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Income Tax Appellate Tribunal, COCHIN BENCH, COCHIN
Before: SHRI GEORGE GEORGE K.
Per GEORGE GEORGE K.,JUDICIAL MEMBER:
These are appeals of two assessees against two orders of the CIT(A),
Kozhikode both dated 22/04/2016. The relevant assessment years are 2007-08
and 2008-09. The orders of the CIT(A) arise out of the orders passed u/s.
201(1) and 201(1A) of the I.T. Act.
Since common issues are involved in these appeals, they were heard together
and are being disposed of in this consolidated order.
Identical several grounds are raised in these appeals. All the grounds relate
to the issue whether the orders passed u/s. 201(1) and 201(1A) are valid or not?
The brief facts of the case are as follows:
For the assessment years 2007-08 and 2008-09, the Assessing Officer
noticed that the assessees while making TDS on salaries u/s. 192 of the Act,
there were short deductions of tax. The reason for short deductions of tax was
that while computing taxable salary, the assessees were deducting u/s. 80C of
the Act, contributions to unrecognized Provident Fund. According to the
Assessing Officer, the contributions to unrecognized Provident Fund were not
eligible for deduction u/s. 80C of the Act. Further, the Assessing Officer held
3 I.T.A. Nos.335-338/Coch/2016
that interest accrued on employees’ contribution to unrecognized Provident fund
is also taxable under the head ‘Income from other sources’. The Assessing
Officer passed orders u/s. 201(1) and 201(1A) of the Act, making the assesses
in default for the above two short deductions and making it liable for interest.
Aggrieved by the orders passed u/s. 201(1) and 201(1A) of the Act, the
assessees filed appeals before the first appellate authority. The CIT(A), after an
elaborate analysis of the relevant provisions, decided the issues against the
assessees and dismissed the appeals.
Aggrieved by the orders of the CIT(A), the assesses have preferred the
present appeals before the Tribunal.
The Ld. Counsel for the assessees reiterated the submissions made before
the I.T. authorities. Further, by relying on the order of the Delhi Bench of the
Tribunal in the case of DCIT vs. HCL Infosystems Ltd. (24 June, 2004), it was
contended that the requirement of section 192 stands complied if the assessee
had made an honest and bonafide estimation of salary income. Hence, the
provisions of section 201(1) and 201(1A) of the Act cannot have application.
On the other hand, the Ld. DR submitted that the Assistant Commissioner of
Provident Fund, Kannur had categorically stated that the contributions made by
4 I.T.A. Nos.335-338/Coch/2016
the assessees to the Provident fund are not established under a scheme framed
under the Employees’ Provident Funds Act, 1952 (19 of 1952).
I have heard the rival contentions and perused the material on record. The
assessees while making TDS on salaries u/s. 192 of the Act had claimed
contributions to the Provident Fund as eligible deduction u/s. 80C (2) (vi) of the
Act. The Assessing Officer held that the contributions to Provident Fund are not
recognized u/s. 2(38) of the Act and were not eligible for deduction u/s. 80C of
the Act, hence, there were short deductions u/s. 192 of the Act. Further, it was
held by the Assessing Officer that interest on the Provident Fund was liable to be
taxed under the head ‘Income from other sources’. To understand the issue in a
correct perspective, the relevant provisions namely, sections 80C (2) (vi), 2(38)
and 192 of the I.T. Act need to be analysed.
“80C(1) In computing the total income of an assessee, being an Individual or a Hindu undivided family, there shall be deducted, in accordance with and subject to the provisions of this section, the whole of the amount paid or deposited in the previous year, being the aggregate of the sums referred to in sub-section (2), as does not exceed one lakh rupees.
(2) (i)xxxx-
…………….
(vi) as a contribution by an employee to a recognized provident fund.”
