Various Charitable organizations, schools and colleges who obtain income tax exemption u/s. 10(23)(c) of the Income Tax act approach the banks with whom they have deposits to pay the interest without deduction of tax at source. Certain banks pay the interest without deduction of tax. Let us examine if this action is correct on the basis of the Income Tax Provisions and in case it is incorrect what is the remedy to avoid the action of the Department in treating them as an assessee in default within the provisions of Section 201(1) of the Income Tax Act.
The Income Tax gives exemption from TDS in the following cases:
In all other cases tax has to be deducted as per the provisions of Section 194A of the Income Tax Act. These exempted institutions will have to file the return of Income and claim refund of the tax deducted if any. In case they want to avoid TDS they have to apply to the concerned assessing officer and obtain a certificate under section 197 of the Income Tax Act.
Let us examine the remedy available to the deductor if Interest has been paid without deduction of tax at source. The Proviso to Section 201(1) states that the deductor will not be treated as an assessee in default if the following conditions are satisfied.
This provison is in tune with the decision of the Supreme Court in Hindustan coco cola case. If the above conditiond are met the deductor will not be treated as an assessee in default. However Interest under Section 201(1) A of the Income Tax Act.