (supra) has referred to the circular issued by the CBDT and gave the judgment as under: "The circular No. 275/201/95-IT(B), dated 29- 1-1997 issued by the Central Board of Direct Taxes would put an end to the controversy. The circular declares that no demand visualized under section 201(1) should be enforced after the tax deductor has satisfied the officer-in- charge of TDS that taxes due have been paid by the deductee-assessee. However, this will not alter the liability to charge interest under section 201(1A) till the dale of payment of taxes by the deductee-assessee or the liability for penalty under section 271C." 7.3 In view of above facts, I find that by virtue of proviso to section 201(1) the deductor may not be considered assessee in default in failing to deduct such tax. Moreover, in view of decision of Hon'ble Supreme Court in the case of Hindustan Coca Cola Beverage Pvt. Ltd. (supra), the deductor cannot be treated as assesses in default as the tax is not recoverable from deductor to the extent if the same has been paid by the recipient. There are no findings by the ITO(TDS) regarding 6 to 2313/Del/2015 Union Bank of India the payment of taxes by the deductee for various financial years. Though, the appellant has submitted that deductee's income is exempt u/s 11, however, in the absence of examination of facts for all financial years, the ITO(TDS) is directed to verify the tax liability for each financial year and find out the extent and quantum of the tax paid by the deductee. If, as per proviso to section 201(1) the tax amount as claimed from the deductor has been paid by the deductee or there was no liability to pay tax by the deductee then for that amount the deductor cannot be treated as assessee is default for respective financial years. Accordingly, the relief is available for tax computed u/s 201(1) to the appellant subject to the verification by the ITO(TDS) about the tax liability of the deductee for each financial year.”

From the above observations of the ld. CIT(A), it is clear that direction was given to the ITO(TDS) for verification, however, he had taken a contradictory stand while confirming the action of the AO. We, therefore, considering the contradictory stand taken by the ld. CIT(A), deem it appropriate to set aside this issue back to the file of the AO to be adjudicated afresh in accordance with law after providing due and reasonable opportunity of being heard to the assessee. The AO is also directed to verify as to whether there was any liability of the deductee to pay the tax or any tax has been paid. As regards to the applicability of the proviso inserted by Finance Act, 2012 is concerned, it is relevant to point out that the Hon’ble Supreme Court in the 7 ITA Nos. 2310 to 2313/Del/2015 Union Bank of India case of CIT Vs Alom Extrusions Ltd. (200) 319 ITR 306 (supra) has held as under: “When a proviso in a section is inserted to remedy unintended consequences and to make the section workable, the proviso which supplies an obvious omission therein is required to be read retrospectively in operation, particularly to give effect to the section as a whole.”

In the present case also, the proviso to Section 201(1) of the Act has been inserted to remedy unintended consequences to make the section workable, so it is required to be retrospective in operation. Therefore, in the instant case, if it is found that the deductee was not liable to pay any tax and the income earned as interest of the FDRs has been accounted for in the income, which is exempt then the assessee should not be treated as an assessee in default.

In all other appeals for the assessment years 2010-11 to 2013-14, the facts are identical, therefore, our findings given in respect of assessment year 2009-10 shall apply mutatis mutandis.”

So, respectfully following the aforesaid referred to order dated 30.11.2017, the issues under consideration are remanded back to the file of the AO to be adjudicated afresh as per the direction given in the aforesaid referred to order dated 30.11.2017.