Case Law Details

Case Name : M/s Council for Citrus and Agri Juicing in Punjab Vs CIT(TDS) (Punjab & Haryana High court)
Appeal Number : IT Appeal No.-338/2015
Date of Judgement/Order : 09/10/2015
Related Assessment Year :
Courts : All High Courts (5980) Punjab and Haryana HC (287)

Brief of the case:

  • The Hon’ble Punjab & Haryana High Court in the case of M/s Council for Citrus and Agri Juicing in Punjab Vs. CIT(TDS) held that the money lent by the public sector undertaking from the corpus fund created out of govt. sanctioned funds could not be deemed as loans advanced by the govt. and consequently, the interest payable on the same even if accruing to govt, could not be relieved from tax deduction u/s 196(i).
  • Further, benefit of non-deduction of TDS u/s 196(i) is allowable only in case of interest or dividend payable to govt. in respect of securities or shares held by the govt.

Facts of the case:

  • The Income Tax Officer (TDS)-I, Jalandhar issued a show cause notice dated 21.3.2012 to the assessee for verification of the compliance of TDS/TCS provisions. Subsequently, vide order dated 27.03.2012 AO created a total demand of Rs. 13,64,006/- including Rs. 9,21,626/- for short deduction of tax at source under Section 201(1) of the Act and Rs.4,42,380/- on account of interest under Section 201(1A) of the Act. The non-deduction of tax was on interest payments made to a public sector undertaking namely Punjab Agro Food Grains Corporation Limited.
  • The order of AO was confirmed by CIT(A) as well as tribunal by holding that the payments made by the assessee cannot be construed as payments made to Government and as such the assessee could not claim the benefit of non-deduction as per Sec 196(i) of the Act.
  • Aggrieved by the order of tribunal, assessee is in appeal before the High court.

Contention of the Assessee:

  • The learned counsel for the assessee submitted that the interest paid by the assessee was to the Government because the funds were lent by the company from the corpus fund created out of govt sanctioned funds and the interest income from the same was accruing to the govt. The assessee also produced a certificate to the effect furnished by the company along with the minutes of the meeting of the Corpus Fund Committee.
  • Thus, assessee was entitled to claim exemption from deduction of tax deduction u/s 196(i).

Contention of the Revenue:

  • Revenue supported the order of tribunal and CIT(A) that mere producing a certificate to the effect that funds advanced by the company were out of the sanctioned funds by the govt could not help the assessee to take benefit of Sec 196(i).
  • Sec 196(i) can be invoked only when the payment made to the govt. in the nature of interest or dividend in respect of securities held by the govt.
  • Since, in the present case assessee’s no security were held by the govt. any interest if at all deemed to be paid to govt. would not be allowable from the non-tds deduction u/s 196(i).

Held by High Court:

  • The assessee made interest payment on loan advanced to it by a public sector undertaking namely Punjab Agro Food Grains Corporation Limited. It has also furnished a certificate issued by the PSU that the loan was advanced out of corpus fund belonging to the State Government of Punjab and an income arising out of it belonged to the Government of Punjab.
  • Further, the minutes of the meeting of Corpus fund committee was also submitted on record. But such evidences would not entitle assessee to claim benefits u/s 196(i) because a plain reading of the section suggest that tax deduction for payments made to govt. would not be applicable only when interest or dividend payable to govt. in respect of any securities or shares owned by it or in which it has full beneficial interest.
  • In the instant case, the govt. had no made no investment in the securities or shares of the assessee, therefore, even if the interest paid to PSU is termed as indirectly paid to govt., still the benefit of sec 196(i) is not available.
  • Henceforth, the demand raised by the AO for non-deduction of tax at source was justified. In result the appeal of assessee was dismissed.
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