DNS Financial Services Vs DCIT (ITAT Bangalore)
Bangalore ITAT: Interest on Fixed Deposit Taxable Only in Hands of Real Owner of Funds; Mere Reflection in Form 26AS Not Conclusive
The Bangalore ITAT held that interest credited on a fixed deposit cannot be taxed merely because it appears in the assessee’s Form 26AS, if the assessee establishes that the underlying funds actually belong to another person. The assessee had entered into an arrangement with Vihaan Direct Selling (India) Pvt. Ltd. for managing collections and disbursements on its behalf. Due to regulatory action against Vihaan, the bank account containing Vihaan’s funds was frozen and the balance was converted into a fixed deposit. Since the account stood in the assessee’s name, the bank credited the interest and deducted tax under the assessee’s PAN, leading the Assessing Officer to tax the interest in the assessee’s hands.
The Tribunal observed that the assessee had produced the underlying agreement with Vihaan, ledger accounts, and other records indicating that the funds lying in the bank account represented amounts payable to Vihaan and that the assessee had merely acted as a service provider for a fee. It further noted that the ledger account reflected a corresponding liability in favour of Vihaan broadly matching the amount placed in the fixed deposit, lending support to the assessee’s contention that the beneficial ownership of the funds was not with it.
Holding that taxability depends upon the real ownership of the funds and not merely upon the name in which the bank account or Form 26AS stands, the Tribunal restored the matter to the Assessing Officer. It directed that if, upon verification, the assessee establishes that the fixed deposit represented Vihaan’s money, the interest shall be assessed in the hands of Vihaan and not in the hands of the assessee. However, if the assessee fails to substantiate its claim, the addition made by the Assessing Officer would stand. Accordingly, the appeals for both assessment years were allowed for statistical purposes.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
1. ITA Nos. 1708 & 1709/Bang/2025 for Assessment Year 2018-19 and 2019-20 filed by M/s. DNS Financial Services (the Assessee/Appellant) against the Appellate Order passed by the Commissioner of Income Tax (Appeals) — 11, Bengaluru (the Ld. CIT(A)) dated 23.05.2025 wherein the Appeals filed by the Assessee against the Assessment Orders passed by the DCIT, Central Circle 1(1), Bengaluru for both these Assessment Years dated 30.09.2021 and 15.04.2021 were dismissed.
