CANARA BANK,BANGALORE vs. INCOME TAX OFFICER(TDS), BANGALORE

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH ‘ B ’ BEFORE SHRI GEORGE GEORGE K, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER

Sl. No. ITA No. & A.Y. Appellant Respondent 1. 1476/Bang/2014 Canara Bank, Income Tax Officer 2012-13 Lalbagh (West Branch), Bangalore. (TDS), LTU, Bangalore. 2. 1477/Bang/2014 Canara Bank, Koramangala Layout -do- 2012-13 Branch, Bangalore. 3. 1478/Bang/2014 Canara Bank, Trinity Circle Branch, -do- 2012-13 Bangalore. 4. 1479/Bang/2014 Canara Bank, Nelamangala Branch, -do- 2012-13 Bangalore. 5. 1480/Bang/2014 Canara Bank, Trinity Circle Branch, -do- 2013-14. Bangalore. 6. 1481/Bang/2014 Canara Bank, Nelamangala Branch, -do- 2013-14. Bangalore.

Appellant By : Shri Balaram R Rao, Advocate. Respondent By : Dr.P.K. Srihari, Addl. CIT (D.R.) Date of Hearing : 5.8.2015. Date of Pronouncement : 12.08.2015. O R D E R Per Bench : These appeals by the assessee (i.e. 4 branches of Canara Bank) are directed against the orders of the Commissioner of Income Tax (Appeals), LTU, Bangalore. The relevant Assessment Years are 2012-13 and 2013-14. The assessees are 4 branches of Canara Bank (i.e. Lalbagh Branch, Nelamangala Branch, Trinity Circle Branch and Koramangala Branch). The issues and grounds raised in this appeal are similar and therefore, these appeals being heard together are disposed off by way of this common order. 2. The facts of the case, briefly, are as under :-

2 ITA Nos.1476 to 1479 & 1480 & 1481/Bang/2014 Canara Bank 2.1 The aforesaid assesses, 4 branches of Canara Bank (supra) received deposits from Karnataka Industrial And Development Board (‘KIADB’) and paid interest thereon. In the periods under consideration, the assesses paid interest to KIADB without deducting tax at source (TDS) under Section 194A of the Income Tax Act, 1961 (in short 'the Act') in the belief that it was not liable to deduct tax since KIADB was exempt from tax, being registered under Section 12A of the Act. On examination, the authorities below observed that while placing the deposits with the assesses, KIADB had furnished certificates under Section 197(1) of the Act which was valid till 31.3.2010 requesting the assessees not to deduct tax and assuring the assessee that non-deduction certificates would be furnished from the Assessing Officer for the impugned Assessment Years 2012-13 and 2013-14 also. The assessees vide letters dt.14.3.2014 brought to the notice of KIADB that they had not deducted tax on the interest on its deposits at their branches (supra) as per the request of KIADB, on its assurance that it would submit to them IT Exemption Certificate. KIADB was unable to furnish to the assessees the required IT Exemption Certificates due to the cancellation of its Registration under Section 12A of the Act w.e.f. Assessment Year 2009-10. The assessees furnished Forms 26A duly certified by Chartered Accountants on the basis of which the Assessing Officer accepted that the assessees were not to be treated as assessees in default in terms of Section 201(1) of the Act. The Assessing Officer, however, held that the assessees were liable to be charged interest under Section 201(1A) of the Act and accordingly vide separate orders raised demands thereunder, the details of which are :-

3 ITA Nos.1476 to 1479 & 1480 & 1481/Bang/2014 Canara Bank S.No. Canara Bank Branches Assessment Demand at Bangalore. Year u/s.201(1A) (Rs.) 1. Lalbagh (West) Branch 2012-13 83,862 2. Koramangala Branch 2012-13 43,762 3. Trinity Circle Branch 2012-13 24,789 4. Nelamangala Branch 2012-13 95,140 5. Trinity Circle Branch 2013-14 58,980 6. Nelamangala Branch 2013-14 22,076

