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Income Tax Appellate Tribunal, COCHIN BENCH, COCHIN
Before: Shri George George K. & Shri Laxmi Prasad Sahu
Per: L.P. Sahu, A.M.
These six appeals were filed by the assessee against the following orders of the learned CIT(A), NFAC, Delhi for assessment years 2011-12 to 2016-17:- i) No. ITBA/NFAC/S/250/2021-22/1035159408(1) dated 28.08.2021 ii) No. ITBA/NFAC/S/250/2021-22/1035159382(1) dated 28.08.2021 iii) No. ITBA/NFAC/S/250/2021-22/1035192783(1) dated 31.08.2021 iv) No. ITBA/NFAC/S/250/2021-22/1035192880(1) dated 31.08.2021 v) No. ITBA/NFAC/S/250/2021-22/1035192737(1) dated 31.08.2021 vi) No. ITBA/NFAC/S/250/2021-22/1035159401(1) dated 28.08.2021 2. Since the issues raised by the assessee in ITA No. 211/Coch/2021 for AY 2015-16 covers all the years grounds taken by the assessee, for the
ITA Nos. 207 to 212/Coch/2021 2 M/s. Edarikode Service Co-operative Bank Ltd. sake of brevity of the order we are taking this appeal and the decision in this appeal shall apply mutatis mutandis in other appeals also.
Assessee has raised the following grounds of appeal in AY 2015-16:- “1. Contributions made by the employees towards Provident Fund is eligible for deduction in computing the taxable income despite the fact that the Fund is maintained with district cooperative bank. 2. Provisions of section 201(1) and 201(1A) are not attracted for short deduction of TDS on salary because the appellant had deducted the TDS on a bona fide estimate of the tax liability of the employees. 3. Interest computation u/s 201(1A) for short deduction of TDS on salary is erroneous. 4. Interest computation u/s 201(1A) for non-deduction of TDS is erroneous. 5. Income Tax Officer (TDS) erred in applying higher rate of TDS. The officer erred in treating the payments made under ‘Annual Maintenance Contract’ (AMC) as technical service charges u/s 194J and applying higher rate of TDS.” 4. The brief facts of the case are that as per the information gathered by the Income Tax Officer (TDS) (hereinafter the ITO (TDS) the Secretary, Edarikode Service Co-operative Bank Ltd., Edarikode has not deducted tax at source on payment of salary to its employees. Accordingly notices were issued to the assessee on different dates calling for details of the salary payment towards employees and tax deducted thereon as per the provisions of the Act. The assessee failed to furnish the necessary details. Therefore spot inspection was carried out on 1st March, 2018 and details were also called for and he did not furnish the same. Finally the Branch Manager appeared and he sought more time. On 27th March, 2018 he furnished details of salary drawn, contribution made to non-recognised Provident Fund etc. for the Financial Year 2010-11 but details of deductions, professional tax payments, etc were not furnished and he
ITA Nos. 207 to 212/Coch/2021 3 M/s. Edarikode Service Co-operative Bank Ltd. submitted that no tax has been deducted from the salary paid to the employees and only Shri Abdul Jaleel K. and Chandramathi T had paid their self-assessment tax for AY 2011-12. The ITO (TDS) observed that the assessee has not furnished the requisite details and he also observed that the assessee had failed to comply with the provisions of Section 192 of the Income Tax Act, 1961 (the Act). The ITO(TDS) further observed that while computing the total taxable income of the assessee the deduction under Section 80C of the Act can be allowed only in respect of the contribution made, which is as under: -
a) As contribution by the individual to any provident fund to which the Provident Funds Act 1925 (19 of 1925) applies; b) As a contribution to any provident fund set up by the Central Government and notified by it in this behalf in the official Gazette, where such contribution is to an account standing in the name of any person specified in sub-clause (4); c) As contribution by an employee to a recognized provident fund.
