DCIT Vs Vijaya Bank (ITAT Bangalore)
13A Exemption Not Automatic Shield: Test of Section 201 Proviso Key- Vijaya Bank’s 40(a)(ia) Issue Sent Back
Reassessment u/s 143(3) r.w.s. 147 resulted in disallowance of Rs.6,98,06,208 u/s 40(a)(ia) on the ground that Assessee failed to deduct TDS u/s 194A on interest paid to a political party (All India Congress Party).
CIT(A) deleted the disallowance by relying on Punjab & Haryana High Court ruling in Canara Bank, holding that when payee’s income is exempt u/s 13A, payer cannot be treated as assessee in default u/s 201 & consequently no disallowance u/s 40(a)(ia) survives. Revenue appealed, also filing an application for condonation of delay; Tribunal admitted appeal as the original filing in Mumbai was within limitation & matter was transferred to correct jurisdiction.
Tribunal held that exemption u/s 13A is conditional & does not automatically override statutory TDS requirement u/s 194A. It also held that Canara Bank decision was not on interest to political parties & therefore distinguishable. Tribunal remitted matter back to AO with direction to examine whether Assessee satisfies the first proviso to Section 201(1) (i.e., payee has filed return, offered income, paid tax), in which case Assessee would not be deemed in default & no disallowance u/s 40(a)(ia) would survive. Appeal allowed for statistical purposes.
