Yes Bank Ltd. Vs Add. CIT (TDS) (ITAT Dehradun)
ITAT Dehradun held that Uttarakhand Environment Protection and Pollution Control Board (UEPPCB) is a corporation which has been constituted under a Central Act, no tax was deductible. Accordingly, penalty u/s 271C of the Income Tax Act cannot be levied on a non-taxable entity.
Facts-
The TDS officer observed that Uttarakhand Environment Protection and Pollution Control Board (UEPPCB) had maintained fixed deposits with the Appellant and that the Appellant Bank had not deducted tax at source on the payment of interest on the fixed deposits. The TDS officer passed the order under section 201(1)/ 201(1A) dated 23 January 2015 thereby raising a demand of Rs. 1,86,539/- on the grounds that the bank had not deducted tax at source under section 194A of the Act, on payment of interest on fixed deposits, to UEPPCB.
A penalty notice dated 5 February 2015 was issued under section 274 r.w.s 271C of the Income Tax Act, 1961 asking the bank to show cause as to why an order imposing penalty should not be passed under section 271C of the Act for the assessment year 2013-14, for the alleged failure to deduct tax at source on payment of interest on Fixed Deposit Receipts to UEPPCB.
CIT(A) has dismissed the Bank’s appeal on the ground that the Bank has not specified any specific provisions of the Act under which UEPPCB was exempt from tax on its income.
Conclusion-
Held that since UEPPCB is a corporation which has been constituted under a Central Act, no tax was deductible on payment of interest to UEPECB, in accordance with provisions of section 194A(3)(iii)(i) read with of the Notification dated 22.10.1970. Therefore no interest under section 201(1A) of the Act ought to have been charged.
Held that we hereby unequivocally held that the assessee has been formed by the Act of Government and a non-taxable entity and hence no penalty is leviable u/s 271C.
FULL TEXT OF THE ORDER OF ITAT DEHRADUN
These are the appeals filed by the assessee against the orders of the ld. CIT(A), Muzaffarnagar dated 29.09.2017.
2. Since, the issues involved in both the appeals are identical, they were heard together and being adjudicated by a common order.
3. The assessee has raised the following grounds for Assessment Year 2013-14:
“1. The Commissioner of Income Tax (Appeals), Muzaffarnagar [hereinafter referred to as CIT(A)] erred in upholding the action of Additional Commissioner of Income-Tax (TDS), Dehradun (hereinafter referred to as AO) of levying penalty under section 271C of the Act for alleged non-deduction of tax at source under section 194A of the Act, on the interest paid on fixed deposits to Uttrakhand Environment Protection and Pollution Control Board (herein after referred to as ‘UEPPCB’), without appreciating the facts of the case.
2. The Appellants pray that the order under section 271C of the Act should be quashed and penalty levied should be deleted.”
4. The issue, the arguments of the assessee and the adjudication of the revenue authorities is as under:
“1. While examining the records of UEPPCB, the TDS officer observed that UEPPCB had maintained fixed deposits with the Appellant and that the Appellant Bank had not deducted tax at source on the payment of interest on the fixed deposits. The TDS officer passed the order under section 201(1)/ 201(1A) dated 23 January 2015 thereby raising a demand of Rs.1,86,539 (including interest of Rs.36,863 levied under section 201(1A)) on the grounds that the Bank has not deducted tax at source under section 194A of the Act, on payment of interest on fixed deposits, to UEPPCB for TDS assessment year 2013-14.
A penalty notice dated 5 February 2015 was issued under section 274 r.w.s 271C of the Income Tax Act, 1961 asking the bank to show cause as to why an order imposing penalty should not be passed under section 271C of the Act for the assessment year 2013-14, for the alleged failure to deduct tax at source on payment of interest on Fixed Deposit Receipts to UEPPCB. The Bank vide its letter dated 19.02.2015 submitted that no tax was required to be deducted on such payments, since UEPPCB was a corporation established under a Central Act i.e. Water (Prevention and Control of Pollution) Act, 1974, and was exempt from income tax.
9. The CIT(A) vide order dated 16.03.2016 disposing the appeal filed against the order passed under section 201/201(1A) of the Act, has dismissed the Bank’s appeal on the ground that the Bank has not specified any specific provisions of the Act under which UEPPCB was exempt from tax on its income.
10. Vide letter dated 28 July 2016, the Bank has filed detailed submission as to why penalty should not be levied under section 271 of the Act. However the TDS AO passed an order dated 29 August 2016 under section 271C levying penalty of Rs.1,86,539 being 100% of the alleged non-deduction of tax at source including interest under section 201(1 A) of the Act.
It was submitted by the assessee that,
1) UEPPCB is a statutory organisation constituted under the section 4 of Water (Prevention and Control of Pollution) Act, *1974 to implement Environmental laws and rules within die jurisdiction of Uttarakhand (source: httpr//ueppA.uk.gov.in/). A copy of the screenshot of the website of UEPPCB is enclosed at pages 24 to 25 of die paper book. UEPPCB is a corporation established under the Central Act.