As per the ITO (TDS) contribution made by the employees towards Provident Fund was deposited with the District Co-operative Bank, which does not come within the above three categories of Provident Fund. Accordingly the benefit of deduction under Section 80C of the Act in regard to contribution to PF cannot be given and the above position of the law has been settled by the Hon’ble jurisdictional High Court. After examining the details the ITO(TDS) observed that the assessee has failed to comply with the provisions of Section 192 of the Act for non-deduction TDS at source and further as per Section 206AA of the Act the employer had not obtained PAN of the concerned payees. Accordingly TDS rate should be @ 20% on the sum paid to the concerned employees. Since the employer has failed to deduct the tax at source as stipulated by law, the
ITA Nos. 207 to 212/Coch/2021 4 M/s. Edarikode Service Co-operative Bank Ltd. deductor is liable to be treated as an assessee in default under Section 201 of the Act and is liable for tax and interest. Accordingly the ITO (TDS) calculated the tax to be deducted and interest thereon under Section 201(1A) of the Act as under: -
F/Y Total Tax Tax Tax paid Balance Interest Total Tax & Deductible deducte in PAN Tax payable @1@ interest payable d Payable per month (Rs.) 2010-11 186454 0 14331 172126 144586 316712
As per the above table demand was raised for Rs.3,16,712/- . Aggrieved by the order of the ITO(TDS) the assessee filed appeal before the CIT(A) and he also filed detailed written submission which has been incorporated by the CIT(A) in his order. After considering the submissions of the assessee the CIT(A) partly allowed the appeal for statistical purposes. Aggrieved by the order of the CIT(A) the assessee filed appeal before the Tribunal.
The learned A.R. reiterated the submissions made before the lower authorities. He further submitted that the assessee shall not be treated as an assessee in default for non-deduction of TDS because there was a bona fide estimate that after giving benefit under provision of Section 80C of the Act most of the employees were out of the tax bracket net. He also submitted that the contribution made towards Provident Fund is eligible for deduction under Section 80C of the Act because it has been established as per Section 61 of KCS Act r.w. Rule 58 of KCS Rules and the scheme notified by the Government of Kerala under Section 80A of the Act. The provisions of Provident Fund, 1925 applies to this Provident Fund as per Section 8 of the Act. Hence the employees are eligible for deduction towards contributions to PF as per Section 80C of the Act. He strongly relied on the judgment of the Coordinate Bench of the Tribunal in the caes of ITO (TDS), Kottayam vs. Mahatma Gandhi University in ITA Nos. 555 & 556 of 2018 order dated 15th May, 2019. There was a bonafide
ITA Nos. 207 to 212/Coch/2021 5 M/s. Edarikode Service Co-operative Bank Ltd. belief and according to him the TDS provisions were not applicable in the case of the assessee because it is a tentative estimate as submitted as per the earnings of the employees. He has also filed paper book containing 65 pages which contains ground-wise submissions as below: -
“Ground No. 1 & 2 are common in all appeals. Ground No. 3 & 4 are in appeals ITA 208 to 212 (A.Y 2012-13 to A.Y 2016-17) Ground No. 5 is in ITA 211 & 212 (A.Y 2015-16 & 2016-17). 1. GROUND: Contributions made by the employees towards Provident Fund is eligible for deduction in computing the taxable income despite the fact that the Fund is maintained with district cooperative bank. 1.1. The appellant computed the taxable income of its employees and deducted TDS u/s 192. The ITO(TDS) recomputed the taxable income. The income tax officer (TDS) denied deduction u/s 80C on the contributions made by the employees of the appellant to the Provident Fund set up by the appellant. Consequently, the officer arrived at a conclusion that there was short deduction of tax. The ITO(TDS) treated the appellant as assessee in default u/s 201 for the short deduction. The appellant had set up the Provident Fund with the District Cooperative Bank as per the Kerala Cooperative Societies Act and Rules thereunder. The officer held that this Provident Fund is not recognized Provident Fund and that as per section 80C(2)(vi), only the contribution to recognized Provident Fund is eligible for deduction. The ground raised by the appellant is that the Provident Fund set up by the appellant in the District Cooperative Bank is a provident fund to which Provident Fund Act, 1925 applies. As per Section 80C, the contributions to provident fund is an eligible deduction under the following clauses: 80C(2)(iv) – provident fund to which Provident Fund Act, 1925 applies 80C(2)(v) – provident fund set up by the Central Govt. 80C(2)(vi) – recognized provident fund.