2.2 Aggrieved by the aforesaid orders raising demands by charging interest under Section 201(1A) of the Act for Assessment Year 2012-13 and 2013-14, the assessees preferred appeals before the CIT (Appeals), LTU, Bangalore. The learned CIT (Appeals) vide separate orders in respect of the 6 Branches of Canara Bank listed at Para 2.1 (supra) dismissed the assessees appeals. The learned CIT (Appeals) observed that KIADB has also not paid tax on the interest paid to it on the ground that it should be treated as a charitable organization whose income is exempt in terms of the definition of charitable purpose under Section 2(15) of the Act; which view was not accepted by the Department as KIADB’s registration under Section 12A of the Act was cancelled by order under Section 12AA(3) of the Act. In that view of the matter, the learned CIT (Appeals) upheld the action of the Assessing Officer, in charging the assessees interest under Section 201(1A) of the Act for failure on their part to deduct tax under Section 196A of the Act in respect of the interest paid to KIADB on deposits kept by it with these 6 branches of Canara Bank, and consequently dismissed the assessees appeals. 3.1 Aggrieved by the order of the CIT (Appeals), LTU, Bangalore for Assessment Year 2012- 13 and 2013-14, the assessees are in appeal before the Tribunal, raising the following identical grounds. We are therefore extracting hereunder only the grounds raised by the Canara Bank, Lalbagh (West) Branch for Assessment Year 2012-13 :-

4 ITA Nos.1476 to 1479 & 1480 & 1481/Bang/2014 Canara Bank “1. The order of the learned CIT (Appeals), LTU, is bad in law and against the facts of the case. 2. The learned CIT (Appeals), LTU, Bangalore erred in confirming the order passed by the Income Tax Officer (TDS), LTU, Bangalore levying interest under Section 201(1A) of the Act. 3. The learned CIT (Appeals), LTU failed to appreciate the fact that the Board is a body corporate covered by section 194A(3)(iii)(f) of the Income Tax Act, 1961 and hence, there is no need to deduct tax at source. 4. The learned CIT (Appeals), LTU failed to appreciate the facts that the KIADB is a statutory body, constituted under Section 5 of KIAD Act, 1966, the Board is registered under the provisions of Section 12A of the Income Tax Act, 1961 and therefore their income is exempt from income tax and hence they have returned a NIL income. As the Board is a Government entity, the appellant is exempt from the provisons of TDS under Section 196 of the Income Tax Act, 1961. 5. The learned CIT (Appeals) failed to appreciate and ought to have held that before applying Section 201(1A), the applicability of section 201(1) has to be established. On the facts and circumstances of the case, the appellant could not lawfully be asked to pay or make good any tax allegedly not deducted having regard to the principles laid down by the Courts and the Income Tax Appellate Tribunal. Hence, a demand from the assessee cannot be lawfully made unless there is a failure to act honestly and fairly. 6. The learned CIT (Appeals), LTU erred in confirming levy of interest under Section 201(1A) of Rs.83,862.00 being the interest on TDS. The appellant denies its liability to interest under section 201(1A) and prays that the levy of such interest be quashed. 7. The appellant’s craves leave to add, alter, amend, delete, substitute any or all of the grounds urged during the hearing of the appeal.” 3.2 The learned counsel for the assessee reiterated the submissions put forth before the learned CIT (Appeals) and assailed the impugned order of the learned CIT (Appeals) submitting that the learned CIT (Appeals) erred in upholding the orders of the Assessing Officer in charging the assessees interest under Section 201(1A) of the Act. The ld. Counsel further submitted that the interest incomes which was received by KIADB are not liable to be taxed in view of the Registration it enjoyed under Section 12A of the Act vide order dt.20.4.1988 and while the registration was cancelled by the Department under Section 12AA(3) of the Act, the co-ordinate bench of the Tribunal set aside the orders of Revenue and restored the registration under Section 12AA in order in ITA No.1095/Bang/2011 dt.31.1.2013. It is submitted that on further appeal by Revenue, the Hon'ble Karnataka High Court in ITA