2) UEPPCB came into existence on 1 May 2002 and functions through its Head office at Dehradun along with four regional offices. The Board has been entrusted with the powers and functions under the below Acts: (source: http://ueppcb.uk.gov.in/)
1. Water (Prevention and Control of Pollution) Act, 1974
2. Water (Prevention and Control of Pollution) Cess Act, 1974
3. Air (Prevention and Control of Pollution) Act, 1981
4. Public Liability Insurance Act, 1991,
A copy of the screenshot of the website of UEPPCB is enclosed at pages 24 to 25, of the paper book.
3) Section 194A-relates to the provisions for deducting tax at source on the payment; of interest other than ‘interest on securities’. Attention is invited to the provisions of section 194A(3)(iii) (f) which interalia provides as under:-
“The provisions of sub-section (1) to section 194A shall not apply – to such income credited or paid to –
(f) such other institution, association or body [or class of institutions, associations or bodies] which the Central Government may, for reasons to be recorded in writing, notify in this behalf in the Official Gazette
4) Central Government vide notification No.SO 3489 dated 22/10/1970 has notified as under:-
“In pursuance of sub-clause (f) of clause (iii) of sub-section (3) of section 194A of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby notify the following for the purposes of the said sub-clause.
(i) any corporation established by a Central State or provincial Act;
5) As explained above, UEPPCB is a corporation established by a Central Act (i.e. Water (Prevention and Control of Pollution) Act, 1974, etc.) and hence should be covered within the aforesaid notification read with provisions of section 194A(3)(iii)(f) of the Act. This fact is evident from the information available on the website of UEPPCB (http://UEPPCBb.uk.gov.in/). As per the annexed list (relevant Extracts) entrusted with the powers and functions under the below Acts: (source: http://ueppcb.uk.gov.in
1. Water (Prevention and Control of Pollution) Act, 1974
2. Water (Prevention and Control of Pollution) Cess Act, 1974
3. Air (Prevention and Control of Pollution) Act, 1981
4. Public Liability Insurance Act, 1991,
A copy of the screenshot of the website of UEPPCB was enclosed
3) Section 194A relates to the provisions for deducting tax at source on tine payment; of interest other than ‘interest on securities’. Attention is invited to the provisions of section 194A(3)(iii) (f) which provides as under:-
“The provisions of sub-section (1) to section 194A shall not apply – to such income credited or paid to –
(f) such other institution, association or body [or class of institutions, associations or bodies] which the Central Government may, for reasons to be recorded in writing, notify in this behalf in the Official Gazette
4) Central Government vide notification No.SO 3489 dated 22/10/1970 has notified as under:-
“In pursuance of sub-clause (f) of clause (Hi) of subjection (3) of section 194A of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby notify the following for the purposes of the said sub-clause:-
(i) any corporation established by a Central State or Provincial Act;
5) As explained above, UEPPCB is a corporation established by a Central Act (i.e. Water (Prevention and Control of Pollution) Act, 1974, etc.) and hence should be covered within the aforesaid notification read with provisions of section 194A(3)(iii)(f) of .-the Act. This fact is evident from the information available on the website of UEPPCB (http://UEPPCBb,gov.in/1. As per the annexed list (relevant Extracts)
(http:/ /indiacode.nic.in/incodis/alpha.htm) Water (Prevention and Control of Pollution) Act/1974 is a Central Act enacted in India. Copy of relevant extracts enclosed at pages 27 to 27 of the paper book
6) In view thereof, the facts as recorded in the order dated 23.01.2015 passed under section 201(1) / 201(1A) of the Act and in the CIT(A) order dated 16 March 2016, are incorrect. Thus since UEPPCB is a corporation which has been constituted under a Central Act, no tax was deductible on payment of interest to UEPECB, in accordance with provisions of section 194A(3)(iii)(i) read with of the Notification dated 22.10.1970. Therefore no interest under section 201(1A) of the Act ought to have been charged.
7) Attention is further invited to the provisions of section 196 of the Act, which inter alia Antes as under:
Notwithstanding anything contained in the foregoing provisions of this Chapter, no deduction of tax shall be made by any person from any sums payable to –
i. the Government, or
ii. the Reserve Bank of India, or
iii. a corporation established by or under a Central Act which is, under any law for the time being in force, exempt from income tax on its income, or
iv. a Mutual fund specified under clause (23D) of section 10, where such sum is payable to it by way of interest or dividend in respect of any securities or shares owned by it or in which it has full beneficial interest, or any other income accruing or arising to it.”
8) Further the Bank enclose herewith a screenshot from die income tax website source:https://incometaxindiaefiling.gov.in/eFiling/Services/Know Yours jurisdiction) providing the income tax jurisdiction details of UEPPCB. The jurisdiction of UEPFC6 is Exemption Ward, Dehradun. Copy of screenshot enclosed at page 28 of the paper book.