9.1 Section 2(38) of the Income Tax Act which defines a recognized provident
fund reads as follows:-
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“recognized provident fund” means a provident fund which has been and continues to be recognized by the Chief Commissioner or Commissioner in accordance with the rules contained in the Part A of the Fourth Schedule, and includes a provident fund established under a scheme framed under the Employees’ Provident Funds Act, 1952 (19 of 1952).”
9.2 Admittedly, the assessees’ contributions to the Provident Fund are not
recognized by the Chief Commissioner or Commissioner in accordance with the
rules contained in the Part A of the Fourth Schedule. It is to be further
examined whether the Provident Fund is established under a scheme framed
under the Employees Provident Fund Act, 1952 (19 of 1952) or not.
9.3 In the instant case, the Assistant Commissioner of Provident Fund vide his
letter dated 14/02/2017 (which is placed on record) very categorically states that
the Provident Fund of the assessees is not established as per the scheme framed
under the Employees Provident Funds Act, 1952. Assessee also does not have
case that its PF is established under a scheme framed under the Employees
Provident Fund Act, 1952 (19 of 1952). That being the case, admittedly, the
assessees’ contributions to the Provident Fund are not recognized Provident Fund
u/s. 2(38) of the Act and the contributions are not entitled to deduction u/s. 80C
(2)(vi) of the I.T. Act. If the contributions are not eligible for deduction u/s. 80C
of the Act, there are resultant short deductions of tax u/s. 192 of the Act.
Consequently, the interest accrued on the Provident Fund is also liable to be
taxed as ‘Income from other sources’.
6 I.T.A. Nos.335-338/Coch/2016
9.4 Section 192(1) of the Income Tax Act states that “Any person responsible
for paying any income chargeable under the head “Salaries” shall, at the time of
payment, deduct income tax on the amount payable at the average rate of
income-tax computed on the basis of the rates 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”. The above section makes abundantly clear that the
employees are bound to deduct tax at source at the time of payment of salaries.
Since admittedly, the contributions of the assessees to the Provident Fund are
not a recognized Fund, the same are not eligible for deduction u/s. 80C (2) (vi)
of the I.T. Act. Therefore, the estimations made by the assessees are not
correct and since there were short deductions of tax, the Assessing Officer had
rightly passed the orders u/s. 201(1) and 201(1A) of the I.T. Act.
9.5 It is also to be noted that the assessees were not able to show that any of
the employees of the assessee-society had filed returns and had paid tax
correctly to the Government account. Therefore, the case laws relied on by the
assessees cannot come to their aid.
9.6 Further, the order passed by the Delhi Bench of the Tribunal in the case of
DCIT vs. HCL Infosystems Ltd. (supra) relied on by the assessees is of no help
since in the instant case it cannot be stated that assessee’s estimation is
bonafide or honest estimation of salary income of its employees. Admittedly, the
7 I.T.A. Nos.335-338/Coch/2016
contributions made by the assessees to the Provident Fund were not a
recognized Fund and were not eligible for deduction u/s. 80C of the Act which
had resulted in short deductions of tax. For the above said reasons, I reject the
contentions raised by the assessees and dismiss the appeals of the assessees. It
is ordered accordingly.
In the result, the appeals of the assessees are dismissed.
Pronounced in the open court on 03-03-2017.
sd/- (GEORGE GEORGE K.) JUDICIAL MEMBER
Place: Kochi Dated: 3rd March, 2017 GJ Copy to: 1. M/s. Kodakkad Service Co-operative Bank Ltd., Kannadipara, Cheruvathur, Kasaragod-671 313. 2. M/s. Kinanur Service Co-operative Bank Ltd., Chayyom, Choimkode, Nileshwar, Kasaragod-671 313. 3. The Income Tax Officer (TDS), Kannur. 4. The Commissioner of Income-tax(Appeals) Kozhikode. 5. The Commissioner of Income-tax (TDS), Kochi. 6. D.R., I.T.A.T., Cochin Bench, Cochin. 7. Guard File.
By Order
(ASSISTANT REGISTRAR) I.T.A.T., Cochin