ITA Nos. 207 to 212/Coch/2021 6 M/s. Edarikode Service Co-operative Bank Ltd. The provident fund set up by the appellant falls within the clause 80C(2)(iv). As per Section 8(2) of the Provident Fund Act, 1925, the State Government may direct that the provisions of this Act shall apply to any provident fund established for the benefit of employees of any local authority, institutions or group of such institutions. Section 61(1) of the Kerala Cooperative Societies Act, 1969 (KCS Act), make it mandatory for a cooperative society to establish a contributory provident fund. As per proviso to Section 61(1) of KCS Act, if the provisions of the ‘Self Financing Pension Scheme’ framed u/s 80A of the KCS Act is applicable to a cooperative society, then section 61(1) of shall not apply and such cooperative society shall establish a Provident Fund for the benefit of the employees in the manner as may be prescribed. Rule 58 of the Kerala Cooperative Societies Rules specifies the procedures conditions of establishing a Provident Fund by the cooperative societies u/s 61(2). As per Section 61(2), the Provident Fund established by the society shall be deposited in the financing bank of the area. The Govt. of Kerala vide Govt. Order No. G.O.(P) No. 44/95/Co-op dated 14/03/1995 established the ‘Kerala Cooperative Societies Employees Pension Scheme, 1994’. Vide Kerala Govt. Notification G.O.(P) No. 9995/Co-op dated 16/06/1995, this scheme was made applicable to the appellant. Thus, as per Proviso to Section 61(1), the appellant had to set up a Provident Fund and deposit the fund in the financing bank of the area. Appellant established the fund and it is deposited in the Malappuram District Cooperative Bank which is the apex cooperative bank in the district. Thus, the employees of the appellant made contributions to a Provident Fund established as per the Kerala Cooperative Societies Act and Rules thereunder. Thus, it is a Provident Fund to which the Provident Fund Act, 1925 applies and deduction u/s 80C(2)(iv) is available. The appellant established the fund as per Section 61 of KCS Act read with Rule 58 of KCS Rules and the Scheme notified by the Govt. of Kerala u/s Section 80A. The provisions of Provident Fund
ITA Nos. 207 to 212/Coch/2021 7 M/s. Edarikode Service Co-operative Bank Ltd. Act, 1925 applies to this Provident Fund as per Section 8 of that Act. Hence, the employees of the appellant are eligible for deduction u/s 80C for the contributions made to the provident fund. This deduction may be allowed in the computation of the total income of the employees of the appellant and the liability for short deduction of TDS is liable to be set aside. 2. GROUND: Provisions of Section 201(1) and 201(1A) are not attracted for short deduction of TDS on salary because the appellant had deducted the TDS on a bonafide estimate of the tax liability of the employees. 2.1. Provisions of section 201(1) and 201(1A) of the Act are not attracted in the present case because non-deduction of tax at source by the appellant is based on a bonafide estimate of the tax liability of its employees. The obligation of the employer u/s. 192 is only to deduct tax on the estimated income of the Assessee under the head salaries for that financial year. If the estimate is made bonafide and tax is deducted on such bonafide estimate then there can be no proceedings u/s. 201(1) and 201(1A), treating the person responsible for deducting tax at the time of payment as Assessee in default. As far as the assessee is concerned, his obligation is only to make an “estimate” of the income under the head “Salaries” and such estimate has to be bonafide estimate. 2.2. Section 192 of the Act uses the word” estimate” and therefore the statutory intention is that it should be an approximation. In the decision of the ITAT, Bangalore in the case of Karnataka Power Transmission Corporation Ltd. V. ITO [2019] 102 taxmann.com 245/175 ITD 504 (Bangalore Trib.) it was held that Section 192 used word ‘estimate’ and, therefore, statutory intention is that it should be an approximation. The appellant was under bonafide belief that the contributions to provident fund is eligible for deduction u/s 80C and relied on the documents furnished by the employees with respect to the interest and principal repayment of housing loans. The appellant had discharged its obligation u/s. 192 by making the ‘estimate’ and deducting TDS thereon. Hence, proceedings u/s. 201(1) and 201(1A) deserved to be quashed. 2.3. The primary liability of the payee to pay tax remains and Section 191 confirms this. In a situation of honest difference of opinion, it is not the deductor that is to be proceeded against but the payees of the sums. Hence, no tax can be recovered from the