5 ITA Nos.1476 to 1479 & 1480 & 1481/Bang/2014 Canara Bank No.261/2013 dt.7.11.2014 dismissed Revenue’s appeal. It is contended that when the interest income paid by the assessee to KIADB is not liable to tax, there is no obligation on the part of the assessees to make deduction of tax at source. In support of this proposition, the learned Authorised Representative placed reliance on the decision of the Hon'ble High Court of Karnataka in the case of CIT V ITC Hotels Ltd., in ITA No.477 and 478/2009 dt.15.6.2015. In view of the above, the learned Authorised Representative prayed that the assessees appeals ought to be allowed. 3.3 Per contra, the learned Departmental Representative strongly relied on the impugned orders of the learned CIT (Appeals). 3.4.1 We have heard the rival submissions and perused and carefully considered the material available on record. In the instant case, the assessee bank had taken term deposit from KIADB. The KIADB was entitled to interest on these term deposits. These interest incomes which have received by KIADB are not liable to be taxed in view of the Registration under Section 12AA enjoyed by KIADB. No doubt the Registration was cancelled by the income tax authorities. However, the assessee took up the matter before the Tribunal and Tribunal vide order in ITA No.1095/Bang/2011 dt.31.1.2013 has set aside the order passed by the income tax authorities cancelling the Registration to KIADB. On further appeal by the Revenue under Section 260A of the Act, the Hon'ble High Court in ITA No.261/Bang/2013 dt.7.11.2014 (copy enclosed on page 63 of the paper book filed by the assessee) dismissed the Revenue’s appeal. Since the Hon'ble High Court has confirmed the Tribunal’s order, the Registration which is granted to KIADB, the recipient of the interest income was still in vogue. When the interest income is not liable for taxation, there is no obligation on the part of the assessee bank to make deduction of tax at source.

6 ITA Nos.1476 to 1479 & 1480 & 1481/Bang/2014 Canara Bank 3.4.2 The Hon'ble jurisdictional High Court in the case of CIT Vs. ITC Hotels Ltd. in ITA No.477 & 478/2009 Dt.15.6.2015 considered the following substantial questions of law, as under :- 1. Whether the Tribunal was correct in holding that the income earned by M/s. Sheraton International, USA in India was not liable for deduction of TDS u/s.195 r/w S. 197 of the Act, in respect of payments made by the assessee as they did not have a permanent establishing in India as per S.9 r/w its explanation and consequently provisions of Ss.201(1) and 201(1A) of the Act was not attracted ? 2. Whether the Tribunal was correct in not taking into consideration the principles enunciated by the Apex Court in Transmission Corporation of AP Ltd. Vs. CIT – 239 ITR 587, where it clearly laid down that the taxability or not of the income of M/s. Sheraton International, USA, was liable to tax in India or not had to be examined by the Assessing Officer under Section 195 of the Act and not in the hands of the payer / deductor of TDS ? The Hon'ble High Court while considering the above question of law, has rendered the following finding :- “….. Even otherwise, as we have already observed herein above, the Revenue itself had given No Objection Certificates consistently for several years and allowed the respondent assessee to make payment to Sheraton without deducting tax at source and it was only after the decision of the Assessing Officer at Delhi in the case of Sheraton holding that payment made to it would be liable for payment of income tax in India, the proceedings in question had been initiated against the respondent assessee herein. However, once the said order of the Assessing Officer itself has been set aside by the Delhi High Court, the very foundation of initiating proceedings against the respondent assessee disappears and once the foundation goes, the structure cannot remain, i.e. proceedings against the respondent assessee cannot go on.” 3.4.3 Since the interest income was not liable to be taxed in the hands of the recipient, there is no obligation on the part of the assessees to deduct tax at source. However, since

7 ITA Nos.1476 to 1479 & 1480 & 1481/Bang/2014 Canara Bank the Hon'ble High Court judgment is rendered subsequent to the order of the CIT (Appeals), the CIT (Appeals) did not have the benefit to peruse the same. Therefore, we deem it appropriate to restore the issue for de novo consideration to the file of the Assessing Officer. The Assessing Officer shall dispose the matter expeditiously after affording reasonable opportunity to the assessee. 4. In the result, these appeals filed by the assessees for A.Ys 2012-13 and 2013-14 are allowed for statistical purposes. Order pronounced in the open court on 12th August, 2015.

Sd/- Sd/- (GEORGE GEORGE K) (JASON P BOAZ) Judicial Member Accountant Member

*Reddy gp Copy to : 1. Appellant 2. Respondent 3. C.I.T. 4. CIT(A) 5. DR, ITAT, Bangalore. 6. Guard File. (True copy) By Order

Asst. Registrar, ITAT, Bangalore