M/S.KODAKKAD SERVICE CO-OP BANK LTD,KASARGODE vs. THE ITO (TDS), KANNUR

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.

and are being disposed of in this consolidated order.

to the issue whether the orders passed u/s. 201(1) and 201(1A) are valid or not?

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

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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.

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.

present appeals before the Tribunal.

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.

Provident Fund, Kannur had categorically stated that the contributions made by

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the assessees to the Provident fund are not established under a scheme framed

under the Employees’ Provident Funds Act, 1952 (19 of 1952).

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’.

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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

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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.

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