ITA Nos. 207 to 212/Coch/2021 8 M/s. Edarikode Service Co-operative Bank Ltd. employer on account of short deduction of tax at source under section 192 if a bonafide estimate of salary taxable in the hands of the employee is made by the employer and the tax assessment of the employee has become invalid. 2.4. Hon’ble ITAT Cochin Bench in the case of ITO (TDS), Kottayam Vs. Mahathma Gandhi University [ITA No. 555 & 556 of 2018 Order dated 14/05/2019] held that – “if tax is deducted based on a bonafide estimate or if there is no observation that the estimate is not honest or fair, the deductor cannot be held to be assessee in default u/s. 201(1). Thus, in our opinion, deduction of tax at source by an employer is always a tentative deduction of income-tax subject to regular assessment in the hands of the payee/recipient. Accordingly, the Cross Objections filed by the assessee are allowed.” As per the judgement of the jurisdictional ITAT in a similar case that of the appellant, the demand raised u/s 201(1) and 201(1A) in respect of short deduction of TDS on salary payments are liable to be set aside. 3. GROUND: Interest computation u/s 201(1A) for short deduction of salary is erroneous. 3.1. As per Section 192, the TDS on salary is to be computed at the average rate in each month based on estimate of the taxable income of the employees. Section 192 also permits to increase or reduce the amount of deduction in subsequent months if the amount already deducted is lower or higher. Hence, computing the interest from April of the financial year on the short deduction of TDS based on ‘estimate’ is erroneous. 4. GROUND: Interest computation u/s 201(1A) for non- deduction of TDS is erroneous. 4.1. As per Section 201(1A), interest is liable for - 1% for each month from the date on which TDS was deductible to the date on which TDS was deducted; and - 1.5% for each month from the date of deduction to the date of payment. In the case of appellant, failure to deduct or short deduction means that portion of TDS was not deducted. When a demand is raised u/s 201(1), the appellant is making the remittance out of
ITA Nos. 207 to 212/Coch/2021 9 M/s. Edarikode Service Co-operative Bank Ltd. own funds. Hence, there is no ‘date of deduction’ in respect of that amount. Hence, interest u/s 201(1A) is not applicable. 5. GROUND: Income Tax Officer (TDS) erred in treating the payments made under ‘Annual Maintenance Contract’ (AMC) as professional charges u/s 194J and applying higher rate of TDS. 5.1. Payments made to M/s. IT Cooperative Society is in the nature of Annual Maintenance Contract. CBDT Clarificatory Circular No. 715 dated 8th August 1995 makes it clear that the maintenance contract falls within the category of Section 194C. Only when a technical service is rendered, section 194J is applicable. The amount paid is for software support for the existing software. Hon’ble Supreme Court has upheld this view in the case of Mumbai Metropolitan Regional Development Authority [[2019] 105 taxmann.com 125 (SC)]. 7. The learned D.R. relied on the order of the lower authorities and she submitted that the assessee shall be treated as an assessee in default for non-deduction of TDS as per the provisions of Section 192 of the Act. The lower authorities have verified the details submitted by the assessee. According to him the tax was required to be deducted from the salary paid to his employees instead he has overruled the provisions of Section 192 of the Act. She further submitted that the contributions to PF made by the employees were deposited with the District Co-operative bank and it is not clear that it is a recognised Provident Fund or not. The employee will get the benefit of deduction as per Section 80C of the Act which has been set out by the CIT(A) in his order but the assessee could not substantiate that the contribution made to the District Co-operative Bank is covered under the three limbs of the provisions of Section 80C of the Act and no any documents were produced by the assessee.
After hearing both the sides in regard to ground Nos. 1 to 4 and perusing the material on record and orders of the lower authorities we observe that the assessee has not deducted TDS on the salary paid to his employees. As per Section 192 of the Act every person responsible for
ITA Nos. 207 to 212/Coch/2021 10 M/s. Edarikode Service Co-operative Bank Ltd. paying any income chargeable under the head ‘salary’ shall at the time of payment deduct TDS on the amounts payable at the average rate of income tax computed on the basis of the rate in force for the Financial Year in which the payment is made on the estimated income of the assessee under this head for that Financial Year. On going through the order of the authorities below it is clear the assessee has not deducted TDS even though the amount was exceeded the minimum amount which is chargeable to tax and some employees have paid self assessment tax and filed their return of income. It was the duty of the employer to obtain details of the salary income in the month of April and after calculating the estimated income tax, the assessee was required to deduct TDS on an average basis from the salary paid for every month but the assessee has not done so. Accordingly the assessee is treated to be an assessee in default for non-deduction of TDS from the salary income.
The next issue involved in these appeals is whether the employees are eligible for claiming deduction under Section 80C of the Act on their contributions which are deposited in the District Co-operative Bank, which is the apex Co-operative Bank in the district. As per the submission of the assessee it has been observed that the lead bank has setup a Provident Fund which is notified by the Kerala Government with the following government order: - “The Govt. Of Kerala vide Govt. Order No. G.O.(P) No. 44/95/Co-op dated 14/03/1995 established the ‘Kerala Cooperative Societies Employees Pension Scheme, 1994’. Vide Kerala Govt. Notification G.O.(P) No. 9995/Co-op dated 16/06/1995, this scheme was made applicable to the appellant. Thus, as per Proviso to Section 61, the appellant had to set up a Provident Fund and deposit the fund in the financing bank of the area. Appellant established the fund and it is deposited in the Malappuram District Cooperative Bank which is the apex cooperative bank in the district.”
ITA Nos. 207 to 212/Coch/2021 11 M/s. Edarikode Service Co-operative Bank Ltd. 10. On a careful reading of Section 80C of the Act it has been observed that regarding eligibility of deduction towards contribution to Provident Fund, the PF amount should be deposited as per Section 80C (2), (iv), (v) & (vi) of the Act. The assessee was unable to establish that whether the Malappuram District Co-operative Bank comes under the above three limbs or not, Accordingly this issue is remitted back to the ITO (TDS) for the purpose of verification. If he founds that the Provident Fund setup by the notification quoted supra is covered under these three limbs, the ITO (TDS) shall allow the deduction under Section 80C of the Act towards employees contribution while calculating the total taxable income of the employees. The ITO (TDS) is directed to recalculate the TDS liability and if he finds that there was any TDS liability the assessee shall be treated as an assessee in default. The arguments advanced by the learned A.R. that there was boanfide estimate made by the employer is not acceptable because the employer had not obtained any income statements for the whole year before making payment of salary from his employees and the case law relied on by the learned A.R. is distinguishable on the facts of this case. Ground Nos. 1 to 4 are allowed for statistical purposes.
Regarding Ground No. 5, after hearing both sides and relying on Circular No. 715 dated 8th August, 1995 and the judgment quoted by the learned A.R. in his written submission, we remit this issue also to the file of the ITO(TDS) for verification of the nature of services received by the assessee is covered under Section 194C of the Act and the assessee will have to establish that the services received are as per the answer to question No. 29 of the circular cited supra. Needless to say that adequate opportunity of hearing should be provided to the assessee. If the ITO(TDS) finds that it is covered by the circular cited supra then TDS rate should be applied by him as per Section 194C of the Act.
ITA Nos. 207 to 212/Coch/2021 12 M/s. Edarikode Service Co-operative Bank Ltd. 12. In the result, the appeals filed by the assessee are allowed for statistical purposes.
Dictated and pronounced in the open Court on 29th July, 2022. Sd/- Sd/- (George George K.) (Laxmi Prasad Sahu) Judicial Member Accountant Member
Cochin, Dated: 29th July, 2022
Copy to:
The Appellant 2. The Respondent 3. The CIT(A) -NFAC, Delhi 4. The CIT - 5. The DR, ITAT, Cochin 6. Guard File By Order
//True Copy// Assistant Registrar ITAT, Cochin n.p.